Is Motorola going gangbusters?
Recent stats from Appdata shows that activations of Motoblur’s Facebook application is going through the roof:
Source: Appdata
If this is correct, it could indicate that nearly 3,5 million users have activated their Motoblur account in the last 3 weeks, which indicates Droid 2 is doing quite well. Android reported selling 200.000 devices per day, but that is on a world wide basis. Still, take 22 days x 200.000 and you get 4,4m devices, indicating that Motorola’s US sales stands for 80% of all Android sales should these stats be correct.
If you look at daily average users as a percentage of monthly average users you find that usage is not keeping up with activations:
Source: Appdata
This is natural though, as users likely go through a set-up procedure when activating the device, and most likely usage will increase over time. Whether the stats or my assumptions are accurate, it looks like Motorola is back with a vengeance…
Making sense of the mobile application development future
In the past month, a land slide of research on mobile internet usage and application downloads has hit the market. On smartphones, iSuppli has pointed out that Android will soon overtake Apple in terms of the number of handset it is available on, which is further backed by NPD which found that one in three US smartphones sold are Android devices. It is only natural that Android will overtake Apple as the smartphone platform of choice given the much larger selection of devices, and also the fact that Nokia’s Symbian is losing market share (still to be seen whether the upgraded version of their platform will have an impact).
Yet, on application downloads, Apple’s iPhone is expected to rule for the next few years:
If you are an application developer, you should be pleased that other smartphone platforms are growing, as clearly making money on the iPhone is becoming very difficult to say the least, with the median expected revenue per app hovering around $700. Still, because developers have been frustrated with the difficulty of adapting their applications to a wide range of J2ME handsets, who also have shown poor download figures and offering horrendous business models, they have been looking to smartphones as the savior, which may not be a viable strategy.
The “iPhone” effect has no doubt been good in that it has forced mobile operator to be conscious about offering data plans, which is having substantial impact in some markets. Data from Spain indicates that 45% of users are accessing the mobile internet on a daily basis. Given that Spain’s smartphone penetration is likely not to be any bigger than most western markets, this is clearly driven by good data plans by the operators, on pre-paid as well as post-paid plans. The fact that good data plans drives usage is no secret, as the success of H3G in their markets they operate with various services has proven that users will go online on their mobile regardless of how advanced their phone is.
So how are developers currently reacting to the market realities? If Millennial Media’s latest research is correct, the reaction shows a somewhat dangerous approach:
For US developers, this means that nearly half of all developers focus on the iPhone alone. Given the stark revenue expectations, this will all but spell death for the large majority of application developers. Why are developers doing this? Well, distribution for mass market phones (i.e. J2ME) has been extremely complex given the complex nature of distribution, high expenses in porting your application on hundreds of devices, poor business models, and lack of users actually using their phones for data:
A recent report from Vision Mobile talks about “developer mindshare” as the key driver, and J2ME as the leading platform clearly lacks this mindshare. However, when asked for the reason for the choice of platform, developers answers do not match market reality:
Clearly, market penetration is related to application downloads, and this only shows that J2ME and Symbian have a huge gap to close – but the potential is simply enormous. Smartphones are driving the push for data plans, on both post-paid and pre-paid plans, which will benefit all handset owners. As for distribution, app stores are popping up everywhere offering more attractive 70/30 type of business models, and several, like Sony Ericssons Play It Now and GetJar are well designed and focus on J2ME and Symbian, so the distribution aspect is gradually improving. This somewhat mitigates the stronghold of mobile operators as well, who have often done a poor job selling applications. More choice for distribution and discovery, better revenue models, and increased awareness of the mobile phone as a data device will benefit the market as a whole – and purchasing apps over the next couple of years should hopefully become the norm on the majority of mobile handsets. Let me be clear – we are not there yet, as distribution is still complex outside of the top app stores, but it is getting there. I do not agree with Vision Mobile’s statement that “the exposure bottleneck is a new phenomenon in mobile”. Any J2ME developer will tell you that placement on the operator deck means everything for revenue. iTunes does not solve this – only more well designed app stores with well designed payment methods will.
One issue that is not addressed by market forces though, is the complexity of development as perhaps the main drawback long term. Developers would be wise to invest in porting software to help them ease the cost of adapting their apps to various platforms, and start reconsidering their device strategy to start supporting mass market phones again very soon, as this opportunity is now coming within reach in many markets, not just in Spain.
