Disruptive Tendencies

Fight or Flight? Why Big Companies Do Deals

I love the web and am constantly amazed at what one can find or learn from others skilled in the art.

I recently came across a very interesting piece in Marc Andreesen's blog: "The Moby Dick Theory of Big Companies", in which he suggests that "There are times in the life of a startup when you have to deal with big companies." He then builds a very interesting metaphorical case for SmallCo as Captain Ahab and BigCo as Moby Dick. It's an entertaining and enlightening piece, but I will endeavour to go a few steps further and try to delve into the psychology driving the players in this game.

Marc makes some interesting points about a BigCo's behavior being inexplicable when viewed from the outside. He suggests that there are some many moving parts and agendas, that the dynamic of decision making is highly unpredictable. While I tend to agree at a macro level, it's my experience that people (and a company is an aggregation of people) will react most predictably to fear. I think it was Intro to Psych class where we are all introduced to the concept of "Fight or Flight" and that it applies equally to business psychology.

SmallCo's are used to talking about the opportunities created by their disruptive technology: new markets, huge revenue, vast market share, value creation. This is a natural side effect from their creating business plans and pitching investors on how compelling the opportunity is.

Once they've convinced themselves and their investors that the opportunity is huge, they will often go out and try to convince one or several BigCo's of the same thing. Getting funding or landing a whale require different stories, but usually SmallCo re-uses their investor pitch in trying to get BigCo's attention. You may get nodding heads in meetings and even hear that they agree with your assessment of the opportunity, but all too often BigCo inertia takes over and nothing happens.

I first experienced this in a big way shortly after being recruited from a start-up into the Disruptive Technology group at Nortel in Q3/2000. MeshNetworks had just emerged from stealth mode with a classic, highly disruptive story that had the potential to impact many incumbent technologies and R&D programs in the wireless space. Nortel was heavily invested in 3G, having made a major UMTS bet, and I was advised to identify a new market opportunity created by this emerging technology rather than positioning it as a disruptor to 3G. So, I began the exercise of focusing on a net new commercial opportunity that this technology could enable for Nortel. It was a billion dollar opportunity in 3-5 years, yadda, yadda. I got the nods in meetings and the "Atta boy" from my boss at review time, but there was no sense of urgency to act.

Frustrated by this, and deciding to win big or die trying, I spoofed a news story using the San Jose Mercury News banner and inserting quotes from John Chambers and industry analysts. The banner read: "Cisco Leapfrogs 3G and Goes Right to 4G; Acquires MeshNetworks for $400m". I then printed off my mock-up and put it on the fax machine, sending it around internally. Within 5 minutes, my phone began to ring - "Holy shit! What the hell just happened? How could we have let this happen?!?"

Basically I then told them that we have a do-over, that this didn't really happen (yet). But I then asked whether this was a version of the future that we were prepared to accept. If so, not acting was a reasonable course of (in)action. If we couldn't contemplate this version of the future, then we needed to act urgently.

What did I takeaway from this?

BigCo's are largely risk averse. Status quo rules the day and that having a team of singles hitters internally is easier to manage than going to the free agent market and bringing in the guy who will either hit it out of the ballpark or go down swinging. Unless that home run hitter is also talking to another team in your division, which could lose you more games. The threat of him landing with a competitor usually changes the way in which you look at his availability as well as what you're willing to pay to get him on your team. It's the competitor pre-emption premium.

Winning vs. not losing. Opportunities or threats. Two different ways of framing the discussion.

After 20 years of dancing with 800lb gorillas, or hunting the great white whale, my experience is that BigCo action is catalysed more often from perceived threats than from potential opportunities. My hunch is that this is an 80:20 relationship, although I have no quantitative data to support this.

What happens inside companies when presented with a perceived threat? The Fight or Flight instinct kicks in. Corporate DNA is pre-disposed to fighting (they don't call it "competition" for nothing), while fleeing is anathema to most BigCo's. Status quo is not an option when under threat of attack.

You've decided, for whatever reason, that you're going to go hunt the big white whale. You've got a disruptive technology, well it's called disruptive for a reason. Change the lens through which you have them view you. Build your story around the threat to their status quo and you are more likely to get them to act with a sense of urgency.

But be careful what you wish for. You might just end up harpooning the whale and you then have to answer the "Now what do I do?!?"

That's my .02!

Martin Suter

 

AT&T Wi-Fi: How long to a billion?

