Orbit Change Conversations

There is no doubt that mobile is the new frontier, especially in Asia, for a host of applications. However if you are a startup, getting it right has been tough. Several conditions need to be met. I was talking to a friend today about his potential mobile startup and this self-assessment scorecard took shape in my mind. Here it goes…

Vertical versus horizontal focus: I believe that startups focused on vertical solutions have a better chance of success. Blackberry is a classic example. It was narrowly focused for the initial years. It had only 165K subscribers till 2001. It reached 500K only by end of 2003. Now, of course, it’s exploding (I think it has 6.2m subs). Even ringtones started out as a niche play and then happened to become mass market.

I can hear you saying that SMS was different as it started out as a mass-market offering. But don’t forget that Vodafone had SMS free in UK for the initial period (true that they didn’t do it by design; their billing software wasn’t ready). That free window got people hooked there. This has been the story in many markets. So if you are offering a truly mass market solution, be prepared to subsidize the initial period. Obviously, this is hard for startups to do.

So score yourself 5 points if you have a narrow vertical focus, 1 point if it’s a mass market solution and in-between if you are somewhere in the middle.

Low versus High data bandwidth: Bandwidth is not free on the mobile network. If the mobile operator has a good margin maximization plan, they will first throttle data traffic, then non-emergency voice traffic and only then SMS traffic at peak time. The reason SMS gets special treatment is because it has a small 160 bytes payload and this gives terrific margins for incremental bandwidth use at peak times.

The point is that guaranteed high data bandwidth is still expensive at peak times. So unless you have a deal with the mobile operator (in effect this means that they are subsidizing the data traffic for your application) you are better off doing a low data bandwidth solution at this time. Don’t forget that Blackberry’s push email succeeded first on the extremely low-bandwidth CDPD network first.

So score yourself a 5 if you have low data bandwidth needs. Give yourself a 3 if you are a bandwidth hogger but are either immune to slowdowns during peak periods or have a subsidy deal with the mobile operator. Otherwise you get 1 or 2.

Fragmented versus Managed value-chain: iPod/iTunes is a managed value-chain. Apple has pulled together everything for you – the device and the music store. It’s not that MP3 players weren’t there before iPod but it needed somebody like Apple to bring together everything to grow the market. The mobile market needs the same end-to-end perspective, the same systems thinking, and the same managed value-chain approach.

The reason NTT DoCoMo has succeeded in Japan with a range of services that haven’t yet taken off in other places is because they have consciously applied this principle there. They have looked at a new service, and got the handset features, backend software and billing aligned and tested before launching the service. They have been able to do this because of their market clout. Many operators in Europe (some driven by DoCoMo’s vision and investment) have tried to replicate this but without much success. They failed because they didn’t have the market clout (or, as some say, vision) to pull together the whole value-chain. This doesn’t mean that it can’t be done, just that it’s not easy.

If your solution is a result of a managed value-chain give yourself a score of 5 points. On the other hand, if you are hoping that the value-chain will somehow materialize, I am afraid, you score only a 1. In case there is a value-chain organizer already in play (an industry association or a big operator/vendor) then give yourself a score somewhere in-between.

Direct versus Indirect distribution: Do you need the mobile operator to be part of your distribution? Can you do without them? Doing without them requires feet-on-street (for a vertical solution) or a big branding budget (for a horizontal solution). Doing it with them requires patience and leverage. The leverage comes only if you own content and so is suitable for music studios (like EMI), sports franchises (like NASCAR), or media (like New York Times). So score yourself a high 5 if have direct distribution. You get a middling score of 3 or so if you are indirect but have some leverage over the mobile operator. If neither is the case, then you are stuck with a low score of 1 or 2.

Total up your score. If it’s 15 or more, go for it! If it’s between 10-15 rethink your business model. If it’s less than 10, do something else.

I know it’s somewhat rash to publish a scorecard like this. The criticism will be that it’s over-simplified, opinionated and incomplete. What’s more, somebody will come back and show me with an example that this is wrong. When that happens, I’ll eat humble pie, learn and revise this model