Further to my previous post on lasting 100 years, I’m reminded of another company I met last year. I will not get the story exactly right, but the gist of it:

The company was founded by a PhD student who, on completing his research, was keen to try and commercialise his work. He raised a small amount of money from a local investor (in Belgium) and set off to build his company. He hit break-even in 3 years (like we always project in our business plans!), I think it was about Year 5 when his investor had to pull out of early stage investing and forced the entrepreneur to find another buyer for the investor’s stake. 

The company developed and progressed each year and eventually did an IPO in about Year 10. From that point (we are now in Year 20!), the same entrepreneur has continued to take the company forward showing nice progression of revenue and earnings each year and now has substantially more than Euro 100m of revenue and is nicely profitable.

The company (www.irislink.com) has core technology in the area of Optical Character Recognition (OCR) and over the years has developed further capabilities in the area of document recognition and processing.

From a VC perspective, I was really impressed with the technology and the founder. We are used to thinking in terms of jumping in, getting things going quickly and trying to get out quickly and in so doing, we may often be out of synch with what you might call the natural rhythms and processes of company growth. 

In this morning’s post I received a company annual report. It brought back memories: a thick, bound, glossy company report. I haven’t seen one for … well, I guess I haven’t seen one since this same company sent me their report last year. Companies tend not to send these things out anymore, but this particularly company is a printing company that prints, amongst other things, company annual reports.

So, I was unwrapping it and heading to the recycling bin with it, but couldn’t resist having a look at the first page to see which way results were going. Surely an old fashioned business like this must be having a hard time? Actually, their 2008 figures are up and they seem to be doing OK. I set the report to one side so I can have a look later and see if I can figure out what they are doing right.

Of more interest was a statement by the CEO in the opening paragraph: the company has just completed its first century of operation and is looking forward to its second. I think that is remarkable. I know that there have been studies into how companies survive over long periods of time, but I haven’t got around to reading up on the subject.

In our new, digital age, things are so much more ephemeral. Fashions change quickly, companies rush to create (or follow) the latest consumer craze and at the end of the day, when stuff doesn’t work or ceases to be interesting, we delete and move on (except Palm which never seems to go away regardless of how poorly it performs). I’m not saying that the old days were better, I’m just finding it an interesting contrast.

So, anyway, congratulations to Patrick Holm and his team at Elanders in Sweden!

The world of mobile gaming is something that I’ve observed and had an interest in for quite some time. In my days at Softbank, a colleague made a very early investment in a mobile gaming company, but the year 2000 was probably a bit early to make a bet on the sector. There seemed to be a flurry of interest and investment in 2004/2005, but most of those companies seem to have fizzled out. Some would say that 2008 might still be a bit early to make a bet, but it feels to me as though things are changing.

About 9-12 months ago, it felt like the market hit a wall. The primary gaming platform, Java, has always been a joke in terms of performance and has suffered from the fact that the “write once, run anywhere” promise was a complete farce. In summary, the content was usually mediocre, performance was patchy, provisioning was a farce, billing was a complexity… it just didn’t make sense.

Now things are changing. The key change for my money is the iPhone. My friends are tired of my harping on about the iPhone, but it is a game changer. I have my gripes about the phone, but compared to what we have had in the past, it is phenomenal. Apple leveraged its focus on end-to-end control of the entire product and, critically, leveraged the massive installed base of iTunes software to deliver a coherent proposition. From a relatively small installed base (approaching maybe 10m compared to few hundred million shipped by Nokia each year), iPhone users represent a disproportionately large part of the market for mobile apps.

With iPhone shaking things up, we also have Nokia coming in with a revision of its NGage proposition. NGage launched (and flopped) in 2003, but the platform has re-emerged as a gaming platform that will run on high-end Nokia devices. The NGage game player will be downloadable and games can be purchased for $9-$14.

Then we have Google/Android entering the fray. I do not have high hopes for that, but they clearly have the iPhone model that they can try to replicate and I wish them luck.

The big question… what about the big chunk of the market not covered by NGage or iPhone? There is a big gap in the strategies of Samsung, Moto, SEMC and LG. More on this anon I hope.

In the meantime, here are some quotes and stats:

- Sega’s Super Super Monkeyball game sold more than 300,000 copies in 20 days on iPhone. The game costs $10 and illustrates the credibility of iPhone as a target gaming platform.

- Sony Ericsson launched its W760 Walkman phone with a 2.2-inch screen and dedicated gaming buttons and will sell games from Electronic Arts for $6.99 among other games in its content store. 

