The Mobile Communications (Mobile) industry is in a very positive state – not only is the industry growing, but it is doing so very rapidly. In 2004, the global mobile operator business generated over $500 billion in revenues and the market grew an impressive 20%, creating $100 billion of new business that year.
At the same time, the underlying hard- ware/system business, meaning networks and handsets, generated over $150 billion in revenues with 19% annual growth. Add to this the adjacent businesses enabling mobility, such as WiFi, WVOIP etc., and it only gets better.
How Mobile vs. IT – what is the difference?
The Mobile industry and the more mature Information Technology (IT) industry are intertwined and related – in fact, indispensable to each other. Let’s explore some similarities and differences and point out some interesting facts about the Mobile communications business.
The IT industry has been defined and dominated by the US, even if Asia has made tremendous inroads both as a consuming and a producing market, whereas Europe has always primarily been a consumer of IT. In contrast, mobile phones are manufactured in or originate from some unusual locations: 37% from the Nordics, 19% from Korea and only 17% from the US.
Another major difference lies in the fact that the mobile industry is driven by consumer marketing, with the youth market being a major catalyst, while the IT industry is driven by corporate ROIs, with CFOs and CIOs being the main influencers. The IT oriented devices are more or less the same all over the world whereas the variation between different mobile handset markets is substantial: Japanese and Korean consumers seek high-end 3G multimedia handsets, while simple low-cost devices rule the market in China and India.
A global industry with strong local flavors
The IT industry has always been a “glocal” industry, where larger players have to operate globally and at the same time run very cations industry local sales and support functions. This is also true for the mobile industry, where even the smallest of companies have to be global and local as well as highly networked.
Take an example out of Nexit’s portfolio: Ecrio is a small Silicon Valley based company that has most of its development work done in India, some in Sweden and Russia, and the company generates most of its sales in Japan.
Another example from the “extended mobile industry” is Skype, It is well known since the multi-billion-dollar exit a few weeks back; two Scandinavian entrepreneurs develop their technology in Estonia, incorporate in Luxemburg, get funded from the US and EU and eventually get bought by eBay in Silicon Valley. All in a couple of years!
The mobile operators have very different positions in their respective markets. NTT DoCoMo in Japan is one extreme, having ultimate control over the end user's experience and making nearly all decisions on what services and devices are available to consumers.
The other extreme is exemplified by the Nordic countries, where mobile operators are increasingly relegated to just providing bandwidth, while devices and services are selected by the user. The US market is slowly moving towards less operator control.
Nordics and Asia in the lead
The IT industry has been driven by the US, both in technology innovations and early adopter customers. The mobile business is vastly different, with the US market enjoying a much less dominant position, and the lead markets to be found in the Nordic countries, Japan and Korea.
The one area in which the US has a deeper involvement in the mobile communications business is in corporate development, including investments and exits. Numerous US-based investors and VCs are participating in mobile ventures overseas, and many exits have a strong Silicon Valley connection. In addition, the US market is at the forefront of bridging its traditionally strong enterprise IT solutions into the mobile world, and the currently strongest push is in content, driven by computer gaming, Hollywood and the major Internet portals and search engines.
How does this all relate to Nexit?
As an industry-focused VC, we have to be active in the lead markets, at the cusp of innovation, and we need to be very involved in the industry to best help our portfolio companies and be broadly educated to best evaluate business opportunities. That is why we have opened up direct activities in Sweden (Ericsson), have brought onboard new team members with deep industry knowledge, and are building strong relationships in Japan and Korea (DoCoMo, NEC, Samsung, LG…). We are also extending our networks in the United States, the hub of the world's financial transactions. This is how we see ourselves riding the next wave.