In October 2007, AT&T acquired Wayport for $275m, and its national footprint of 20,000 Hot Spots in such high-profile locations as Starbucks and McDonalds. For many of us in the industry, this was a seminal event, as it was the first time that a major licensed spectrum holder embraced Wi-Fi (and unlicensed spectrum) as a major piece of its service offering.

Since then, AT&T has continued to be the poster child for its use of Wi-Fi for 3G data offload in areas of cellular congestion. Generally speaking, these locations can be described as areas where people eat, shop and congregate, and includes not only traditional Hot Spot locations, but also high capacity venues, college campuses, special events, and high-foot traffic urban centres.

Today’s announcement of 106.9m connections shows impressive, historic year-over-year growth, but it’s interesting to project forward.

• With over 90m subscribers, this number translates into 1.2 connections/subscriber/quarter.
• With around 30m smartphone users, this number translates into ~1.1 connection/smartphone user/month.

And keep in mind that, with free Wi-Fi at venues like Starbucks, some of these connections are from non-AT&T subscribers, so the number of connections/subscriber is going to be lower.

The following chart shows the number of AT&T Wi-Fi connections, as reported over the past 11 quarters. It’s interesting to note that AT&T has been able to materially impact the slope of the curve. When AT&T and Apple enabled seamless, transparent auto log-on for the iPhone in July 2008, the slope clearly changed. In July 2010, AT&T opened up its Starbucks locations to free Wi-Fi, the slope changed once again.

So how big can it get?

Clearly, one can imagine an AT&T quarterly report touting 1 billion connections (PREDICTION: Q3/2011), a 9X increase from today.

IMO, the biggest obstacle is subscriber mindshare and user intervention. People walk into a Starbucks today, and they know there’s Wi-Fi, so they’ll turn it on. But unless they know there’s Wi-Fi in the football stadium, rocking out at the concert, or walking around Times Square, users are far less likely to have their Wi-Fi radios turned on.

Maybe iOS v5 will be able to sense (or know via GPS) that there is an AT&T SSID nearby, and automatically turn on Wi-Fi, removing user intervention from the Wi-Fi equation totally. Now that would be cool, and welcomed by service providers the world over.

Wi-Fi for service providers? Onwards, and upwards!

One billion connections? Here we come!

 

That’s my .02!

Martin Suter

 

Microsoft: SteveB or Not SteveB

That is the question.

As I saw Apple reporting record numbers yesterday, I was reminded that nearly thirteen years ago, Microsoft invested $150m in Apple to help keep it afloat because it needed to maintain the semblance that it had “competitors”? Be careful what you wish for!

In July 1997, prior to the Microsoft investment, AAPL was trading at $4.375 (split-adjusted). Overnight, it was up to $258.00, a 58X gain in twelve and a half years. Had Microsoft held onto its shares, they would be worth $8.8b in the open market today, or 26% of the cash on its Balance Sheet as at Q3/2010.

When Microsoft made its investment, its shares were trading at $17.50, and today? They closed up overnight to $31.50, up almost 1.8X over the same period as Apple’s 58X gain. Apple’s market cap today is $234b to Microsoft’s $275b. How times have changed!

It’s interesting to look at other things that were going on around the same time as Microsoft was investing in Apple.

1997 was also the year that Microsoft entered the mobile device market, with the release of Windows CE. This gave them a ten-year head start on the iPhone and a twelve-year head-start on Android! It predated RIM’s IPO. And today? Windows Mobile market share is Palm-esque, and Microsoft is betting on Windows Phone Series 7 to rejuvenate its mobile business. But if branding and momentum are any indication, it seems like a real longshot.

I’ve sat through many Microsoft Executive Briefings, dating back to 1997. Over this period, I have heard it said that Microsoft spends “$1m/hour on research”. I have seen presentations from Microsoft Research staff describing and demonstrating technologies like ClearType (also announced in 1997), a sub-pixel rendering technology designed to improve readability of rendered type on screen.  The obvious application (and one described in the early presentations) was eReaders. In 2007, ten years later, Amazon released the Kindle, ostensibly revolutionizing the delivery of content and forever changing the economics of publishing. Where’s Microsoft at this inflection point? Nowhere to be found.

What other market disruptions has Microsoft missed? (In no particular order)

Search is an obvious one. While Microsoft (and others), was focused on search technology, Google was figuring out that “Search” was all about advertising and catalysed a massive disruption in the media space, billions of dollars in revenue for Google, and hundreds of billions of dollars in shareholder value.