- On a monthly basis, roughly 40m mobile users in US and Europe download and play a game on a mobile device. Over the course of 2007, approximately 22% of people played a game on their mobile phone while approximately 9% played games that they had downloaded. (M:Metrics).

- Around 5-7% of mobile users in US/Europe buy mobile games regularly whereas in Japan and Korea, the rate is 10-15% (Gameloft CEO)

- Juniper predicts market size of GBP 5bn for mobile games by 2009.

- Mobile gaming is expected to be worth $6bn in 2011 (Understanding & Solutions).

- Informa expects revenues from mobile gaming to grow 23% in 2008 to reach $4bn.

- By 2012, mobile games will be a $5bn market (Gameloft CEO).

- Gartner believe that the market will be $10bn by 2011.

- Guitar Hero Mobile (from Hands-On) recently exceeded 1 million downloads across all wireless service providers (mostly in the US and mostly BREW). This game costs $11.99 for Verizon customers and also comes in a version that requires $4.49 monthly subscription.

- The vast majority of mobile gaming revenue (90%) comes from purchases on carrier-maintained portals, while the remaining 10% comes from independent gaming sites. That’s going to change–by 2012, 72% of gaming revenue will come from carrier portals, and 28% will come from independent sites. (Parks Associates).   

- Only 12% of the time mobile phone users spend on their devices goes for voice communication, compared with 37% messaging, 16% multimedia, 8% browsing and 4% games. (Data from  Nokia’s recent “Smartphone 360″ study)

- The cost of producing the average mobile-phone title ranges from $200,000 to $2 million, far less than the average $10 million spent developing a game for a format such as PlayStation 3 or Xbox 360. 

After my last post, a couple of people contacted me and suggested that it should have been broken down into about 10 separate posts and asked me to give them a couple of months to read it. So, here is a short one…

A government study outlining the high cost of converting the UK to high speed broadband suggests that getting fiber to the cabinets near the first 58% of households could cost about £1.9bn. The next 26% would cost about £1.4bn and the final 16% would cost £1.8bn. I think that was supposed to sound outrageously expensive, but it seems relatively OK compared the the amount of money that mobile operators blew on 3G licenses for no good reason. The challenge for the network providers who need to make this investment is to bundle the high speed pipe with some service that allows them to make money.

As regards high speed broadband, unfortunately I’m probably in the final few % and, for the foreseeable future, stuck with my 512kbps broadband, with actualy speed of around 200kbps if I’m lucky (and 0kbps if it is windy). This is a bit of a liability when it comes to really understanding as an investor how the availability of proper broadband will impact the consumer and the world of entertainment and media, but I try to compensate by visiting friends. I’m sure that people who lived in my house 100 years ago probably used to go to town to marvel at the domestic use of electricity.

I usually find the various market research stuff that floats around is relatively useless as stand-alone bits of  information. I used to wonder who paid for that stuff, but over the years have learned that the money tends to come from the companies that want to appear in the list of recommended vendors at the end of the research report. The numbers tend to be more interesting when considered at a more abstract level and it may even be possible to infer something meaningful by looking at the number of projections in a particular space and their spread, but I haven’t had time to refine my thinking on that one.

For now, here are a few interesting data points in terms of market value for Mobile Social Networking…

- The global market for Mobile Web 2.0 (social networking, user-generated content, mobile search and mobile instant messaging) will increase from $5.5 billion currently to $22.4 billion in 2013 of which social networking/UGC is expected to comprise half of that 2013 figure. (Juniper Research)

- For reference, social network advertising (in general, not just mobile) continues to be experimental to marketers, but 2008 revenues are predicted to be over $1.5 billion. One firm (eMarketer) projected that advertisers would spend $1.6 billion on social network advertising this year; in May, the firm lowered that forecast to $1.4 billion.

- In 2006, mobile social networks made more than US$1.5 billion and that amount more than doubled in 2007. By 2012 revenues generated in this industry is forecast to reach US$28.9 billion in the most conservative scenario and $52 billion in the high growth scenario. (Informa)

… Hmmm. $52bn. That is a pretty big market, but that is the global number and I suspect that it covers a wide range of activities. Indeed, that is the problem with the category of Mobile Social Networking - it is a broad, catch-all category. For reference, all global mobile revenue this year is likely to be in excess of $800-$850bn.

