making money - api.ning.comapi.ning.com/files/mrjgddfzeeehhf64r8zkzinwhrv5u2cioqorvootothfxt…2 mit...

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Contents

Mobile Computing Is Just Getting Started

Google Wants a Computer on Your Face

Smartphones: High Prices, Huge Market

Making China’s Cheap Smartphones

How Facebook Slew the Mobile Monster

An Anti-iPad for India

Qualcomm Wants to Be Famous

Akamai’s Plan for a Data Fast Lane

Garmin Navigates the Smartphone Storm

Startup Boom Gives Way to Caution

... and more

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Mobile computing is the fastest-spreading consumer

technology in history. But 65 percent of the world isn’t even

online. that means the real change is only beginning.

Making Money in Mobile

a Business RepoRt on

The Big Question

Mobile Computing Is Just Getting Startedsmartphones, tablets, and wireless data plans are already a trillion-dollar business.

● Mobile computers are spreading faster than any other consumer technology in history. In the United States, smartphones have even begun reaching the group of relative technophobes that consumer researchers call the “late majority.” About half of mobile-phone users now have one.

The big question facing technology companies, and the subject of this month’s MIT Technology Review Business Report, is how to make money from this rapidly expanding technology.

Wireless carriers make money at the greatest scale. Globally, 900 of them take in $1.3 trillion in revenue each year, about four times the combined revenue of Google, Apple, Microsoft, and

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technologyreview.comMIt teCHnoLoGY ReVIeW business report — mAKing money in mobile

Intel. Yet individual device makers, nota-bly Apple, capture more profit. That com-pany’s markets aren’t restricted to one network. Its products, by bringing per-sonal computing to phones, have sharply increased their capabilities and value.

In 2007, the average wholesale price of a mobile phone was $120 and falling; ana-lysts talked of market saturation because nearly everyone who could afford one had one. But since then, prices have leapt by 50 percent, and the revenue from all mobile handset sales has doubled.

Apps and services still account for the least amount of money in mobile comput-ing. Mobile advertising brings in only $9

billion as yet. But here is where the most opportunities lie. Facebook has a monthly audience as large as any that’s ever been reached. And in January, it said for the first time that most of that audience was coming from mobile devices.

The swings in the company’s value—it was worth $104 billion at its IPO, then $42 billion, and now more than $60 bil-lion—are a measure of its No. 1 rank-

ing among apps (23 percent of the time that Americans spend on mobile apps is devoted to Facebook) and the uncertainty about whether Facebook can profit from ads on the small screen, something it has recently started to do.

Who isn’t making money is a story too. For example, Microsoft’s share of mobile computing is negligible. The company “didn’t miss cell phones,” Bill Gates said in a TV interview in February, “but the way we went about it didn’t allow us to get the leadership. It was clearly a mistake.” Gates underplayed what’s been lost. In 2009, his company’s software was on 90 percent of personal computing devices, counting smartphones, tablets, and PCs. At the end of 2012, it was on just 23 per-cent of such devices.

That was fast. Now, watching the fever lines on tech analysts’ charts cross and collide has become a spectator sport. Smartphones outsell PCs. Touch screens outnumber keyboards. Even ordinary search—Google’s great cash cow—is declining in the United States as people use their phones to search for restaurants, bus times, and weather reports.

Large companies are responding with bold moves. Google is developing Google Glass—a computer in a pair of glasses. The components are cheap, off-the-shelf. It’s not hard to make. Google hopes this

new way to use a computer tilts mobile revenue in its direction. Whether anyone will want Glass isn’t clear, but it’s worth trying. That’s because we’re still early in the mobile switchover.

How early? Mary Meeker, the Inter-net prognosticator, leads her annual set of predictions with observations on the underlying trends. By her tally, 1.14 bil-lion people own mobile computers, but another 5.8 billion don’t. Of those, 4.5 billion aren’t users of the Internet at all.

One entrepreneur with a feel for the opportunities in those figures is Suneet Singh Tuli. His company, DataWind, is trying to sell dirt-cheap tablets in India. Just as customers in the developing world skipped landlines for cell phones, Tuli thinks, they’ll skip PCs for wireless tab-lets and smartphones. It makes sense: in India only 11 percent of people are on the Internet, but just about everyone already has a mobile phone. “We’re talking about what will be their first computer,” he says.

That’s a reminder of what the real stakes are: the killer app isn’t Angry Birds but access to computing itself. Wireless smartphones and tablets allow the Internet and its digital affordances to flow into every hand, everywhere, in every circumstance. We’re not in the “late majority” yet, either. We’ve got nearly six billion people to go.

—Antonio Regalado

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Emerged Technologies

Google Wants to Install a Computer on Your Facethe search company is developing a computer in a pair of glasses. But why would anyone wear them?

● Google Glass, a compact computer fitted onto a pair of slim metal eyeglass frames, must be considered an impres-

23%Facebook’s share of the time u.s. smart-

phone users spent on apps.

More to GrowThe world’s seven largest markets for smartphone subscriptions

2011 2012

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150

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technologyreview.com MIt teCHnoLoGY ReVIeWbusiness report — mAKing money in mobile

sive technical achievement. But can it become a business?

Glass is the pet project of Google’s cofounder Sergey Brin. The compact frames have a boom on one side that hides a camera, a battery, motion sensors, a wireless connection to reach the Inter-net, and other electronics. That boom also contains a small display, the light from which is directed into a person’s eye by a thumb-size prism positioned just under his or her right eyebrow.

Google has shown off video and crisp photos captured by trapeze artists, sky-divers, and supermodels wearing Glass prototypes like those it first unveiled in April 2012. Recently the company posted a show reel in which people used voice commands to order Glass to take images and send messages.

But just how this R&D project might become a popular product and a signifi-cant contributor to Google’s bottom line remains fuzzy.

Clearly, anyone who can reinvent the mobile computing experience has every-thing to gain. Apple proved that with its iPhone and tablets. Yet for Google to turn Glass into a similar commercial coup, the company will have to negoti-ate challenges in fashion, design, and human relationships that lie outside its previous experience. Google, which says it plans to start selling Glass this year, declined to comment for this article.

Making Glass affordable to consum-ers will be the easiest part. The device may look unique, but it will mostly be a remix of compact electronic components now standard in smartphones, and it should cost about as much as a smart-phone to make.