Maps and location services is another one. While Microsoft was focused on producing and selling CDs of MapPoint (a model it still clings to today which it “offers” at $245 on-line), Google was out producing high-resolution street-level images and has catalysed another disruption in location-based services. Today, mobile location is front and center on the Droid platform (and on Droid devices), on iPhones, and incorporated into applications across both ecosystems.

Set-Top Boxes and “owning the living room” Also in 1997, Microsoft acquired WebTV for $503m, predating the launch of Tivo. But while Microsoft apparently struggled with the thought of an appliance that wasn’t Windows-based PC (and encumbered by its emphasis on 3^rd-party OEMs to build on its platform), WebTV evolved to MSN TV (anyone remember this?!?) and has completely disappeared today.

SaaS is one to which Microsoft paid lip service throughout the late ‘90’s with its .NET push. But while it was evangelizing .NET (and SOAP, XML, web services), it was acquiring companies like Navision and Axapta (in 2002 for $1.4b) to expand its CRM and ERP offerings. But was it web-based like Saleforce.com which was founded in 1999 and which didn’t go public until mid-2004? Once again, Microsoft didn’t want to jeopardise Windows Server licenses, so it failed to embrace a market disruption despite having ample warning that it was coming.

Media Players created a seismic event and a brand new market that Microsoft completely missed. While it was focused on defending the tight integration of Windows Media Player in anti-trust lawsuits (in a vain attempt to preserve its “Windows” franchise), Apple came out with iTunes on Windows. More importantly, however, was that Apple also created the iPod, the Trojan Horse that enabled the iPhone.

Developers and App Stores: Microsoft has known since the early battles for OS supremacy (against MAC and OS2), that the selection of a platform is driven by application support. Even with a 30-year history of supporting software developers with incredibly rich tools to build 3^rd-party apps, Microsoft never provided a route to market for developers as Apple has done with the App Store. Apple also figured out how to monetise content and through the creation of a distribution system (iTunes Store), got people comfortable with micro-payments. What’s the difference between .99 for a song or an app? Ultimately, not a thing.

Obviously, there are other examples too. Microsoft completely underestimated the impact of open-source software, missing Linux, Apache, MySQL, etc. It evangelised tablets, but from a Windows bias. It would seem that Apple (and soon others) will trump Microsoft here as well.

It is fair to say, that Microsoft is losing on all fronts.

While it was focused on fighting the DOJ battle, it may ultimately have lost the war. Some, including “the late Nobel economist Milton Friedman believed that the antitrust case against Microsoft set a dangerous precedent that foreshadowed increasing government regulation of what was formerly an industry that was relatively free of government intrusion and that future technological progress in the industry will be impeded as a result.”

I have to agree. The government’s action against Microsoft was ill-advised, in that it is irrelevant that Microsoft may have had a monopoly on the desktop OS. The market isn’t stagnant. Some, like Apple with iTunes and Google with a toolbar, found ways to work within the constraints of a “Windows monopoly”, and still thrive. Others, like Salesforce.com just changed the rules.

Microsoft once had mojo but, for the past decade, has behaved like a neutered puppy. Where it was once aggressive and nimble, today it is passive and slow.

When Bill Gates relinquished the CEO reins to Steve Ballmer in January 2000, Microsoft’s stock was at around $56. With Steve B at the helm, the company has delivered a -44% return, despite being a cash flow machine and having a Balance Sheet that is (was) second to none.

 

If a patient’s ECG flatlined like Microsoft’s stock price, someone would call for the crash cart, get out the defibrillator and try to shock the patient back to normal rhythm. Where’s the crash cart in Redmond?

With a record of having missed so many opportunities to create new markets, where does the buck stop?

SteveB or not SteveB? That is the question.

That’s my .02!

Martin Suter

Mobile Cellular Penetration

I came across a rich set of data visualisation tools earlier today on Google Labs that allow one to run queries against publicly available data sets. Some of these will look familiar to fans of Dr. Hans Rosling, whose TED appearances are the stuff of legend. One of the data sets available is Mobile cellular subscriptions.

Last year, at CTIA, Ivan Seidenberg, CEO of Verizon Communications, talked about 500% penetration as being possible. He meant this largely in the context of an emerging M2M market, but even absent that, it's interesting to look at some representative countries.

I've gone ahead and plotted several below, but you can click through and select your own. (Feel free to share any insights from mining the data in the Comments section below).

