Wireless 2.0: Vicious to Virtuous?

Opinion

In the mid 1990s, three on-ramps led us on to the information superhighway: AOL, Prodigy and CompuServe. For a monthly fee, users were served up a customized version of the Web offered by one of these network providers. They took a walled garden approach, offering applications only through their services and limiting e-mails within their networks. For a while, it worked. But soon, consumers and application developers alike were clamoring for more—and, fortunately, the walls around the World Wide Web came tumbling down. Untethered from these artificial constraints, developers created innovative Web-based applications, sites and services available to all—regardless of their provider—and consumers began logging onto the Web in droves.

The subsequent Internet boom that took place is well known. It’s hard to imagine where we would be now if those walls had remained. The Web 1.0 movement showed us that technological innovation flourishes when markets are open. Yet despite the lessons learned, we find ourselves repeating history in the U.S. mobile marketplace. With so much hype about the “mobile Internet,” did you ever wonder why we have yet to see a mobile start-up grow to the scale of an Amazon, Google, Yahoo or Facebook?

Clearly, the innovation and growth of Wireless 1.0 was led by Europe and Asia. The question is whether the U.S. will lead the Wireless 2.0 era. While our European and Asian counterparts understood and embraced open mobile networks early on, closed markets here in the U.S. constrain progress. Consumers here can’t buy just any mobile device with any software and use it on any network. The carriers argue that this level of control is necessary to ensure network “quality.” AT&T made the same argument about the quality of the landline network before the 1982 divestiture. But as of this writing I’m still unaware of anyone who bought a landline phone at Target, plugged it in at home and thereby brought down the AT&T landline network.

From 1999-2007, we saw an explosion of wireless innovation in Europe and Asia, where mobile devices weren’t limited to one network and developers could build and distribute wireless applications to virtually any mobile consumer. Japan had wireless Internet through NTT DoCoMo’s i-mode as early as 1999. Meanwhile, in Europe, the introduction of the open GSM standard created an environment where early interoperability and network openness were standard.

During this same time period, U.S. mobile innovation was largely sluggish, stuck in the walled garden model. While you could argue this was acceptable during that time period because our technology had not caught up yet, we only need to look at the iPhone and BlackBerry app stores to know that we are now capable of more. Apple—and the ecosystem that has surrounded it—has shown the world that an innovative company can create a great product with a direct-to-consumer path to market.

Smart phones (such as BlackBerry phones and the iPhone) are built on open technology by default, and carriers cannot block access to these devices. Apple has proven that a friction-free ecosystem can be built to allow independent software vendors (ISVs) to address this market. But alas, smart phones account for less than 25 percent of the market, and won’t exceed 50 percent for several years—an eternity in high tech. So for the foreseeable future, the vast majority of the U.S. mobile market will be comprised of feature phones, which only run software approved by the wireless carrier.

Herein lies the problem and the solution. What kind of innovations would emerge in the U.S. market if we could replicate for the 200 million feature phone users what Apple has created for the iPhone? I’m not talking about the iPhone’s elegant form factor or usability. Rather, I mean the open ecosystem that allows any ISV to target any mobile platform. As the CEO of Vlingo, I have seen firsthand how networks block third-party mobile applications.

If we look at the mobile ecosystem in New England, there are bright spots of innovation that would further flourish if the market broke wide open. Companies such Azuki, SkyHook, MocoSpace, uLocate and Vlingo are just a few that are delivering tremendous mobile innovations. Yet the rate at which can bring their innovations to market, as well as the potential innovation that could be borne of collaboration between us, is limited by our closed market. Personally I think about the combination of Vlingo, Skyhook and a search engine that would make it possible for a consumer using any device on any network to speak the words “movie listings” into his phone and automatically get show times for the theater nearest him.

Innovation and market openness are mutually reinforcing elements, creating either virtuously profitable or viciously destructive cycles. An open market inherently attracts innovators, whose technologies create more opportunities and further open up that market. Take away the innovators or the open market and you have a vicious cycle of stagnant or nonexistent growth. As venture investors poured $215 million last quarter alone into emerging mobile companies here in New England, it’s clear that the appetite and ability to innovate is here. The solution, of course, resides with the U.S. wireless operators and regulatory bodies. Like most, I’d prefer to see a business solution to the problem, rather than regulation. The larger players seem to “get it” from a PR perspective. We’ve seen dozens of announcements about “open networks” or “open access.” Certainly Google did its part in the 700 MHz auctions, helping to force more open access. Is this all lip service to avoid regulation, or a harbinger of true openness?

Wireless operators in the U.S. face a paradox. They view the walled garden model as a form of revenue protection, but history shows that innovation always wins. What happens to their model when every American has a “follow me” phone number from Google Voice and can circumvent the walled garden by receiving a call through a wireless network on an iPod Touch?

I propose a three-step experiment with very little risk for wireless carriers to move toward openness:

1. Immediately designate a “spec” for devices, and allow any device meeting that spec to be placed on the “current” networks.

2. Allow those devices to run any applications a device maker puts on the handset.

3. Allow the end user to download and run any application.

It would take a long time (read two years in tech) for these “open” devices to become an appreciable part of a carrier’s base of users. As that segment emerges, it would be clear if these devices and apps were “crashing” the network. On the other hand, the carrier that made such a bold experiment might also see a huge explosion of innovation coming to its network—a distinct competitive advantage as users flock to the network for innovative services, and ISVs and device makers flock to the network to serve those users.

Dave Grannan is the president and CEO of mobile voice software provider Vlingo. Follow @

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3 responses to “Wireless 2.0: Vicious to Virtuous?”

  1. Tom N. says:

    First, I wouldn’t call Apple’s environment “friction-free” – in fact, there’s an overwhelming number of stories about problems with their app approval process. The recent Google Voice app rejection, which the FCC is currently investigating is a good example, and further goes to prove your point that there’s still plenty of work to be done, even in the iPhone/ Pre/ Blackberry ‘era.’

    Furthermore, your proposed “spec” already exists, and can be boiled down even simpler. GSM _is_ the spec – if the device has a GSM radio, I can buy a card from carrier X and be on their network. Great.

    Now, when I buy that GSM card, I can agree to some reasonable terms of service that dictate that I cannot go over X GB of bandwith per month or something similar to avoid abuse. This is identical to how consumer internet access works now. You plug an ethernet-capable device into your cable or DSL modem and you are good to go. I don’t see why it has to be any more complicated than that.

  2. Liked your historical account of the wireless world and where things lie today. You are right, the walled-garden scenario isn’t the best, but it is changing, albeit slowly.

    Don’t hold your breath on your proposed experiment.

    1. Handset revenue is a significant portion of the wireless operator’s total revenue, so they are not likely to hand over the keys to third parties (as you see in the computer industry) – at least not any time soon.
    2. Wireless operators are always the consumers first line of support on devices. If they don’t sell them and know them, they can’t be effective in troubleshooting and support (and as devices become more complex the quality of support is certainly debatable). On the other hand, if carriers could be relieved of this responsibility (hardware support) you may have something to toss into a financial model and build a business case…
    3. Any app at the consumers fingertips? I think we’re getting there – particularly with the iPhone model that is now rapidly driving carrier behavior and competition.