by Matt Chagan, Trident Capital
Mobile World Congress (MWC) is the world’s largest conference focused on mobile technologies with over 70,000 attendees The conference marks a unique opportunity to get a truly global perspective on the trends that will shape the growth of the industry in the coming year. This was my fifth year attending as part of Trident Capital and below are some of the takeaways that I had from meetings with attendees from various carriers, handset manufacturers and software vendors.
No News Can Be Good News
The most noteworthy news to come out of MWC ’13 was a lack of noteworthy announcements. Past years have almost universally included some announcement about a seemingly major change to the mobile ecosystem. Last year was the release of Windows 8, the previous year it was really the coming out party for Android as it ramped from an upstart to the leading mobile OS provider. Yes, there was an announcement of the Firefox OS and yes there was some sabre rattling from Intel/Samsung over Tizen, but for the most part, there was a notable lack of notable news. While the lack of sea change might seem like a net negative, I would argue that the maturation of the market is a net positive for players in the ecosystem. Carriers, handset providers and software / app developers are all more likely to allocate significant resources behind longer term R&D efforts and true innovation with the improved visibility in the mobile landscape.
Impact For Investing: App developers (both consumer and enterprise) are getting more comfortable with supporting two OSs for at least the near term. We view this as a net negative for app development platforms that have been solely focused on solving fragmentation problems but a positive for other enablers of the app ecosystem (app security vendors like Mocana and Arxan, API management vendors, developers of vertical market apps).
Reaching the Next Billion Subscribers
Lots of discussion from carriers and handset makers about the opportunity to capitalize on further penetrating developing markets. Manoj Kohli, CEO of Bharti Airtel (4th largest carrier in the world) told his audience at MWC that the next billion mobile subscribers are going to come from markets like Asia and Africa. Kohli and others pointed to the increased penetration of 3G networks and the dramatic drop in smartphone prices (as low as $30). This was a theme that was opened by the announcement by Safaricom leading up to MWC that they have started to phase out feature phones altogether. While the penetration of smartphones in developed markets like the US and Europe (the penetration rate in both of these markets surpassed 50% last year) has been an important one, the penetration in developing markets has the potential to be much more disruptive. Access to smartphones and mobile broadband represents the first opportunity for many of these individuals to have any access to computers or the Internet. The potential impact for how goods and services are bought, sold and delivered will be massive.
Impact for Investing: This should be a positive across the board as consumer focused app developers see continued 30%+ organic growth. Secondary markets like mobile advertising (Appia, mBlox, Brightroll) that enable this expansion are also likely to see continued growth. Look also for apps that “hack” heretofore analog processes in developing markets (bill pay, government services, workforce management).
Rise of the Phablet / Handset Makers Continue to Try To Break Into Content
A Huawei banner at Barcelona’s airport proudly announced that they were the manufacturer of the “World’s Largest Smartphone”. While it is worth taking a moment to appreciate the irony of this announcement from an industry that spent the last 20 years trying to shrink the size of phones, it does imply an interesting trend as more and more manufacturers release crossover “Phablets” or hybrid tablet / phones. These supersized phones reflect an increased interest from mobile subscribers in consuming media, shopping and richer mobile apps. Carriers, recognizing the importance of this (and the increasing difficulty in differentiating through hardware) to consumers are working hard to find content deals or applications that appeal to consumers. Both of these themes were highlighted in January in Evangelos’ blog posting on the Consumer Electronics Show (CES) in Las Vegas.
Impact for Investing: This may mark a (relative) return in importance for content providers as goliaths like Samsung, Google and Apple look to drive handset sales through content deals. This is also a continuing positive for online retailers and the t-commerce market. Companies like CatalogSpree and Revel Touch that drive great tablet experiences for consumers will likely see the benefits of the continued rise in the market. Second order benefits will likely include players who help monetize the rich video experiences that are being consumed on tablets (Brightroll) as well as driving mobile app downloads (Appia).
Game On For the Mobile Security Market
One of the news items most talked about in the hallways of MWC was the $200M in capital raised by Airwatch and the reported $5M that they spent on their booth (which was almost as large as Samsung’s). There has been significant speculation both last year and this year that consolidation is coming in the MDM / mobile security market as the market matures and vendors start to shake out. This announcement of Airwatch raising a massive war chest (while IPO / other fundraising rumors for Good and Mobile Iron also swirl) may mark the start of this consolidation.
Impact for Investing: There is a tremendous amount of noise in the mobile security space (Trident tracks over 75 vendors in the space). Consolidation in this market and a focus on best in class solutions may be just what the market needs to allow the leading vendors to break out. We view this as a positive for our investments in Mocana, Arxan and Airwatch who are leaders in their respective markets.
