Walter Adamson is based in Melbourne and the Principal of Digital Investor, a consulting company he formed 5 years ago to provide business advice to owners and investors in IT and mobile businesses. He has clients in China, Spain, Japan and the US, and Australia. He joined forces with Pascal Lorne, the founder of the i-mode Content Forum, to merge his i-mode Business Strategy website into the i-mode Content Forum early in 2004 after they met in France. The i-mode Content Forum is the world’s largest and most active trade association of i-mode content providers. The strength that Walter brings his clients is his global understanding of industry forces and trends and his particular focus is on strategic partnerships, business models and value propositions. His most recent venture is the establishment of a trade accelerator into Japan for Australian companies. Find him at www.digitalinvestor.com.au and www.imodestrategy.com and at what appears to be the world’s only website focused on mobile search at www.goobile.com Mobile: +61 403 345 632. Skype: walter.

mo:life
Traditionally, Australia has been very conservative when it comes to backing technology ventures, is that still the case, or are there investors who are willing to back more risky projects?

Walter Adamson
There are always these types of investors, and always just a small number. The crash caused a drought while they recovered their gumption, and now there is a small cadre again. Governments have provided pre-seed funds and Comet grants. These are inputs, and what counts are outputs, results, and wealth generation, and I’m not sure that there is any evidence that what you called “risky projects” have emerged from these programs. For example, many Comet advisors require a company to have sales already, so that is probably not what you are referring to as “risky”. If you know that VCs typically review between 200 and 300 opportunities each year and invest in 3 or 4 then this tells you that you need to be very well prepared. These 3 or 4 VC investments are not at seed stage and not “risky” in your sense of probably being very speculative. There are certainly fewer investors for earlier stages - the seed stage - and the chances of getting their investment would be smaller - so we may be talking about 1 in 1000 getting investment. One key to preparing properly is to know what kind of risk is the “riskiness” to which the question refers. Is it market risk, technology risk, distribution risk, pricing risk, people risk etc? As well as the business plan what is the specific risk management and mitigation plan?

To come right back to the intent of your question - yes Australia is relatively conservative, but there are some adventurous investors. You need to understand their focus, the timing, and prepare well, and be prepared to sell your opportunity in relation to all the other opportunities that are seeking their attention and money. Ideas are not good enough - you need a compelling vision and execution that will commercialise the project.

mo:life
Will projects that focus primarily for an Australian audience be attractive for investors - or do Australian developers need to ensure that their products and services can exploit larger markets such as those in Asia? Are there some investors excited by stuff designed principally for Australian markets?

Walter Adamson
Rarely is the Australian market alone interesting to professional investors. Mobile content is a great example. Australia is great as a proving ground or a source of expertise or R&D teams, but the markets are elsewhere. A business, in this day and age, is kind of dull if it cannot scale to the 98% of the world’s economy outside Australia. This does not mean that you have to own and manage the rest of the world - you may have a licensing model or a franchise model - but the spread and scale should be global.

mo:life
As a follow-on to the previous question - everyone says there’s no money in Australia. Is that true or false? If yes, where is it?

Walter Adamson
Aspiring entrepreneurs in our mobile space need to better prepare their understanding of the investment industry. For example there is a sequence of investment from pre-seed to seed to stage 1 (A round) to B round to C round etc, and different groups focus on different stages.

And, for example, VCs manage funds that have lifecycles, and you need to understand the lifecycle stages of a VC’s funds before approaching them. They also have specific focus and specific no-gos, so know these - educate yourself. Some VCs only do expansion rounds, e.g. C round, and need to make large investments in order to hit their financial goals so asking them for $500,000 is of no interest. Contrary to common opinion you can usually approach a VC and get a hearing by preparing a great 2-page briefing paper and then emailing and calling. They will talk to you - they are human! They are looking for good investments. Bear in mind that on average over the last 5 years the sum total of the Australian VC industry has averaged a ZERO return to their investors.

If you understand that some of the funds have returned terrific results from a small number of their investments that listed during the boom, then this means that other funds have lost quite a lot. VCs are keen to find the kind of opportunity that can lift their returns - so they are keen to talk to you if you have the goods. Besides the timing issues about their funds, which typically have a 10 year lifetime, they are looking at you through a particular mindset - and you need to add up.

Firstly, they want to be surprised by the breadth and audacity of your venture. Then they are assessing if this is going to return them 10 times their investment within the next 10 years. And thirdly, they’ll consider whether yours is the team to deliver the results (and fourthly the good ones are asking themselves what extra value and connections they can bring to your venture to reduce the risk and ensure the 10 times result). Mobile entrepreneurs need to educate themselves about all this and more before approaching the VCs and other sources of investment in order to have the best chance of success. Oh, by the way, foreign VCs will rarely invest in Australian ventures that are based in Australia. So the source of funds is, for all practical purposes, only in Australia.

mo:life
There seems to be a bit of skepticism around about i-mode - how do you think it will fare in Australia? What will shake its sluggish start?