I

Average penetration worldwide was 60% in 2008. Interestingly, Iran was bang on the average. It will be interesting to track the slope of its curve recently, especially as the phone has been a device being widely used by reformers in the country.

Korea and Japan are an interesting lines. They were both faster out of the gate, but the US has caught up, at least in terms of penetration (my friend and Koreaphile, Allen Kupetz will remind me that their data rates and breadth of uses, including mobile payments/e-wallets far exceed the US).

Norwegians were early adopters too. I remember being blown away in 1992, when my cab driver in Oslo had a cell phone. Today, can you imagine a cabbie not talking on their cell phone constantly in any big city?

The last two that I plotted were the UAE and Saudi Arabia, both of which have achieved far greater than 100% penetration. I had an inkling of this in 2001 when I was living in Dubai. Several Emiratis in our office were already carrying two phones, but again, it wasn't something that I could imagine doing. Clearly it's become the norm.

It is interesting to think about the implications of the mobile Internet in regions of the world, like the Middle East and Africa, where landline penetration lagged developed countries and until recently, Internet cafes were the primary place to access the Internet. Clearly, the game is changing. And while the Internet can be used for evil, I prefer to think of it as having removed all impedance to knowledge acquisition. Is another period of Enlightenment too much to hope for?

That's my .02! What's yours?

Martin Suter
 (martin.suter at iplicensing.net)

Of Churn, ARPU and the value of a Net Add

Yesterday, Colin Gibbs, at GigaOM, wrote a great blog: Q4 Wireless Scorecard: It's Good to be King, in which he provides a breakdown of key figures from the major US wireless operators. Extracting and consolidating this information is incredibly useful, and props to GigaOM for so doing, but a deeper dive seemed to be in order.

There's a lot of confusion around concepts like "churn", "ARPU", and "Net Adds", and more importantly, how do these translate into the value of a subscriber? Churn is simply the rate of turnover within a subscriber base. An easy calculation to perform is to derive the average number of months a subscriber will remain with an operator. Simply divide 100% by the churn percentage, to arrive at this number. The lower the churn rate, the longer each subscriber will generate revenue and cash flow for the operator.

 

 

Of note, is the huge variation in Average Subscriber months that churn percentage makes. Why is this important? Well, the average customer term dictates the expected revenue that will be derived by each subscriber over their lifetime. Of course, the greater this number is, the more profitable a customer will likely be, as customer acquisition costs (marketing, handset subsidies, etc,) are able to be amortized over longer periods of cash flow.

 It's also interesting to look at ARPU, a number that is often pointed to as being indicative of profitability. But this is a simplistic view of the subscriber, in that the value of a customer is much more a function of churn than it is ARPU. GigaOm provides the ARPU per user broken out by carrier:

 

There is some variation across wireless operators, but still within a fairly tight range. However, when you take ARPU and multiply it by Average Subscriber months, the picture starts to change dramatically.

 

While this doesn't show profitability per subscriber, it is easy to eyeball this and determine that customer acquisition and support costs erode profitability significantly for several of the operators, even without taking into account the fixed costs associated with spectrum and CAPEX to build out their networks or migrate to new technologies.

Lastly, Net Adds is an important metric to help determine the long-term viability of a company. Think of each Net Add as "X months of Future Revenue" (or cash flow), where X is calculated from the churn %. The numbers shown are the absolute numbers. A percentage view is quite different, with Leap Wireless Net Adds equal to 6% of its Total Subscribers, while Verizon and AT&T Net Adds equal 2.41% and 1.07% of their Total Subscribers respectively.

 

So what happens when you add it all up? Well, in absolute terms, the Lifetime Expected Revenue of the Net Adds in Q4/2009 looks like this, which may support the ROI that Verizon is seeing from its huge marketing and advertising push in late-2009.

 

Growth is a result of a virtuous cycle. Low churn rates drive lifetime subscriber revenue, much more so than does ARPU. Higher revenue per subscriber means more to invest in sales, marketing and new technologies like 4G. Once an operator starts churning its install base, profitability takes a huge hit, as does its ability to invest in customer acquisition and new technologies. It's a downward spiral that is very difficult/expensive to reverse. Clearly, this illustrates why the big keep getting bigger and why the AT&T and Verizon marketing battle is with us to stay.  

That's my .02!

