Enterprise Wireless Holds Forth

Date:   Monday , November 17, 2008

Charmed by the potential of wireless, Microsoft CEO Steve Ballmer recently made an announcement at the 3GSM World Congress 2006 at Barcelona, Spain: “We now have a new TV service and a new unified communication solution for mobile devices.”

It’s not that Microsoft wants to avoid a rival, but it is an indication of the growing interest in the wireless space by larger companies. Today, thanks to cheaper wireless infrastructure and growing investments in wireless in the fast growing markets of Latin America, Asia and Africa, the wireless industry has revived. Massive deployment of wireless infrastructure across the developing world is making VCs take a reconsider the wireless space. During the late 1990s and early 2000, companies developed technology that promised to make wireless a real possibility. However VCs burnt their hands, as the world was not ready to adopt wireless technology. But today the wireless sector is among the most mature industries and a fast adopter of any new technology.

And the VC’s biggest target now is wireless industry. According to a report from London based market researcher VisionGain Intelligence, in 2005 about 152 wireless companies received $1.3 billion in VC funding, a 24 percent jump over 2004. “The VC activity in wireless has picked up since last year and on the upswing,” says Richard Yen of Blueprint Ventures. “Wireless accounted for about seven percent of all VC investment last year.”

“The wireless continues to grow. That’s the market. A lot of companies got funded in 2001-02 time frame, most of which folded. Few survivors who received funding are at the helm of their business,” says Fred Wang of Trinity Venture Partners.

In the telecom business, about 60 percent of all investment goes into wireless, says the VisionGain report. The reason is a change towards IP-based telephony, and the demand for wireless. Voice over Wireless – the merging of VoIP and Wi-Fi – is expected to be the “next big thing” in wireless communications. A recent survey by telecom gear maker Avaya showed that more than 75 percent of network operators and service providers have identified mobile VoIP or VoFi as a top priority for new metro Wi-Fi networks.

Yen says entrepreneurs can look at the WiFi industry that is arguably the hottest and fastest growing sector in wireless. WiFi enabled WLANs are rapidly replacing wired local area networks in both businesses and homes. As business developments are keeping pace as well, carriers are strategizing about how to utilize wireless local area network and WAN to enhance or augment 3G. A report by Boston based consultancy Yankee Group says WLAN adoption has reached mass-market status among large businesses in the U.S. Small businesses are also increasingly—yet cautiously—rolling out WLANs. More than 61 percent of large businesses and 42 percent of small businesses in the U.S. have either deployed or are piloting WLAN solutions.

When one looks, almost anywhere in the world—from the most developed country to the emerging economies like India and China—people are talking on wireless devices. “With the wireless penetration increasing and handsets becoming more sophisticated with built in computers and commerce applications, mobile device is in everybody’s hands. This throws a lot of opportunity for venture-backed companies to take advantage of broad penetration of mobile handsets,” says Yen.

Today mobile phones are replacing credit cards as the mode of payment. This system, knownas Mobile Commerce or simply m-commerce, is fast gaining traction among wireless users across the world. Though m-commerce has lost much of its hype in the U.S. and Europe, it is gaining a fan following in Japan and Korea. Wade Woodson, Managing Director of Sigma Partners, predicts that CRM data and Sales Force Automation data are some of the interesting sectors to watch out for in 2006—these sectors are high-bet areas since 2005. “Wireless companies should look at offering services from basic data retrieval and exchanges to sophisticated CRM data and SFA data,” says Woodson. Yang concurs with Woodson that the trend in 2006 is something similar to last year’s. “However, companies should look at evolving business models like enterprise wireless switch and application, launch models based on software to service— hosted model with GPS facility and perhaps subscription based model,” he adds.

The wireless industry has a huge road ahead as a report by global telecom consultancy and research company Analysys says. The report points out that despite the prevalence of wireless, the industry is still young, and fraught with problems that one cannot predict now. More precisely it includes feature rich mobile devices.

When the telecom bubble burst, it left behind a discontinuity. Smaller companies working on them shut down, but bigger companies are still on it. Yang advises that new ventures should focus on technology that complements bigger companies or is closer to technology they develop, simply because enterprises would not buy new technology that is difficult to be adopted or amalgamated with their older equipments. According to Yen as wireless devices becomes more useful with newer features being added with every new release, it’s time entrepreneurs create a market on their own. Yang says, “Entrepreneurs are the best judge of the market expectations. They should own the idea. They should pursue whatever they want and create a market for it and scale it.”

However, there are caveats circulating this sector too. “VCs are very cautious in investing in wireless companies now. They would wait to see the success stories or IPOs of companies like Vettro, Seven Networks, Good Technology, Visto and Dexterra that work on enterprise wireless,” says Woodson, who believes 2006 is not a good year for VC investment in Wireless space. He reasons that if these companies go public or get acquired, they will naturally act as magnet to new investment in this area.