Sprint to Hollywood and Silicon Valley: Drop Dead

Okay, that's a deliberately provocative headline, but I was very surprised this week when Sprint gave more details on the rollout plan for its WiMax high-speed network. Keep in mind that Sprint's counting on support from the technology and content industries to help make its network successful. They want lots of new devices and lots of new services to drive usage of mobile WiMax.

So, what are the first nineteen cities where Sprint's rolling out WiMax?

There's Chicago, Detroit, Grand Rapids, Indianapolis, Kansas City, Minneapolis, Baltimore, Boston, Philadelphia, Providence, Washington D.C., Austin, Dallas, Denver, Fort Worth, Portland, Salt Lake City, San Antonio, and Seattle.

Let's see, what's missing? Oh, yeah -- the country's two biggest cities, New York and Los Angeles. Plus Silicon Valley.

Hey, I'm sure there are good reasons for the choices Sprint made. I'm delighted they're covering five cities in Texas, and it's great that the critical Rhode Island market will be nailed. But if it's essential to the success of your network that you get support from the tech and entertainment industries, wouldn't you make it a priority to let people use that network in the capitals of those industries, Hollywood, New York, and Silicon Valley? I mean, Portland's a wonderful place, but if I were trying to pick a city on the North American west coast that has tech and entertainment industry presence, I'd rank it just above Ensenada and Anchorage.

So I don't understand what Sprint's doing. I want to root for them, because I like the story they tell about their future business model for WiMax, but they're making it hard to love them.

________

A couple of other tidbits worth mentioning:

HTC, say it ain't so. Jason Dunn of Pocket PC Thoughts is blogging about CTIA for Microsoft. He says HTC hinted that its upcoming Advantage product will be priced at about $800. Advantage is very interesting technologically -- it's a Windows Mobile mini-tablet, a little larger than a handheld, and could make a very nice info pad. But the right price point for that product is $299. At $800, Advantage is going to be compared to low-end laptops, and it's vastly less powerful and capable than they are. I'm very concerned that if Jason's price information is correct, HTC is going to produce yet another tweener product that'll delight no one and give the info pad form factor a bad name. I love the way HTC is experimenting with different hardware designs, but I wish they'd be more clever about the target markets.

An alternate explanation for the reported collapse of Web 2.0. Venture capitalist Peter Rip reports that Web 2.0 as an idea must be falling apart because traffic to two major Web 2.0 commentary sites, GigaOm and Tech Crunch, has been dropping since late 2006. Peter makes some other very interesting points, in particular on the difficulty of moving Web 2 from a tool to a platform. But I'd like to suggest an alternate explanation for the traffic decline he noted: Maybe those websites have just gone stale. Magazines go through cycles -- for example, in business magazines Forbes was pretty interesting in the1980s, while Fortune was dry as day-old toast left by the side of the road in Arizona. Today their positions are reversed. I think the same sort of cycles are likely to happen in websites, and may be even more frequent, because so many sites depend on a single author who could easily burn out or get distracted.

Is this the beginning of the end for RIM? Maybe not now, but... Richard Windsor of Nomura, one of my favorite financial analysts covering the mobile market, just issued a scathing recommendation to sell RIM stock.

"In order to see further upside we think RIM needs to ship around 1m Pearl devices per quarter to consumers outside of its traditional channels. We have seen no sign of these shipments."

Basically, he's arguing that RIM's dominance in the business communicator market has already been factored into the stock's value, and that to see a lot of upside it has to grow substantially in the consumer market.

I'm not as pessimistic about Pearl shipments as he is -- the early word in the industry was that Pearl was selling extremely well, although it's almost impossible to get reliable figures on phone sales. But I think he's right directionally, even though it's for the wrong reasons. The real question for RIM isn't whether it can break into the "consumer" communicator market, because there's no such thing. There are just communication users, and they use the same devices for both work and personal use. Those people make up about 12% of the population. At some point, between sales of RIM and Treo and all the copycat communicators coming to market, that segment's going to saturate, and RIM's growth will come to an abrupt halt.

The trick is predicting when it'll happen. I don't have enough data to make that call. If anyone wants to invest about $50k in some quantitative research, I could find out. ;-)

Think more creatively about new forms of telephony. Dean Bubley wrote a nice article on possible future uses of voice technology. His point, which I agree with strongly, is that we're paying too much attention to VOIP as a replacement for conventional phone calls. It's important, for sure, but the most interesting change in voice communication is likely to be the integration of voice conversations into lots of different web services. Talking will just be one of the things you do on web sites and online communities. You won't think of it as a phone call, but it'll displace traditional calls as surely as that Vonage handset on somebody's desk. The only difference is, most of the industry won't see it coming.

As they used to say in war movies, "the bullet you don't hear is the one that gets you."

After the death of the album. The mainstream media seems to be finally waking up to the main impact of the iTunes -- it enables people to buy singles instead of albums. That's a financial disaster for the record companies, because they can no longer force people to pay $14 to get the one or two songs they actually want. But I can't see how it is anything but good news for consumers.

