Kerton Wireless Review - August 17, 2001

from the kerton-wireless-review dept

You may have noticed that we have a new link on the top of our page to the "Kerton Wireless Review". Derek Kerton of the Kerton Group has started writing a recurring column about recent wireless news - and we've agreed to start publishing it here on Techdirt. Kerton used to work at Disney, where he was responsible for their mobile and internet strategy and this column is a continuation of a column he used to write internally for folks at Disney. The cool thing is that he takes opinions and he wants people to argue back with him (I know I do). So, feel free to challenge him and get a discussion going. You may have noticed that Derek has started commenting and posting occasional articles to Techdirt as well and (in theory) that should continue. All of his columns will be here (including one from a couple of weeks ago that we just got around to putting up and backdating). We've also set up a mailing list if you want to receive an email version of his columns, which you can subscribe to here. This week's column talks about Metricom, wireless LAN ISPs and lots of other cool wireless stuff. I probably disagree with half of what he says in there (just kidding, maybe only a quarter) and I still let him post it - so feel free to start some sort of discussion. Click below to read his latest column.

The Current Issue

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1 Metricom and The "Iridium Model"
2 Nokia Chooses an Advertising Platform
3 WAA Adopts Standards for Wireless Advertising
4 Wireless LANs as WANs - The New Threat to Carriers
5 Coke and DoCoMo "Trick-out" Vending Machines
6 Cool Phone Gadget for Handspring Users
7 Odds and Ends

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1 Metricom and The "Iridium Model"
As I promised in my newsflash last week, I will now lay out my hopes for what's left of Metricom's Ricochet service.

There is a certain business algorithm near and dear to my heart, which I have called the Iridium Model, after the ill-fated Motorola-backed satellite telephone service. My definition of the algorithm is:
� �
10 � � A group of well-meaning technological enthusiasts come up with a neat new solution in an expensive infrastructure-based market � �
20 � � They convince management to fund the expensive proposal � �
30 � � The solution is built out, at great expense and debt � �
40 � � Although a technological marvel, the solution cannot earn enough revenues to support its massive debt load, nor provide a positive return on the capital. � �
50 � � Prices to users are raised, lowering the value of the service and reducing adoption. � �
60 � � The business goes bankrupt. � �
70 � � Someone new buys the assets at 10 cents on the dollar, and re-launches � �
80 � � Lo and behold, the prices can be lowered, adoption rises, and revenues can support the smaller investment and debt. � �
90 � � Consumers benefit. � �
100 � � end

I love this model since it reveals the flights of fancy which characterize the human entrepreneurial spirit, and since I end up with cheap access to a great service, in this case satellite phones. (It is somewhat less palatable for original investors in the first effort.)

As soon as Ricochet filed for bankruptcy, I saw the potential for the Iridium Model. A better-run company could buy up the assets at a discount, and offer the service at slightly better rates, and possibly have access to more capital to speed expansion.

Sure enough, today I read that an auction had been declared, and that for as little as $80 Million, you could buy Metricom's Ricochet patents, spectrum, and assets, for which Metricom invested $1 Billion. Now the question is who will step up and buy... ( http://www.wirelessweek.com/index.asp?layout=newsat2direct&starting=4 )

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2 Nokia Chooses an Advertising Platform
Nokia has selected a partner advertising solution to add to it's own wireless platform. The Finnish firm has agreed to integrate North Carolina-based Avesair's software into its mPlatform advertising solution for carriers. The software, called "MATCH" handles ad hosting, serving, targeting, scheduling, and delivery to multiple wireless target devices, and Nokia will offer the software as an additional feature of it's wireless content platform. The carriers will see advertising on the wireless networks as a new source of revenue. Avesair claims that the MATCH software will also be sensitive to customer's privacy concerns.

This all is a good technological step, and advances the Nokia platform one square on the big game board in the sky, but I'd like to take a big aside:

I predict problems stemming from the fact that the carriers haven't yet realized that they can't sell ads on content that they don't own. Many content companies have policies against outside agents selling ads on their content, partly because of unwanted associations between the content and the advertiser, and partly because they want that revenue, too.

What's more, carriers have been extremely reluctant to pay for the content, choosing instead to extract it for free from the creators. The zero revenue has not ingratiated the carriers with the content firms. Any content firm with a business model of giving away its content for free, and not retaining ad revenue rights had better take a time tunnel back to 99 if they're looking for market cap.

