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May 09, 2007

Blocking and Tackling in the mobile space

We just announced we secured $12mm in B round funding. We are as quietly as possible executing on our platform strategy and will be rolling out this summer. The money will enable us to broaden our capabilities. Come be a partner.

We do not currently need:
- venture debt
- recruiting services
- offshore outsourced development services
- another PR firm
...so please stop asking. And now to today's post...

“Blocking and Tackling” is an often misused phrase. Most people think it is a football reference, and use it in a business context to mean all the tactical stuff you have to do in order to “score” or “get over the goal line” or “into the end zone,” etc. In this sense, I guess you block your opponents and tackle them before they can win.

It is actually a sailing reference. A block is a pulley or set of pulleys and the tackle is the rope that goes through the pulleys. This system increases purchase while decreasing effort, like to lift a heavy object. “Blocking and tackling” means setting up all the lines and rigging on your boat before you set sail. In a business context, it would therefore mean all the preparation you have to do in order to “set sail” or “win the race” or “not sink.” It’s true meaning is therefore more strategic than tactical.

I like to mix my metaphors, and “blocking and tackling” mixes well in the business world. You need to set up your rigging smartly beforehand, because it is much harder to do in a storm out on the open sea while you are also trying to block and tackle your opponents who have come onto your ship to play football. Or whatever.

I have been thinking of this phrase differently and more directly lately, as in how many sites or services are Blocking various other “web 2.0” sites or services, a cornerstone of the value of which is their ability to connect to the sites that are blocking them. Or how many “web 2.0” sites are now Tackling the problem of discovering what their business model is. I put the term “web 2.0” in quotes to point out that it is as hackneyed a term as “Y2K” was, and I am already tired of the “we’re a web 3.0 company” jokes. “Web 2.0” is supposed to refer to a type of “two-way web” or “read/write web” company, and there have been some standout examples of massive success. I hate to see it happen, but I am seeing the term embody much more than that, now encompassing the business model, as well, which for most “web 2.0” companies that call themselves “a web 2.0 company” means “hoping to get bought by Google.” Don't get me wrong - I am high on the concept and know what it means in a positive sense, I just wonder if that is at all dangerous, as the negative sentiment is starting to creep in, the same way that “dotcom” became a loaded term, tinged with negativity.

Anyway, that’s a longer post for another time. I am mostly interested in how it relates to the mobile space.

I’ll use as an example the recent blockery of Photobucket video by MySpace. These are obviously both very successful consumer products. Some very large percentage (I have heard as much as 65%, but I am too lazy to research it) of photos on MySpace are hosted by Photobucket. MySpace is a top 5 website. MySpace’s business model is selling advertising, and they are very clear about their rules regarding third parties selling advertising on their site: It isn’t allowed. Nor should it be. Photobucket’s videos apparently had pre-roll advertisements in them. MySpace blocked them. As much as I personally love Photobucket, it doesn’t keep me from thinking that MySpace acted appropriately. Check out Om Malik’s “5 lessons from the Photobucket Fiasco.”

I love what the web has turned into. Email used to be touted as the killer app of the internet. That was when it was the most useful communication tool available. Not so anymore. As a multitude of very open and cooperative widgets and tools that enable sharing of everything from content to time and space, (like geocaching) the internet is now its own killer app, which is exactly what it was supposed to become. Like a Mandelbrot set, it is chaos, but when you step back and look at it, it works out beautifully. Everything overlaps and when you zoom in, you see how recursive it is, and how well defined even the smallest of its parts is.

It is amazing to me how “always on” the internet has become over the past few years. I remember going to Streaming Media West back in 1999 when I worked at MP3.com, when the concept of a broadband internet was a big idea. That was when Akamai looked like a really good investment. But then it wasn’t during the cold, dark winter following the dotcom meltdown. But now it is again.
(Scott Woolley’s article about Akamai in Forbes is great, btw. Read the whole thing.)

Downloading is an artifact of an inefficient market, required because of narrowband connectivity. But now think about YouTube: You don’t ever actually download anything. You just “play” and “share.” That is an important fundamental shift that has significant negative implications in the mobile space.

Search for “open API” and among the top ten results are pages explaining the open APIs of many well-known “web 2.0” companies including Flickr, Zillow, Twitter and Plaxo. (btw, I know a lot of people are predicting the quick demise of Twitter, but I personally think it is fun.) Click the link from O’Reilly written in 2000 by Rael Dornfest predicting that web APIs are the future.