“We put the average prices of smart glasses, not just Google’s, at $400,” says Theo Ahadome, an analyst with IHS Insight, which strips down phones, tab-lets, and other devices to estimate the cost of manufacturing them.

Persuading large numbers of people to put the device on their faces will be a far bigger challenge. Blake Kuwahara, an eyewear designer who has created glasses for Carolina Herrera and other fashion houses, says Google will have to reinvent

its product to succeed as fashion, not just a computer for your face.

To judge from Google’s prototypes, “it’s clear that this device was designed by industrial designers,” says Kuwahara. “To make this something that someone will want to wear full time, there need to be adjustments to the aesthetics and styl-ing—it reads as a device and not a pair of fashion eyewear.”

It also remains unclear what Glass’s killer app will be. Google has floated some ideas—people could use the tech-nology to get directions while traveling, or to share video of experiences such as roller-coaster rides with friends in real time. Those videos make for great TV coverage of Google’s prototype, but the value to most people is uncertain, since most everything you can do with Glass you can do with a smartphone, and prob-ably more easily.

Perhaps recognizing the dilemma, Brin has openly sought help generating more ideas for how to use the product, and he’s also taken digs at the compe-tition. During the TED conference in late February, he called smartphones “emasculating” because their users are “hunched up, looking down, rubbing a featureless piece of glass.” By contrast, Glass would “free your eyes,” he said.

Last June, Brin appealed to software engineers attending Google’s annual con-ference for outside developers, inviting them to pay $1,500 for prototypes to experiment with (these early “Explorer” models have yet to ship). After signing nondisclosure agreements, some devel-opers attended closed-door meetings last month in San Francisco and New York to get their first experience with the new technology.

Hardly any software programmers have experience developing for some-thing like Google Glass, and doing it well will require throwing out some funda-mental conventions of today’s computers, says Mark Rolston, chief creative officer at Frog Design, a design firm that has worked with many consumer technol-ogy companies.

Today, people treat mobile comput-ers like tool boxes, says Rolston, digging

out individual tools—applications—to achieve particular tasks. “If you’re wear-ing a computer, that application model needs to go away,” he says. “Instead, it needs to be cued by the outside world so it feels like natural life, not interacting with a computer.”

Google’s limited demonstrations of Glass suggest that the company agrees. The glasses do have a touch pad on the side for scrolling through menus, but in Google’s demonstrations, users are shown calling out “Okay, Glass” and then saying a command such as “Take a picture.” Google’s Android mobile oper-ating system for smartphones has also been shifting away from an app-centric approach. Google Now, a core feature of the latest version of Android, offers live arrival and departure times when a

person is near a transit stop, an approach well suited to Glass.

Those same techniques may also be suited to mixing in targeted ads, although the leader of the Glass proj-ect, Babak Parviz, said in January that he had no plans for ads to appear on the device.

The least predictable part of Google’s task is to make Glass as acceptable to people who aren’t wearing it as it is to those who are. Looks aside, the way peo-ple wearing Glass behave will be crucial, says Rolston. For example, talking with or even paying attention to other people while information streams directly into your field of view could be challenging.

“We’ll have to learn the social bound-aries [of ] ignoring someone when it looks like you’re engaged,” says Rolston. “Normal cues like taking out your phone will go away.”

—Tom Simonite

$400estimated retail price of smart glasses

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$1,252Billion

MoBile operaTors

Tale of Two indusTries

Smartphones have created a bridge

between two previously separate indus-

tries: wireless networks and personal

computing. For Internet firms and device

makers, this means access to the world’s

largest network of people. As can be seen

at right, the wireless telephone business

is much larger than personal computing.

In 2012, the world’s mobile operators did

$1.2 trillion in business and served around

3.2 billion people, versus perhaps 1.7 billion

people who used PCs to access the Inter-

net. By comparison, the combined revenue

of Microsoft, Google, Intel, Apple, and the

entire global PC industry was $590 billion.

Online advertising, the main driver of the

consumer Internet, generated only $89 bil-

lion in revenue.

Global revenue 2012

pC sales

$248Billion

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$89Billion

MoBile phones anD sMarTphones

$269Billion

$341Billion

MiCrosofT, inTel, apple, anD GooGle

sHifT awaY froM PCs

PCs still represent a majority of per-

sonal computing devices in use globally.

But not for long. As sales of smart-

phones and tablets increase rapidly, they

are becoming the dominant personal-

computing paradigm. At right are the

number of PCs, tablets, and smart-

phones in use, as well as (far right) the

number of each sold in 2012. Growth

in smartphone sales is coming largely

at the expense of older-style “feature

phones” as people replace them. As the

data show, two-thirds of mobile-phone

purchasers have yet to convert to smart-

phones. Close to a billion smartphones

will be sold in 2013, while PC sales will

gradually decline.

iphone anDroiDpCs TaBleTs

number of Devices in Use (millions)

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by Benedict Evans


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Smartphones have greatly increased the

profitability of the mobile-phone handset

business. The average selling price of all

mobile phones rose from about $105 in

2010 to $180 at the end of 2012, largely

thanks to Apple’s iPhone. In 2012, Apple

sold 136 million iPhones for $85 billion,

averaging $629 per phone. By comparison,

the average selling price of a PC is about

$700. With a further $33 billion in revenue

from iPads, Apple’s annual revenue now

exceeds the combined business of Intel

and Microsoft. Sales by other companies of

Android smartphones (not shown) reached

480 million units in 2012, generating an esti-

mated $120 billion in revenue at an average

selling price of $250.

iPHone’s PriCerevenue

apple inTel MiCrosofTGooGle

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250

100

200

300

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Global Units sold, 2012one million units=

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by Benedict Evans


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chip makers, including the Taiwan-based MediaTek and Spreadtrum, started offer-ing “turn-key” systems: phone designs plus a set of chips with Android and other software preloaded. Spreadtrum says it may sell 100 million units this year.

Each chipset costs $5 to $10, depend-ing on the size of a phone’s screen and other features. In total, Liang says, his cost to make a smartphone is about $40. He says that at Guo Wei and his other factories, he can manufacture as many as 30,000 smartphones a day for brands such as Konka Mobile and for telecom operators like China Unicom.

