Mobile Content And Zero Billion Dollar Businesses
By Mike Masnick, Fri Dec 17 00:00:00 GMT 2004

Hype and the mobile industry is nothing new. However, it's reaching warning levels when those paid to be skeptical are spewing the hype as well.


If you've ever been in a situation where you're trying to raise money from venture capitalists for a brand new startup, you're probably familiar with what a "zero billion dollar industry" is. While there are some exceptions, the traditional VC doesn't look to invest in "good" companies that will make money. They are looking to invest in high risk, high return companies. These are companies that have a chance at becoming billion dollar companies -- or more. Therefore, it's a natural thing to do, as a startup executive, to pitch why the market you're targeting will be worth billions of dollars. This is often followed by the phrase that everyone should fear: "And all we need is 5% of that market, and we'll be huge!"

There are some VCs who will quickly walk you out the door if you ever utter such a phrase -- and the ones that don't probably aren't worth doing business with. No business becomes a success by "taking x% of an overall market," when there is no market. As a startup, those billions are all 100% imagined. It's a zero billion dollar industry. The job of a startup is to build up that market to make it a multi-billion industry. That means identifying who the customers are, showing that they need the product and proving that a large percentage of them are willing and able to spend to buy the product. You build bottom up descriptions of the market, and not top down.

When companies miss this point in front of investors, it shows they don't really know their market. When it happens in front of the press, however, it's often because a company is trying to hype up a story -- and the press doesn't always have the same exacting standards as investors. Perhaps that's why venture capitalist John Fisher has been spotted making "zero billion dollar industry" predictions concerning the mobile content market.

The argument is that "if a user is willing to spend $10 a month for entertainment content on a phone, and there are a billion people with phones in the world, that works out to $10 billion in revenue a month, or $120 billion a year." It's not hard to spot the problems with this statement. First, there's the initial "if." What's the evidence that users are willing to spend $10/month for entertainment content on a phone? The fact that most won't spend that kind of money for entertainment content on the Internet should be a huge warning sign. Second, as Om Malik points out, a large percentage of those one billion mobile phone users are in places like China, India and Brazil where they pay less than $10/month for just basic mobile phone service, meaning they're even less likely to spend so much on additional content.

Malik is correct in pointing out that the mobile content industry is huge -- but probably not in the way many people are expecting. The fact that even a VC, who would normally laugh at anyone who made the same argument back to him, is saying such a thing, suggests that some in the industry have felt its time to turn up the hype to hide more disappointing returns. Notice that he's not talking about how many people are actually paying $10/month for content (or even paying any amount for content) but building a false assumption about how many will.

It also assumes that this "content" is all broadcast style content. This is reminiscent of the Online Publishers Association reports. They come out with frequent studies saying that people are paying for online content -- but the details of the studies always show that's not the case at all. The majority of the revenue they discuss is about dating services. Those aren't about people paying for content, but about paying for the access to other people. Mobile phones, even more than the Internet, are all about interactivity and communications. Trying to turn phones into a broadcast medium is a dead end. Using content to build more interactive communities and services is the path to success, but it's not going to happen if the investors somehow think that everyone is just going to plunk down a ten dollar bill to access some one way content.