Here is some usage data from research and specific company references…

- % of mobile subscribers who access social networks over the mobile Internet: 1.6% (USA - 4m users), 1.7% (UK - 812k users), 0.6% (Italy - 293k users), 0.8% (Spain - 290k users), 0.6% (France - 255k users), 0.2% (Germany - 141k users). (Nielsen)

- 49.7% of iPhone users accessed a social networking site in January, nearly twelve times the market rate in the USA where the figure for smartphones in general is 19.4% and the figure for the market in general is 4.2%. (M:Metrics)

- mobikade, the Japanese ad-funded mobile social networking service that launched in 2007 in the UK, now has 50,000 members and generates 6m monthly page views in the UK (although no one I have asked has ever heard of it).

- There has been 86% growth in the number of consumers accessing social networks on their handsets in the year to the end of March 2008. That equates to 17.1 million consumers in total in six countries. (M:Metrics, numbers apply to the markets they research)

- the number of mobile social networking users exceeded 50 million, approximately 2.3% of the global mobile user population on December 31st, 2007, although some of these users were registered in multiple mobile communities. (Informa)

- MocoSpace, the social network for mobile phones, is the 3rd most trafficked site on the mobile web in the US according to web browser company Opera. According to the report, over 63% of US mobile web traffic is to social networks. The report indicated that MocoSpace is one of the top ten destinations in a number of countries including the US, UK, South Africa, India, and Indonesia.

- The same report from Opera showed that Germany-based Peperoni Software (www.peperonity.com) is” one of the most successful companies” in the mobile social networking business. The ad-funded platform contains almost 4 million user created pages with a strong presence in India and South Africa. The company states that it had more than 340 million page impressions and about 10 million unique visitors per month and that more than 770,000 users have designed approx. 4 million individual sites.

- In May, Vodafone UK revealed that Facebook was the most visited site by its mobile Internet users, with MSN, Bebo, MySpace and YouTube all appearing in the top 10. 

… I’m told that some analysts reckon there are nearly 1bn mobile users who use their phone for some kind of “infotainment”, so 50m doesn’t sound unrealistic and maybe half that number in terms of real, unique users. I was going to include more company announcements, but adding together all the users of the various venture funded companies in the space quickly seems to go beyond the population of the planet.

Now for the projections of users…

- Analysts estimates that by 2012, there will be about 30 million mobile social network users in the USA from the ~18-25 age range. The expectation is that the service providers will generally struggle to monetize mobile social networks. (In-Stat)

- More than 800m people are predicted to use social networks via a mobile phone by 2012… I have no reference to the geography, but will assume it is global. (eMarketer, May 08)

- Internationally, the number of mobile social network users will frow from 525 million this year to 975 million in 2012. (ComputerWorld)

- 950 Million Users Will Access Social Networking Sites via Mobile Devices. (Pyramid Research)

And some interesting news snips… 

- T-Mobile has launched its “My Social Sites” application that “provides users with a single and easy to use interface, which allows social networkers to manage their most important sites in a simple way, direct from their mobile phone.” The application is based on a product from San Diego-based Intercasting. 

–> This raises the question of how much money might be made and raises the issue of *who* will make the money from mobile social networking.

- Vodafone acquired Danish social networking company ZYB, for Euro31.5 million. ZYB operates a social networking and online management tool that enables users to share and back up their handset’s calendar and contact information online.

–> Should note that some view ZYB as a good contacts back-up facility and are doubtful of the company’s social networking credentials, but hey, 31m Euros is 31m Euros.

Last but not least, some data points on funding…

- Pelago has raised $15 million in venture financing, money that the Seattle startup will use to expand its mobile social networking application in Europe and Asia. The company’s application, Whrrl, is some kind of city guide that also allows users to see friends on a map. Investors included the recently announced iPhone fund.

- Jaxtr raised $10 million in a second round of venture capital led by Lehman Brothers Venture Partners bringing total funds raised to $20m. The company is positioned as a mobile social network, but is biased towards enabling cheap calling. Users get a bundle of free monthly minutes and then need to pay for additional calls. The company claims to have more than 10 million users in 220 countries after about a year in business.

- Mobango Received $5.7 Million for a Mobile Social Network proposition that lets users create, upload, store, convert, share and play all sort of content for mobile devices. The company claims around 3 million registered users.

- Kyte raised $15 million in funding in Dec 07 taking total funds raised to $17m. The company has developed a multimedia service that allows mobile phone users to share video, pictures, music, or text that can be posted on web sites such as MySpace, blogs, or broadcast to other mobile phones.

… Overall, VCs invested $431.2 million into 92 mobile social-networking companies in the first three quarters of 2007 (PWC)

So, what do I think…?