In the United States, a smartphone’s high cost is generally masked by wire-less companies, which discount them steeply if consumers agree to a contract. In China that happens as well. Liang says his phones retail for about $65 or $70 but can cost only $35 with a contract.

That is making China, now the world’s largest smartphone market, a challenging place for foreign firms to compete. Apple accounts for 38 percent of U.S. smart-phone sales, but its share in China is 11 percent and falling. Google has even big-ger problems making money. Even though the devices use Android, they often don’t come with Google’s apps and search tool installed.

Liang says his aim is to make smart-phones that are affordable, even if they aren’t yet as good as an iPhone. That means the camera and LCD screen might not be the best, and the battery life could be shorter. “I always use this word ‘accept-able,’” he says. “A lot of users only need an acceptable product. They don’t need a perfect product.”

What’s certain, Liang says, is that the quality of the phones his factories produce will rise. “There is no profit at the bottom,” he says. “Everyone is trying to improve their techniques.” —Michael Standaert with reporting by Su Dongxia

Case Studies

Here’s Where They Make China’s Cheap Smartphonesapple and samsung, beware. practically anyone can make a smartphone these days.

● A little over a year ago, 38-year-old entrepreneur Liang Liwan wasn’t making smartphones at all. This year, he expects to build 10 million of them.

Liang’s company, Xunrui Communica-tions, buys smartphone components and then feeds them to several small facto-ries around Shenzhen, in southern China. There, deft-fingered workers assemble the parts into basic smartphones that retail for as little as $65.

Manufacturers built about 700 mil-lion smartphones last year. But the mar-ket has taken on a barbell shape. On one side are familiar names like Apple and Samsung, selling pricey phones for $300 to $600; on the other, several hundred lesser-known Chinese brands supplied by a thousand or more small factories.

The change began in 2011, when computer- chip makers began selling off-the-shelf chipsets—the set of proces-sors that are the brains of touch-screen phones. Those, plus Google’s free Android operating system, made smartphones much easier to produce.

The flood of inexpensive devices could force everyone to lower prices, including Samsung and Apple. “They have reached their peak,” Liang said during an inter-view near his office in Shenzhen, which has become a hub for electronics mak-ers. “In [manufacturing] technique we are close to the same level. Then the only difference will be the cost and the brand.”

Larger Chinese companies, like Lenovo and Huawei, have also swarmed into China’s market with midrange phones that cost closer to $200. Lenovo captured 12 percent of China’s market last year.

Liang’s phones are the ultracheap kind. He builds them at several Shen-zhen factories, like Shenzhen Guo Wei Global Electronics, which opened in 1991 as a manufacturer of fixed-line phones and audio equipment. At Guo Wei, young Xunrui engineers lounge about, smoking cigarettes and drinking warm Coca-Cola while playing games on various brands of laptops.

One floor up, past a metal detector and an enclosure where high-pressured air blows dust and other impurities off workers’ blue smocks, are the production lines—five of them, each with 35 young workers able to solder together and box up 3,000 smartphones a day.

Guo Wei has had to make some invest-ments to get into the smartphone game, including importing new solder inspec-tion equipment from Korea. One produc-tion line costs around $1.6 million to set up, according to Li Li, a production man-ager at the factory who showed off the equipment.

“The techniques are very complicated compared to older phones,” says Li, who joined the factory 17 years ago to work in a department that repaired fixed-line telephones.

But the real reason for the switchover to smartphones was that last year large

$65retail cost of a basic smartphone

in china

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fall, including one that allowed makers of mobile apps to urge users to install their games or programs. This was an even big-ger leap: it was the first ad in the mobile news feed that didn’t require advertisers to wait for a “like” or other social action to cre-ate it. Advertisers instead could use Face-book’s trove of biographical data from user profiles to target likely prospects, as they’re accustomed to doing with traditional ads.

That worked, too. In January, for instance, Cie Games used app installation ads to draw players for its first iPhone game, Car Town Streets. The cost of acquiring them was 40 percent lower using Facebook’s ads than using those from other mobile ad networks, says CEO Dennis Suggs. Even big brands are getting interested. During Thanksgiving weekend, Walmart bought 50 million mobile ads from Facebook, rivaling the reach of TV campaigns.

Facebook’s success has exploded some myths of mobile marketing. Advertisers often complain that they can’t run big, flashy ads on tiny screens. But Facebook’s mobile ads take up a larger part of the screen than desktop ads do—one reason they get so many clicks. “Our ads are big and flashy,” says David Fischer, Facebook’s vice president of advertising and global operations. And they’re getting more so: some mobile ads now include photographs, and Facebook is actively looking at incor-porating video into them.

Everyone, including Zuckerberg, wor-ried that users might balk at ads mixed with posts from friends. So far, that hasn’t happened. Tests found that ads reduced comments, likes, and other interaction with posts by 2 percent, a decline that the company deems acceptable.

For all that, Facebook is still far behind the mobile-ad revenue leader, Google—which earned $2.2 billion from mobile search and ads in 2012. And as much as mobile ad revenues grew in the fourth quarter, some analysts fretted that growth wasn’t even better, especially since mobile ads could be supplanting desktop ads.

Jacking up mobile ads even more, though, could be a challenge. Says TBG Digital CEO Simon Mansell, “They have to be careful they don’t fill people’s feeds with crap.” —Robert D. Hof

advertising’s most successful adaptation yet to mobile computing.

A year ago, Facebook faced all the usual problems: small screens, fewer technolo-gies to target potential customers, and gaps in marketers’ ability to measure the impact of mobile ads. These factors made ads look far less effective on mobile devices, and marketers less willing to pay for them.

Facebook’s advertising team was also too preoccupied with pushing a new kind of desktop Web ad, called Sponsored Sto-ries, to pay much attention to mobile. These ads are actions by a Facebook mem-ber, such as “liking” a page or checking in at a store, that marketers can then pro-mote, for a fee, to the member’s friends. Zuckerberg viewed these ads as the future of Facebook advertising because real posts from friends were less likely to be ignored.

By early 2012, Facebook was ready to start running them not just in the right-

hand section reserved for ads but also on its prime real estate: the news feed, where people spend most of their time on the social network. Executives knew it was a risky step—especially when they extended the same type of ads to mobile as well. What if the ads really annoyed people?

