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And the Revenue Model is………What?

Tuesday, May 26th, 2009

Twitter’s gradual roll-out of non-US mobile network operator “deals” continues with their blog announcement that Vodafone New Zealand has gone live with a short-code SMS service; Australia is allegedly joining soon. This comes on the tail of Vodafone in the UK, and all the Canadian operators joining US operators in enabling Twitter users to send and receive tweets via text messages.

Everyone Tweets. Nobody makes money.

For a company that has no visible, or public revenue model (nor any driving need to soon create one, apparently), Twitter’s engagement with operators to provide access the service across their messaging networks is perplexing. Mobile operators worldwide make a lot, and I mean a lot, of their revenues (and even more of their profit margins) out of text messaging. In most mobile markets, rampant competition and subscriber churn rates lead operators to offer value “bundles” (or packs, caps, whatever) of usage (minutes, texts, megabytes or dollar values). Twitter’s existing operator deals provide for regularly-charged mobile-originating (MO) message, and free (to the subscriber) updates, or mobile-terminating (MT) messages.

Now this isn’t a bad deal per se – the operator gets some network usage in terms of SMS (so no cannibalization of existing revenues) and to be fair, “on-net” (i.e. on a single network, not between subscribers on different networks) SMS traffic is about the cheapest cost an operator has (in real terms it’s fractions of a cent per message, which explains why SMS can be a very, very profitable exercise for the operator). But to be clear, it’s Twitter that gets the subscriber engagement, not the MNO – the operator’s value-add is primarily to do something that (eventually) all of its competitors will do as well.

Other channels for mobile Twitter usage are similarly anonymous and commoditized. Mobile sites like m.twitter.com (and m.tweete.net) are some of the more currently trafficked destinations through WAP gateways, while smartphone clients (I use TwitterBerry, for example) similarly use mobile data, but in small amounts at an increasingly lower cost.

As the mobile consumer price per MB heads towards zero (and with the likes of O2 introducing all-you-can-eat data plans, one could argue that it’s already there), operators are effectively giving away one of the few network assets they can use to engage (and monetise) subscribers; in this case it’s their SMS messaging gateway, which is an “enabler” (other common mobile enablers include mobile location centres, MMS gateways, billing/charging platforms etc). Was the internal business case for Twitter just too hard for the MNO product managers to get their heads around?

Perhaps it was just a case of internal project costs being considered too high to open up the network. Or to bill subscribers in some way. Industry groups like the GSMA (with the OneAPI initiative) are working to bring readily-adoptable standard interfaces to web developers to use and create value with mobile enablers (and I should know, because we’re working on this initiative and will soon launch a pilot service based on our OneAPI implementation). Already, many mobile networks have third-party APIs and interfaces that would have allowed some form of value to be added to a Twitter service.

Or maybe, just maybe, the operators didn’t see Twitter over SMS as an innovation opportunity.

Either way, it is well-documented that the major social networks are suffering from the lack of scalable business models. Mobile operator engagement represents a massive revenue opportunity to engage and add value to mobile use of social networks. And it just seems odd that neither the likes of Vodafone, the North American mobile operators, or Twitter themselves (Kevin Thau, are you reading this?) saw the opportunity worth pursuing.

Posted in Business, Mobile, Social Networking | No Responses »
Tags: Facebook, Twitter

Location Logic finds a new home

Thursday, May 21st, 2009

This posting probably would be more appropriate on the Locatrix blog, but Wireless Developer Network has reported that TCS have acquired the assets of Autodesk’s former Location Services division, which had a brief life as privately-owned Location Logic.

The transaction is of interest in several ways. Firstly, I wondered if the private equity firms that acquired the assets from Autodesk earlier this year did well in their 4 months of ownership. Secondly, the revenues stated for Location Logic of US$18M ($5M EBIT), primarily from Sprint and Verizon, suggest that there’s still room for expansion in the sector.

And thirdly, it’s led me to wonder about the employees – I had quite a few friends at ADSK, and in 2006 was invited to sit on their developer advisory council. They were good folks – I hope they have found the new owners welcoming (but I’m noting that the release explicitly specified the acquisition of the assets of Location Logic, not the business itself).

I think I’ll go send a few e-mails.

Posted in Business, LBS, Venture Capital | 1 Response »
Tags: location, locatrix

Clearly, “soon” wasn’t possible, was it Senator Carr?

Tuesday, May 19th, 2009

In his March 18th 2009 press release, Australian Federal Minister for Innovation, Industry, Science and Research announced a (and I quote) “Boost for Start-up Companies and Jobs – Securing the Future Beyond the Financial Storm”.

The Innovation Investment Follow-on Fund (IIFF) was to be all about ensuring a future for innovative companies beyond the global financial crisis for companies that have watched venture capital investment dry up with the Government’s withdrawal of the Commercial Ready R&D grants in May 2008. In March, a figure of $83 million was announced to fund investment fund managers that wanted to make follow-on investments in their qualifying portfolio companies.

Two months later, the date on which even the details are to be released to the licensed investment fund managers is still a closely-guarded secret.

There’s some terrific quotes in the release:

Making money available for reinvestment will boost confidence and help shake loose additional private sector capital.

and this one:

It is essential that we help these fledgling companies ride out the crisis.

But it is really bittersweet to re-read this release now. In the last two months, I suspect that dozens of companies have either had to raise emergency “down rounds” (usually to the delight of rapacious VCs and angel investors) or worse, had to lay off staff to survive. This has a major impact on the psyche of employees – there could well be a generation of educated, intelligent innovators who may never want to work for an emerging company again as a result of being laid off in such a manner.

