Mobile giants give content the cold shoulder

Given the current state of the mobile internet, it's not surprising that no-one is putting money into it. With the luke-warm public reaction to WAP and the prolonged delay of high-speed data service GPRS, the mobile internet doesn't look like a venture where anyone could make any money.

Nonetheless, there's still plenty of venture capital funding flowing into mobile-related ventures. But most of it is going into infrastructure projects, rather than content and services.

The trouble is, "content and services" is such a vague term. It could be anything, from sports information, stock quotes and news, to buying plane tickets online. The best ideas probably haven't even been dreamed up yet.

Accurate, up-to-date figures for the European mobile market are hard to come by, but the PricewaterhouseCoopers/MoneyTree survey of venture capital financing in the US makes interesting reading.

Infrastructure was the only category of investment for internet (including wireless internet) that saw an increase in VC financing last year. In the last quarter of 2000, 120 deals were concluded, up from 88 in the comparable quarter of 1999. In the content area, by contrast, Q4 2000 saw just 27 deals, down from 62.

Keith Arundale, head of the Venture Capital Group in the Technology Team at PricewaterhouseCoopers, said: "The VCs do seem to be homing in on the infrastructure side. That does seem to be the sexy side of the business at the moment."

A large proportion of mobile venture funding comes from equipment manufacturers like Nokia and Ericsson. A look at the portfolio of Nokia's VC arm illustrates the way venture capital is going. Of the thirty or so companies in Nokia Venture Partners portfolio only one, Riot-e, is a content player.

It's not surprising. Mobile network operators are already committed to investing in internet infrastructure, so infrastructure projects have an excellent chance of making money.

Their only problem, in fact, is that there are too many of them. "A lot of infrastructure ventures are very similar. They come to us when they have deals with two or three operators, but to make a profit they need deals with 20 or 30. Choosing the ones that can make it is a tough judgement call," says Hendrik Frenzel, investment director at 3i plc.

Content and service projects, on the other hand, face two rather serious obstacles. Firstly, they depend on a large number of users being attracted to mobile data services. Judging by the acceptance of WAP, that may very well not happen, at least for a while. They also depend on finding some way of making money - an even higher hurdle.

The fixed internet has evolved on the principle that content is distributed for free. Very few sites have succeeded in establishing a large paid-for subscriber base.

"Many users will find it tough to accept a different model for the mobile internet,"
says Jon Browning, one of the founders of First Tuesday and its mobile offshoot, Wireless Wednesday. "Any kind of content start-up is struggling for money."

Mobile content can work, though. The example often cited is Japan's iMode service, where the operator, NTT DoCoMo, has provided independent content providers with the capacity to charge for services through their own billing system. European operators, by contrast, have been much slower to propose or establish this kind of deal.

"Mobile operators quote the i-mode example as a reason why the mobile internet might work," says Frenzel. "But they haven't looked at why it's successful. i-mode provides a billing capability, and an incentive for content providers in the form of a revenue stream. DoCoMo takes about nine per cent, and the content providers take 91 per cent."

"A lot of the stuff in the service areas doesn't have a convincing business model because the operators won't give them a revenue stream," he adds. "Operators are trying to get all the revenue for themselves."

Andrew Hull, commercial director of HealthAmigo, a wireless content start-up specialising in health information, said: "Even though there is a lot of interest in wireless health information, it is incredibly difficult to raise money at the moment. The development of content on wireless is being hampered by their short-sighted business model. You've only got to look at i-mode for a model that works."

Thus far HealthAmigo has struck licensing deals with mobile operators, with revenue-sharing schemes rare and ungenerous. "Most operators provide a revenue share of 0.5 to five per cent, if anything," says Frenzel. BT and Vodafone both refused to confirm this figure or reveal what kind of deal they offer their content partners.

Revenue sharing deals may be even harder to strike since many operators hived off their wireless content activities into separate portal companies, like BT's Genie and Vodafone's Vizzavi. Many still haven't worked out which division is responsible for agreeing deals with third party content providers, making it almost impossible to agree an iMode style revenue-sharing deal.

It's a worrying situation. Compelling content and services will be essential to making 3G anything like a viable business proposition. Independent involvement will be essential to making it happen. Most of the best ideas on the fixed internet, the ones that made the internet exciting and compelling, were put together by start-ups - from the idea of the portal to comparison shopping sites. But if the mobile operators won't give independent start-ups a way to make money, they will struggle and die.

Every start-up that fails, or never gets off the ground, is another reason not to use 3G - and another nail in the coffin of the 3G project.