Worst is Over for Mobile Startups, Executives Say

Mobile-industry startups can breathe a sigh of relief because investors say they think the worst of the recession's fallout is over.

Mobile-industry startups can breathe a sigh of relief because investors say they think the worst of the recession's fallout is over.

"The industry is over the panic," said Thomas Huseby, managing partner of SeaPoint Ventures, speaking at the annual Mobile Northwest conference in Seattle on Monday.

Huseby and other investors spoke about the state of the mobile industry and what kinds of companies they think are becoming increasingly important. They were mostly cautiously optimistic about the future following a very tight investment environment recently.

Geoff Entress, a partner at Voyager Capital, said that he's added nine portfolio companies this year, many of them mobile-related. "The panic is over but we're not out of the woods yet," he said.

"Panic has been replaced by caution," said Adrian Smith, a partner with Ignition Partners.

Funders of venture funds are still reluctant to "plunge in," Huseby said. That will continue to put the squeeze on the total amount of venture funding available, he said.

In addition, unemployment will slow growth across most wireless businesses, he said.

While the economy may continue to present some challenges for startups despite loosening up a bit, startups have some new advantages these days. Twenty years ago it would take US$20 million, a team of 30 people and a new data center before a new company could even get a meeting with an operator to talk about their technology, Smith said. "Now we're seeing people doing similar things with a lot less money," he said. That's because startups can outsource data center and other functions. "It's a different environment for people putting money to work," he said.

For application developers, creating new products and delivering them has become a lot easier with the emergence of app stores, but those stores haven't totally solved the historical problems of bringing mobile applications to market. "Everyone thinks the walled gardens have broken down. But really they got taken down and rebuilt next door," said Smith. He meant that while Apple's iPhone App Store set a trend in the industry of making it easy for developers to offer their products to users, the environment isn't yet totally open. Apple is a gatekeeper for applications, and its competitors at Microsoft, Google and Research In Motion also have some hurdles for developers in their respective mobile stores.

They were all excited about Google's recent acquisition of AdMob, because it shows that there's a growing level of interest in mobile but also because they think that advertising will be necessary for operators to survive.

Most people are expecting to consume a growing amount of wireless data in the future while paying increasingly less, Huseby said. "So how will carriers pay to deliver it?" he asked.

Also, operators are already using more of their limited bandwidth to deliver data than voice, yet they only earn about 30 percent of their revenue from mobile data, Smith noted. They both said that advertising can help operators fill that gap.

Still, advertising isn't necessarily the solution to the problem. That's because as the mobile advertising market is developing right now, operators don't always end up earning revenue from the ads. "That's a problem," Huseby noted.

In the wake of the AdMob acquisition, the investors say they expect more consolidation in the mobile market.

The executives and others are speaking all day on Monday at the conference, examining the mobile community in Seattle and beyond.

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