Martin Suter

 

Spectrum is Like Beachfront

(Originally posted at http://www.von.com/blogs/guest/2009/12/spectrum-is-like-beachfront.aspx)

Plato is credited with having noted that, “Beauty is in the eye of the beholder.” This is certainly true in any discussion about spectrum. As with beachfront property, the thing about spectrum is that they’re not making any more of it. Recently, Blair Levin, who heads the FCC’s broadband program, acknowledged, “There’s not enough of it,” referring to spectrum. It was also noted that “several Tier I carriers are arguing for more licensed spectrum to keep pace with customers’ bandwidth demands, especially for mobile broadband.”

The FCC’s 700MHz auction raised $19.6 billion, with $16 billion coming from just 2 operators: Verizon and AT&T (National coverage maps). While I’m sure the FCC would love to run more multibillion-dollar spectrum auctions, is it really necessary to do so?

There are lots of moving parts in delivering a mobile broadband service, but it’s interesting to look at them holistically.

Different frequencies have very different propagation characteristics. It has been said that the best thing about 700MHz spectrum is its propagation characteristics. It has also been said that the worst thing about 700MHz spectrum is its propagation characteristics. It goes forever, has good in-building penetration, but these attributes present challenges from a frequency re-use perspective. Great for coverage. Not so great for capacity.

Conversely, the propagation characteristics in the 2GHz and 5GHz ranges are very different. These have limited range and poor in-building penetration, but these attributes are advantageous from a frequency re-use perspective. Poor for wide-area coverage. Great for capacity.

With the explosion in mobile broadband, the question today is whether the delivery of wireless broadband is a coverage play or a capacity play? And if capacity, what does the network look like?

Cell size and capacity have an inverse relationship. Macrocells, by design, are built to cover wide areas. However, the radios, spectrum and backhaul are all shared elements. The more users you have within a cell competing for these resources, the lower the throughput to each user. To increase capacity over an area, mobile operators pack in more, smaller cells (micro and picocells, and at the extreme low end of the spectrum, femtocells are being contemplated).

Andy Germano, vice chairman of the Femto Forum, said it very well recently when referring to the deployment of 4G networks: “Rather than go from big to small, they can go from small to big,” referring to cellular topology.

We know that, even today, it is challenging to keep up with the data capacity demands being driven by smart phones and other mobile devices. This is due to three factors: user demand for bandwidth, spectrum availability and cellular topology.

AT&T has been at the forefront of addressing the issue of adding data capacity to deliver a superior user experience for its iPhone subscribers by embracing Wi-Fi and unlicensed spectrum. Recently, at SUPERCOMM, John Stankey, president and CEO of AT&T Operations, stated:

“I don’t think a single macro wireless network is sustainable over time, given the pace of spectrum availability and what’s actually out there in terms of fixed spectrum. I think the reality is that there will be macro and micro networks. We’re starting down that path at AT&T, focusing on how we make Wi-Fi and licensed spectrum a more seamless experience for customers.”

So back to the beach.

There’s 80MHz of free, unlicensed spectrum, at 2.4GHz, being used today to augment data capacity by a leading licensed spectrum owner. Very interesting, but it’s still a small and pretty crowded stretch of beach. However, there’s 450MHz of spectrum, in the 5GHz bands, that is a beautiful stretch of beach – much less crowded, and ideal for small cells and frequency re-use, i.e. high-capacity locations.

Great stretch of beach, but how do I get there from here? Wi-Fi (802.11b/g) supports 2.4GHz and there are no 802.11a devices. The answer is 802.11n. Devices, such as the new Apple iPod Touch, are shipping with chipsets that support .11n and both frequency bands. Although the 5GHz radios are currently disabled, it is not unreasonable to expect that any upcoming versions of the iPhone, and other Wi-Fi enabled devices, will offer dual-band capabilities.

So, we will see 4G services rolled out at 700MHz, which will bring LTE to a big chunk of the country. But instead of waiting years (and paying billions) for more licensed spectrum to add capacity, I would say to Mr. Levin, “There’s a beautiful stretch of public beach up at this end, just waiting to be used.”

That’s my .02!

