Is Europe losing its competitive edge in mobile? Innovation and the mobile wealth of nations

The title is derived from the Wealth of Nations by Adam Smith but also inspired by a recent post from Robert Scoble which said the Europe has been losing it’s competitive edge . I have been involved with both Mobile and with policy level discussions especially at the European Union for a few years now . So, the topic is of interest to me ..

In a nutshell, Robert Scoble is partly right – but for the wrong reasons .. and I attempt to give a more detailed insight below.

There is an expression called .. ‘Maslow’s hammer‘ which says that: “When the only tool you have is a hammer, it is tempting to treat everything as if it were a nail.” In the case of Silicon Valley(and Robert Scoble in this context) – that ‘hammer’ is Network effects i.e. Everything in the valley is about free, Long Tail, Twitter and Google etc etc etc .. This is fine at one level .. but applying the same logic to Telecoms/Mobile universally is a ‘one trick pony’ approach. In my view, it only applies to one level of the stack and certainly you would need to consider a more complex/cross stack viewpoint to get a truly comprehensive picture of mobile innovation. To achieve network effects, we would need the mobile environment(and especially the Mobile Web) to be completely open as Fred Wilson says – and I also agree.

However, confining the discussion only to the Mobile Web ignores the wider ecosystem as does viewing innovation in the dichotomy of Nokia/Apple

So, the foundations for my thinking are:

a) Innovation cannot be predicted. It needs the creation of a (commercially viable) ecosystem

b) If we accept that, then we should consider at which levels/areas of the mobile environment is a commercially viable ecosystem likely to emerge?

c) The ability to do so will determine the wealth of nations/companies etc

When viewed in this way, we see some interesting companies who are highly innovative and are also creating an innovation ecosystem around them. Governments can help by creating more enlightened laws (for instance around data and privacy) to help the innovative companies create better ecosystems

So, my list is as follows. In my view, these Technologies/ companies / entities are creating an innovation ecosystem globally and are likely to tilt the balance in favour of specific regions(Note this is a GLOBAL list i.e. I am identifying where in the mobile ecosystem could innovation emerge)

a) Mobile Web and it’s evolution specifically HTML 5.0: Google and also Opera are key players

b) Long tail (excluding the mobile web) : Apple/ iPhone and other appstores(RIM, Ovi, Palm, Google and Microsoft)

c) Networks: LTE specifically Verizon in the USA and DoCoMo in Japan. This could benefit LG and Samsung who are best poised to learn from their USA experience

d) Non phone devices: LTE driven initiatives and also initiatives like GSMA embedded mobile initiative which help create an ecosystem for the wider vision of mobility including devices

e) Femtocells and home gateway networks

f) Mobile only social networks such as itsmy and peperonity

g) Microsoft - especially for Enterprise and for Cloud computing

h) Nokia for emerging markets and

i) Skype

Some notes:

a) Europe’s lead in innovation is predicated on the GSM standard and also in the success of Nokia. Both will thrive. However, remember that LTE unites all networks globally – so we are seeing (for the first time) Japan, Europe USA and Asia on the same basic networking technology. We are also seeing the differentiation shift away from the network and towards the device and services including to non-phone devices.

b) The reason why the iPhone will have a limited impact is: It is not a generative device as Jonathan Zittrain says

A generative technology is a technology that can be put to a multiplicity of purposes. A PC is a good example of a generative device because it can be reprogrammed for many uses, and one machine on the net can impact every other without compromising the fundamental backbone of the network.

Nokia devices on the other hand, are much more ‘generative’ – hence more complex. Hence, from this standpoint, Nokia is like the PC – a shock to many a Finn :) – but it’s a compliment since a PC is an Open device and the iPhone itself may no longer be quite the darling it once was

c) Speaking of Nokia .. don’t read the US press .. read the INDIAN press about Nokia and note that Nokia seems to have created services in emerging markets on phones which are truly ‘basic’

Nokia’s MeraNokia (Majha Nokia in Marathi) is actually a Nokia Life Tools (NLT) application coded into the 2300 and 2323 handsets being used in the pilot. Farmers and villagers pay around Rs 2 per day, every 10 days, for the latest on crop pricing, weather, farming tips, among other things. All this is freely available on the net for those with PCs and Internet access. For the farmers, the mobile is the PC. And the 2300 series looks like this!!

