SAN FRANCISCO-Mobile music, games and enterprise applications are beginning to flood the market, creating a buzz the industry hasn’t seen in years. But while insiders salivate over “hockey-stick” projections for wireless data revenues, developers that haven’t cultivated relationships with established carriers, publishers or well-known brands are finding themselves on the outside looking in.
One of the problems, according to Trip Hawkins of the California-based mobile gaming publisher Digital Chocolate, is that carriers themselves are being overwhelmed by the exploding market.
“The carriers are still going down a fairly steep learning curve in data applications,” Hawkins said. Deluged by developers and grappling with an exploding market, carriers are dealing only with players with proven track records, said Hawkins, who founded video-game behemoth Electronic Arts before moving to the wireless industry.
With a handful of carriers representing the top of the mobile-food chain in the United States, the myriad garage-scale developers have little choice but to find a partner. The result has been a flurry of mergers, acquisitions and partnerships, as smaller players try to bring their wares to market and larger players leverage relationships that have become as valuable as content itself.
In the past few months, established publishers such as Airborne Entertainment, Digital Chocolate, Jamdat and Mforma have been hastily snapping up smaller developers and vastly increasing their portfolios.
“I think carrier relationships are more valuable here in the U.S., and a little less so in Europe,” said Rob Lawson, co-founder and senior vice president of mobile marketer Enpocket. “It would be hard to start today and do what we do. We’d bang on Verizon’s door, and they’d say, `Go to the back of the queue.’ And it’s not a short queue.”
Last week, publisher Vindigo acquired waymobile.com Inc., a San Diego-based developer and publisher. While waymobile.com’s AwayAuction for eBay had proven to be a viable application, it had little chance of attracting attention from a big carrier without some help.
“You cannot go to market without having these relationships,” said Jason Devitt, Vindigo’s chief executive officer, who compared carriers with cable operators. “No way was Verizon going to do anything with waymobile (by itself).”
Even if carriers could pay attention to every developer, few content providers have the financial means for a full-scale launch, Devitt said. The cost of “porting” an application-making it work on a specific handset-is typically about $1,000, he said, and some bigger carriers support many dozens of devices, placing porting costs well above the $100,000 mark.
“You have to support their full range of handsets,” Devitt said. “That’s a big cost of doing business.”
Because the U.S. wireless market is relatively young, even established publishers here are looking east for leverage-and carrier relationships in other markets. Devitt’s Vindigo, a 5-year-old company that provides mobile news, local guides and fantasy sports applications, was swallowed in August by Japanese mobile content provider For-Side.com in a $36.5 million all-cash transaction.
As is the case in many of these transactions, Vindigo’s purchase had little impact on its day-to-day operations, Devitt said.
“But the benefits are huge to us: It means access to international distribution, which we didn’t have before, and capital,” as well as the lessons For-Side has learned in a more mature market.
Michael King, a principal analyst with the market research firm Gartner Dataquest, said he expects to see more international partnerships as veteran firms in the East put their experience to work in North America.
“I think you’re going to see more cross-border acquisitions,” he said, “as folks from Korea and Japan look to utilize their experience and relationships here in the West.”
One popular way publishers and carriers try to drum up new applications out-of-house-thus reducing costs-is through developer contests. Last week at the CTIA Wireless IT & Entertainment show in San Francisco, Navteq, a Chicago-headquartered location-based services firm, launched its “LBS Challenge,” challenging developers to create applications addressing one of six categories.
The winner in each category will receive $50,000 in cash and $100,000 in Navteq licenses for a year.
“The feedback we received after last year’s contest was that we had succeeded in creating real energy and excitement around LBS in the wireless industry,” said Winston Guillory, Navteq’s senior vice president of North American sales.
But small-scale developers have more to fear: All the attention in wireless is beginning to attract corporations that had previously been biding their time and watching the market. In one of the bigger announcements at last week’s show, Walt Disney waded into wireless, launching Starwave Mobile, a licensing and publishing business that will begin producing titles in the next few weeks.
While Starwave may be a newcomer to the space, it has already cultivated significant carrier relationships, said Larry Shapiro, executive vice president and general manager of North American mobile for the Walt Disney Internet Group. And Disney has two qualities few developers can match: deep pockets and immediate recognition.
“We’re not out there creating a brand; we are a brand,” Shapiro said. “We don’t have the same kind of pressure some of these (developers) have.”
Shapiro said Starwave hopes to be able to contract out for much of its content, but may also look to acquire developers. Gartner’s King believes Disney may be among the first of many mega-corporations ready to make a play in wireless content.
“The Yahoo!s, the Time Warners, they really haven’t made their presence felt yet,” King said. “But I believe they’re likely to look at smaller developers as content partners for technology and to learn the market a little better.”
In a move to make it easier for newer developers to get their wares in front of carriers, Forum Nokia last week unveiled Preminet, which will comprise a master catalog, service delivery platform and innovative client application. The initiative will include content from the forum’s members as well as other Java and Symbian developers and aggregators.
“From our perspective, it’s exciting news,” said Mark Jacobstein, president and chief operating officer of Digital Chocolate. “I’d rather have my employees focus on building innovative applications” than trying to sell those applications to carriers.
As the forum’s 1.6 million members indicate, though, the cards are stacked against less-established developers. And as large media companies stop dipping their toes in the pool and start to dive in, carrier relationships will be even more important to publishers and carriers.
Still, those who’ve gained experience in mobile applications have the benefit of track records.
“The carrier controls the pipe,” said Digital Chocolate’s Hawkins. “We think our long-term success with carriers depends on our ability to create quality, innovative content.”