Please excuse me if this sounds like bragging, but this trend is what I predicted last year when I looked in detail at the economics of music distribution on the Internet. In that spirit, here's what the newspapers will be reporting in another year or two: more and more new acts will be bypassing the record companies and using iTunes as their music publisher. This will let them keep about 65% of their revenue, rather than under 15%, enabling them to make reasonable money on a relatively small fan base. I believe Apple's fate is to become the music publisher of choice in the US, but the iPod installed base has to grow some more before it'll happen.

10 comments:

Anonymous said...

The HTC Advantage is not an 'infopad'. Its a laptop replacement for people who are highly mobile and do a lot of presentations, hence the large screen, VGA out, massive battery, internal hard drive, travel kit and massive price ($1500 unlocked at present). Its purely business focused, and I would hope HTC does not expect this to be anything but a massively niche product.

Surur

Michael said...

One of the (presumed) reasons that Spring is rolling out a WiMax network in Minneapolis, is that Minneapolis just recently finalized the process of creating a municipal WiFi network.. The local media took Sprint's entrance to the Minneapolis market as strong competition to the free municipal efforts. And of course the telecom's are scared as anything about governments providing their services for free...

Michael Mace said...

Surur wrote:

>>Its a laptop replacement for people who are highly mobile

You're definitely right. When I saw the size and use of Windows Mobile, I was hoping for a different product.


>>I would hope HTC does not expect this to be anything but a massively niche product.

For "massively niche," I'd say "a tenth the size of the OQO market." If someone has a thousand dollars to drop on this thing, they're probably on a corporate expense account and can trade up to an OQO for another $500 (or the HTC Shift for a rumored $1,000 more). If what you need is a tiny laptop replacement, why not go for full PC compatibility?

David Beers said...

I get the impression that you think Silicon Valley and Hollywood will only produce dogfood that they themselves can eat. (Sorry, maybe after the "Menu Foods" incident the "eat your own dogfood" metaphor has lost currency.) It's an interesting suggestion that designers, developers, VCs, and content producers can't get juiced about the business of creating a new product until they and their family and friends will be able to use the product themselves. Do you think it's really the case?

For most mobile software developers that I know, making products for devices that they will never see, much less use is the (sad) norm.

Sprint may reason that they stand to learn more by introducing WiMax outside of atypical markets like Silicon Valley and Hollywood. When I lived in Kansas years ago (and Sprint is headquartered in Kansas) new national restaurant chain concepts were frequently piloted in Wichita. Some districts in Wichita have also had nearly 100% records as predictors of national election outcomes for many decades. Maybe users in Grand Rapids and Fort Worth will give Sprint a better idea of what will fly nationwide than a bunch of San Jose geeks or screenplay-toting Hollywood types.

David Beers said...

I should add that the subtext and real relevance of my previous comment was of course this: "I'm getting WiMax before you do, na na na na nah!"

Michael Mace said...

Good comments, David. Let me explain a little more...


>>Sprint may reason that they stand to learn more by introducing WiMax outside of atypical markets

If this were a test market campaign, I'd agree with you. But it's not, the nineteen cities are the national rollout. The test markets are Chicago and Washington DC. I guess you could call Chicago a typical market, but DC? It's as atypical as Silicon Valley (if not more so).


>>I get the impression that you think Silicon Valley and Hollywood will only produce dogfood that they themselves can eat....Do you think it's really the case?

No. But they will produce better dog food if they can play with the network themselves and figure out what's yummy.

I wouldn't be so bothered by this issue if I hadn't heard a Sprint VP give a great talk outlining the strategy for its WiMax network. The strategy depends heavily on getting the tech and content industries to create new devices, apps, and content that take advantage of the network.

Sprint's going to get a lot more stuff made for it -- and much better stuff -- if the creative folks can mess around with the network. I don't think straight ports of fixed Internet apps and services will necessarily be all that successful on Sprint's network; we'll probably need new things designed specifically for what you can do on a really high-speed mobile network.

It's not reasonable to expect software developers to imagine that on their own. It's like asking someone to design a web app without Internet access.

It takes a year or so for developers to really get up to speed on a new platform and start producing nice stuff. If Sprint wanted to get good apps and content on its network at launch, it should have seeded the creative folks a year before the national launch. Instead, it looks like they won't get access until more than a year after launch. So that's two years until you start to get a good supply of cool stuff for the network.

Not the way to build demand when you're a public company that's under financial pressure from Wall Street.

So I'm dismayed that Sprint's execution doesn't seem to be tracking logically to its strategy. There are very few interesting new mobile network possibilities, and I have/had high hopes for Sprint's.


>>For most mobile software developers that I know, making products for devices that they will never see, much less use is the (sad) norm.

And I've been at plenty of conferences where you guys complained that you could create much better, higher quality, more creative apps if you had the actual hardware to play with.

I agree.

David Beers said...

You're absolutely right. Perhaps it's just that I've become conditioned to expect so many worse mistakes to be made when it comes to cultivating a developer ecosystem that this one seems relatively small.