Walter Adamson
We know that the model of i-mode, the whole ecosystem of carriers, content providers, handset makers, and network integration, all works successfully. So the question is what will make it succeed in Australia? So far, from what we know from Telstra, i-mode is meeting their targets for subscribers and exceeding their expectations of activity on the portal, some 10 times higher than the activity on their WAP portal. So, therefore, I am not sure if the start has actually been sluggish. But, of course, I have heard many content providers reporting that their subscription levels are very low. So while there are are a very small number of high subscription sites, the majority are feeling like things are sluggish. The best thing that i-mode in Australia has done is that it provides a platform for discussion and promotion of the whole mobile content industry - and this is a key reason that I promote the understanding of i-mode - because i-mode has a history, has a model, can be referred to in a single word, and gives the whole view of how successful things can be. There are alternative systems and they will also succeed, and that’s good for the content industry, and in time I expect that i-mode will have a solid place also in Australia. To be commercially realistic, if you are a content provider, this will probably not be for another 12 months unless you can produce block-buster content or an application.

mo:life
In terms of content, would you agree that the mobile space is shaping up to be a wireless mall, in the sense that branded content is really flexing its muscle, making it harder and harder for independent producers to get purchase?

Walter Adamson
I guess that the mall analogy is one useful way to describe it, as Optus has. I’m not really sure that it is helpful in understanding the dynamics of the industry. The dynamics are like this. If you have brand power, whether it be a game, content, or a portal (MSN) then you are running a higher cost and higher price model, because it costs more to promote and sustain your brand and you can also charge for the experience of being associated with the brand. If you are not running a branded strategy then you need to be low cost, highly scalable, and low price. At the moment we have a mish-mash of people in all different spaces across this spectrum - and the adjustments will be painful for some who are currently in the wrong space. This does not mean that they have not been in the right space up to now, where excess profits may have been available because of access advantages or first mover advantages. But what is sustainable is what I have described. This means if you do not own branded content or unique IP then you better be moving to high-volume, low-cost low pricing models. Conversely, if you have low-volume and high-costs, but are currently able to charge high prices, then I suggest that this position is coming to an end. So, with respect to your question, while branded content may be flexing its muscle, it is a matter of understanding how to supplement their offer or how to work through different channels. Are channels becoming more crowded? Yes. Does this mean that the channel and the business case need to be more carefully studied and prepared? Yes. Does this mean that more work is required to break in as compared to the earlier providers? Yes. But just as with television the independent producers have major role to play and a major opportunity in mobile content.

mo:life
You spoke at the i-mode forum about mobile barcode technologies, and how popular they are in Japan. What are a couple of nifty uses mobile barcode technology is being put to in Japan? Has there been any interest in barcode-based ventures from Australian investors/businesses?

Walter Adamson
The current use of barcodes in Australia is through SMS to barcode - for entry to events and promotions etc. For example, SMS an offer to a phone and present the phone to a digital photo kiosk and get 5 free prints. It has not moved beyond this because the handsets here don’t support the reading and interpretation of barcodes on ads and posters and TV etc.

In Japan the use of square barcodes, the QR code, is almost ubiquitous in certain market segments such as youth magazines. So an advertisement has an associated barcode for an offer and you snap the barcode, hit the OK which brings up the website with a choice to subscribe or to read a coupon for a discount offer or whatever else you care to have on the website that is retrieved from. From TV, snap a barcode and have a site or offer or email returned, tied to the dynamics of the TV show or advertisement - e.g. time of day. The print barcode is static as it contains pre-printed information, but the TV barcode, for example, is dynamic as that system pulls information from a server which can be dynamically related to the showing of the ad.

mo:life
How have Japanese businesses dealt with the problem of consumers having to get the barcode software before they can engage with things like “active posters”? Having that technical impediment seems like it would be enough to severely hamstring mobile barcode take-up in Australia - can you foresee a time in Australia when such software is standard?

Walter Adamson
You’re right that it depends on the handset and having an application on the handset. But that barrier is dropping. For example, one of the latest systems in Japan uses a snap of any advertisement and sends this off to a server which returns promotions and offers to the mobile.

The photo is not interpreted on the handset, but at the server, where advertisers have registered. Thus the handset application is not very complicated - just send the snap to the server. With 2 megapixel handsets and the ability to download applications, we can do this here and this will evolve quickly once some parallel promotion takes place with the next release of handsets (and 3G). So in brief, with the push to upgrade handsets to 3G we will not be too far behind - I don’t see any technical problems in adoption, there are commercial and education issues to address.

mo:life
Would you advise content producers (like animators and film-makers) thinking of entering the mobile market to get in to making standalone content for mobile, or to see mobile as an annex, or extension of what they’re already producing?

Walter Adamson
It can be original - for sure. But it can also be an extension in terms of content. In both cases what is critical is that the mobile experience has to be tailored - tailored to the mobile experience!! So, by extension, I mean that with careful consideration, planning, and testing that existing material can and should be re-purposed for mobile. This means, in my opinion, that thinking of mobile as simply a platform for current movies or TV or cartoons etc is not a recipe for success.

