10/30/2000

An interesting contrast in wireless strategy is taking place in Britain and Sweden.
Last spring, Britain decided to auction off its wireless spectrum to the highest bidder.
The results were breathtaking, with Britain raising $35.4 billion for the government
coffers. This fall, Sweden will also assign its wireless spectrum to telecom companies
eager to offer next-generation (or 3G) wireless services, but instead of emulating
Britain’s budget-maximizing strategy, it opted for a seemingly wasteful beauty pageant, granting hugely valuable spectrum at no cost to whichever telecom companies they judged to have the best proposals.

The contrast couldn’t be clearer. After assigning its spectrum, the British government
is $35.4 billion ahead of Sweden–and its wireless industry is $35.4 billion behind.

Britain has, in effect, imposed a tax on next-generation wireless services, paid in full
before (long before) the first penny of 3G revenue is earned. This in turn means that
$35.4 billion over and above the cost of actually building those 3G services must be
extracted from British consumers, in order for the new owners of that spectrum to remain viable businesses.

For the auction’s alleged winners, the UK sale couldn’t have taken place at a worse time. Wireless hype was at a head, and the markets were desperately looking for the Next Big Thing after the early April meltdown. In addition, WAP euphoria still reigned supreme, bringing with it visions of “m-commerce” and the massive B-to-C revenues that had been so elusive in ecommerce. In this environment, wireless spectrum looked like a license to print money, and was priced accordingly.

The air has been leaking steadily out of that balloon. First came the beginnings of the
“WAPlash” and the disillusionment of designers and engineers with the difficulty of
offering content or services over WAP (not only is WML difficult to program relative to HTML, but different handsets display any given WAP site differently). Next came the disillusionment of the users, who found waiting for a new download every time they changed menus to be intolerable.

Then there was the loss of customer lock-in. When British Telecom was forced to abandon its plans to lock their users into its own gateway, it destroyed the illusion that telcos would ever be able to act as the sole gatekeeper (and tollbooth) for all of their users’ wireless data.

Lastly, the competition arrived. NTT DoCoMo’s iMode and RIM’s Blackberry have both demonstrated that it’s possible to make functional and popular wireless devices based on open standards–iMode uses HTML; Blackberry handles email.

We’ve been here before. Between 1994 and 1996, when the Web was young, many companies tried to offer both telecommunications and media services, providing both dial-up access and walled gardens of content: Prodigy, CompuServe, and even AOL before it embraced the Web. These models failed when users expressed a strong preference for paying different companies for access and commercial transactions. At that point, we settled down to the Web we have today: ISPs and telcos on one side, media and commerce on the other.

As in the States, many British telecom companies disastrously flirted with the idea of
transforming themselves into Internet media businesses. And as in the States, they
ended up making most of their money by providing bandwidth. The wireless industry in Britain would be poised for a similar arrangement, but for one sticky wicket–having forked over $35.4 billion, a split between access providers and content and commerce providers would be the death knell for the auction’s winners.

In fact, the wireless carriers are going to be forced to behave like media companies
whether they want to or not, because any money they could make selling access to their newly acquired spectrum has already been taxed away in advance. Furthermore, startups that want to build new businesses on top of that spectrum represent a threat rather than an opportunity, because anything–anything–that suggests the auction winners will capture less than 100 percent of the revenue from their customers would illustrate how badly they overpaid.

In effect, the British government has issued this decree to the winners of the wireless
auction:

“Hear Ye, Hear Ye, You are enjoined from passing savings on to users, offering spectrum access to startups, or rolling out low-margin services no matter how innovative or popular they may be, until such time as the first $35.4 billion of profit has been extracted from the populace.”

And Sweden? Sweden is laughing.

In Sweden, any wireless service that will generate a krona’s worth of revenue for a
krona’s worth of investment is worth trying. The beauty pageant will create a system
where experimentation with new services, even moderately profitable ones, can be
undertaken by the new owners of the spectrum.

Seen in this light, Sweden’s beauty contest doesn’t look so wasteful. Britain’s auction
may have generated a huge sum, but at the cost of sandbagging the industry. So keep an eye on the Swedes–their “forgo the revenue” strategy will have paid off if, by refusing to tax the industry in advance, they earn an additional $35.4 billion in taxes from the growth created by their dynamic and innovative wireless industry.

To hear the makers of internet-enabled phones tell it, content is going to be king again, because mobile phone subscribers are clamoring for expensive new ways of getting headline news. The feature list for wireless devices reads like a re-hash of every ‘content provider’ press release of the last five years: Travel Updates. Stock quotes. Health tips. And of course all of this great content is supposed to lead to a rise in M-Commerce, a re-hash of E-Commerce. Many wireless analysts have bought this line, and are anointing future winners already, based on their perceived ability to deliver cutting edge content like sports scores (now there’s a brainstorm). The telcos
obviously haven’t asked what their customers want in a wireless device, and when they finally do ask, they are going to be in for a rude shock, because most of their customers aren’t desperate for packaged content, no matter how ‘dynamic’ it is. It seems strange to point this out to the Nokias and Sprints of the world, but the thing
users want to do with a communications device is communicate, and communicate with each other, not with Proctor and Gamble or the NBA. Stranger still, the killer wireless app is already out there, and it’s driving the adoption of a wireless device which isn’t just another mobile phone+WAP browser combo. The killer app is email, and the device in question is a pager on steroids called the Blackberry, manufactured by RIM (Research in Motion).