Internet of Things
Over the last five years, “The Internet of Things” is likely only rivaled by mobile payments in terms of a meager reality vs hype ratio. Last year featured Vodafone’s connected house and this year was MWC’s Connected City. The big announcements in this space were Qualcomm’s AllJoyn open framework for connected devices (hoping to facilitate discoverability, interoperability and security) and GM’s decision to embed LTE modules in cars starting in 2014 (powered by AT&T). Rajeev Chand at Rutberg gives a good summary of both of these in his research note, but the takeaways can be summarized as: 1) Still a lack of clarity around business model for M2M – until this and consumer willingness to pay is clarified I remain skeptical on the potential for this market 2) GM’s announcement was impressive in that it involves clear guidance on timing of the roll out and which cars would be involved (including lower end models like the Malibu). To me the GM announcement was the most interesting. There is lots of potential for app distributors like Pandora and Yelp as in car apps represent a real opportunity to create value for consumers – which is core to successful mobile deployments. GM’s Vice Chairman Steve Girsky was on stage to make the announcement but his discussion with moderator Rajeev Change seemed to lack an understanding of the full potential of the business opportunity around connected cars. Girsky all but wrote off the opportunity, saying that GM generates $150B in revenues and this “would not move the needle for them.” Steve should note that GM’s EBIT was only $2.8B for 2012 and the potential to get a piece of the profits from reselling broadband connectivity or access to mobile apps through advertising could very easily move the needle at the bottom line.
Impact for Investing: It is likely best to take a “wait and see” approach in this market. While companies like Nest have made tremendous strides in this market, there are many others who are stuck in the starting gates.
Trident Mobile Investment Initiative
Our investment thesis for the mobile space focuses on mobile as a disruptive force- rather than looking at mobility as a vertical market, we look at it is a medium for delivery of information and applications that has the potential to change how business is conducted across the enterprise. This change is both internal (impacting how employees access information and improve productivity through mobile applications) as well as external (how the enterprise interacts with consumers and engages in marketing). We break these opportunities for disruption down into vertical markets and horizontal markets. The vertical markets include Education, Healthcare, Adtech, Retail / e-Commerce and Logistics / Workforce Management. The horizontal markets include CRM, HR Tech, Collaboration, Security and Mobilization of Enterprise Apps. While this list is by no means inclusive (and we expect it to evolve over time), these are the markets we believe are most prone for disruption within our investment horizon of 4-6 years. A more thorough overview of our investment thesis can be reviewed in a subsequent post that includes a presentation at the SEVC Conference that I gave in March (link to follow).
Several of the MWC themes discussed above are important for our investment initiatives and support the opportunities we are pursuing:
- Vertical Market Applications – the stabilization of the ecosystem should have a very positive impact on vertical apps. The ability to focus on two OSs significantly decreases the complexity and cost of developing and maintaining apps. We also believe that the further penetration of mobile into developing countries will also drive global companies like P&G and Citi to further extend productivity tools into the workforce.
- Retail / e-Commerce – the decreasing price of tablets lowers the bar for putting these tools into the hands of retail employees. We are already seeing tablets displace the traditional POS in stores like Nordstrom and JC Penney. Retailers are also increasingly focused on developing apps that drive consumers into retail locations (clicks to bricks strategies) and then help them in their decisioning process while in the store. Companies like Walgreens have been leaders in this market with mobile apps that allow consumers to refill prescriptions and see specials going on in stores. We are excited about companies that are giving retailers the tools they need to compete against e-commerce.
- Adtech – The rise in rich media devices and the further penetration of emerging markets both represent strong tailwinds for the adtech space. Improved monetization of mobile users is grist for the mobile advertising mill. We are focused on companies in the mobile adtech space that understand how to leverage the mobile medium to deliver effective ads that consumers find to be valuable rather than intrusive. We are also focused on companies that are effective across multiple platforms. With individuals now consuming media across multiple devices (tablets, laptops, phones and computers) it is more important than ever to be able to understand the consumer’s behavior across these devices and the most effective way to reach those consumers.
- Horizontal Enterprise Applications – The same trends that apply for vertical market applications also apply for horizontal markets within the enterprise like HR, Collaboration and CRM. We view the opportunity for investment here as both companies that develop apps for these markets with a “mobile first” approach as well as companies that help enterprises manage the process of managing the integration of new mobile apps with legacy apps and systems of record. Companies in the later space are typically grouped into either BaaS (backend as a service) or API management.
Trident Portfolio Companies See Tremendous Opportunity
Trident was well represented at MWC by portfolio companies mBlox, Appia, Brightroll, Turn www.turn.com and Bytemobile (as part of Citrix). mBlox enjoyed lots of buzz from the launch of their Engage product which is focused on broadening their mobile messaging platform to include in-app messaging. The Company received great response from customers and ecosystem partners that were interested in broadening their mobile customer outreach to include in-app messaging and the targeting / tracking capabilities that the Engage product offers.
Bytemobile was front and center as Citrix made a big push to expand their footprint into the mobile carrier market. The $430M acquisition was announced in June of last year following a partnership between the two companies that allowed Bytemobile to integrate Citrix’s load balancers into its mobile solution that was deployed across its 130 operator customers. The merger looks to be a rousing success as evidenced by the Bytemobile signage in the Citrix booth and the amount of foot traffic.
Mobile advertising continued to be a big part of the conference and Trident portfolio companies Appia, BrightRoll and Turn were no exceptions. Turn has enjoyed strong traction in the mobile space since their announcement last year of a partnership with AT&T to combine Turn’s DSP with AT&T’s AdWorks ad network. Appia has also been the beneficiary of telco carrier partnerships, powering app stores for AMX across 18 countries as well as deployments with Vodafone and Airtel. All three of these companies continue to enjoy triple digit growth in mobile advertising in 2012 and 2013.