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Mobile Internet Startups predicting the next big win. Sanjay Jhawar Vice President, Wireless, cirlab!. July 2001. The Parent: CIR Group. CIR = Compagnie Industriali Riunite one of Italy’s most significant industrial groups, founded in 1976 publicly traded in Milan (CIRX)

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Mobile internet startups predicting the next big win

Mobile Internet Startupspredicting the next big win

Sanjay JhawarVice President, Wireless, cirlab!

July 2001


The parent cir group
The Parent: CIR Group

  • CIR = Compagnie Industriali Riunite

  • one of Italy’s most significant industrial groups, founded in 1976

    • publicly traded in Milan (CIRX)

    • FY2000 : revenues €2.52 billion, capital employed €1.05 billion, net income €86 million

    • controlled by the De Benedetti family

    • mission: create shareholder value through dynamic management of investment portfolio and taking an active role in management of operating companies

    • focus on media, utilities, telecom and automotive components

  • some major telecom and new media investments by CIR:

    • L’Espresso/Kataweb (49.6%)

      • leading Italian portal with 256 million monthly page views & 6.6m unique users (March 2001)

    • H3G (12.9%)

      • 3G wireless license winner in Italy, currently building mobile network. JV with Hutchison Whampoa (who owns 78.3%)

    • broadband access providers : eVia and CasaWeb


  • De benedetti group success stories
    De Benedetti Group Success Stories

    • (Hutchison, CIR)

      • recently awarded 3G-UMTS operator license in Italy

      • Europe’s largest wireless market with 73% penetration

    • (now part of Vodafone Group)

      • established in 1994 within Olivetti

      • 2nd wireless operator in Italy and Europe with 10+m customers, 43% market share

      • largest value creation in Italy since WW II

    • (now owned by ENEL/Wind)

      • established in 1995 within Olivetti

      • the 2nd fixed line operator in Italy with +5MM customers

      • acquired by Vodafone in Mannesmann takeover, recently sold to Wind for $6.5bnCorporate Venture Capital Fund

      • established in 1985 to focus on emerging technologies

      • total investments for $200MM

      • 29% IRR since inception, 35% IRR since 1992


    Who is cirlab
    Who is cirlab?

    • cirlab! is a seed and early-stage value-added venture investor founded in 1999 and funded to €30m by CIR Group, focused on

      • wireless Internet services, applications and software technology

      • digital media and broadband content

      • other software and services

    • Objectives

      • invest in European, US and Israeli businesses where Europe is the major market

      • exploit Italy’s mobile market size and our connections here and elsewhere

      • be active partners in building the business, spending a lot of time outside of board meetings working closely with management

    • Team backgrounds

      • seasoned entrepreneurs, technologists, marketers and finance professionals with top-level operational experience in the US and Europe in our chosen sectors

      • extensive personal networks in Italy, UK, US, France, Sweden, Israel and elsewhere



    Current outlook for mobile internet
    Current outlook for mobile Internet

    • 3G delayed, slow start to GPRS

    • Operators with high debt and declining ARPU cutting all non-essential spending, looking to share 3G radio access networks

    • Nokia, Ericsson, Motorola, Siemens, Lucent, Alcatel cut earnings estimates, downsize and cut back vendor financing.

    • Comverse warns but so far nothing from Openwave.

    • Market slump causing venture investment slowdown : many startups struggling to raise money.

    • European wireless startup investments (data from Tornado Insider):

      • €171m invested in March

      • €227m invested in April

      • €127m invested in May

      • €92m invested in June


    Active mobile internet subscribers

    DoCoMo 23.0m

    KDDI 7.2m

    J-Phone 6.7m

    Shinsegi (Korea) 0.5m

    Sprint PCS 1.3m

    Verizon 1.0m

    AT&T Wireless 0.6m

    Nextel 1.1m

    BT Cellnet 1.5m

    France Telecom 0.7m

    Telefonica 0.5m

    Omnitel 0.1m

    TIM 0.1m

    Others 1.65m

    Total 46.0m

    Active mobile Internet subscribers

    Source: Motorola 5/01


    Current outlook for mobile internet1
    Current outlook for mobile Internet

    • Regular mobile Internet users in Europe growing from 2.5m in 2000 to 170m in 2004 (Forrester, 9/2000)

    • GPRS commercial network launches in several countries, many in soft launch

    • GPRS smart phones finally coming at the end of this year to Europe?