Building a usable wireless device is complicated, and the Blackberry gets a lot of things right — it gets around the form factor problem of ideal size by offering both a pager-sized version and a PDA-sized version; it provides a surprisingly usable thumb-sized keyboard to speed text input; and it offers always-on connection at flat-rate prices. But the thing that really has gadget-loving CEOs addicted to it is access to the only thing really worth paying for: their own email. No matter what the press releases say, mobile internet access is about staying in touch, and travelling executives have a much greater need to stay in touch with colleagues and family than with CNN or ESPN. RIM has gotten it right where the current vendors of wireless
devices have it wrong, by realizing that email is the core interactive service and everything else is an add-on, not the other way around.

Despite email’s status as the net’s most useful application, it has a long history of being underestimated. In the earliest days of DARPANET, email was an afterthought, and caught its designers by surprise when it quickly became the most popular service on the nascent net. Fast forward to the early 90’s, when Prodigy set about raising the price of its email services in order to get people to stop wasting time talking to each other so they could start shopping, and got caught by surprise when many users defected to AOL. And just this June eMarketer.com expressed some puzzlement at the results of a Pricewaterhousecoopers survey, which found that teens were going
online primarily to talk to one another via email, not to shop. (Have these people never been to a mall?) The surprise here is that phone companies would make the same mistake, since phones were invented to let people communicate. How could the telcos have spent so many billions of dollars creating wireless services which underplay the communications capabilities of the phone?

There are several answers to that question, but they can all be rolled into one phrase: media envy. Phone companies are trying to create devices which will let them treat people as captive media subscribers, rather than as mere customers. Email is damaging to this attempt in several ways: The email protocol can’t be owned. It is difficult to insert ads without being instrusive. It allows absolute interoperability between customers and non-customers. Worst of all, telcos can’t charge sponsors for access to their user base if those users are more interested in their email than headline news. The phone companies hope to use their ability to charge by the byte or minute to recreate the ‘pay for content’ model which has failed so miserably on the wired net, and they don’t want to run into any Prodigy-style problems of users preferring email to for-fee content on the way, especially as serious email use requires the kind of keyboard and screen its difficult to fit into a phone. Vendors of mobile phones are committed to text-based content rather than text-based
communication in large part because that’s what its easy to make a phone do.

The Nokias and Sprints of the world made a strategic miscalculation by hyping the current generation of WAP phones as ‘wireless internet’, Users understand that the most important feature of the internet is email, and it is a pipe dream to believe that users will care more about receiving packaged content than news from home. As with the development of the wired internet, communications will lead the growth
of content and commerce in the wireless space, not follow it. The RIM devices are by no means perfect, but unlike WAP phones they create in their users the kind of rapt attention usually reserved for Gameboy addicts, by giving them something of real value. Ignore the wireless analysts who don’t get that wireless devices are primarily
communications tools. Bet against any service that assumes users are eager to pay to find out what the weather is like in Sausalito. Bet on any service that makes wireless email easier to use, because whoever makes email easier will earn their users undying loyalty, and everything else will follow from that.

First published in Biz2, 05/00.

Thanks to the wireless application protocol (WAP), the telephone and the PC are going to collide this year, and it’s not going to be pretty. The problem with “wireless everywhere” is that the PC and the phone can’t fuse into the tidy little converged info-appliance that pundits have been predicting for years, because while it’s easy to
combine the hardware of the phone and the PC, it’s impossible to combine their philosophies.

The phone-based assumptions about innovation, freedom, and commercial control are so different from those of the PC that the upcoming battle between the two devices will be nothing less than a battle over the relationship of the Internet to its users.

The philosophy behind the PC is simple: Put as much control in the hands of the user as you possibly can. PC users can install any software they like; they can connect their PCs to any network; they can connect any peripherals; they can even replace the operating system. And they don’t need anyone’s permission to do any of these
things. The phone has an equally simple underlying philosophy: Take as much control from the user as possible while still producing a useable device. Phones allow so little user control that users don’t even think of their phones as having operating systems, much less software they can upgrade or replace themselves. The phone, in other words, is built around principles of restriction and corporate control of the user interface that are anathema to the Internet as it has developed so far.

WAP extends this idea of control into the network itself, by purporting to offer Internet access while redesigning almost every protocol needed to move data across the wireless part of the network. WAP does not offer direct access to the Internet, but instead links the phone to a WAP gateway which brokers connections between the phone and the rest of the Net. The data that passes between the phone and this WAP gateway is translated from standard Internet protocols to a kind of parallel “W” universe, where HTML becomes WML, TCP becomes WTP, and so on. The implication is that the W world is simply wireless Internet, but in fact the WAP Forum has not only renamed but redesigned these protocols. WML, for example, is not in fact a markup
language but a programming language, and therefore much more difficult for the average content creator to use. Likewise, WAP designers choose to ignore the lesson of HTML, which is so adaptable precisely because it was never designed for any particular interface.