Far from it. Sponsored Stories got more clicks. But it was the mobile versions that really took off. They got twice as many clicks and commanded nearly three times as much from advertisers as those on the desktop, according to a subsequent study by advertising agency TBG Digital. By July, the mobile ads were grossing $500,000 a day.

Emboldened, Facebook launched other mobile ads over the summer and

Close to $0 Facebook’s mobile advertising revenue

during the first three months of 2012

$305 millionFacebook’s mobile advertising revenue

during the last three months of 2012

Case Studies

How Facebook Slew the Mobile Monsterthe fortunes of the world’s largest social network depend on how much it can earn from mobile advertisements.

● Scarcely a year ago, Facebook was the poster child for Internet companies blind-sided by the rapid shift of online activ-ity from computers to smartphones and tablets. Just before its highly anticipated initial public offering in May, Facebook revealed that it wasn’t making “any sig-nificant revenue” from its mobile website or app—even though more than half its 900 million members used the service on mobile devices.

By August, the widening gap between mobile usage and revenue had helped send shares plunging to under half their $38 offering price. The company had made “a bunch of missteps” in mobile, CEO Mark Zuckerberg sheepishly admitted in Sep-tember.

Behind the scenes, though, Facebook was already finding its footing. From near zero last May, revenue from ads on mobile devices rocketed to $305 million in the last three months of 2012. That figure amounted to 23 percent of overall ad sales and helped lift shares back above $30 in January. “We are a mobile-first advertising company now,” says Gokul Rajaram, Face-book’s product director for ads.

That remains debatable, but Facebook’s experience provides a lesson for anyone trying to cope with the mass migration of computer users to mobile phones and tab-lets. What Facebook discovered is that inte-grating ads directly into a user’s flow of natural activities—in Facebook’s case, the main feed where people view updates from friends—works far better than banners and pop-up ads. While these so-called native ads might be controversial, they look like

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Then I realized that most of these mini-vans were used as taxis, and the taxi driv-ers actually slept in them.

In the same way, the applications of these tablets will be very unique, and I’m not sure that I can comprehend what all of them would be. But I’m hoping that if we own the platform, we can become the conduit for those applications and those businesses.

You’re practically giving away the tablets. So what’s your strategy for making this into a business?The first killer app on these devices is going to be Internet access. We have 18 patents on how to deliver basic Web access, even on India’s GPRS networks. The idea is to bundle free Internet access with advertising on an affordable tablet. Basic browsing without audio or video streaming would be available for free, and we’d have a banner ad that runs on the top, which pays for the cost of data service and makes us money.

Does the Ubislate come with free Inter-net access right now?In India, the free usage model is not in place yet. We have a Rs.98 ($1.80)-per-month data plan for unlimited usage. It is a fraction of what other plans cost, and we intend to drive it down to free.

What new opportunities do you see for apps in the developing world?Nobody focuses on the problem of creat-ing apps for somebody whose monthly income is $200. Those people are not part of the computer age or the Internet age; most of them are not literate. So we run app competitions in India to try to get people thinking from that perspec-tive. The winner of our last competition was a group of students who designed a commerce app for “fruit walas,” the guys who run around with carts selling fruits and vegetables. These students created a graphically intuitive way of running a small vegetable business.

There are something like five million fruit walas in India, so if you had an app for them, there could be a lot of money to be made. —John Pavlus

Leaders

An Anti-iPad for Indiasuneet singh tuli, the man behind the ultracheap aakash 2 tablet, says the West doesn’t understand mobile business in the developing world.

● A devout Sikh, Suneet Singh Tuli, 44, has found his own way to live by his reli-gion’s central belief of sarbat da bhala, or “may everyone be blessed.”

He wants everyone in India to be on the Internet.

To that end, Tuli’s London company, DataWind, is building inexpensive tablet computers, which it assembles in China or with the help of support staff at its India offices. The idea, Tuli says, is to pair cheap tablets with ad-supported wireless ser-vice as a way to bridge the digital divide between poor and rich countries.

DataWind began winning attention last year when it struck a deal to supply India’s government with 100,000 of its Aakash 2 tablets, for roughly $40 each, by this March 31. That tablet works only near Wi-Fi points, but DataWind also sells an $83 commercial version called Ubis-late 7C+, which comes with an unlimited mobile data plan for $2 per month. Within 18 months, Tuli says, he hopes to bring the price of a basic tablet down to $25

and make the Internet connection free.Tuli’s company is not a charity.

DataWind plans to make money with its own app store and by displaying ads in its built-in browser (which also compresses websites for fast delivery over India’s

slow wireless networks). MIT Technology Review spoke with Tuli about his com-pany’s business model and the future of tablet computing in India.

You’ve said you never intended to be in the hardware business. What do you mean?We think that hardware is dead. A giga-hertz processor costs $4. It’s good enough for most everything you’d want to do with a tablet, and not just for poor peo-ple in India. Hardware has gotten cheap enough that restaurants or resorts should be giving customers tablets to walk away with for free. Hardware is becoming a customer- acquisition tool.

So tablets should be literally disposable, like USB flash drives?I don’t like the word “disposable,” but by 2015, you’re going to see tablets reach the stage where you can just pick one up at 7-Eleven. And for consumers in the developing world, tablets will be their first computer.

We did a study to understand where the inflection point for PC deployment in the U.S. was: when did PCs really take off? Our assessment was that when the cost of purchasing PCs fell to within 20 percent of monthly salary, you started to see them in every home. In a place like India, there are about billion people for whom $50 meets that criterion.

What new businesses will ultracheap tablets lead to in the developing world?There are going to be applications that will create billion-dollar opportunities,

but we may not understand them in the West or be able to relate to them. My epiphany came when I saw a magazine ad in India that showed a minivan with a driver’s seat that could be laid down 180 degrees. I thought, “How dumb is that?”

“Hardware has gotten cheap enough that restaurants or resorts should be giving customers tablets to walk away with for free.”—suneet singh tuli

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plus company, in terms of market cap, that nobody knows.”

Qualcomm executives began expanding the consumer marketing program in 2011 when the company realized gadget fans were comparing smartphone specifications as if they were PCs or even cars. If Qualcomm can get consumers to prefer phones with its chips, it could charge smartphone manufac-turers higher prices or more easily fight its way into other markets, like desktop com-puters.