(By the way – Marathi is the Indian language I speak!)

That’s something to think about for Apple .. when the next billion people will get phones which are (relatively) basic but will have services.

Nokia 2300.JPG

Image source: http://www.mobilemag.com/wp-content/uploads/2009/05/image_57430_largeimagefile.jpg

d) Non phone devices could be the next big area for mobile(including smart grids)

I have chosen operators who are deploying LTE early and are creating an ecosystem(hence Verizon and DoCoMo). I don’t list DoCoMo for iMode which I feel has never had a future outside of Japan but I do believe that DoCoMo’s lead and expertise will make a difference to the LTE ecosystem. Its with good reason that the NY times compares Japan to the Galapagos island when it comes to mobile innovation - sad but true . Hopefully, Japan will learn from this and capitalise with the LTE wave

e) Microsoft – is strongly placed both on the Enterprise and on the Cloud. It has an excellent record of working with developers and the developer ecosystem and it is well poised to leverage it with Windows 7 and Azure(which extends to the Cloud and hence to mobility)

f) Three of the five top mobile social networks are European(Peperonity, itsmy and flirtomatic). Potentially, this could be a platform for building innovative applications and services

g) Regulatory ecosystems will make a big difference to competitiveness especially around data protection, privacy and other areas

h) It is interesting to include Verizon in this list. Operators like Verizon which were initially closed are opening up. While regulatory pressures drive some of this change, there are also business opportunities to be availed especially in non phone devices. Hence, overall the early deployment of LTE along with an emphasis on non voice devices will lead to more innovation

i) Skype/Google voice etc are relevant for a simple reason that network layer interconnect is hard to do. The first SMS was sent in 1992 and it took about 10 years to get a proper interconnected system going. We are facing the same problem with voice in an all IP world(beyond 3G). Hence, mechanisms like skype and others who provide service layer connectivity could be global platforms for innovation.

j) I am also a keen follower of JIL . Even with any limitations, we see the opportunity to create a viable widget based developer ecosystem covering operators in USA, Europe and Asia

k) Web based innovation is a unique phenomenon. It is often based on zero cost of production and zero cost of distribution. With zero cost of production and distribution comes the ‘free’ model. That is not quite true for the mobile ecosystem. It could apply (with some limitations which will be overcome over time) for the Mobile Web which becomes unified over the Web and mobile ecosystems – but certainly not universally

l) I said at the forumoxford conference(which I chair at Oxford university), If Google does something, we call it innovation – but if the Operators do the same thing – we grab a stick and chase them with it! i.e. there is a (misguided) perception that Operators are not always innovation – we should encourage innovation from Operators and many are genuinely making an attempt to be more innovative.

m) In future, I believe that phones and applications will be sold together i.e. we will see customers buying devices because they support specific applications

n) In future, there could be also bearer aware applications. This is not the same as ‘net neutrality’ – rather it is similar to third party pays model for access(ex: like conferences sponsoring WiFi)

o) The iPhone has been innovative because(for the first time) we have been able to create a business from selling a (relatively) smaller number of devices(compared to say Nokia) – but complemented by selling applications along with it

p) European governments are acting strategically for instance the investment of French government into Gemalto which would be (in my view) a good development since its much more long term and strategic(as opposed to private equity chasing short term profits) and companies like Gemalto could be hubs of innovation. Even the Spanish government urges investment into Spain

“For the past five years, we’ve been laying bricks, not making iPods.”

q) The European VC industry is not vibrant – and that’s a real problem. Start-ups like layar (augmented reality browser) are few and far in between and which is why as a blogger based in Europe – I encourage them