The downside of open APIs is that they are typically for non-commercial use, so while it may be cool to mash up Google Maps and Craig’s List, if you intend to make money, think again.

Similarly, if a site has no open APIs but allows embedded widgets, usually the same rules apply. Every company that has a slide in their pitch deck about their MySpace widget would be smart to bear in mind that MySpace can, and will, shut you off with the flick of a switch, as Photobucket and iMeem found out recently. (iMeem is awesome by the way, and is going to be one of the biggest sites on the net in a year.)

Big sites like MySpace are interested in staying big, and they do that in part by making sure audience is not slurped off of their site in any way.

So what about mobile?
Well, do you know any other big companies that are interested in staying big and do not want their audience slurped away? (carriers?)

The internet is a broadband streaming universe of open network connected dots that all add up to value somewhere for someone, probably. This is incompatible with the mobile space, which is a narrowband island of closed network connection points that add up to value for the the owner of the network, and rightfully so.

There is an interesting dynamic evolving at the intersection of “web 2.0” and mobility.

My first observation is that wireless network operators, when they redefined their business from “providing wireless voice services” to “providing wireless services,” had to redefine their competitive matrix, as well. The PIM (address book) is the onramp to the mobile user experience. That means that wireless network operators are competing with any company that builds its value around a PIM, address book, buddy list, friend list, contacts, whatever. Cingular and Verizon are competing for their share of communication transactions with IM, VoIP, email and social networking sites, to name a few categories. But the carriers also recognize that if they can bring that user behavior to their environment, they can monetize it in a way not possible on the web. (As an example, IM is free and ad-supported on the web, but directly monetized in the mobile space.) The problem is that many web-based competitors see the network operators as more of a nuisance than an enabler. Why?

Because carriers operate closed networks. The difference between the internet and a closed wireless network is like the difference between going to the middle of the desert to go hunting and going to a private game reserve. The latter comes with a fee and they are harder to get on than simply driving to the desert. The former is fine if you like to eat snakes and coyote meat. But is it worth it?

Yes. But my second observation is that web-centric companies are just that – web-centric. There are twice as many mobile phones in the world as there are computers, but many web-centric companies do not seem to care about this simple fact. The CEOs at web-centric companies that I have talked to about this say that the mobile space is incompatible with their business model, which is to give consumers something for free so that they can sell ads. That’s a fair enough response, though I know better.

But that brings me to my third observation: On the internet, the advertiser is the customer but in the mobile space, the customer is the customer. There is a fear on the part of web-centric companies to even try to tackle the mobile opportunity because they don’t think their business model will translate. And they are right. It probably won’t. But that doesn’t mean the service won’t be valuable to the mobile subscriber. Try a different business model. Expect a different use case. Expect a different user. It is ok to ask consumers to pay for something of value, and they will.

That is what ANTHEM does, btw – we have not replicated web-based functionality 1:1, rather, we have faithfully reproduced web-based functionality in a mobile package that works better and then added features that only make sense on a mobile device. The result is a more useful communication tool. This solves two problems: 1) Carriers want the value of social networking but in a package that respects their particular constraints; and 2) Social networking providers want their users to have an optimized mobile experience and not “the web on the phone.” Mostly, for social networking sites we offer a direct path to the mobile consumer, which is harder to pave than you might think.

At EconSM, I talked to a VC who said he would not invest in any company that includes “working with wireless carriers” in its pitch. Worse in my opinion would be investing in any company that includes “going around the wireless carriers” in its pitch. While the former is a difficult path, the latter practically ensures failure. This is because the trend toward connectedness means putting network-connected applications in the mobile space.

T-Mobile this week quietly pushed an update that wiped off all non-T-Mobile-sanctioned apps. I am not sure how wide it was - we saw the effect on the Sidekick and some other handsets. That is the mobile version of blocking. It is kind of like a non-commercial API and T-Mobile is (rightfully) saying, “Yeah, that’s great that you went around us and got all those users. Now they are all gone byebye.” And the only way to tackle the challenge of working with carriers is to walk in the front door. That is what we provide for social networking providers and community sites: We are a sanctioned interface to the mobile consumer because we have done the blocking and tackling to get the job done right. At the end of the day, we just want to make the mobile device a better communication device. We think we know how to do that in our area of influence and we hope you will agree.

Posted by Shawn Conahan at May 9, 2007 10:17 AM

Comments

Posted by: DeWayne A. Nelon at May 11, 2007 07:23 AM