Qualcomm’s efforts echo the famous ‘Intel Inside’ campaign launched during the 1990s, which saw the rival chip maker slap its logo onto nearly every PC. Intel ended up with a brand as well recognized as that of Disney and Coca-Cola.

Although Intel’s campaign was an inspiration, Chandrasekher says the mobile phone market is different than that for PCs—it moves faster, it requires more play-ers working together to make a single device, and the phones don’t have room for physi-cal stickers.

Instead, Qualcomm has tried to get its name in front of consumers in other ways, starting in San Diego. Two years ago, it con-vinced the city of San Diego to change all the signs at Qualcomm Stadium to “Snapdragon by Qualcomm” during 10 days in Decem-

ber 2011, when several nationally broadcast football games were played. The move was an advertising coup, even though the city’s attorney later called the name change illegal.

Qualcomm won’t say how much it spends on marketing. But it has been work-ing with four different branding, PR, and advertising firms to develop movie theater and TV ads that will feature its new dragon mascot. In its ads, Qualcomm has tried to entertain, but it also has to make technical arguments about why its chips are better. Last year, Qualcomm engineers sat down to help brainstorm what Chandrasekher calls

“viral videos” of quirky experiments involv-ing melting butter and praying mantises—the idea being to illustrate the thermal and power efficiency of Snapdragon chips. Those videos have gotten two million views on You-Tube, and some smartphone makers have begun featuring Qualcomm’s chips in their own advertisements.

There have been missteps. To say that Qualcomm CEO Paul Jacobs’s keynote at the annual Consumer Electronics Show this January came across as trying too hard would be putting it lightly. Between appear-ances by Big Bird, Nobel Peace Prize laureate Desmond Tutu, rock bands, and awkwardly scripted actors playing stereotyped young people, technology bloggers present at the Las Vegas show offered reviews that ranged from “insane” to “all over the place.”

Chandrasekher admits the CES show was “not as well received” as he would have hoped. “We’ve been learning. You learn and move on,” he says. “People are starting to care about what’s inside their phones,” he says. “We’ve invented a lot of these technologies and we feel, maybe rightly, that we should get some credit for it.” —Jessica Leber

Emerged Technologies

Akamai’s Plan for a Wireless Data Fast Laneclogged wireless networks spur a plan to speed data to smartphones, for a price.

● No matter how quickly you dispatch data over the Internet, the last link is increasingly a wireless link—slower, and sporadically congested—to a customers’ smartphone or tablet.

These days, while the average desktop Web page loads in two to three seconds, the average mobile Web page takes about eight seconds—sometimes causing shoppers to abandon transactions.

Now Akamai, based in Cambridge, Mas-

Case Studies

Qualcomm Wants to Be FamousQualcomm is already worth more than intel. now the chip maker wants everyone to know it.

● Qualcomm is a company that sells chips that go inside TVs, BMW dashboards, game consoles, and, most important, into one-third of smartphones sold. It did $19 billion in business last year and its stock market value has surpassed that of rival Intel.

But for all of Qualcomm’s success, it’s like the Rodney Dangerfield of chip compa-nies—it gets no respect. Intel’s name is still synonymous with microprocessors. Even in San Diego, Qualcomm’s hometown, the aver-age person knows the company because its name is on the football stadium, not because its products run the all-important computers in their pockets.

Qualcomm’s chief marketing officer,

Anand Chandrasekher, is frank about the company’s name recognition: “It’s not great.”

While it may not seem to matter whose chips are in your device, Qualcomm is trying hard to become a household name. With TV ads, noisy promotions, prizes, and YouTube videos, the company has been stepping up efforts to promote its Snapdragon line of chips for smartphones directly to consumers.

Chandrasekher, who worked at Intel for 18 years and took the Qualcomm job last August, wants to make sure phone shoppers recognize the Qualcomm name. “That’s why I’m here,” he says. “We’re a $100 billion–

“We’re a $100 billion–plus company, in terms of market cap, that nobody knows.”—Anand chandrasekher, Qualcomm cmo

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Case Studies

A Shrinking Garmin Navigates the Smartphone Stormsmartphones are digital “swiss army knives” that do just about everything. can the world’s leading Gps company survive?

● Garmin was once one of the world’s hot-test growth companies—“the next Apple,” according to some stock pickers. In 2007 the company, the world’s top seller of GPS devices for car dashboards and boat cock-pits, doubled its sales on what seemed like unquenchable consumer demand for its location-finding gadgets.

Then smartphones happened.Not only have smartphones seen

record-beating adoption among consum-ers, but they have also become the Swiss Army knives of consumer electronics, doing a decent job at dozens of tasks once reserved for specialized hardware like cam-eras and GPS systems.

The effects on Garmin’s business have been withering. The company is worth less than a third of what it was in 2007, and its sales have shrunk by 15 percent. “It’s not a mystery that the personal navigation mar-ket is in a period of decline,” says Dawn Iddings, Garmin’s vice president for busi-ness development. “Mobile has permeated each one of our markets.”

Hardest hit have been Garmin’s sales of GPS devices for vehicle dashboards, also its biggest line of business. Sales in its automo-bile and mobile division fell 6 percent last year, to $1.5 billion.

Even so, Garmin has fought a success-ful rear-guard action by grabbing business from other GPS firms, launching top-shelf products for sportsmen and sailors,

sachusetts, and several partners are work-ing toward establishing a kind of “fast lane” on the radio waves that wireless relies on. It would allow companies to pay extra to have their Web page or app data get trans-mitted ahead of others. Akamai’s move is part of a growing effort to figure out how to deliver information to your phone at faster speeds, but it could also raise fairness issues, depending on how much the premium ser-vice lengthens other people’s wait for data.

Akamai is already the big player in speeding up the fixed-line Internet, the one that operates across fiber-optic and copper cables in the ground. The com-pany runs 120,000 servers on 1,200 net-works in 81 countries, where it hosts Web content for its clients near locations of expected demand. Now the company is teaming with Ericsson—the Swedish firm that makes 40 percent of wireless base stations (the radio antennas on hilltops and sides of buildings that transmit data to your phone)—to push the same concept into the wireless realm.

The new Akamai-Ericsson technology—called Mobile Cloud Accelerator—builds on the way wireless carriers already give voice calls priority over other data. Right now, to

avoid choppy conversations, mobile carriers place data associated with voice calls at the front of the queue, ahead of text messages, e-mails, videos, or photos.

