Industry Standard - Going Mobile to Survive

By Josh Newman
Issue Date: Jan 15 2001

Cutthroat competition among wireless startups has fostered a new class of company: The "m-integrators."

NEW YORK - Here's a pop quiz: which of the following are actual companies? Mobilocity, Mobilee, MobileQ, mobileID, MobileThink, Mobileum, Mobilize, MobileSpring or i3 Mobile (IIIM).

The answer: They all are, for now. Whether their business models are real enough to survive the cutthroat competition in the wireless market is another story. Despite the market downturn, the stream of wireless startups hasn't slowed a bit. Indeed, venture capital firm Ignition estimates it has seen nearly 3,000 business plans for new wireless companies since March.

That's a lot of hopefuls for a market that barely exists. As anyone who's tapped 125 keystrokes to log onto Amazon.com (AMZN) via a WAP phone can attest, the wireless software available today is rudimentary at best. The crowded landscape, not to mention the flawed technology, virtually guarantees the failure or consolidation of at least three quarters of the existing wireless startups.

That's not to say there isn't promise: Analysts at research firm Datamonitor estimate the global market for corporate mobile solutions will total $4.7 billion within five years. Linking company databases to PalmPilots, cell phones and other wireless devices may not be as sexy as the consumer applications that have grabbed the headlines, such as real-time stock quotes, but it will be lucrative for companies capable of solving the technical puzzles involved with integrating multiple devices, markup languages and protocols.

Given the current market conditions, the costs of developing winning wireless strategies for big business could put many small companies out of business before they get off the ground. Less money on tap means that startups will be forced to choose between hiring top-flight engineers to develop a product or hiring a sales staff to sell the product. If they can't do both, they won't be in business.

That's why the best-positioned companies may be the ones that don't sell their own products. Combining the analysis of a consultant with high-level software development, firms like Mobilocity and Stellcom are focusing on selecting the best solutions from startups and packaging them for big corporations. These mobile integrators, as they're known, could be instrumental in taking wireless services from idea to reality - or they could suffer the boom-and-bust cycle of pioneering Internet consultants such as MarchFirst, Razorfish (RAZF) and Scient (SCNT).

After a decade and a half of moderate success in computer and Net integration, San Diego-based Stellcom re-launched in 1999 as a mobile integrator. The growing economic uncertainty, says CEO Tracy Trent, has made corporations gun-shy about spending decisions. Stellcom plans to take advantage of the wireless confusion with a simple three-step plan: Do corporate chief technological officers' homework for them, cut sweet deals with wireless software firms desperate for revenue and maneuver more quickly than the consulting giants.

Internet consultants made their name during the dot-com boom similarly: by being prescient enough to understand the groundbreaking changes the Internet would bring (or at least convincing their clients they did). The wireless Internet, by comparison, seems an easier sell. The question facing chief technology officers is not whether to go wireless, but which of the dozens of strategies to pursue - and when. Since many CTOs have their jobs today because their predecessor was too slow to realize the Net's potential, nobody wants to be left waiting on the wireless shore.

But even if their central idea resonates, wireless companies still have to survive until they have something to integrate. The revenue drought has many startups scurrying to ally with competitors. For example, many observers predicted Tantau, a wireless-banking specialist, would go public in 2001. But instead it recently agreed to a $384 million purchase by 724 Solutions (SVNX). And Xypoint, which develops location-tracking technology for cell phones, is another wireless IPO candidate that has agreed to be acquired.

Those that want to avoid being swallowed may need the help of a mobile integrator - giving the integrators the upper hand in these kinds of negotiations.

Mobilocity CEO Omar Javaid believes so strongly in the opportunity for mobile-integration startups that he abandoned the security of a Big Three consulting firm to launch his New York-based company. Formerly a senior consultant with Deloitte Consulting, Javaid says other wireless startups flying solo are in precarious positions. Given the mayhem in the public markets, many small companies don't have the resources to develop more than a small piece of the wireless data puzzle, even while they claim to have "end to end" solutions.

"I spoke to a [CEO] who has 25 people, but his product is basically a tool," Javaid says. "Don't get me wrong. It's a useful tool, but what he did you could do with five people. Their financial model called for 300 people and a billion dollars in revenue in 2002. Yeah, right."

So why trust a startup integrator like Mobilocity rather than established firms like Andersen and Deloitte? Javaid is counting on Mobilocity's sharp focus to give it the jump on the big consultants. "Five or six years ago, they would have thought Vignette (VIGN) was a restaurant, not a platform," explains Javaid. "We're actually much further along than they are. Where they may be larger, we have the purity of focus."

That focus is likely to be crucial. The fate of Internet consultants MarchFirst, Razorfish and Scient, which have seen their clients bail and their share prices plummet, doesn't bode well for their wireless counterparts. One problem is the nature of the business: While lengthy initial contracts may prove lucrative, Stellcom and Mobilocity could see revenue fall after initial wireless systems are put in place. As market leaders emerge in the wireless software market and develop more complete solutions, integrators will face stiffer competition and be less able to dictate the terms of their deals.

There's also a labor shortage. Wireless engineers don't come cheap. The complexity of integrating voice and data from PC to cell phone and back requires knowledge in numerous areas, not just a crash course in HTML. You can't build these companies on the backs of undergrads from Stanford or MIT.

To attack the complexity problem, Mobilocity created what Javaid calls the "Mobility Lab" in New York City, dedicated to testing which mobile programs stand up to the rigors of practical use. (It's actually less like a lab and more like a mechanic's garage in a Wall Street office.) There, Mobilocity's engineers tinker with the software motors and get their hands greasy.

Both Stellcom and Mobilocity have the ear of major investment banks. Morgan Stanley played a big role in Stellcom's $50 million round of funding in November. J.P. Morgan not only invested in Mobilocity's $21 million second funding round last September, but is also one of its largest initial customers.
But that kind of backing goes only so far. In a fast-changing landscape with many potential solutions, numerous protocols and at least a dozen competing devices, the mobile integrators still have their work cut out for them. After all, today's integrator could be tomorrow's disassembler.

Josh Newman is a senior editor at Unstrung.

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