I want to be clear and state that I support Government programs that stimulate and assist the commercialisation sector. We have to help ourselves. As an entrepreneur, I get disappointed when I hear about companies who simply ride the grant “gravy train”, and don’t get me started on the percentage of grant money that ends up in the hands of “grant consultants” as a result.

But I run a focused, emerging company that is developing and commercialising technologies here in Australia, employing Australians, and – importantly – gaining customers and revenue. We’ve been surviving despite the lack of breadth in venture capital in this country, even before the global dowturn. We aren’t sitting on the gravy train – we’re running on revenues. And yes, various happenings in the telecoms industry in 2009 have really hurt us. Yet just as Government programs emerge, or we’ve grown to the size where they are relevant (such as our ill-fated Commercial Ready effort last year) they are withdrawn. Or worse – delayed. Indefinitely.

The closing sentence of the press release just cracks me up:

Funds will flow to companies as soon as possible.

There’s an old adage that says “those who can, do”. We will just have to keep “doing”, because Minister Carr’s department seems unable to follow through with its announced commitments. And because, in the real world, “soon” just doesn’t make the grade.

Posted in Business, Politics, Venture Capital | No Responses »
Tags: Funding, government, grants

Employee Share Schemes go out the Window in Australia

Tuesday, May 19th, 2009

I’ve blogged previously about the Australian Government’s seemingly mindless attacks on support initiatives for innovation companies, but this latest ignorance really takes the cake.

In last week’s federal budget, the Government closed what it considered a “loophole” which allowed company employees to defer personal tax liabilities on company shares or options they are granted as part of a remuneration scheme. Employee share ownership plans (ESOPs) are a really valuable way of engaging key staff in an emerging company. It empowers “ownership” in a true sense, and is something that I’d preferred to engage our key leadership and growing team here at Locatrix.

Unfortunately, it’s also a method that highly paid executives of ASX-listed companies have used to defer tax, something the government is hell-bent on cracking down on. Fortunately, I’m not the only one complaining about this decision. There’s also a page one article in today’s Financial Review (link only available to subscribers).

While they probably have good intentions in one regard, Minister Tanner & co have again made a decision oblivious to the impact it has on the folks who work genuinely to create innovation jobs in this country.

Again, Mr Rudd, I voted for you. Willingly. Because I believed the country needed change. But as an entrepreneur, working to create jobs and commercialise Australian innovations, you are really, really disappointing me.

Posted in Business, Politics | 1 Response »
Tags: Business, entrepreneurs, esop, options, Politics, taxation

But Why, Max?

Friday, May 8th, 2009

I’ve been a bit tardy on the blog of late, will try to make up for it over the next few days. I was in Singapore last week, to attend and speak at the WiMAX Forum’s Asia Congress event. To be fair, I’m a WiMAX newbie. I can spell WiMAX, of course – but I was quite unaware of the commercial progress the technology has made over the past couple of years. A couple of facts to set the scene:

WiMAX is a radio technology based on the IEEE 802.16 standard. 802.16d is the earlier variant, and was designed for point-to-point connections, while 802.16e adds mobility (mobile device support)
While WiMAX could theoretically run on any spectrum below 66GHz, the licensed variants operate in 2.3GHz, 2.5GHz, or 3.5GHz. There is no single dominant spectrum deployment
Intel has been the clear leader in creating WiMAX chipsets, and there are many other smaller suppliers. Equipment vendors such as Samsung, Motorola and LTE have WiMAX infrastructure offerings, as do a large number of lesser-known providers.
A lot of countries have active or planned commercial WiMAX deployments. A surprising number – I believe there are upwards of 400 planned or deployed WiMAX networks currently
Intel is planning to have WiMAX chipsets inside a lot of their components, while the likes of Dell, Lenovo, Acer etc will incorporate these into laptops or netbook devices.

One aspect of the congress I found intriguing is how separate the WiMAX community believe the high-speed Internet opportunity is from the “3G” network providers. In fact, it reminded me a little of being at Linux conferences in the late part of last century, where Microsoft was the non-attending “enemy”. I mean, everyone in the “community” evangilised that Linux could (and should) do everything, in reality the outside world knew that coexistence was the ultimate desitination. The WiMAX “choir” certainly put forward a good argument for their technology, claiming better performance than various HSDPA networks (an assertion I take with a grain of salt, being quite impressed with the 4MBps I regularly achieve on Telstra’s HSDPA network here in Australia, even with a superseded USB dongle). There were a number of technical arguments for why WiMAX is superior, mostly about it not being an “overlay” radio technology like LTE will be, but I wasn’t absolutely convinced.

Anyway, the WiMAX supporters spoke glowingly about their achievements, and as stated earlier I was surprised by the number of networks under deployment. Clearwire, for example, the Sprint/Google/Comcast (with others) venture in the US seems to be pumping a lot of money into their advertising (a number of TV commercials were shown in the opening keynotes). There were a number of sessions talking about network ROI, which I found interesting, and my own session on value-added services (VAS) had a good audience and generated several follow-up discussions.

I’ll be watching the WiMAX space more closely in coming months. I’m not sure that I’d be an immediate candidate consumer (we have no useful WiMAX networks in Brisbane, at the moment) but if Intel do go ahead with the number of OEM WiMAX devices they are suggesting, there will be a lot of interest in using those services. How they will compete against rapidly commoditized HSDPA in mature markets will, of course, remain to be seen.

Posted in Business, Mobile | No Responses »
Tags: singapore, wimax

Mark White

Musings from a mobile entrepreneur