Under the new protocols and technol-ogy being pushed by Akamai and Erics-son, such prioritization is being extended to create a tier of premium service for data that companies can pay to access. Trials of Akamai’s technology over the past year on wireless networks in Europe showed that a typical 200-kilobyte mobile Web page that took between 3.5 seconds and 7 seconds to load would instead load in one to three sec-onds when placed in the fast lane.

Lior Netzer, vice president for mobile networks at Akamai, says the penalty on other content was “barely measurable,”

even where 10 percent of the network’s capacity was set aside for premium con-tent. Akamai thinks that even if delays were noticeable on things like e-mails and photo downloads, the trade-off of reach-ing a speedy conclusion to an important transaction like buying an airline ticket would be worth it.

Businesses that might want to pay extra include banks and just about anyone hop-ing to close a sale. Those using the service would pay between 20 to 50 times more for their data to be delivered first. Akamai, which plans to run the service from its serv-ers, would split the revenue with equipment makers like Ericsson that install the tech-nology, and with the wireless carriers that will use it on their networks.

As the amount of data on wireless net-works soars, any effort to treat some bits differently than others could raise concerns. In recent years some academics and legal experts have advocated for a concept called net neutrality, which in its purest interpre-tation means no Internet service or govern-ment should treat data differently, or charge differently, depending on the content.

For instance, in late 2011, the U.S. Fed-eral Communication Commission issued rules forbidding companies that provide Internet or wireless service to block access to any website or apps (except illegal ones), even in cases where companies, like Skype, might use them to offer services that com-pete with a carrier’s business.

However, the net neutrality doctrine is usually not interpreted as preventing people from paying extra for better service. After all, many customers already pay extra for a faster Internet connection at their home or office.

Still, Akamai’s new wireless effort is dif-ferent because space on wireless networks is much scarcer than on fiber-optic networks, and it could therefore penalize non-sub-scribers more heavily, says Wendy Seltzer, a fellow with Yale Law School’s Information Society Project.

“Here, if somebody doesn’t take advan-tage of this prioritization technology, it’s not clear that they aren’t getting slowed down,” says Seltzer. “I’m not sure it’s necessarily bad because of that. But it may not be purely neutral.” —David Talbot

120,000the number of servers Akamai runs,

spanning 1,200 networks in 81 nations

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Today, though, nearly all smartphones have those capabilities, either because they have a GPS chip or because they can pinpoint a user’s location using cell-phone towers. When a new version of Google’s free map and navigation app became available for iPhones last December, 10 million people downloaded it in just two days—almost as many as buy a Garmin GPS in a year.

To its credit, Garmin tried to head off the mobile-phone threat. It launched six navigation-friendly smartphones, includ-ing the so-called Garminfone (unveiled in 2010), but none proved successful.

The company’s strategy now starts with milking what profits are left in the market for personal GPS devices. It’s been doing that partly by introducing higher-end models like the Nüvi 3597 LMTHD, which sells for $379.99 and comes with a fancy magnetic mount and bells-and-whistles map features. It can tell you what highway lane to be in and will alert you to “turn right at Starbucks,” something that phones can’t do.

The company has also worked hard to diversify. Last April, with Suzuki, it announced its first factory-installed dash-board “infotainment” system for cars—the result of four years of investment that saw it open new offices in Detroit, Germany, Japan, and China.

Garmin has also been selling more

and diversifying. (In 2011, for example, it acquired a company that makes GPS-enabled training collars for dogs.)

All that has served to cushion what the company calls an unstoppable decline in demand for stand-alone GPS devices. “It’s still a really large market,” Iddings says, “but I wouldn’t want to be number 2 or number 3 [in personal navigation] at this point, that’s for sure.”

Garmin isn’t the only consumer elec-tronics firm fighting for relevance. The pop-ularity of smartphones, of which around 640 million were sold last year, has reduced sales of digital cameras and music players as well. Mobile computers, including tab-lets, have also begun to bite into sales of hit products like Sony’s PlayStation game console.

Some companies have responded by making their gadgets more like smart-phones: Canon now sells cameras that con-nect to the Internet and run social apps. Polaroid, also clobbered by mobile comput-ers, even hatched the idea of opening retail stores where people can print out pictures taken on their phones.

Garmin didn’t think phones posed much of a threat early on. Cofounder Min Kao told Forbes in 2003 that he wasn’t wor-ried about competition from them because of high “barriers to entry”: specifically, the need to pair the GPS location signals from satellites with cartographic software.

specialized GPS devices, like wristwatches to help runners map their workouts and extra-rugged handhelds for backpackers.

Those are applications of GPS where a smartphone still isn’t up to the task. Nev-ertheless, says Iddings, “If you are a seri-ous hiker and are going to hike up a big old mountain, you are probably going to want a better product.” —Jessica Leber

Leaders

For Investors, Mobile Startup Boom Gives Way to Caution some venture capitalists are starting to avoid consumer apps and are putting their money into the “picks and shovels” of mobile computing.

● Viddy, a mobile video-sharing service that bathed in media attention and more than $36 million in investor funds last year, is facing hard times. Users have abandoned its app by the millions, and last month it had to fire its cofounder and CEO and a third of its staff.

Ask almost any venture capital inves-tor how he or she feels about mobile computing, and inevitably the answer is bullish. But after a couple of years of pouring money into startups, some inves-tors are turning into skeptics, saying that mobile computing startups—particularly those looking for consumer hits—have proved more expensive and riskier than they expected.

Private companies involved in mobile computing attracted more than $2 billion in venture capital in 2012, around 10 to 15 percent of all investments made by ven-ture capitalists, according to the research firm CB Insights. Another survey, by Price-waterhouseCoopers and the National Ven-ture Capital Association, found that the number of mobile software startups get-20122009

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Mobile Computers replace host of GadgetsThe percentage of people reporting they own cameras and music players is declining.

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ting funded hit a three-year high at the end of 2012, reaching 43 startups a month.

The wave of dollars was propelled by several big successes, notably Instagram, whose simple photo-sharing app quickly found a huge audience. Facebook acquired the company for $1 billion last April.

But now the mobile boom could be headed for a shakeout as investors become choosier. One measure of their caution is what Silicon Valley has termed the “Series A” crunch. Technology investors have made seed, or early-stage, investments in 4,000 companies since 2009. But many of these companies are finding that their investors won’t be giving them any more. CB Insights predicted in December that the crunch could lead 1,000 startups to become “orphans.”