Martin Suter

Martin Suter is vice president of business development at BelAir Networks, the global market share leader in service provider Wi-Fi, enabling 3G data offload for wireless carriers, quad-play for cable operators, and managed WLAN business services. Previously, Martin was the CEO at Cohda Wireless, where he raised the company’s profile and negotiated a licensing deal with a Fortune 100 vendor in its core franchise. Prior to Cohda, he was vice president of business development at MeshNetworks Inc., a classic tech transfer/disruptive technology success story that achieved a major liquidity event for its investors in Q4/2004 with its acquisition by Motorola. Martin also was responsible for building several high profile alliances with and for leading technology companies, including Fujitsu, Microsoft, Netscape, Sun Microsystems, and Teradata. Additionally, Martin has successfully negotiated technology transfer, distribution and/or licensing deals with companies like 3Com, BioChem Pharma, Dow Chemical, Exodus, Fujitsu, IBM, Microsoft, Motorola, Netscape and Sun.

 

Wi-Fi: Moving the Dial

(Originally posted at http://www.von.com/blogs/guest/2009/11/wi-fi-moving-the-dial.aspx

One of the most common questions I get when talking with wireless and wireline operators around the world, is how to monetize Wi-Fi services. Indeed, as subscribers are coming to expect Wi-Fi services for free, whether at Starbucks or with their iPhones, it is a complicated question.

In fact, many were skeptical when Cablevision, a BelAir Networks customer, announced its plans to launch “Optimum Wi-Fi” and to give away the service to its residential broadband subscribers as subscriber-retention play.

A key difference, over previous models, is that Cablevision focused its Optimum Wi-Fi deployments in “shopping centers, on main streets and train platforms, in parks, marinas, and at sports fields - the places you go everyday.” They’re delivering the service where their customers eat, shop and congregate – not striving for ubiquitous coverage.

And has this strategy been successful?

When Cablevision reported its numbers earlier this month, Q3 profit tripled, revenues grew 5 percent, ARPU is up 6 percent, net new adds were up 4 percent for broadband, and the stock jumped 3.2 percent on the results.

Craig Moffett, senior analyst at Sanford Bernstein, said free Wi-Fi is one reason why Cablevision customers haven't switched to Verizon. "Perhaps it's time to start giving Cablevision's free Wi-Fi network some of the credit," Moffett said in a research note. "For all of its vaunted capabilities in wireless, free wireless broadband is something that Verizon Wireless simply can't match."

Can you build a business case on free Wi-Fi? I’d say let the numbers speak for themselves.

That’s my .02!

Martin Suter is vice president of business development at BelAir Networks, a provider of broadband mesh solutions for Wi-Fi, WiMAX, 4.9 GHz Public Safety and 5.9 GHz ITS networks. Previously, Martin was the CEO at Cohda Wireless, where he raised the company’s profile and negotiated a licensing deal with a Fortune 100 vendor in its core franchise. Prior to Cohda, he was vice president of business development at MeshNetworks Inc., a classic tech transfer/disruptive technology success story that achieved a major liquidity event for its investors in Q4/2004 with its acquisition by Motorola. Martin also was responsible for building several high profile alliances with and for leading technology companies, including Fujitsu, Microsoft, Netscape, Sun Microsystems, and Teradata. Additionally, Martin has successfully negotiated technology transfer, distribution and/or licensing deals with companies like 3Com, BioChem Pharma, Dow Chemical, Exodus, Fujitsu, IBM, Microsoft, Motorola, Netscape and Sun.

 

Nortel’s Devolution to Non-Practicing Entity?

As someone who once wore a Nortel employee badge, and who counts many ex-Nortel employees among friends and family, watching Nortel’s descent from the peak has been hard to watch. Those, with better visibility into the decision-making than I, will ultimately dissect all of the wrong turns. 

Financial mismanagement, ill-conceived M&A deals, and strategic missteps have, unfortunately, landed Nortel where it is today – in bankruptcy protection and actively divesting entire businesses; its enterprise business possibly to Avaya, its wireless business to Ericsson. But like the Black Knight in Monty Python’s “The Holy Grail”, they’re “not dead yet”, despite hacking off multiple limbs.

When Nokia Siemens Networks’ bid was announced for Nortel’s remaining wireless business (CDMA and LTE roadmap), the decision to exclude wireless-related patents was a very strong indicator of intent. Under the terms of the announced transaction, NSN received a license to Nortel wireless IP, while Nortel retained ownership of said IP. According to reports, the Ericsson deal construct is very similar, with ownership of Nortel patents remaining with Nortel.

Once NSN’s stalking horse bid was announced, others emerged as suitors for the wireless business, including most notably RIM and the eventual winner of the auction, Ericsson.

