Where's The Beef - Making Money in Mobile

Several people have asked me, “Where’s the Opportunity in Mobile?”

Over the past few months in talking with lots of people, here are some observations:

Hardware has razor thin margins, but overall gross revenues are amazing. While currently out of favor with the Venture community, hardware is getting cheaper to innovate, but still the bar is very high for small companies to be successful without partnerships in place with the larger establish players who have the foundries and production capacity as well as the distribution channel to move volume. This makes me think that the value add is to partner with software and services to have a differentiated strategy and have some faith that content can drive hardware sales.
Mobile Payment is one of those revolution things. Evolving payment on mobile from the existing 800lbs Gorilla is hard, I think you need a rather clean slate to start and think about how to lower the friction of transacting business towards zero. Good advice from my Advisor in Graduate School and I still believe in that today.
Games for the iPhone is an interesting model. It’s very much akin to the music industry where it’s a “Hits” business. Everyone wants to strive for being remembered and transcending time across generations. But there are a lot of “One Hit Wonders” along the way that also make the business survive too. What has come about from all of this is a ripe cottage industry of indie game houses that are a gold rush of opportunity. A partner at one venture firm said, so if they are wildly successful, they make roughly $4M a year. That’s not the size of company where I can sink my teeth into. Indeed, traditional institutional venture firms need to see “Big S” potential, so the cottage industry of mobile games can certainly mushroom, and then someone can come along and consolidate.
Application Stores are en vogue in 2009. While it may be good for the consumer, I believe that is has really crystallized fragmentation in the mobile platform space. Everyone want to fight for market share and increasing top line revenue from software is a great way to stay in the game. But this also causes a lot of confusion for developers. My take is that App Stores have been great at building a place where consumers can go and buy content. The distribution mechanism great high awareness which drives lots of people to the destination. The last mile problem, however has not been addressed as well, which is merchandising. True, iTune App Store on the PC is great, but when you are on your iPhone, it’s very difficult other than to see the Top 25 Paid/Free Apps. On the Blackberry App World, they have done a better job at featuring certain applications, which is good first step, but more needs to be done across all of the stores. They need to think about their digital store like a Supermarket. The need to think about the endcap of the aisles and what to promote there as well as what to promote when a customer first enters the site.

So where to innovate in mobile?

User Experience is a hot area that will help us use our mobile device better, multi-touch screens, sliding and flipping mechanisms, vibration, motion-sensing and a whole lot more. There’s still a lot that can be done in this area and I hope that more products can begin to incorporate better User Interfaces and focus on the total User Experience.
Healthcare is a ripe opportunity where the power of mobility (networks, handsets, software, services) and sensors can provide some real innovation for preventative medicine, improving patient quality of life and calibrated dosage delivery.
Identity is another area where the mobile phone can be of high utility. People like to identify with cars, pets, and other things, and the mobile phone has certain taken a cardinal order in the ranking of physical objects.
Beyond the iPhone, there are hundreds of millions of devices that are less capable and in larger quantities than the Apple’s Golden Child. There is still real opportunities in addressing this under served market. More companies should take a page from iSkoot‘s game plan and address a much larger market than the iPhone.
Cloud computing, in my opinion, can be positively effected by all the hubbub in mobility. The data and services sit in the cloud, while your mobile device is acting as a “remote control” that sends messages to the cloud to execute things on your behalf. Uploading User Generated Content (UGC) such as messages, videos and pictures all get stored in the cloud, either to be shared to exported to something else. Data centers can thrive again and SaaS models for mobile can continue to flourish.