I remember pitching to investors back in the early days of Trilibis (2004 & 2005). When we told them that we had a publishing platform (SmartPath®) that was able to overcome much of the fragmentation of platforms, networks, and devices, many of them pushed back, believing that the mobile phone computing space would go the way of the PC internet; eventually there would be an adoption of network and device standards, and that the market would settle on one dominant platform (ala Microsoft Windows for PCs) with a couple of niche offerings (Mac, Linux). We had always believed that this massive convergence was unlikely to happen in the mobile space, and that instead we believed that fragmentation would accelerate and proliferate in the future.
Well, the future is now the present, and while we may have been wrong about some things, we were right on the money in this case. Fragmentation has become an enormous challenge in the mobile data world. Android, BlackBerry, Windows Mobile, Symbian, iPhone, mobile web, Java, BREW, the list goes on, and the OS/application platform issue is only one dimension of fragmentation. The challenges of numerous screen sizes and unique APIs on devices, the multitude of carrier publishing guidelines and network requirements, and literally scores of different browsers have substantially compounded the problem. I won’t bore you with a detailed explanation of every dimension and element of fragmentation... it is not the most important question. It’s here, it is real, and it is growing.
The more important question is: WHY is this space so fragmented, and (the related corollary question) WHY has it not converged on some set of standards?
To answer this question, we must look back to the lessons learned in the wireline PC Internet industry. Most of the high-speed wireline ISPs (on the cable modem side: Comcast, Time Warner (Roadrunner), Cox and others; on the DSL side: all of the baby bells) were investing in network infrastructure, looking to displace the slower dial-up companies that were doing both network connectivity and content programming. This took enormous amounts of capital investment, much of which was financed with debt.
Today, we see that these ISPs have been relegated to “dumb pipe” status, are laden with heavy amounts of debt, and often have a difficult time differentiating their offerings from competitors. We even see some of these now-commoditized ISPs trying (unsuccessfully) to institute slotting fees to prioritize the traffic of some of the largest web content companies, and bandwidth surcharges to consumers who use “too much”. The wireless operators have taken notice as well, and continue to invest dollars and human resources into content programming, in an effort to differentiate their respective offerings and avoid the commoditization that wireline ISPs have suffered. This differentiation has largely been built on technological fragmentation.
There is more to this story, though. Let’s closely inspect the “box makers” such as HP, IBM, Dell, Gateway and the plethora of niche PC manufacturers. A quick inspection of the financial results of these companies will make you realize that it has been a “race to the bottom” with massive price wars and cost cutting methods. Just several days ago, HP announced its latest Compaq Mini netbook will sell for $.99 if you sign up for a 2 year mobile broadband plan with Verizon Wireless. Noting the failures of the PC industry, Amazon is already negotiating hard with content providers for its Kindle so that it does not become that dumb pipe. Currently Amazon takes 70% of the subscription revenue while reserving the right to re license the content to other device makers. Apple may be making more money giving away content (apps) on the iPhone than the iPhone itself. The mobile OEMs do not want to repeat this story and thus continue to innovate on form factor, screen size, keyboard, custom APIs, browsers, and many other aspects. More recently, we observe handset makers like Apple and Palm differentiating on software in addition to hardware.
So where does this leave us? Whether we like it or not, differentiation from carriers and OEMS is here to stay and thus we operate in a world where fragmentation thrives. To be successful in mobile data requires a solution that strikes a friendly balance between innovation and scalability. Without it, the industry is at risk because investment costs become too high to deliver returns needed to ensure survival, let alone explosive growth.
Alex: Great explanation on some of the underlying reasons behind the fragmentation. I think you're right on the money here.
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