Investing in wireless: Are you <i>nuts?</i>
Not really, writes Tim Kendall of Garage Technology Ventures. In fact, a lot of interesting opportunities are coming to market. But, he cautions, sundry technology traps still mar the horizon--so first take a look at his road map.
In today's chaotic market, where significant technical hurdles, standards debates, and business model issues still remain, it's no surprise that most wireless start-ups are struggling. Nevertheless, demand for high-speed wireless information isn't going to disappear anytime soon. Even in today's difficult economic environment, businesses and consumers demand affordable, ubiquitous and high-quality service. Unfortunately, it still doesn't exist.
Consumers are constantly frustrated by technical problems--dropped calls, broken connections, and molasses-like data speeds. Meanwhile, new wireless companies--and existing providers--struggle mightily to develop viable business models that can fund the improved wireless systems that their customers demand. Despite some successes--Docomo's iMode service in Japan, SMS text messaging in Europe, RIMM in the United States, and the increasing number of voice cellular phone users around the globe--the failures have been enormous.
Metricom, Winstar, MobileStar, and many others lost hundreds of millions of dollars for investors when they closed their doors, and many of the sector's publicly traded equipment providers are near bankruptcy.
Ironically, the bleak market and the pent-up demand for improved networks combine to present an interesting set of opportunities for venture investors. Certainly, the path to enhanced wireless systems will be littered with dozens of failed start-ups. But for savvy investors, the size of the opportunity may outweigh the risks.
VC attentions
Making sense of the complex wireless market and accurately predicting where it's headed won't be easy. But there are several areas that deserve attention from venture investors: (1) technologies that improve the integration of disparate networks such as wLANs and 2.5 and 3G; (2) hardware and software that increase network intelligence; and (3) improved infrastructure subsystems and device components that will reduce size and power consumption while increasing functionality for the network operators and end users.
Competition among scores of carriers and network builders and industry consolidation have resulted in a hodgepodge of standards and a patchwork of incompatible networks. Even now, as digital technology provides the backbone for most cellular networks, multiple standards and protocols and poor performance continue to plague consumers and carriers.
For example, a cellular phone user's server-side preferences--everything from call forwarding configurations to voicemail settings--rarely follow the individual outside their carrier's home network. And accordingly, carriers can't track--or monetize--much of their consumers' activity when they roam outside their home region.
Similarly, incompatibility issues exist throughout the entire communications system. Technologies that integrate LANs, WANs and cellular networks will provide an interesting opportunity as corporations and carriers attempt to provide increased access to information for their employees and customers.
The handoff, however, from local networks such as 802.11-based systems to sophisticated carrier infrastructure or wide area data networks isn't trivial. Vendors must not only figure out how to integrate legacy systems with modern, data-driven network equipment; they must deal with connecting networks that are operating at various data speeds and do it in an environment where standards discussions often remain unresolved.
Consumers want it all--unchecked flexibility and high levels of service--but ultimately they are less concerned with bells and whistles on one network if their service doesn't follow them without a hitch.
Wireless networks need improved intelligence to satisfy the needs of their consumers. At the network layer, intelligent packet routing at every node will result in higher data integrity. Improvements in data transmission methods technology can help eliminate the brief, but annoying, hiccups that frequently plague cellular phone conversations. And as we wait for disjointed networks to become more integrated, software-based, packet priority schemes can compensate for inefficiencies and optimize the transmission of critical data.
On top of the intelligently managed packets, value-added services will enhance a carrier's revenue potential. Akin to the wire line world, businesses already demand VPNs (virtual private networks), instant access, and QoS (quality of service). Unique to wireless, they'll also want context-sensitive information delivery--also known as presence--and device-dependent provisioning, the ability to tailor data and its delivery method to a particular device.
As carriers offer their customers more sophisticated services, they will need more granular monitoring capabilities to track usage. These technologies will enable carriers to properly bill for network usage and accompanying services.
Another opportunity exists at the device component level. In today's market, handset manufacturers use a modular approach to build devices that suit various segments of customer demand. As chip technology becomes more powerful, manufacturers will be able to pack DSPs and power amplifiers onto a single chip, and more fully integrated (or component-free) mobile gadgets will become commonplace. Additionally, device makers are increasingly using programmable logic to provide handset flexibility and additional features with minimal service interruption and consumer hassle.
The path to innovation in the wireless arena won't be easy. But the revenue-generating potential of systems that provide high-speed data service, increased coverage, improved interoperability, and value-added applications will continue to attract entrepreneurial efforts and investors' dollars.