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3 WAA Adopts Standards for Wireless Advertising
In July, the Wireless Advertising Association, a group populated by advertising leaders, infrastructure makers, terminal manufacturers, telcos and platform firms in between agreed on a set of specs which would ease the rollout of wireless advertising campaigns.

A WAA press release said: "The standards being accepted today create a common set of formats and sizes so that ad creative executions and inventory will be interchangeable. Just as in print, television, and the Internet, an ad agency will write copy or create a graphic in the standardized formats that device manufactures will build hardware to accept. That creative can then run over any ad network, or with any publisher, since they will have designed their content to leave "holes" for ads in those formats."

These standards do indeed advance the execution of implementable wireless advertising, but do not address the issue of whether or how much of said advertising is appropriate in a medium where users pay for the data. But that is not the issue of the standards, and overall I think this is a positive step.

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4 Wireless LANs as WANs - The New Threat to Carriers
The current times are tough for wireless carriers and hardware manufacturers alike. The market downturn, combined with expensive and limited licensed spectrum, and technological headaches have made 3G successes seem further and further away. The balkanization of 3G technologies makes it unlikely that any effort will get global economies of scale, and it further threatens the customer's likelihood of being able to roam across multiple networks. It seems that it will be years before the carriers can offer reliable broadband-speed wireless connections to the mobile worker.

In the meantime, the wireless LAN world has seen extremely favorable conditions emerge. A clear standard, 802.11b (or Wi-Fi), has all but eclipsed its would-be rivals (HomeRF, OpenAir). Although Wi-Fi already enjoyed the support of most networking companies like Cisco, 3Com, and MANY more, recent announcements of support have came from operating system behemoth Microsoft and chip giant Intel (who abandoned the HomeRF camp). With a clear standard, interoperability becomes possible, consumers can be assured that their brand of hardware will work on any Wi-Fi network, and this encourages purchases. More purchases create scale economies, and prices drop. An ad from Outpost today promoted Wi-Fi PC cards for $90 and a home gateway-access point for $180. That price is not only reasonable for business customers, but also for consumers. In fact, I installed 802.11b network in my home last year, and have been enjoying it ever since. So prices are dropping, cross-compatibility is ensured, a speed of 11MB (vs. 3G's 384k - 2MB) is here today, the spectrum is unlicensed, and usage is essentially free.

So a question forms: are these two technologies, 3G and Wi-Fi, competitors or not? The answer is contradictory. They were not designed to be competitors, one was designed for LOCAL Area Networks, which means an office building or such, and the other was designed for Wide Area Networks, like a multi-state cellular network. However, with the current negative pall cast on 3G, and the glow cast on 802.11b, it seems that the latter is about to make an assault on the turf of the former.

A new breed of company, the Wireless ISP (WISP), is beginning to offer Wi-Fi based Internet service in high-usage locations around the globe. Mobilestar, the best known, is deploying in Starbucks around the country (as I discussed in #23, 1/01). Other firms have deployed in other locations such as Wayport (airports and hotels), SurfAndSip.com (Mom'n'Pop coffee shops), Airwave (Bay area locations) and more. For now, each firm has a wildly different business model, with prices ranging from free to $2.50 for 15 minutes (information highway robbery.) While it will take some time for business models and pricing to shake out, the key is that they all share the same underlying technology. Expect rapid growth followed by consolidation.

Each Access Point (such as one Starbucks) requires a relatively cheap installation of a DSL modem, a gateway, and a wireless access point. This can run less than $500, with additional monthly DSL fees. A user with a PCMCIA Wi-Fi card need only adjust a setting to connect to the access point. From that point, a browser request for ANY web page would return the WISP's login page. After login, the Internet would be fully accessible.

The threat to existing phone carriers is that this low-cost, easily used technology could mount a joint attack for the high-margin customers. Essentially a WAN is nothing more than many interconnected LANs. If the WISPs were to cooperate or consolidate, or if one becomes an 800-pound gorilla, Wi-Fi could offer access points in most of the locations where connectivity is desired.

A case: Let's say that a high-margin user commutes from Jersey to NYC every day, and carries a laptop so as to plug in at work, use a cell-modem to do email on the PATH train, and a DSL connection to work at home. This user is valuable to the carrier, as he burns high-margin prime minutes of cellular data use while on the train. Now imagine that a WISP strikes a deal with PATH to connect the train to the Internet, and install a wireless LAN on the train. Our user's needs are fully met by a Wi-Fi solution. A WAN solution that also works in Tulsa or Houston is not valuable to this user, but faster, cheaper, more reliable is. This user will abandon the cellular carrier in favor of the WISP.