Will Sprint allow native applications to run on these devices or just Java MIDlets? Will they require digital signing of applications in order for them to run on it's network? Will it cost hundreds of dollars and weeks of carrier testing every time a developer wants to roll out a maintainance release? Will a developer's applications be walled off inside some labyrinthine Sprint portal, for the privilege of which Sprint will demand 75% of the purchase price? Will Sprint allow developers to communicate in any way with their customers or vice versa?

These are the kinds of giant obstacles that carriers erect today to squash innovation. If Sprint stops putting these roadblocks in our path, I think the ecosystem will flourish and be able to take care of the remaining problems.

Here's a thought for the Silicon Valley developers out there: while you wait for the WiMax rollout to roll up to your door, come on out to Denver for a mile-high wi-fi love-fest. Mobile software is flourishing on the Front Range and VCs or companies like mine will put you to work. Bring your snowboards and mountain bikes. Sell the house in San Jose and buy one here for a half million less: BAM! you just bootstrapped your new startup!

Steve said...

When I worked in the midwest, we heavily leveraged the fact that stuff can get to 2 out of 3 Americans overnight from Cleveland, OH. The low cost of living, cheap and easy access to suppliers, and smart but hungry labor were all good reasons to stay away from NYC, LA, and SF.

I think this rollout is a good example of a network service version of the same contrarian strategy.

Specifically, what if Sprint figures that - given the advertising, youth culture, and media production trends already at work - price competition on and content production for the network are inevitable. That their core competence and competitive advantage has to be a brand that delivers reliable and fast network service. This seems like a reasonable conclusion.

Regarding the markets they chose. The same reasons my old firm chose to stay away from the major markets when looking for a base of operations seem to support Sprint's decision not to go into the big city business. LA, NYC and SF are geographical and demographic nightmares for the network - media savvy, bandwidth greedy geeks living in urban canyons where cellphone service sucks for good and predictable reasons. That sounds to me like a PR nightmare waiting to happen for some new broadband service.

How about this instead?

1) Figure out how to break stuff in markets that aren't profitable, 2) move into markets that are easier to serve (more profitable) early, 3) hopefully dominate a pretty sweet spot as the network goes from mainstream to Main Street.

Anyway, seems contrarian I agree. But savvy. Very savvy.

Michael Mace said...

Interesting comments, guys. Thanks.

David wrote:

>>Will Sprint allow native applications to run on these devices or just Java MIDlets? Will they require digital signing of applications in order for them to run on it's network? Will it cost hundreds of dollars and weeks of carrier testing every time a developer wants to roll out a maintainance release? Will a developer's applications be walled off inside some labyrinthine Sprint portal, for the privilege of which Sprint will demand 75% of the purchase price? Will Sprint allow developers to communicate in any way with their customers or vice versa?

I can't speak for Sprint, but in the talk I saw, their VP of broadband, Bin Shen, said basically that the network would be totally open -- any app, any device, not even a prepaid service plan required (presumably you could pay for access on the fly, the same way you do with airport hotspots).

That's why I was so excited about this network. I don't care all that much about WiMax the technology, but this would be the right business structure.


>>If Sprint stops putting these roadblocks in our path, I think the ecosystem will flourish and be able to take care of the remaining problems.

Hope so. I think they could have driven it faster and better if they'd chosen different city priorities.


>>come on out to Denver for a mile-high wi-fi love-fest. Mobile software is flourishing on the Front Range and VCs or companies like mine will put you to work. Bring your snowboards and mountain bikes. Sell the house in San Jose and buy one here for a half million less: BAM! you just bootstrapped your new startup!

We could joke round and round about this. I'd quote today's high temperature (33 degrees F / 18 C higher than yours, by the way), you'd quote commute times, and so on. But to be serious for a minute, here's the real issue that keeps so many people in Silicon Valley when they'd like to work elsewhere: Job security.

Tech companies come and go, so at some point if you work in this industry you will be laid off. It has happened to me twice so far. That's very unpleasant anywhere, but at least when it happens in Silicon Valley you know there are hundreds of other tech companies you could work at. So your chances of finding a job you like are pretty high. But if you're laid off from a tech company somewhere else, the pickings are a lot thinner. I know, I've seen it happen to friends who moved away to take jobs in places like North Carolina. When the inevitable layoffs came, they were left in nightmare situations.

With the glories of the web, it's becoming easier to be a software developer at an unusual location. You don't actually have to live in the same city as the rest of your coworkers. So some tech people are starting to have more job location flexibility. That doesn't work nearly as well for non-engineering jobs, unfortunately.

If that ever changes, though, I'm thinking north shore of Kauai rather than Denver. No offense.


Steve wrote:

>>The same reasons my old firm chose to stay away from the major markets when looking for a base of operations seem to support Sprint's decision not to go into the big city business. LA, NYC and SF are geographical and demographic nightmares for the network - media savvy, bandwidth greedy geeks living in urban canyons where cellphone service sucks for good and predictable reasons.

Could be. I'd like to think there's some logic behind their decision.

But it's not the approach I would have chosen.

David Beers said...

Looks like Nokia may throw you guys a WiMax bone.