Mayfield Fund News: October 2006
In this issue:
• Mayfield View: Janice Roberts on the Momentum Behind Mobility
• Guest Interview: Russ Shaw/O2 — An American in London
• In the News
Anyone who's traveled to Europe, India or China lately knows that the communications/wireless industry is moving at warp speed. The statistics are mind-boggling: Europe has 280 million mobile users, China has 400 million, India has 120 million. And the U.S. is not far behind with 204 million.
Amid the backdrop of this explosive mobile growth, there are several key trends that are emerging in both the wireless and communications infrastructure markets that will affect start-ups, according to Janice Roberts, Mayfield's managing director who leads investing in the communications/wireless sector. These key trends are:
- Doing more for less (VoIP provider SunRocket featured below is a great example);
- Offering a richer consumer experience (highlighted by our guest interview with Russ Shaw of O2);
- Shifting from a customer acquisition to a customer retention focus (illustrated by our investment in Sennari, a mobile CRM platform provider);
- Providing anywhere, anytime access (as illustrated by messaging platform provider Mobile 365, which has signed a definitive agreement to be acquired by Sybase);
- Building the enabling infrastructure (as illustrated by IP media server provider Convedia which was just acquired by RadiSys).
Founded in early 2004, SunRocket has a pragmatic, "all-inclusive" approach to the Voice over IP (VoIP) market, offering trademark "Bottom Line Pricing," with no hidden fees. The company even goes so far as to include a "Members Bill of Rights" on its website, declaring that "All SunRocket representatives have the power to use reasonable judgment to address your concerns and 'make it right.'" That simple, customer-friendly approach isn't surprising considering the company was co-founded by Paul Erickson, who helped create MCI's popular and straightforward 1-800 Collect and The Neighborhood programs.
The idea behind SunRocket was to build the best possible VoIP service, offering bills "free of bogus charges, tacked-on fees, and other unpleasant surprises that normally show up on your phone bills," according to SunRocket CEO Lisa Hook.
SunRocket is differentiating itself in other ways, too, which reflect a larger trend toward a power shift in the wireless industry from a carrier-driven to a consumer model. For one, SunRocket customers get to choose how they are billed, with an option of receiving a monthly or annual bill. Annual billing helps establish a deeper relationship with customers than is possible with month to month. It can also prevent churn in the hyper-competitive telecom services industry, where cable, big phone companies and VOIP startups are all vying for the same customer pool.
Within that large pool, SunRocket's effort to do a better job identifying potential customers before launching marketing campaigns is also paying off. "Fishing where the fish are allows us to target customers who are most likely to use Internet phone service," Hook says. SunRocket pinpoints households with existing broadband service and consumers who, as tech pioneers, might be open to trying new technology. The plan is to grow lock-step with this market, investing accordingly, not jumping ahead of it.
Going forward, SunRocket expects to leverage one of its key differentiators - a pure IP network - to roll out broadband-enabled features and service that go beyond the traditional home phone service experience. For instance, in the future, SunRocket believes that contact information for individuals will not be phone number-based, but presence-based, giving rise to some interesting new services.
While some say the VoIP market is struggling, we do not agree. Vonage in September was valued at $1.2 billion. EBay bought Skype in September 2005 for a cool $2.6 billion. Market researcher IDC believes VoIP will be used in 62 percent of all homes with broadband by 2010. With about 10 million subscribers to residential Internet phone services expected by year's end, out of a total of 159 million Internet users, a large market opportunity is clearly untapped. There's room for multiple players, too.
With a growing market and the anticipated roll-out of more value- added services, it's only a matter of time before SunRocket achieves escape velocity.
Guest Interview: Russ Shaw/O2 — An American in London
Russ Shaw is Capability and Innovation Director of mobile services provider O2 UK. He is the former CEO of Mobileway (now Mobile365 which has signed a definitive agreement to be acquired by Sybase), a Mayfield Fund portfolio company, and a happy U.S. transplant to the UK. He can often be seen riding the London underground, toting his Tumi backpack and subtly watching fellow passenger mobile phone behavior.
With over 17 million customers, O2 UK is the leader in voice and non- voice services, including text, media messaging, games, music and video, as well as always-on data connections via GPRS, 3G and WLAN. The company is part of the O2 group, a wholly-owned subsidiary of Telefónica.
We spoke to Russ about how UK consumers use their phones, keeping customers happy and what's next in mobile.
Mayfield: The U.S. is lagging behind the Pan-European community when it comes to wireless. How can we catch up?
Russ Shaw: The U.S. can catch up. First, make your pricing as clear as possible and your network coverage as good as it can be. For instance, I was in California a few weeks ago, and could not get decent roaming coverage. That's just unacceptable. The new innovative services are great, but it is also critical to get the basics right.
Mayfield: How do you keep current on how customers are using their phones?
RS: When I take the tube or commuter train from my home in West London to the city center or Slough, I watch how people play games, send messages, the sorts of calls they are they making. In addition, we have a systematic and thorough customer research and satisfaction program at O2, which helps us to monitor customer feedback.
Mayfield: How do you ensure customer satisfaction?
RS: Don't make mistakes on billing and connect their calls the first time. We also reward customers through a loyalty offer called "O2 Treats." Every customer after six months gets monthly "treats" including free calls, free text messages, discounts on international roaming, or free access to content sites.
Mayfield: What new and exciting mobile data services are you introducing?
RS: Music downloads and ringtones continue to be hot. SMS keeps growing for O2. The next area is rich messaging. We're trying to figure out how to make messaging more interactive and stimulating and how to make your phone a virtual scrapbook and photo album. Also, eBay on both our O2 Active and i-Mode portals, which lets phone users check their bids on eBay, has had a phenomenal takeoff.
Mayfield: What are the key innovations that have driven the company's growth to 17 million plus customers?
RS: One example is our Destination Stores, where customers can have a rich physical wireless experience. In both London and Munich, we are introducing a VIP concept, which provides special treatment to customers. In London, we host events such as the O2 Wireless Festival in Hyde Park and the rebranding of the Millennium Dome as The O2, to further extend our brand and give a great customer experience. We have also had great success with our many "bolt-ons", which allow customers to pick and choose the services that are right for them.
Mayfield: Any thoughts on the importance of mobile advertising?
RS: I am not overly convinced that it will be a big revenue generator. We need to keep the customer in mind before inundating them with ads. The last thing we want to do is turn people away. Whatever we send them needs to be fresh, stimulating and generate click-throughs. Making it easy to "opt-in" through a quick text has been a great way to get customer engagement. Millions of our customers have opted-in to both O2 Treats and our Prepay Rewards scheme.
Mayfield: How do you balance customer growth while maintaining Average Revenue Per User (ARPU)?
RS: Over time, ARPU is less important than growing the customer base. Some customers will be high value, some not. O2 has targeted the high-value segment because those customers appreciate a good, reliable service and a brand which stands for good value for the money.
Mayfield: Any advice for start ups wanting to get "on deck"?
RS: Get out there and get to know your customer. And please, don't just sell me when you visit or call, know my business. You should reach out to companies that are similar to yours. Get to know the key people at large providers, but make sure you understand their business before you arrange that first meeting.