Many of the events and competitions for mobile content for animators and film-makers seem to revolve around just producing a short clip which in itself a panel judge as creative. But they seem to be oblivious to the device itself except that it has a small screen. Yet having a small screen is the least of the issues in producing content for the mobile.

The mobile has characteristics far beyond just being a small screen and an SMS capability, and success in producing content, or repositioning existing content, requires a deep appreciation of those characteristics and the associated business model and distribution.

mo:life
What is the fate of mobile video? We seem to be at a stage where big players are hurriedly panel-beating the television model so as to squeeze it in to the mobile screen - do you think there’ll be space for independent players to push their own fare through, or will they have to find a channel and/or aggregator? In other words, in terms of video, do you think we’ll have a mobile-net where audiences seek-out content provided by all manner of producers, big and small? Or will we have something more like mobile-tv, a more push model that mirrors existing models, and draws on people’s av literacy - finding what channel you like and leaving the details to programmers?

Walter Adamson
This is a good question, and probably worth a whole page answer. But I’ll be brief. Sending TV to mobile as we currently know TV is a very limited market, and there is no point in simply squeezing it to the screen size, as I indicated in the answer to question 8 above. What we will have is this - a monstrous and hugely successful business in DIGITAL TV to mobile and DIGITAL radio to mobile. There is nothing interesting in analogue broadcasting to mobile - this exists of course, with TV and FM radio on handsets in Japan. But that is simply a feature parading to find advantage with a small buyer segment for the purpose of selling handsets. It is not a core offer or a compelling and profitable experience. Digital TV and radio to mobile will create massive new commercial opportunities for content providers, and will be universal because it can be served from anywhere in the world. Local distribution companies will aggregate and provide access to global sources. This means, in answer to part of your question, that there will certainly be aggregators in the mix, and there will be a search model as part of the mix.

I’ll give you an example of what digital TV to mobile means, since most people don’t seem to get it yet. Imagine that you subscribe to Big Brother to your mobile, and what you really want are alerts when your favourite guy or gal is in the shower or in intimate conversation with another housemate that you specify. You set those requests/alerts on your PC, which is linked to your mobile TV subscription. Then when BB is streaming to your phone the meta-data entered at the production studio is being read by your phone and compared to your alerts. Your phone knows whether you want to be signaled in real-time or if you are asleep, so it takes note and stores sequences that you requested and then tells you or sets a symbol to show you that you have something to check when you are ready. When you see this is available you check and find that there are 3 sequences of 5 digital images each that interest you from your first request, plus an opportunity to view the video-stream at that time (In this case the stream is not being recorded and saved on your phone but simply monitored for your requested sequences). You decide to buy one of the images for $3 and download the video sequence for $3 (which may have been the intimate conversation for example). Then you send the image to a friend, which through DRM gives them the opportunity to purchase it, or you the opportunity to purchase it for them. Digital radio to mobile is even more powerful as far as extending radio, although I’ll have to leave that example for now due to lack of space. The really dramatic impact of digital TV and radio to mobile I’ve left to last, and this is the aspect that will have the most dramatic impact on content producers. Digital TV and radio are channels for digital distribution. They are channels that are can be independent of the carriers, and this means that the power structure of the whole mobile content ecosystem will be disrupted, and content providers stand to gain most from this disruption.

mo:life
If you were to invest in tech stocks limited to mobile companies/products, where would you put your money? Any particular handset makers? Content providers? Service providers? Infrastructure companies? And if any, why?

Walter Adamson
As I mentioned in answer to Question 2, I would only invest in opportunities that had global potential. Infrastructure companies are vitally important and hold huge opportunities - I mean companies that can create compelling new content platforms or game platforms or content distribution platforms. These can be huge if they speak to the user experience and integrate the full power of the mobile handset and in combination with a whole digital lifestyle across the web and PCs, and with an mcommerce model or interface.

I would not touch handset makers, I don’t see any that demonstrate any real understanding of the dynamics of mobile and where it is heading - they are in the main 100% “features driven”. For example the Nokia guy at the Mobile World conference in Sydney in May said, on stage, that he was mystified and at a loss to explain why people would pay $5 for a ringtone but only $2 for a full length CD-quality song download. This shows that while they might understand telcos, who are their customers after all, they don’t understand their customers’ customers. There are tremendously inventive handset makers, from Korea and from China, and perhaps there are opportunities because of the myopia of the big guys, for new entrants. I guess, after all, Blackberry has made a mark with a creepy dumb device that would make you laugh if it were not for the fact that it is successful. And we have to watch out for Apple. But handsets and their design, manufacture and distribution is not something that naturally attracts me.

Products and content that have strong IP protection and/or which capitalise on the inherent characteristics of the mobile - being intimate, viral, personal and personalisable, present and relevant - and are global, are of interest. And also those technologies that link and integrate between mobile and IP networks, using SIP and such, provide new and interesting platforms and opportunities.