Why the "mobile Internet" is a poor investment

Joi Ito, a shrewd Japanese/American venture capitalist, has written a great little blog-post about why he's not so hot to invest in the "mobile Internet." Basically, when a heavily regulated, big stupid phone company controls your "internet," then your ability to innovate and do cool stuff and make money is entirely predicated on the regulator's or the stupid phone company's willingness to allow that to happen. So if you're making money by disrupting something that matters to the phone company or one of its entrenched partners, forget about it.

The reason that we have vibrant startup driven innovation is because the Internet is open by nature. Anyone can participate without asking permission and anyone can compete with anyone else at every layer of the stack. This DNA of open and free competition (except for the occasional semi-monopoly) is what allows startups like Google to come in and displace incumbents. If it weren't for the Internet, I'm positive that the telcos would have determined that it was the most efficient that THEY design and operate the "online directories"...
In 2006 in Japan, mobile advertising was only $330M vs Content (Ringtones, Song-tones, Games) at $2.2B and Commerce at $4.7B. (http://www.johotsusintokei.soumu.go.jp/whitepaper/eng/WP2007/2007-index.html) Although all of us are experimenting with advertising and advertising is increasing on mobile, the overwhelming percentage of money spent on mobile devices goes to paying for and the collection of payments for a small number of not so innovative products from a small number of providers.

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WillCowan

Hmmm i’ve been pretty happy with mobile net. My last few windows mobile devices have done the job nicely at 7.50 uk pounds extra a month for a gig of traffic (no run on rates and an aup that was rarely enforced).
I’m spending the next few weeks in thailand and picked up a local sim for my nokia n95 and can buy a bundle for 20 hours net access for about 3 dollars.
It’s only an edge connection (i’ve got very used to hsdpa) so i’ll use wifi to pick up my podcasts.
Opera mini 4.1 is vastly superior than the built in browser and gets me by pretty well.
As far as i’m concerned the mobile web is great.
Kyle Armbruster

RE: All the “use wifi” people:

I hear this all the time, and it must be a North American thing. There’s virtually no free wifi–or paid wifi, for that matter–available in Japan. Hell, my university doesn’t even have the wired internet in every classroom, let alone wifi.

So when Joi Ito, who lives here in Tokyo, is talking about mobile internet, he’s talking about the crap that Docomo, SoftBank, and AU are selling, which is slow (even with my 3G phone) and ungodly expensive (one time my bill went up by 1200 yen because I sat in a doctor’s waiting room and read 2 MSNBC articles–I even called the company to find out when I’d used it–that was the only time!!!).
Jesse in Japan

There are a lot of social networking sites in Japan that are cell-phone only (Mobile Game Town, Redacted Profile) or which are available for both cell phones and PCs (mixi) which are making a hell of a lot of money.

The guy who created mixi is now a billionaire (and a large number of mixi users only access mixi through their cell phones).
agger

Which is why truly open portable devices like the OpenMoko (a truly GSM phone running GNU/Linux and with wireless Internet enabled) may bring the real innovation in this camp. Privacy?

With WiFi enabled, people could speak to each other over encrypted VoIP instead of using GSM. Need to get off a bus? Have the phone ring when the GPS sensor registers you’re within 500 meters from the bs stop. Not happy about this or that? Download the source code and roll your own.

OpenMoko is not quite there yet, but it’s coming. Check this link for the slides from a great presentation of thus device:

http://www.ukuug.org/events/openmoko/openmoko-london-en.pdf
Babau

I disagree with this one. Here in Australia carriers have pretty much abandoned “walled garden” content and are just providing direct pipes to the internets.

3 mobile tried as long as they could to avoid the trend, and they’re still a bit grudging about it, but in the end the demand drove them to it.

It’s the same reason that mainstream telcos haven’t abandoned network neutrality yet. Their customers don’t want them to.
Anonymous

Wow, I guess the iPhone really did change thingsâ€¦
travelina

What Babau says about Australia is encouraging, and I hope the trend goes this way instead. But Ito’s warning makes fundamental sense:
“if we move over to mobile too quickly we’re risking moving our game to a platform where the DNA is not what we’re used to on the Internet and most importantly, putting money in the pockets of people who do not redistribute it to startups, but instead feed giant vendor ecologies instead.”
js7a

WiFi enabled devices with open architectures and free development kits, such as ALP/Ubuntu from Access Co. (formerly Palmsource) will fix this.

People will be using free encrypted VOIP and/or Skype and/or whatever open architecture replaces Skype unless they are “roaming” away from WiFi.

It is up to us, as consumers, to demand such devices. I eagerly anticipate Access’s “Riedel” device expected in 3Q08, but I fear it will only be available through Orange in Europe.

What other WiFi phone has or is expected to have Skype? (I am not afraid of eBay and their law enforcement subpoenaers spying on me yet, so Skype will do — also almost everyone I need to talk to has Skype.)
Mr. Gunn

“Hopefully the success of the iPhone has sent a clear message to the carriers, that we want open access to the ‘nets, and just a few well-designed applications that are more than just cash cows.”