Some investors are avoiding consumer apps, saying it’s become too risky to guess which will prove a hit in Apple’s App Store. Daniel Leff, a partner at Globespan Cap-ital Partners, says he will only invest in companies building the “picks and shov-els” of mobile computing—unsexy soft-ware tools like the ones that count clicks or deliver ads. One of his firm’s successes was Quattro Wireless, a mobile advertis-ing network that Apple acquired in 2010 for $275 million.

Howard Hartenbaum, an investor at August Capital and the first to put money into Skype, says he also avoids companies whose main asset is “mindshare” but that don’t have a clear business plan. “No one

has figured out how to monetize mobile all that great,” he says.

Instead, Hartenbaum has been investing in companies making tools for other app developers. His firm recently led a $25 million investment in one such startup, Urban Airship. It makes a soft-ware tool that lets developers and mar-keters send “push” notifications. Even if those apps flop, Urban Airship could still do well.

Another reliable way to make money is to help large companies caught off guard by the growth of mobile computing. Light-speed Venture Partners’ Ravi Mhatre says he’s interested in startups that have security software to help corporate IT departments as they struggle to integrate employees’ smartphones into their systems.

Consumer apps still offer the biggest potential payoffs, but investors are being careful about where they put their money. Albert Wenger, a partner at Union Square Ventures, says he tries to invest in mobile companies whose apps enable people to do things that aren’t possible on PCs, such as monitor their heart rate or book hotels at the last minute while traveling. His firm backed Hailo, a company in London that built an app for hailing a cab on a smart-phone. “But we’re not looking for the CNN for mobile, which 99 percent likely is actu-ally CNN itself,” says Wenger.

The companies that are hurting are those that haven’t found a way to make money even after their apps have caught

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Case Studies

Lack of Ways to Measure Success Holds Back Mobile Adsno one really knows if ads on smartphones work.

● Where consumer attention goes, ad dol-lars are supposed to follow. That hasn’t quite happened on mobile devices.

U.S. adults now spend about 82 min-utes a day on average using mobile devices for activities other than calls. Yet only about 2 percent of all advertising dollars is being spent on mobile websites or inside mobile apps, according to estimates from eMar-keter, an advertising research company.

The problem, advertisers say, is that technologies for tracking users and mea-suring the impact of ads haven’t kept up with the fast switch by consumers to smartphones and tablets, leaving marketers unsure if the ads are working and unwilling to commit large budgets.

One result is that advertisers are pay-ing much less for mobile ads. The average price an advertiser pays to show an ad to a thousand people on desktop computers is $3.50, but it’s only 75 cents on mobile devices, according to estimates from the

for Mobile startups, Money Boomsventure capital investments in private mobile software companies, by quarter.

on. Another Union Square investment, Foursquare, employs over 100 people and has raised about $71 million.

But its efforts to make money haven’t yet amounted to much, and Foursquare has had trouble raising the extra $50 or $100 million it needs. Battery Ventures partner Brian O’Malley, an investor in Viddy, the ailing video startup, says the company’s lack of revenue might actually make it a more attractive takeover target for a company interested in its technology. Many investors are lately becoming “overly negative,” he says. —Jessica Leber

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venture capital firm Kleiner, Perkins, Cau-field, and Byers. Google, which dominates the $70-billion-a-year business of digital ads, said in January that its average revenue from each ad click dipped 6 percent in 2012 because advertisers pay less for mobile ads.

The most significant issue for ad buyers is that they don’t know if the ads are work-ing, as they do on desktop computers. The Interactive Advertising Bureau, an online ad industry group, admitted as much in a 2011 report. It said “all media depend critically upon reliable metrics for audience reach,” adding that mobile ads were “challenged by serious methodological and technological limitations.”

What works on conventional computers doesn’t on mobile devices, and in many cases replacements have not yet been developed. The standard method of tagging, tracking, and targeting online ads is the cookie, a small text file that websites store on a given computer’s Web browser that identifies it. But cookies don’t work as reliably or power-fully on the Web browsers of mobile devices, and there’s no such thing as a cookie inside a mobile app, where much of people’s time is spent and advertisers would like to follow.

Another particularly vexing problem for advertisers is the way consumers frequently switch back and forth between their mobile devices and a PC when performing a task. For example, a person may see and click on a mobile ad but actually purchase the product on a PC. That means advertisers can’t tell if their ad worked.

“Our ability to measure behavior on mobile is very challenged,” says John Mont-gomery, chief operating officer for interactive advertising in North America at GroupM, the world’s largest ad agency by billings. “It’s very difficult to connect the mobile impres-sion to an action or sale.”

Disagreements over how to advance tracking technologies haven’t helped. Last year, Apple blocked advertisers from track-ing iPhones and iPads using the unique ID of each device, preferring to develop its own solution. There’s also the chance of regu-lation: in February, the U.S. Federal Trade Commission released a report cautioning mobile advertisers over privacy issues, like tracking users’ locations, and recommended making it easier for people to block ads.

Case Studies

Five Opportunities for Mobile Computingthousands of startup companies see mobile computing as their chance to strike it big. We picked five.

● Dozens of mobile-computing startup companies get funded by investors each month in the United States, according to PricewaterhouseCoopers. Around the world, tens of thousands more entrepre-neurs are dreaming and coding and trying to invent something big.

Here are what we think are five large opportunities in mobile computing, and a startup company pursuing each.

1. TransportationIf you live in San Francisco, you’ve prob-ably seen cars roving around with hot-pink furry mustaches on their grills. This signals that the drivers are for hire through Lyft, a ride-sharing app offered by startup Zimride. Anyone with a car can become a limo driver and pick up fares,

who can hail a driver using the app. Lyft takes about 20 percent of the revenue from each ride.

Zimride and competitors Uber and SideCar are using smartphones to chal-lenge the taxi industry. It hasn’t been smooth. In November, the California Pub-lic Utilities Commission fined all three for operating illegal taxi companies.

Who’ll win the struggle isn’t clear. But the mobile-app companies have a numeri-cal advantage. In San Francisco, there are 1,700 licensed cabs but more than 380,000 registered cars.