    • NTT DoCoMo on track for October 3G commercial launch

    • High hopes for XHTML (WAP/iMode convergence), Java phones, instant messaging, MMS

    • Killer app is still mobile email – but now for enterprises. Momentum behind standardised mobile middleware from IBM, Microsoft, Oracle

    • 2nd generation operator mobile portals rolling out

    • European mobile ASP’s iTouch (UK), Acotel (Italy) & Aspiro (Sweden) had successful IPOs in last 12 months.

    • No shortage of VC funds waiting the right mobile investment opportunity


    Predicting the next big win

    Complete solution

    partners already spending big money promoting the category – but missing the piece that unlocks the whole value chain they bet their business on

    Compelling business driverbuyers take risks to spend money with a startup that was budgeted elsewhere

    Buyers

    Value chains

    Gatekeeper position with few current competitors and with technology and other barriers to entry

    End-users

    Technologymegatrends

    End users actually caresolves a real (not imagined) need. Structurally improves

    value for money.

    Go with the wind not against it

    leverage long term investments made by others.

    Predicting the next big win

    Market timing is critical.

    Advanced technology is not enough


    2 5g operators spend money on
    2.5G operators spend money on?

    • Subscriber acquisition in highly penetrated markets and for newer entrants

    • Subscriber retention and ARPU protection for established players

    • Manage GPRS expectation gap – optimized applications

    • Avoiding SMS > GPRS revenue transition issues

    • Threat from internet portals – subscriber ownership

    • Migration of legacy architectures to Internet accessibility

      • Voicemail, IN, billing

      • Working with their portal partners, introduce new applications on Internet time yet integrate with an existing telecom architecture

      • Integration of user experience across architecture


    3g operators spend money on
    3G operators spend money on?

    • build brand - new technology image

    • rapid time to market

      • start generating cashflow asap to cover interest payments

      • new entrants must get established before incumbents can migrate legacy systems

    • fill bandwidth

      • price to stimulate demand, maximum possible proportion of data revenue

    • minimize costs of providing commodity voice services

    • capture customers from 2.5G

      • new entrants encourage number portability

      • allow users to migrate existing services with better QoS

    • new terminal types to support new applications

      • reduce costs of software upgrades

    • open services mode for new entrants

      • differentiated middleware, external apps

    • improve periods of under utilization


    Other motivated buyers
    Other motivated buyers

    • MVNO’s

      • Service differentiation without Radio Access Network

      • Subscriber acquisition

      • Cross branding tie-ins

    • Well funded mobile portals and ASP’s

      • Especially operator owned entities eg Vizzavi etc.

      • Application integration with telecom services, to capture operator revenue sharing

    • Large enterprises

      • Mobile office

      • Mobile business process support - vertical applications


    End user value for money

    anywhereanytime

    productivity

    entertainment

    community

    personalization

    content adaptation

    difficult to configure

    difficult to use

    End-user value-for-money

    special device

    +

    • Reduce airtime needs, device costs

    • Allocate bandwidth to higher value services

    • Increase dynamic personalization

    • Address intrusion

    • Careful with easy of configuration and use, intelligent design for latency etc.