- Mobile social networking will be an extension of social networking. I think the sustainable plays in the space will seek to add value to the social networking experience in general by developing capabilities that leverage specific benefits of mobile to enrich the overall social networking experience. In other words, I think it is less interesting to try to create a new social network that just works on mobile.

- The interesting companies are the ones that are developing unique capabilities that enrich the social networking experience and find innovative ways to leverage the unique properties of mobile.

 - Mobile operators have a big role to play either in supporting and facilitating or in further opening up data tariffs and getting out of the way. At the end of the day, it needs to be easy and relatively inexpensive for consumers to use data services on mobile.

- Many of the existing web-oriented social networks will try to focus on doing their own thing on mobile. Unfortunately, mobile is hard. Really hard. When they realise this, there will be some convergence opportunities and while some players will buy in a mobile social networking capability, there will be a strong residual opportunity for players on the mobile side to more easily extend and enrich the web experience with some mobile functionality.

- The party is pretty much over for new entrants into this space …

OK, I’d better stop here before I stumble across more projections or funding announcements. I’d love to know what people think.

I’ve been interested in the convergence of media and fixed/mobile telecoms for quite a while and I’m of the opinion that we are at the start of a consumer media revolution. Here, by media I mean TV and general video content and by consumer I refer to the mass market rather than those early adopters like a guy I know who several years ago had fixed a rather large satellite dish onto the roof of his shed to pick up content that he then retransmitted over the Internet to his friends. Sure, it is now becoming relatively common for the average guy to do a bit of timeshifting, especially in the US where TIVO is fairly popular and in any case, normal broadcast TV is made unwatchable by the insertion of bad ads every 2 minutes (REALLY BAD ADS… I was amazed on a recent visit to the US that advertising is still stuck in the era of the clapper ). 

The revolution in my terms is really about going the whole hog and moving from what is effectively real-time consumption of content to the world of watching whatever you want, whenever you want and wherever on whichever device. Within this new domain we will see a move towards:

(a) substantial consumption of on-demand content

(b) mobile devices becoming a coherent component of users’ broader media experience

(c) content consumption spanning multiple platforms

As it stands today, the revolution is in that phase where it is not clear who is fighting whom. Everyone is just fighting for consumer media mindshare. As a consumer I can watch a growing number of channels on digital terrestrial TV, I could pay an unreasonable amount of money to a Satellite or Cable company to have a couple of hundred additional channels of guff (oh yeah, and some sport as well). I can get some TV on my mobile phone if I buy an additional subscription for that. There is a growing amount of decent, legitimate TV content available on-line and if I bothered to hunt around I could find most things online for free. When I go out to buy a new TV I’ll be offered an internet connected TV that allows me to connect to on-demand services that have done a revenue share deal with the TV manufacturer. My ISP sent me a free internet-connected PVR for renewing my broadband subscription and that device connects to the ISP’s video on demand service. My DVD rental subscription now includes a video download service. The new WiFi hub that I bought acts as a media extender and also connects to some kind of on-demand video service if I have a compatible PVR and the new home PC that I unfortunately purchased before I saw the light and went over to Apple appears to have some kind of half-baked media aspirations (I shouldn’t get started on this, but it is hard… I mean, I have seen some products that look like they are designed by committee, but all of microsoft’s products seem to have been designed by committees with a dynamic membership base).

Basically, it is all a mess.

I’ll try to lay out my view of the world in a few separate posts in case anyone is interested to know what I think!

One of the things I’ve learned from experience (several times now) is that managing software development projects can be challenging. With an early stage company, for example, it is easy to get excited about a working bit of software and overlook the fact that the software is really just prototype and works under a very controlled set of circumstances. Sometimes the founder doesn’t realise that the software is prototype grade. I’ve seen cases where an early stage investor jumps in behind an interesting project expecting a market launch within a couple of months only to be disappointed to discover that they have maybe 12-18 months of solid development work ahead of them if they want to have a serious product.

So, I consider it essential to understand the real state of play with development when making an investment and I’m really keen to ensure that the team can manage a development process that (a) gives a reasonably accurate projection of time and resources required, (b) can adapt as the company’s perception of market needs changes and (c) can scale up to incorporate more than just the founder. All of these points are essential and I’m sure there are others, but point b is critical because many companies go through a radical transformation in the early stages of engaging with the market as they learn what the market does/doesn’t value. Hence the importance of the now popular Agile development processes that revolve around a more dynamic planning cycle and a quicker release cycle.