Here's my wrap-up: The Carriers: hate Wi-Fi. They have invested heavily in 3G and 2.5G, and don't need any new problems. While they should try to adopt Wi-Fi into a hybrid solution, they will instead choose to try to resist it.

The Networking Giants: love Wi-Fi. They finally have networking products that they can sell to the consumer, the revenues are needed, and it's a brand new market for them. Their only problem is that they don't want to offend the carriers, to whom they sell their cash cow products.

The Consumer: loves Wi-Fi. Finally a technology that's fairly easy to use, works as well as promised, and is cheap. Now one can walk within range of an access point, and be up and e-mailing in two minutes.

The WISP: obviously loves Wi-Fi, as it is the core of their business. BUT, they have a difficult conundrum. Should they try to win the market and offer the most access points, or should they make deals to inter-operate with their brethren to offer more access points? I expect that in the short term, they will go it alone. Soon, it will become clear that to offer true value to consumers, they will need to have seamless interoperability (shared access rights, or "roaming") and they will consolidate or cooperate. Of course, like IM or auctions, there will be one 800-pound gorilla that chooses to go solo. Look for Mobilestar in this role.

802.11b vs. Bluetooth: These two are often incorrectly positioned as competitors; not so. They are complementary. The only similarities are they use the same unlicensed frequency and they are both radio protocols. Bluetooth was designed with specific parameters, namely cheap chip cost, low power requirements, short-range, and small size. These parameters make it well suited for manufacture into cell phones and PDAs for interoperability connections. Wi-Fi is better suited for installation into laptops for LAN connections. For more on this: Table Comparing 802.11 to Bluetooth

�

In The Next Newsletter: Hybrid Wi-Fi / cellular networks

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5 Coke and DoCoMo "Trick-out" Vending Machines
I thought it sounded like a neat idea when I first heard you could pay for soda from a vending machine using a cellular phone. Now DoCoMo, Coca-Cola, and tech firm Itochu are equipping the standard Coca-Cola vending machine with a printer, sensor, and speaker and then connecting it to DoCoMo's i-mode system, thus offering Cmode - an information terminal service.

Only after completing yet another registration, Cmode users standing in front of the vending machine will be able to collect loyalty points, buy maps, coupons, ring tones, and phone screen savers. Great, take a mobile product, and make it only work in front of a vending machine. The machines will also let you deposit cash into your Cmode account for future use.

This all sounds only slightly silly, until you add (yet another) new registration and account into the mix. The power of i-Mode is the way it allows users to be billed by DoCoMo for content and services. This is done conveniently on the (existing) monthly service bill. Why, in the name of Fuji, would a customer want a separate cash account which can only be used at Coke machines?

(http://www.mobileinfo.com/News_2001/Issue33/DoCoMo_cmode.htm)

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6 Cool Phone Gadget for Handspring Users
Parafone, from Arkon Networks, Inc. based in Richmond, Canada, has released a Springboard module that converts the Handspring into a CDMA cell phone. No big news there, since handspring has had this product for about a year. The Parafone, however, has a secondary 900Mhz cordless phone radio built in, which connects the handheld to a headset sans wires. Very cool. This is the role we expect Bluetooth to fill, but Arkon selected the more mature 900 MHz technology, which uses more battery power.

Meanwhile, AirPrime of Santa Clara has released a CDMA phone module for the Handspring too. What differentiates their offering is that it can be bought bundled with Sprint service. I like the fact that customers with existing Sprint service can use the same phone number for their Visor phone as well as their regular phone. Until now, every device I connected forced me to open a new contract and get a new number. The AirPrime unit is also software-upgradeable for future enhancements like 3G.

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7 Odds and Ends
We have all heard of the popularity of SMS messaging among Europe's youth. We have all heard of the shrinking attendance at churches in Western nations, where congregations are getting smaller, and older. In May of this year, the German Youth Branch of the Lutheran church decided on a trial to cross the trends. They offered a church service consisting of six SMS messages over GSM phones. 1,500 people signed up for the service. All I can say is: Hmmm.

Did you know that X10.com, the purveyor of those annoying pop-under ads, is among the most visited sites on the web? Using a methodology that counts the pop-ups as a page viewed, Jupiter Media Metrix has X10.com ranked as the 4th most visited online property, six places ahead of the Disney Empire. The Nielsen ratings have the site at 116. Why is this a wireless story? People like me have all the lights in their home wirelessly controlled by X10 technology.

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Copyright � 2001 The Kerton Group

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