We are fascinated by the disruption underway in mobile applications. Carriers seem to have lost their role as gatekeepers for applications as smartphone sales are rapidly ramping and "app stores" or direct downloads are the new distribution models. This is exciting as it opens up a whole new arena for startups to compete in. Here is some of our early thinking about this with the goal of getting a discussion going.
The challenge for startups (and investors!) has been identifying opportunities that are "native" to the new platforms. By "native" we mean opportunities that simply did not exist previously and cannot exist without the phone. For instance, we would not consider delivering breaking news to a mobile a native opportunity, as a startup rarely has a better chance of being "CNN for mobile" than CNN does.
Native opportunities are the ones that make use of unique capabilities of mobile platforms. Here is a starter list of such capabilities:
* Location. To be precise this should really say "high resolution and continuous location" because computers too have location, but IP geo-lookup is a lot coarser grained, less reliable and most importantly not available when the user is not at their computer.
* Proximity. This could simply be thought of as location, but it is likely to be so important that it deserves its own mention. Knowing the location of a user makes it possible to determine not just where that user is in relation to stores, landmarks, etc. but also to other users.
* Touch. Not all smartphones have touch screens (most Blackberries don't), but touch is an important and (almost) unique capability.
* Audio input. This may not seem like a big one, but the fact that all phones have it (hard to be a phone otherwise) makes it unique. Building a desktop app or web app that relies on audio input is a bit more challenging.
* Video input. Sure you can attach a camera to a PC (and most Macs have one built-in), but that camera is never where the user needs it, except for video chat. Also you can take an image with your regular camera and import it into the computer but that adds at least three steps which will result in a huge drop-off rate and prevent any immediacy. So having video input that is always and conveniently available is a unique capability.
Something that is noticeably absent from the list of unique capabilities is (data) connectivity. This is new for phones, but it has always existed on the web, so it is unlikely to provide an opening for startups. For instance, wanting to be a streaming music service for mobile won't easily give a startup a leg up on existing streaming services.
Each of these unique capabilities, taken individually, is not novel. For example, Palm devices brought touch to consumers in the 90s and location has been available on standalone GPS devices for decades. But the convergence of all of these features on a single device with access to an internet connection will allow new behaviors and applications to emerge that were not previously possible on any other platform. The potential emergence of new behaviors is likely to be as important -- if not more so -- than these technical capabilities themselves. After all, there were no large changes in technology that allowed Facebook to take off; rather it was a social shift in personal information sharing. We don't know which native applications will emerge as ones that combine these unique capabilities and new behaviors into true breakout services, but here are some categories that we find interesting along with some of the challenges that they face:
* Location-based social networking, such as Loopt, Brightkite and foursquare. The big question in this category is whether these new networks will gain enough scale that they can compete effectively with the mobile offerings of existing social networks, or if the mobile networks differentiation in value proposition will be insufficient to overcome the current gap in scale.
* Gaming, such as Rolando and FieldRunners. As evidenced by reviewing the Top 25 apps at any given time, gaming has been one of the killer categories for the iphone. However, games played on mobile phones that don't leverage the unique capabilities are likely to be quickly dominated by the large existing publishers. For example, currently 7 of the top 25 best-selling paid games are major publisher releases. There would seem, however, to be an opening for a new type of gaming experience, such as mainstream versions of Alternate Reality Games (which using the phones might become "Augmented Reality Games").
* Shopping applications will likely be interesting and there has already been an early exit with SnapTell being acquired by Amazon. Most US-based mobile shopping applications simply supplement the real-world shopping experience with more information (barcode scan sending you to Google, BBB, Consumer Watch info, price comparison, etc...). This behavior contrasts with Asian markets where actual commerce/checkout via mobile is far more prevalent. We're interested in seeing if the unique capabilities of smartphones will accelerate mobile shopping all the way through checkout on the phone.
* Healthcare, such as Epocrates for practitioners and LoseIt for consumers. Healthcare practitioners and consumers are two key target audiences for mobile applications and their needs vary greatly. The practitioners are generally a lower scale and higher ARPU market whereas the consumers are a higher scale and lower ARPU market.
One notable absence from this set of categories is navigation. While this will clearly be an important category, we expect companies that have established the technology necessary to deliver navigation on previous custom devices to dominate on the phones as well. For example, the iPhone SDK license agreement disallows "real time route guidance" applications. There was speculation that this restriction was put in place because Apple wanted a major navigation company to tackle this problem first, and, subsequently, TomTom produced a great implementation at WWDC.
There is a good chance that the truly breakthrough application category is not on this list. It will be obvious in hindsight but a lot harder to anticipate. If you are working on a native application, please tell us about it.