Unfortunately, I think that the growing popularity of Agile approaches to development are used in many cases as an excuse by developers to just make things up as they go along. As part of some due diligence, I recently asked a company to provide me with details of their development process and how they managed things and received a one line response along the lines of “we do not have any documentation because we take an Agile approach to development”. To be fair (in case they read this!), when I probed they did have more substance and were, in any case, still in that phase where everything can fit in the heads of two guys anyway.

Having thought about this and obtained some input from a project management guru (thanks Matthieu!)…

- I totally agree that Agile makes sense, particularly if development is mostly internal and within a small-ish team. I also agree that it can work in much larger teams with some external components, but at that stage probably requires as much process and management work as any other approach so is used really to enable a quicker feedback loop.

- Agile means that the design is developed/grown by the team, not given as a fixed input, so everyone from the team can take part in its elaboration. 

- Agile works best when focused on fixed time, fixed cycle project where there is some tolerance on scope.

- Agile still requires clarity around the fundamental reasons for doing the project and the overall description of the deliverable, so we need: (a) a business case, (b) user requirements & functional requirements (i.e. what the application delivers and how it delivers it - not how as in the engineering behind it - but how as in for example it must be a portal, it must allow users to do X, Y, Z etc.), (c) non-functional requirements (hardware, throughput, vertical and horizontal scaling provisions etc), (d) interface definitions (if applicable).

Even more so than in a traditional project, the benefits for each functional requirement must be understood and documented: if the scope is the only tolerance, it must be possible at any time to re-assess the project viability if feature X and Y have to be delayed or eliminated.

Someone undertaking due diligence would expect to see some form of notes regarding the near-term planning, would expect to see those notes referred to daily and available for inspection. They might be 6×5 cards used during the planning sessions, or might be in electronic form on a wiki… the form doesn’t matter so long as they exist, are followed, and are dynamically updated.

Agile is great, but it’s not an excuse to be lazy.

As someone interested in launching new businesses and funding innovative technology, I keep my eye out for new bits of technology as I go about my business. Recently I spotted this machine that prints custom newspapers.

It struck me not so much from the perspective of being innovative, but because it was big, ugly and right in the middle of the shop blocking an aisle. About 10 years ago I remember talking about how the Internet would enable customised information feeds, but even back then I stayed away from the notion of a custom printed newspaper because I think that existing newspapers have a number of subtle advantages in terms of the economics of bundling (i.e. maybe it has some stuff you don’t value so highly, but then you are not really paying that much for those bits). Still, this was interesting to see from the perspective of on-demand printing and I was curious to see if they had done something innovative in the management of information sources. I assumed that if they had managed to convince someone to put one of these into a shop, it must have something going for it. Unfortunately…

… it doesn’t work, or at least it didn’t work when I was passing by. I find it remarkable when I consider how easy it is to set up a set of RSS feeds to read on my phone or on laptop and, of course, on desktop. I know that it might be harder for the less technically adept part of the market, but then that part of the market probably wouldn’t bother with this sort of machine either. 

I’ve been sceptical and dismissive about Android (”The Google Phone”). I mean, how many initiatives in the mobile industry involving more than one player can you name that have been successful. I was really disappointed that Google didn’t actually do a Google Phone and just take control of all aspects of the device. From the start I’ve been more hopeful of the iPhone approach (control, control, control).

I’m always happy to be wrong and now I am wondering. I recently spoke to a T-Mobile (USA) rep talking about the importance of the Android relationship. He claims that “…it is much more about the openness and not about the handset, so don’t worry about the handset.” They are focused on seeing hot, popular applications flowing through the pipe and will have a handset launched second half of this year. According to this exec, the UI is impressive, as is the the ability to ingest new applications and the sheer openness of it. I spoke to another exec from a partner company in the device value chain who said that he also was impressed, particularly by the use cases that Google have used to communicate their vision.

The term “openness” regularly appears in close proximity to “Android” in most discussions. I’ve decided that this probably means that the device will support third party applications, but those applications will probably still need to be constructed for specific combinations of operator and device. In other words, it will be open, but you still have to come through the front door and you probably also need a key. We will certainly see various flavours of openness.

At this stage I think I will stick to my sceptical view, but point out that this is probably move 1 of a multi-move game. Remember that dog-of-a-phone that Motorola produced with iPod software? It was a flop, didn’t work, made Apple look dumb and made Moto look incompetent. It was probably a good lesson for Apple and pointed very clearly to the need to take control of all aspects when it comes to mobile.