To conclude, Is Europe losing it’s edge in mobile? Probably .. but its not as simplistic as Nokia v.s. iPhone

Finally, this list should be viewed with my own bias which is services led and also leans towards a unified view of the Web and the mobile web. By that mindset, it excludes innovation arising from hardware – ex Isreali companies, Chinese companies and Korean companies

As usual, comments welcome

PS: Robert and I are good friends and I have known the Scobles for a few years now. So, this is more about the concept rather than the people :)

Comments

  1. Siddhesh says:

    Firstly, a great post. The depth to which the topic has been covered is truly inspiring.
    My views:
    @Nokia & the iPhone: Nokia would be thrown out of the smartphone category provided Apple prices itself smartly. Imagine a customer who bought Nokia in May 2008. He would have bought a N95 8 GB- the most expensive phone then. Today, Nokia themselves are encouraging N97 as their premier phone. What message does that convey to the customers? That they were fools to buy N95 a year ago. Compare this with iPhone: when they upgraded to 3GS , they gave their customers a choice to upgrade at a minimal fee. Now thats customer centricity for you! Again, I should not even comment on superiority of iPhones OS over Symbian.
    @Services on the iPhone: Check the huge number of apps for the iPhone. I believe these are perfect examples of services.
    My bet is that iPhone will swamp the European markets and flush Nokia out. About emerging markets like India, I must say the reach built by Nokia is awesome and frankly I don’t think Apple even cares about the emerging markets…

  2. Thomas says:

    There’s a new mobile innovation project in Europe named uService, part of ITEA 2 (http://www.itea2.org, a strategic pan-European programme for advanced pre-competitive R&D in software for Software-intensive Systems and Services (SiS). uService is about enabling mobile users to offer micro services to their social network contacts.
    http://www.communology.com/pdf/press_releases/PR_Communology_uService.pdf

  3. Alex Kerr says:

    Hi Ajit,
    Although you give a nod to one of Nokia’s efforts in the emerging markets context, there is a vast amount of other innovation going on in developing markets, outside specific Nokia services on specific Nokia handsets. These are currently especially prevalent via the SMS and IVR channels but I’d expect to see increasing activity on the mobile web. There are many, many highly innovative uses of SMS for example. One enabler for this is Frontline SMS which does not even need an internet connection but allows a full local SMS hub service to be run. This has been extremely effective for NGOs and other grassroots organisations the world over. There is also a project that provides a local IVR hub in much the same way, that operates via a PC and mobile phones, and not needing network equipment.
    Nokia Life Tools is cool, but my immediate reaction to such things is to think of the vast majority of users who do not use the specific handsets in question, or live in the specific areas they target.
    Also, I’d ask people to consider carefully their definition of innovation. In our highly sophisticated iPhone and broadband enabled worlds, we can forget that a simple automated SMS giving life changing information (e.g. crop prices or health info) can be a huge innovation and progress for people in certain contexts.
    Kind regards,
    Alex

  4. Ian Wood says:

    Ajit,
    Sorry but with smartphones still less than 15% of ALL phones sold this year you are looking at a very small subset. The App store has yet to make as much money as Qualcomm Brew sales and the accounting of downloads leaves a lot to be believed.
    Innovation here in Europe brings femtocells, LTE and Mobile Banking to name three quick ideas.
    Regulation, the EU seeks to have an OPEN ecosystem rather than walled garden such as Android, iPhone etc. Thanks to the EU we have seen prices drop and Networks change the view of value.
    The mobile market outside the US is 12x that of the US and the problem with Apple, Google and RIM is that they feel it is the only market. This economic view means that they feel that phones cost $700+ whilst some in Europe are looking at low cost handsets that offer innovative connections.
    All the innovations that you claim are american come from products that have been developed by Europeans. When will we see more than a single device from Apple in terms of form factor? When will the americans realise that the consumer wants high quality video and pictures?