How much? San Francisco taxicabs licenses have been sold for $300,000. (Source: SFMTA)

2. Internet Access Many people in poorer countries are still using feature phones with prepaid min-utes. A switch to smartphones is happen-ing fast—yet few can afford a data plan to connect to the Internet.

Blaast, a startup based in Helsinki, Finland, thinks the key to these markets will be shrinking the apps people use and making them work cheaply over older, slower wireless networks. The company compresses and caches streamlined ver-sions of apps like Facebook and Twitter, offering access to a package of applica-tions for 5 to 10 cents per day.

How many? India has nearly as many cell-phone subscribers (1.1 billion) as people. Only 4 percent use smartphones. (Source: KPCB)

3. Things That CommunicateWhat if any object could talk to your phone?

Tagstand, a San Francisco–based startup, sells inexpensive near-field com-munication (NFC) tags that can be stuck anywhere. The tags communicate infor-mation or commands over short distances to phones that also have an NFC chip. When you set your phone down on your bedside table, for example, a tag on the table could turn the phone off and turn your alarm on. Cofounder Omar Seyal says NFC tags at movie theaters’ entrances could automatically silence your phone.

How soon? About one in five smart-

Technology companies are now rushing to fill the infrastructure gap that’s prevent-ing mobile ads from becoming truly valu-able. Google has filed patents on ideas for how to link mobile ad campaigns to data about people’s real-world purchases, and one alumnus of Google’s ad business recently raised $6.5 million in funding for her com-pany, Drawbridge, whose technology allows marketers to follow consumers from one device to another.

Once the technology gaps close, mobile advertising will probably eclipse desktop advertising, as has already happened in some countries, like Japan, where Internet-capa-ble mobile phones have been in use longest.

—Tom Simonite

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Leaders

From Wanting to Buying in 30 Seconds the man responsible for amazon’s mobile shopping strategy talks about app design, shopping habits, and how to make it easier to act on your impulses.

● Sam Hall doesn’t just eat his own dog food, as the Silicon Valley saying goes. He also orders it on his mobile phone.

As vice president of mobile shopping at the world’s largest online retailer, Hall is in charge of making sure it’s easy, and very fast, to shop on Amazon using its apps and mobile websites. His mantra is that people should go from “wanting to buying in 30 seconds,” and Hall is a compulsive tester of the process, using his phone to buy basket-ball hoops, dental floss, shampoo, and even a gorilla costume for Halloween.

Mobile shopping is still a sliver of overall retail, and of Amazon’s revenue. While the company doesn’t divulge details, analysts think that maybe 8 percent of the compa-ny’s $61 billion in annual sales comes from phones and tablets. But Hall’s domain is growing as more people use smartphones and tablets. Amazon runs a slew of mobile apps, including the basic Amazon Mobile shopping app. There’s also Flow, which pulls up price information (and a chance to buy the item on Amazon instead) on any prod-uct you aim your smartphone’s camera at.

Amazon is tight-lipped about its opera-tions and plans, and Hall is no exception. MIT Technology Review spoke with him about his work.

What’s the big thing on your mind these days?I spend most of my time worrying about how we continue to invent, on behalf of our customers, newer, faster, better, easier ways that they can shop on their mobile phones and tablets.

You’ve said Amazon wants to shorten the time between wanting and buying to less than 30 seconds. How short can it get?We believe that customers want the time from wanting to buying to be as close to instant as possible.

How do you do this, technologically? We are very, very focused on making sure our experiences are fast. That every page loads quickly—from the time you press the icon on your phone to the time you see a search box, it’s very, very quick. For instance, we focus on input. We know one of the hardest things about shopping on a mobile device is just inputting what you want.

What is an example of designing for that? When you’re typing in something in the search box, we put up search suggestions very, very quickly. Earlier this week, I ran out of razor blades. I use Gillette Fusion razor blades. I was able to type “gil” and one of the first few suggestions that came up was Gillette Fusion razor blades. I only had to type the first three letters of what is prob-ably a 26- or 27-letter title to quickly get to that item.

Some researchers are working on software that tries to actually anticipate what a per-son wants. Is Amazon doing this? What I can say is, we have a search team that focuses specifically on the very fastest way we can get customers from typing in what they want to the detail page of what they actually want.

What are the most surprising things you’ve learned about people’s shopping behavior?I think people tend to assume there are cer-tain categories that do better on mobile than others, but the reality is, customers are buy-ing everything on their mobile phones. We’ve sold, believe it or not, engagement rings, bicycles, razor blades, jeans, dresses. People buy the whole variety of what Amazon has.

Another observation that’s been interest-ing is that one of our busiest days happens to be on Christmas Day, for mobile phones and tablets in particular. My theory, at least, is you open up all your presents, you didn’t get what you want, and you’re able to quickly buy what you really wanted. —Rachel Metz

phones sold has an NFC chip. (Source: ABI Research)

4. Phone Security Online bad guys have been paying atten-tion to the swift growth of smartphones and tablets, and malware for the small screen is on the rise.

One of the first to jump to phones’ defense was Lookout, whose security apps are now used by 30 million people. Look-out’s free software for Android can scan downloaded apps for malware and back up smartphone contacts. Features include Signal Flare, which can help find a missing phone by logging its location as the battery is dying, and Lock Cam, which will silently take and send a photo of any person who tries and fails three times to unlock your smartphone.

All this warms up users for the com-pany’s premium service, which costs $3 per month and adds extras like the ability to remotely erase your phone’s memory.

How safe? By 2016, consumers will spend more than $2.4 billion a year down-loading mobile security software. (Source: Infonetics)

5. Credit Card Payments Smartphones and tablets are changing the way people pay for things. One startup in the field is Braintree, which processes credit card payments, mostly for high-profile Web merchants.

Braintree recently launched Venmo Touch, an app that will let any other app execute a payment with “one touch” if a person’s credit card information is already on file. The feature is available with popu-lar apps like the last-minute hotel booker HotelTonight and the errand-running ser-vice TaskRabbit.

Braintree CEO Bill Ready says the com-pany is processing more than $1 billion in mobile transactions annually. It charges 2.9 percent of the purchase price, plus another 30 cents for each transaction, though it pays most of that money to banks and card com-panies.

How much? In 2013, people in the U.S. will spend about $13 billion using mobile phones. (Source: Forrester)

—Rachel Metz

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