Nokia/Symbian has been offering open access to the net, an fairly open development platform, and unlocked devices for years now. Where’s the love for them?
felsby

In Denmark, internet is provided by two phone companies, but also by electricity companies. Hopefully, weÂ´ll see some of the “competition”, liberals constantly assure us is what separates us from the evils of communism.
Joel Johnson

I think this was an important distinction when the walled gardens were being built, but as more phones have Wi-Fi built-in — even the iPhone, locked down as it is, will allow VoIP clients over Wi-Fi starting next month — the wireless connection is just that: a connection to the greater internet. No need to build any custom web application when the honest-to-god web is already on most smartphones and an increasing number of phone-phones.

The phone companies controlling the access via the wireless spectrum are no different than the cable or DSL providers. Which is to say: they’ll all try to screw us with levies and partnership deals.
Marcel

So what’s the difference between big, stupid, phone company and big, stupid, ISP exactly? Because really, IMO, that ship has sailed a long time ago.
minamisan

@Tenn

Nasty. What provider / phone do you use? Warn us!

Softbank (Japanese) I recommend you (don’t) try them someday.
Anonymous

Mobile Internet is actually coming along nicely in Finland. 3G coverage is close to acceptable and operators are advertising their Internet “dongle” packages for use with laptops. I think that only real adoption hindrance is lack of convenient mobile Internet devices. Web use on most cell-phones is a painful user experience at best and laptops are too large and heavy to carry around.
Clifton

Marcel: That is because, for the most part, the big stupid phone companies and cable companies have crushed the regional and local ISPs that were doing things smarter than the big monsters.

Independent ISPs are not all gone, but they’re vastly reduced in number and significance in the US, because the phone companies have gotten away with things like charging the ISPs a higher price for raw lines than they charge end-users for lines-with-Internet-access-bundled, and the FCC has allowed and encouraged them to do so. Likewise, federal laws mandated that independent ISPs should have had access to offer cable Internet service in competition with the cablecos, and the FCC not only didn’t enforce it, but banned local cable authorities from enforcing it and took their case to the Supreme Court to get a ruling that they need not uphold the law.

IMHO, the picture would look very different if we had an environment with true competition from independents; there would be no need for a Net Neutrality law if you could readily switch to an independent carrier who prioritized what you the consumer preferred, or prioritized nothing. Unfortunately that battle was fought and lost 10 years ago, before the dot-com crash, and few people were paying attention.
sonicred007

With just 5 transnational conglomerates (Vivendi Universal, Newscorp et al) + about 10 global media empires (mainly in the US) + an ever shrinking number of global advertising agencies the interests of innovation for the individual will be so far down the list soon that which phone company, ISP, mobile phone company you use to get on the internet will no longer matter as they’ll be one and the same thing.

Commercial activities on the internet were the end of the egalitarian/pluralistic internet years ago

Governments we vote in offer us nothing but more market harmony for TNCs to exploit and less cultural difference/identity… the evolution of internet for profitable gain is the latest episode

And with a crass leap of analysis… it’s almost like the vietnam war was the end of politics for people in the western developed world – LB Johnson was voted in on the largest majority backing peace not war and then he was guided by his war mongering, communist fearing advisers into an unwinnable war that made alot of money for – you guessed it – TNCs.
sonicred007

Is the Japanese experience because they are so far advanced with the use of 4G phones – certainly, it’s streets ahead of the UK market… however it sounds like we’re benefitting from not being so tied into that leap in technology
minamisan

I shudder when i think that the ‘mobile internet’ is what the real internet would be like, had companies cottoned on to what it was before it happened. my phone has an ‘mp3 player’ that only plays mp3s from the provider’s store, a ‘movie player’ that plays movies twice and then locks them (regardless of whether I’ve watched it right to the end or not) and an ‘ebook reader’ which… well, you probably know what i’m going to say next. pretty much zero content is available without paying for it and I’ve given up using it altogether.
Tenn

Minamisan-

Nasty. What provider / phone do you use? Warn us!
DreadLetterDay

Mobile entrepreneur says “err, don’t come near mobile stuff, leave it to us”.

*strokes chin*

The mobile internet is only just getting started, by 2010-11t judgements like this might be wothwhile, but unfortunately they’re just noise, griping and propaganda now.

“I don’t believe in it, therefore you shouldn’t”

The trend among operators is to open up their users and subscription facilities to 3rd parties.

Certain large operators have broken with the walled garden principle, and as we all saw with wap; when one breaks the others must follow.

basically, beware doom-mongers.

I hereby make this prediction. The ‘mobile’ internet – whatever that comes to mean – will be worth double the fixed line internet in 10 years.

*smug, undisprovable grin*
schmod

Sounds like Verizon to me. You also get their *FANTASTIC* UI.

Honestly, I think that the cubists could have done a better job on the “standardized” interface that Verizon uses.

Funny thing is that the interface is far from standard. The only common denominators are mediocrity and the color red.

Hopefully the success of the iPhone has sent a clear message to the carriers, that we want open access to the ‘nets, and just a few well-designed applications that are more than just cash cows.