On the flip side, device fragmentation only increases, as more platforms such as Samsung Bada and Windows Mobile 7 are launching. The main response, at least from Samsung’s side (I happened to attend the Bada launch in Sydney last week) has been to offer prizes to developers to entice them to support their platform. One has to question this strategy though, and wonder whether to instead of giving away USD 3m in prizes to developers, to distribute those funds among the top developers for iTunes to port their apps.
Either way, the space will be interesting to watch. As a veteran in the space, I still hope the day comes when J2ME apps will be downloaded in big numbers, as the market potential is enormous, but have been held up due to too many complexities – several of which are gradually disappearing…
With Venture Capital broken, what is a start-up to do?
When reading the latest issue of Harvard Business Review, you may start to worry about the future of Venture Capital.In the last 10 years, if you put money into venture capital, you return was likely in the single digits, perhaps even negative. You would have been better off putting the money in a bank account. From 1980 to 1997 however, quarterly returns were 22% per quarter. The article adds that this period of staggering returns, combined with the Internet boom which just got started, led to an oversupply of venture capital firms and money, and subsequently lead to too much stupid money chasing bad deals, and currently the IPO market has dried up, and M&A valuations have come down, thus creating less deals:
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Source: Harvard Business Review
The solution, the article proposes, is for a shake out to happen, and that the “good” firms remaining take a more proactive approach in getting involved in their companies’ success. This is certainly good advice, however, it could mean that VC’s may take on board even fewer deals, as each deals requires more personal attention, and with fewer deals and seemingly fewer VC’s, starting a company could be increasingly more difficult.
Increasingly start-ups have to look to Angel investors for funding, as online networks makes organizing this easier, and also because companies can manage on less money. However, Angel money may often not be ”smart” money, as traditionally they are perceived as not getting much involved in the companies they invest in. Thus, VC’s still hold the promise of being able to help founders on areas of weakness, and bring small companies into the doors of big firms to close the one deal that allows them to take off.
However, there are a number of other problems the VC industry needs to address, besides getting more involved in helping their businesses:
* VC’s need to start looking beyond +/- 10 numbers in the zip code of their home office. Another Harvard study found that half of VC backed companies are located in either the Silicon Valley, New York or Boston, which is also where you have the highest concentration of VC firms. When you now can hold video conferences over Skype for free, and cheap tools are available to any start-up for collaboration and managing their business, geographic proximity should not be a valid reason for wanting your investment company next door;
* Bet smaller and bet more. There should be no shame in building a business that generates $20-50m in revenue. You don’t have to beat eBay or Facebook (or get acquired by them) with your next big idea. This means VCs need to invest in more companies, and make smaller bets – while at the same time be more involved. Sounds counter intuitive, but is not if VCs start changing they way they operate;
* Develop an industry approach. The incubator model, made popular in the dot com days, actually had legs but was executed wrong, as the focus was too much on purely providing capital and office infrastructure. Organizations like Plug and Play Tech Center are using elements from this, but in a more holistic setting, with less pressure to produce the returns. The idea is to help the startups by setting up an environment where they not only get access to capital, but also legal advice, business advice from advisors and other entrepreneurs, government funding and assitance and more. This is a model which VCs should actively get involved in, as the centers will do part of the job for you – allowing you to bet on more and bet smaller.
Luckily, not all is bleak for the industry as a whole. Yes, there are fewer IPO’s, but M&A activity is picking up. In the media sector, this charge is being lead by interactive marketing services:
This could mean that VC’s may see lighter times ahead, but a recent report from Pepperdine actually shows that while VCs are now looking at more business plans than compared to 6 months ago, and are finding a much higher level of quality business plans, there are actually less start-ups getting funded:
Comparison of VC Investments 1H 2010 vs 2H 2009
Source: Pepperdine Private Capital Markets report, summer 2010
It can also be noted that among the surveyed VC’s, 84% expect that demand for VC capital will increase in the next 12 months. But if VCs are getting more picky, and not much has changed fundamentally to address the issues I mention above, it could seem like Angels may be the answer. Angels take a far broader investment perspective, and tend to look more on the deal than where your company is located, which is natural given that they are not bound by the VC method of doing business:
Angels investment range in miles
Source: Pepperdine Private Capital Markets report, summer 2010
And the old belief that Angels represent “dumb” money may not hold true, as a significant portion prefer to give advice to their portfolio:
Benefits provided to investee company
Source: Pepperdine Private Capital Markets report, summer 2010
So an increased activity in the Angel network, and better organization of such, may help part of the fund raising issues for start-ups. However, funding and strategic advice is only one component, and unless these networks also start to develop a holistic industry approach to incubating start-ups, this group may also be faced with disappointment in their returns, and subsequently reduce their activity.