CircleID

Just about everyone I talk to is very excited about mobile Internet. In 2006, the Japanese government proudly announced that more people used the Internet through their mobile phones than through their computers. Online services are all talking about their "mobile strategy" and VCs are flocking to fund the latest "mobile startup".

I don't think there is anything wrong with mobile or with some of the great new mobile applications and devices, but we have to be careful to remember that most mobile networks that actually work are built on infrastructure that is operated by a small number of mobile operators who use a lot of regulated and closed technology.

The reason that we have vibrant startup driven innovation is because the Internet is open by nature. Anyone can participate without asking permission and anyone can compete with anyone else at every layer of the stack. This DNA of open and free competition (except for the occasional semi-monopoly) is what allows startups like Google to come in and displace incumbents. If it weren't for the Internet, I'm positive that the telcos would have determined that it was the most efficient that THEY design and operate the "online directories".

We can criticize Google for becoming large and dominant in the market, but a huge percentage of the money that Google makes goes back into distributing money to startup companies and even non-profits like Mozilla. Google acquires many companies and buys equipment from vendors that mostly create open platforms.

The money that the mobile operators make mostly goes to boated and expensive internal R&D and paying for equipment from a small number of vendors that make the telecom equipment.

In 2006 in Japan, mobile advertising was only $330M vs Content (Ringtones, Song-tones, Games) at $2.2B and Commerce at $4.7B. (source) Although all of us are experimenting with advertising and advertising is increasing on mobile, the overwhelming percentage of money spent on mobile devices goes to paying for and the collection of payments for a small number of not so innovative products from a small number of providers.

I don't really blame the carriers. In most countries they are struggling to operate with the burden of a huge auction purchased spectrum license on their books. In most countries, they are heavily regulated. The fact that they are typically a small group of government licensed businesses make them an easy target for regulation that also increases costs and lowers competition.

For example, there is a move on the part of the Japanese government to provide content filtering to "protect youth" from "bad content". The Net is trying to fight this sort of filtering system that would regulate content on the Internet. In the mean time, the government quickly forced mobile carriers to implement a content filter for minors which is now in place in Japan. A mobile Internet is much easier for governments to regulate and control and make "safe" against the bad guys as well as small annoying startups and disrupters.

People point to the hacked iPhone as an example of how "we're making mobile open." I do applaud it and I think it's great that we can now run our own apps on the iPhone. However, what do you get at the carrier level? Yay, you now can chose Vodaphone or Sprint instead of AT&T. This doesn't solve the basic problem that at the carrier level, we're still closed.

In the short term, MVNOs like e-mobile will help drive prices down, but they are still built on an architecture that isn't really open to competition and the prices will only go down so far. What we need in the long run is open spectrum and alternatives to 3G.

In Japan, services like Mixi have announced that their web usage is decreasing, their mobile usage is increasing and that more of their users are using their services from mobile and than the web. I don't think mobile monetizes as well (for the company) as the web. I think that if we move over to mobile too quickly we're risking moving our game to a platform where the DNA is not what we're used to on the Internet and most importantly, putting money in the pockets of people who do not redistribute it to startups, but instead feed giant vendor ecologies instead.

Maybe those smart companies in the mobile space like Vodaphone and Nokia who see the future should create a fund to invest in open innovation on mobile. We definitely could make the argument that in the long run, a healthy ecology on mobile is better for at least the strong companies involved in the ecology, just like the Internet increase the telecom economy as a whole. It reminds me of the big oil states investing in alternative energy. If this could happen, this could be a good thing and I'd be happy to help. ;-)

By Joi Ito. More blog posts from Joi Ito can also be read here.

Related topics: Access Providers, Mobile, Telecom