    personalized

    dynamically context aware(relevant, appropriate)

    airtime

    urgent

    extra monthly fee

    value

    cost

    intrusion

    -

    delay


    Value chain location based services
    Value chainlocation based services

    • Still evolving

    • Several pieces not yet in place

    • Issues not yet well addressed

      • cost of location sampling

      • push services

      • privacy/availability

    apps

    transactionand billing

    positioningtechnology

    locationmiddleware

    proximity detection

    privacy & availabilitycontrol

    appplatform

    CPSSnaptrackCellpoint

    Signalsoft

    Xypoint

    InirU

    iProx

    Teltier

    Personity

    Phone.com

    MicrosoftIBM

    Sun

    Webraska

    Akumitti

    ItsAlive

    GeePS

    Airflash

    uBmobile

    Portal s/w

    Geneva


    Value chain mobile advertising
    Value chainmobile advertising

    • Early days

    • Many pieces not yet in place

    • Issues not yet well addressed

      • privacy

      • anti-spam

      • reverse billing to advertiser, or credits to users

      • balance between richness of media and cost of delivery

      • integrating multiple touch points – TV, billboards, Bluetooth, web, print

    availabilitycontrol

    contextawareness(e.g location)

    contenttransfor-mation

    pushservices

    brandowners/retailers

    advertisingagencies

    mediabuyers

    profiletargeting

    privacycontrol

    Phone.com

    CMG

    Ecrio

    Airflash

    NikeP&GStarbucks

    Phone.com

    IBM

    Oracle

    McCannJWT

    InitiativeMedia

    Mediatude

    Lumeria

    Privada

    Ayeca

    Angara

    Teltier

    Personity

    Teltier

    interactivity

    CMG, Hiugo, Iteru


    Value chain mobile media distribution
    Value chainmobile media distribution

    • Still evolving

    • Several pieces not yet in place

    • Issues not yet well addressed

      • billing other than for traffic

      • QoS

      • broadcast and point-to-multipoint to reduce spectrum needed for distribution

    Clientsoftware

    mediacreators

    contenttransform-ation

    transactionand billing

    pt-to-pt,multicast,broadcastgateway

    radioequipment

    digitalrights mgmnt

    DSPCPU

    Real Networks

    Microsoft

    Disney

    Atomfilms

    CNN

    Universal

    BMG

    Sony

    Microsoft

    Real NetworksMicrosoft

    Celltick

    Fantastic

    Streamingvendors

    Ericsson

    Nokia

    Motorola

    Lucent

    ARMTI

    Motorola

    Intel

    Analog Dev


    Technology megatrends
    Technology Megatrends

    • Signalling: telecom protocols >> Internet

      • Parlay

      • SIP

      • OSA

    • Internet megaservices – distributed component services, usable by 3rd party general internet applications

      • SOAP

      • .NET/Hailstorm

      • AOL IM, ICQ, Yahoo Messenger, MSN

    • Mobile mass storage

      • 512MB compact flash cards

      • 1GB CF size microdrives


    Moore s law not the whole story

    Hard disk storage

    capacity at constant cost2X in 12mo

    1GB

    340MB

    Mobile WAN bandwidth at constant cost: 2X in 30 mo

    2MbpsUMTSlow mobility, few users

    384kbpsUMTSpacket

    144kbpsUMTSCSD

    40kbpsGPRS

    14kbpsCSD

    9.6kbpsCSD

    Moore’s Law not the whole story

    Processor power at constant cost

    2X in 18mo

    Log(performance)

    Moore’s Law

    Mobile WAN’s and 3G phones will beclient-server NOT network computers

    t


    Insights for potential startups
    Insights for potential startups

    Critical gaps needing solutions

    • Cached media, overnight delivery, digital rights management

    • Server management of rich clients

    • Internet applications accessing telecom functions

      • Integrated voice/visual interface; billing; network presence

    • Quality of Service management on 2.5G

    • IP multicast/broadcast over 3G

    • Cross application megaservices

      • application pre-rating

      • proximity detection, cellular positioning and Bluetooth

      • mobile media distribution over multiple operators:a mobile “Akamai”

      • dynamic personalization bridging internet and telecom


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