Familiar principles

The rationale behind these redesigns is that WAP allows for error checking and for interconnecting different kinds of networks. If that sounds familiar, it’s because these were the founding principles of the Internet itself, principles that have proven astonishingly flexible over 30 or so years and are perfectly applicable to wireless
networks. The redesign of the protocol lets the WAP consortium blend the functions of delivery and display so the browser choice is locked in by the phone manufacturer. (Imagine how much Microsoft would like to have pulled off that trick.) No matter what the technical arguments for WAP are, its effect is to put the phone companies firmly in control of the user. The WAP consortium is determined that no third party will be able to reach the user of a wireless device without going through an interface that one of its member companies controls and derives revenue from.

The effects of this control can be seen in a recent string of commercial announcements. Geoworks intends to enforce its WAP patents to extract a $20,000 fee from any large company using a WAP gateway (contrast the free Apache Web server). Sprint has made licensing deals with companies such as E-Compare to distribute content over its WAP-enabled phones (imagine having to negotiate a separate deal with every ISP to distribute content to PC users). Nokia announced it will use WAP to deliver ads to its users’ phones (imagine WorldNet hijacking its subscribers’ browsers to serve them ads.) By linking hardware, browser, and data transport together far more tightly than they are on the PC-based Internet, the members of the WAP Forum hope to create artificial scarcity for content, and avoid having to offer individual users unfettered access to the Internet.

In the short run this might work because WAP has a head start over other protocols for wireless data. In the long run, though, it is doomed to fail because the only thing we’ve ever seen with the growth characteristics of the Internet is the Internet itself. The people touting WAP over the current PC-based methods of accessing the Internet want to focus on phone hardware versus PC hardware

First published in FEED, 2/3/2000.

WAP is in the air, both literally and figuratively. A mobile phone consortium called Unwired Planet has been working on WAP (Wireless Access Protocol) since May of 1995 in an effort to establish the foundation for the mobile phone’s version of the Web. After several false starts, that work seems to be bearing fruit this year: Nokia was caught by surprise at the demand for its first WAP-enabled phone, Ericsson is right behind with its model, and analysts are predicting that by 2002, more people will access the internet through mobile phones than through PCs. However, we’ve got to be careful when we tout WAP as the next major networking development after the Web itself, because it differs in two crucial ways: the Web grew organically (and non-commercially) in its first few years, and anyone could create or view Web content without a license. WAP, by contrast, is being pushed commercially from the jump, and it is fenced in by a remarkable array of patents which will affect both producers and consumers of WAP content. These differences put WAP’s development on a collision course with the Web as it exists today.

Even after years of commercial development, the Web we have is still remarkably cross-platform, open to amateur content, unmanaged, and unmanageable, and it’s tempting to think that that’s just what global networks look like in the age of the internet. However, the Web is not just the story of the internet, it’s also a story of the computing ecology of the 1990’s. The Web has grown up in an environment where hardware is radically divorced from software: Anyone can install anything on their own PC with no interference (or even knowledge) from the manufacturer. The ISP business operates with a total separation of content and delivery: Internet access is charged by the month, not by the download. And most important of all, the critical pair of protocols — http and HTML — were allowed to spread unhampered by intellectual property laws. The separation of these layers meant that ISPs didn’t have to co-ordinate with browser engineers, who didn’t have to co-ordinate with site designers, who didn’t have to co-ordinate with hardware manufacturers, and this freedom to innovate one layer at a time has been part and parcel of the Web’s remarkable growth.

None of those things are true with WAP. The integration of WAP software with the
telephone hardware is far tighter than it was on the PC. The mobile phone business
is predicated on charging either per minute or per byte, making it much easier to charge directly for content. Most importantly, WAP’s patents have been designed from the beginning to prevent anyone from creating a way to get content onto mobile phones without cutting the phone companies themselves in on the action, as evidenced by Unwired Planets first patent in 1995, the astonishingly broad “Method and architecture for an interactive two-way data communication network.” WAP, in other words, offers a chance to rebuild the Web, without all that annoying freedom, and without all that annoying competition.

Many industries have looked at the Web and thought that it was almost perfect, with two exceptions — they didn’t own it, and it was too difficult to stifle competition.
Microsoft’s first versions of MSN, Apple’s e-world, the pre-dot-com AOL, were all
attempts to build a service which that grow like the Web but let them charge consumers like pay-per-view TV. All such attempts have failed so far, because wherever restrictions of either content creators or users were put in place, growth faltered in favor of the freer medium. With WAP, however, we are seeing our first attempt at a walled garden where there is no competition within a “freer” medium — the Unwired Planet patents cover every mobile device ever made, which may give them the leverage to enforce its ideal of total commercial control of mobile internet access. If predictions of the protocol’s growth, ubiquity, and hegemony are correct, then WAP may pose the first real threat to the freewheeling internet.