Why would RIM pursue Nortel’s wireless business at the 11^th hour? Is it because it aspires to get into the CDMA/LTE base station business? I’m guessing not. Could it be that RIM saw Nortel’s moves signaling a fundamental shift in its future business model? Rather than remaining in the messy business of actually producing and selling product, why not sell off the operating businesses for a bunch of cash, throw in non-exclusive licenses to Nortel’s IP, and re-emerge as Nortel, the Non-Practicing Entity (aka Patent Troll)?

Few companies have been as badly burned recently, by NPEs, as has RIM. With its $612.5m settlement with NTP, for what ultimately amounted to the assertion of just a couple of claims (the validity of which was being seriously challenged), and more recently, its settlement with Visto for $267.5m, I’m sure RIM can see a day when Nortel, the NPE, asserts claims against RIM’s LTE products, at a cost to RIM that makes its $1b pseudo-offer seem reasonable. No doubt this is why RIM is rumoured, already, to be pursuing licensing discussions with Nortel for LTE patents.

A key here is that Nortel, as an NPE, would no longer be constrained by the usual rules of engagement that make the assertion of claims, by practicing entities (PEs), so rare. As a going concern, and even with an impressive patent portfolio (reportedly 5,500 patents), it would be highly unlikely for Nortel to assert its patent position against its main competitors. A kind of détente exists with patent holders, who understand that an assertion here will bring a counter-assertion there. The worst fear of PEs, however, is the NPE (or Troll), for which this détente is irrelevant, and where the business model is uniquely about asserting and monetising IP rights.

So Ericsson gets a pass on LTE patent assertion by Nortel, a key US customer committed to LTE, and a team capable of enhancing the CDMA to LTE migration story. Not a bad deal for $1.13b. And while one is tempted to feel sorry for NSN, its original bid of $650m turned out to be woefully miscalculated. One can only guess at what losing the deal with Nortel will end up costing NSN; in legal costs, eventual royalties and market share. Conversely, Ericsson will have gained in all of these areas. Kudos to its management team for realising this.

So what of Nortel? Can it make the transition from multi-billion dollar equipment vendor to NPE/licensing company? There certainly are precedents, even in Nortel’s backyard. Wi-LAN and Mosaid are two companies that have gone done this path, each of which has developed IP licensing as a core competency. Keep an eye on key Wi-LAN or Mosaid employees. If they start to leave, perhaps it’ll be to take on the challenge of monetizing Nortel’s patent portfolio. And if I’m Jim Balsillie, I’d be super pissed.

That’s my .02!

Martin Suter

(martin.suter at iplicensing.net)

Mobile Internet: Fundy-esque!

(Original published at http://www.von.com/blogs/guest/2009/06/mobile-internet-fundy-esque.aspx )

In 1963, JFK is credited with having observed that, “A rising tide raises all ships.” The evidence is overwhelming that the mobile Internet tide is unprecedented in scale and that it’s coming in fast. Anyone, or any company trying to resist, inevitably will be washed away.

The launch of the Palm Pre this past week has given the industry an opportunity to debate whether the Pre is an iPhone killer. David Pogue, of the New York Times, has described the Sprint-Nextel/Palm pairing as “a pair of sad sack losers team up to defeat the smug athletic golden boy,” going on the suggest that it’s the “Palm Pre vs. iPhone.”

To its credit, Time presents a much more balanced view, pointing out that “Palm doesn't need to steal any of its competitors' customers to thrive.” This seems to be the view being (wisely) espoused by Jon Rubinstein, executive chairman of Palm Inc. as well, who rightly notes, in the same article, that the smartphone market is “large and expanding.”

Rubinstein is right in suggesting that the smartphone market is not zero-sum. Yes, there is a heightened need for device manufacturers to deliver a compelling user experience. Apple has set the bar extremely high, but the fact remains that there are “4 billion mobile phones in the world today, after all, and Palm says only about 10% of them are smart phones. During the next few years, that number may reach 50%. Morgan Stanley Research even described the migration to Internet-connected mobile devices as ‘one of the biggest opportunities in the history of the technology industry.’"

I would argue that Apple will continue to maintain its market share on the platform and device sides even as this market grows for one simple reason: iTunes. None of the other vendors has delivered a seamless content and application management platform from the desktop to the device, coupled with an accepted micro-transaction platform. Microsoft had an opportunity to do so with Windows Media Player, but was so tied up in antitrust litigation, it missed the window of opportunity and was left in the dust.

Apple’s the poster child; the launch of iPhone 3G S makes it even more so. Palm’s the underdog. But what of the other 800 pound gorillas?

