Yesterday, I attended the Microsoft ThinkNext event in Tel Aviv, key-noted by Ray Ozzie, Microsoft’s Chief Technology Architect. Today, I am at a very well-organized micro-conference on mobile advertising, hosted by the Israel Mobile Association. Though they took place only a few kilometers apart, they could have been on two different planets, and that got me thinking.
In his keynote address, Ray Ozzie found the words to concisely express the biggest computing megatrend we are all witnessing in real time. Computing is evolving away from “computers and software” and towards “services that run on a cloud and are delivered to multiple screens as needed: the PC, the netbook, the mobile, or the TV.” Ozzie showed a promotional video “from the future” that, among other things, highlighted all sorts of productivity applications seamlessly delivered to several types of slick-looking touch-screen handhelds. It looks like something out of StarTrek, but it’s not such a fantasy. We are already opening Excels on our Blackberries and downloading iPhone applications over WiFi at the neighborhood cafe. The images in Ozzie’s video were a little too seamless for comfort, but they are closer to reality than many of us realize.
This morning, I woke up back in reality and am spending a few hours in the world of mobile. It feels light years away from the vision Ray Ozzie expressed just one night before. The mobile space is, indeed, characterized by tremendous technological fragmentation that has for a long time stifled innovation. It is fragmented by devices that each sport a different screen size, operating system, and set of capabilities. It is fragmented by the artificial divisions between off-deck and on-deck services and by the variety of web-browsers, not all of which support all types of content. Moreover, It is fragmented by operators, each of which is pursuing its own strategy for content access and pricings. Over the past five years or so, this massive fragmentation has impeded the development of mobile applications and services. As a result, a large number of start-ups have sprung to life that address this fragmentation. Companies like Mominis, an Israeli start-up which recently closed a financing round, address the challenge of porting mobile applications from one OS/device to another. Companies like Infogin, an Israeli start-up which has achieved very impressive penetration within operators, are helping to automatically and on-the-fly port web content to the mobile browser. Companies like Infogin and Mominis are, truly, technologically outstanding and stand a very good chance for success.
Which world do we actually live in? The Ray Ozzie world of seamlessly integrated cloud services available on any device or the Mad Max world of deep technological fragmentation that requires all sorts of technological innovation just to get my web page and banner ad to display properly on your Nokia’s WAP browser? The truth, of course, lies somewhere in the middle. In mobile, we are very likely at the inflection point between the two.
So what does this mean for VCs and, more importantly, for start-ups? My take-away is that VCs and start-ups need to distinguish between fundamental opportunities and derivative problems.
- Fundamental opportunities. Some start-ups offer technologies and solutions that address a fundamental opportunity for a new service or capability. Amobee, I think, falls into this category because it allows mobile operators the ability to leverage their data and optimize advertising delivery. This, I think, is what has enabled their success and fuelled the optimism of their VC backers.
- Derivative problems. Other companies, however, are solving derivative problems – problems that derive from some deeper core technological issue – one that someone else may be very likely to solve. The more painful the core technological issue, the more likely the industry is to eventually solve it – and therefore, the more likely the derivative problems are to disappear. For example, the near impossibility of reading a standard web page on a small-screen WAP browser is a very real pain, but as phones and browsers improve, that pain just disappears. When I surf the web on an iPhone, I don’t want the mobile version of the webpage – I want the real one. This doesn’t mean that entrepreneurs and VCs can’t make big money by addressing derivative problems – it just seems to me to be a much riskier proposition.
In the mobile world, I think we are at the inflection point between an environment deeply fragmented by core technological problems and an emerging environment that is much more seamlessly integrated. The consolidation of mobile operative systems around 3-4 majors, the emergence of appstores, the increasingly pleasant mobile browsing experience, the move towards flat rate data plans, and the triumph of off-deck are all signs of this trend. As a result of this, we are moving from a world of many small derivative problems to a world of a few very large fundamental opportunities. In VC terms, this means we’re moving from a world of many mobile start-ups solving small problems with limited windows of opportunity to a world of a few mobile start-ups solving really big problems and with the potential to be really big – and this is good news.
Here’s the video Ozzie showed. Suspend your skepticism for a moment, and consider whether or not the problems you are working to solve might (or might not) be swept away by the tidal wave of integration we are already beginning to experience.
