Sometimes, I really wonder about the Silicon Valley echo chamber. I spent the day yesterday at GigaOm’s Mobilize conference, which is really a first-rate show. Great panels, well done.
But the concentration on mobile internet companies and start-ups really masks the reality of the mobile business. If you had just woken up from a Rip Van Winkle sleep and attended this conference, you’d believe that the Apple iPhone was as ubiquitous as the Nokia Series 40, that Google’s Android was the second coming, and that everybody in the world was sitting in their homes and cars, just waiting to grab mobile applications and social networking tools on their mobile phones. You’d also wonder why the evil carriers were holding all this magnificent innovation back from the long-suffering public.
I love my iPhone. I think it’s great. I love my Blackberry, too. But I am a sophisticated, prosperous, urban geek. I don’t presume to believe that the rest of the world is lusting for these devices. I saw this same phenomenon with Palm — everybody in Silicon Valley had a Palm Pilot, and just presumed everyone else in America did, too. Or wanted one. Guess again.
As I sat in the audience yesterday, I couldn’t help but think, man, there is going to be a lot of carnage in the mobile application developer community. Two things are going to drive that.
One, the mobile advertising revenues just aren’t there. I’ve talked to developers who thought they were going to get $10-$20 ECPMs and they are actually getting less than $1. It is simply not possible to get to public company scale as an ad-based pure play right now, and I would bet that it’s going to be several years before we see a mobile ad-based pure play with >$40MM annual revenues. So the whole internet idea of free, media model-based mobile content is only viable if you are monetizing somewhere else, like on the web (Yelp, Facebook, etc.).
Two, all these open or pseudo-open platforms are good for developers, but not so great for creating publishing leverage and aggregation points. Sure, it’s useful to get something up and out there without the overhead of dealing with slow moving carrier content people, but there is a downside.
There are currently 3,000 iPhone apps, with hundreds of new ones being submitted each month. So you’ve turned a first order problem (i.e., how to get on the deck) into a second order problem (i.e., how to get noticed amongst the flood of apps on the deck). Instead of bribing the carriers with MDF for placement like we did in the old days, you have to spend even more money marketing direct to consumer. We’re back to reach and brands — that’s how you get above the noise.
Think I’m just being old-school? Go do a search for “sudoku” on the app store; there are fifty
sudoku games on the deck. Five zero. You think anyone is sifting though that mess on the basis of quality? If you are in a competitive category, like sudoku, you pretty much have to be free. Meaning, ad supported, with limited revenue potential due to the low CPMs, mentioned above. Everyone forgets that the walled garden was great if you were inside the wall. Kept all the weeds and parasites out.
As I’ve been saying all summer: the killer app for iPhone is the app store itself. It is the very concept of personalization, of relevant content at your fingertips. It’s not any one specific application. Apple has no interest in giving any individual app producer distribution leverage or gatekeeper status — it’s not their style. They’ll continue to slice and dice the apps by category, and let the oceans run red.
Despite this, there were some compelling comments from the various panelists. Paran Johar from Jumptap was very candid and smart about the nature of mobile advertising. Jason Devitt from Skydeck was spot on about user interface in the mobile world and the need for simplicity. The “mobile gurus” panel was entertaining — even though I don’t like the Zumobi product very much, I thought their founder, John SanGiovanni, had a manic intelligence, a real sense of the future, and many good points about design.
It was good to get the carrier panel and the VC panel at the end of the day. The VC’s were at least truthful about the difficulty of creating big businesses and I was happy to hear them mention my start-up, JAMDAT, as the biggest mobile exit in the modern era — although the iFund guy, Matt Murphy, was kind of disingenuous about his “JAMDAT did it with 5% penetration; iPhone apps are at 10X that rate” — yeah, but iPhone is far less than 5% of the market, so 50% penetration of iPhone is less than half our 5% penetration rate, since we were on virtually every handset.
The carriers were hopeful but sober about the future. They reminded everyone in the audience that they were in a mass market business, and needed solutions that worked across their range of handsets. I thought Frank Meehan from 3UK was particularly coherent in his thinking.
But for me the best part of the day, the comment that suggested the biggest change, was not from Rich Miner at Google, or from one of the app companies: it was hearing the T-Mobile rep say they were committed to over-coming past problems with developers and offering specifics like transparent business models.
In my day, T-Mo was the absolute worst. They hired a string of boneheaded, tin-pot dictators like Kyle Levine and Michael Gallelli to manage their interface with the development community and everyone who did business with them hated them. They were everything that was wrong with carriers. If T-Mo recognizes they have a problem and is willing to change, then there is hope for the mobile content business after all.