“Google: Expect 18 Android Phones by Year’s End,” “BlackBerry Storm 2 could hit as early as June,” “HTC: Touch Pro 2 coming to North America,” “Samsung Unveils World's First 12 Megapixel Camera Phone,” etc.

Throw in Netbooks, gaming devices, cameras and you’ve got a rising tide of mobile data that is unprecedented. Dare I say, it is even Fundy-esque*!

That’s my .02!

Martin Suter

(*Canada’s Bay of Fundy purportedly has the highest tides in the world.)

Martin Suter is vice president of business development at BelAir Networks, the global market share leader in service provider Wi-Fi, enabling 3G data offload for wireless carriers, quad-play for cable operators, and managed WLAN business services. Previously, Martin was the CEO at Cohda Wireless, where he raised the company’s profile and negotiated a licensing deal with a Fortune 100 vendor in its core franchise. Prior to Cohda, he was vice president of business development at MeshNetworks Inc., a classic tech transfer/disruptive technology success story that achieved a major liquidity event for its investors in Q4/2004 with its acquisition by Motorola. Martin also was responsible for building several high profile alliances with and for leading technology companies, including Fujitsu, Microsoft, Netscape, Sun Microsystems, and Teradata. Additionally, Martin has successfully negotiated technology transfer, distribution and/or licensing deals with companies like 3Com, BioChem Pharma, Dow Chemical, Exodus, Fujitsu, IBM, Microsoft, Motorola, Netscape and Sun.

 

Femtos: Consumer-Subsidized Network Buildout?

(Original posted at http://www.von.com/blogs/guest/2009/05/femtos-consumer-subsidized-network-buildout.aspx )

Recently, it was reported that the 3GPP, the Femto Forum and the Broadband Forum have reached agreement on standardization issues.

So what is a femto?

Wikipedia defines a femto as: “a small cellular base station, typically designed for use in residential or small business environments. It connects to the service provider’s network via broadband (such as DSL or cable).”

Femtocells are the carriers’ implicit admission that they can’t deliver either the coverage or capacity required for an optimal experience to consumers or enterprises. So, the “answer,” is to shift the network build-out and backhaul costs to consumer.

But aren’t femtos already ubiquitous today? What is an 802.11 AP, if not a femto? T-Mobile “gets it” today, with its UMA service T-Mobile@Home, which allows customers to use Wi-Fi instead of cellular, for calls made from home. It shifts capacity from T-Mobile cell towers to indoor Wi-Fi APs, and the benefit to the consumer is that that they’re not paying for cellular minutes.

Wi-Fi APs deliver wireless capacity throughout homes, enterprises, hotels, venues, retailers, restaurants, airports and Main Streets around the world. Devices of all kind are able to connect seamlessly, and they leverage the existence of wired broadband backhaul.

So another way of looking at it may be that a “femto” is a cellular AP. But if I’ve got a Wi-Fi AP, why would I want or need a femto, especially if it’s something for which I have to pay?

Do you think wireless operators will subsidize femtos? Not a chance. Look at the PVR or modem/gateway model for your answer. Even if you don’t have to fork out the upfront capex, consumers will pay a monthly rental fee to cover the cost of the cellular base station. Once again, the cost burden is shifted to the consumer, but in this case it’s the costs of a network buildout and backhaul.

As a mentor of mine once said, “I can see how that’s good for you, but how’s that good for me?”

That’s my .02!

Martin Suter

Martin Suter is vice president of business development at BelAir Networks, the global market share leader in service provider Wi-Fi, enabling 3G data offload for wireless carriers, quad-play for cable operators, and managed WLAN business services. Previously, Martin was the CEO at Cohda Wireless, where he raised the company’s profile and negotiated a licensing deal with a Fortune 100 vendor in its core franchise. Prior to Cohda, he was vice president of business development at MeshNetworks Inc., a classic tech transfer/disruptive technology success story that achieved a major liquidity event for its investors in Q4/2004 with its acquisition by Motorola. Martin also was responsible for building several high profile alliances with and for leading technology companies, including Fujitsu, Microsoft, Netscape, Sun Microsystems, and Teradata. Additionally, Martin has successfully negotiated technology transfer, distribution and/or licensing deals with companies like 3Com, BioChem Pharma, Dow Chemical, Exodus, Fujitsu, IBM, Microsoft, Motorola, Netscape and Sun.