IN THIS ISSUE:

* Millenium Madness

* New Venture Funds Announced

* What Worries Will Year 2000 bring to the Ericsson Management?

* We need Tiger Teams to Champion Market Understanding

* If I Were in Your Shoes I would…

* Innovative Business Models

* Improvement Opportunities at Ericsson

We are having some major business modeling meetings in Stockholm and here I have put together the last issue for IOW in 1999. The next issue will be dated January 3th, 2000 - have a Mobile Millenium!  Don’t forget to do some telebration…

The big news of last week? The big US retailers announced their Internet moves: WalMart (planet’s biggest retailer) is doing a massive alliance with AOL and Internet netbatsu SoftBANK married Kmart and Yahoo by establishing a web retailer and private label online service Bluelight.com.

MILLENIUM MADNESS

Strange things are happening during the millenium shift. To engineers it might be mostly an opportunity to observe the robustness of our technical evolution but to a normal consumers it will be a lot more. In the US, millions of people firmly believe in the apocalypse, the world coming to an end. Others feel a compelling need to leave a trace of their particular unique moment. Thousands of millenium home pages and web events will connect people in ‘telebrations’ around the world, following the example of Kit Galloway who once coined that term (http://www.ecafe.com/). According to research, 43 percent of AOL users plan to be online during the crucial moment. Heineken is running a global ad campaign (excluding only Antarctica), inviting people to go on their website to send a message to outer space.

But most people will stay off their PC that night, celebrating in a traditional way. Champagne producers in France started preparing for the extra demand already in 1995 to guarantee the availability. People will do crazy things. President Nelson Mandela will host a gala dinner at his former prison where he stayed some 30 years. Jonathan Kim from LiveMind (http://www.livemind.com) belongs to a  group of INSEAD students who have reserved a wing from St Paul’s Cathedral at the Red Square in Moscow for a party…  How will you leave your millenium trace?

NEW VENTURE FUNDS ANNOUNCED

The b2b e-commerce space just got some significant boosts. Andersen Consulting jumped on the bandwagon and established a $1 bn venture fund. EDS announced an intention to put $1.5 bn into a fund called EDS-A.T.Kearny Ventures.  In the media industry, News Corp. announced the formation of News Digital Ventures. Time Warner established Time Warner Digital Media Fund ($500 m).  AT&T took a $50 m stake in Internet Capital Group to establish a coinvestment relationship with this leading VC firm. Even smaller players like Infospace and Lycos have announced their own venture activities, Infospace.com Venture Capital Fund ($30 m) and Lycos Ventures ($70 m).  In addition, the sales force automation success story Siebel Systems spun out Sales.com with a $27 m venture fund.

Companies who are shaping the e-business space need to make sure they take part in the innovations that push the envelope and develop the industry. This applies to legacy powerhouses like EDS where the sizes of the funds are bigger and bigger. It also applies to “grown-up” Internet companies like Lycos and Infospace who need to find more upside-hungry people outside the company - millionaires don’t innovate well enough…

The boom will continue, a lot more money will be invested. The excess money is feverishly looking for new untapped opportunities - the Nordic mobile Internet market has a good chance to become a global hotspot.  We are living the “second boom” where investor are more aware of where the market is going and the players have more experience on fast execution (my earlier writings about “second-generation Internet startups”.  Ericsson will have to leapfrog straight to the second generation if/when we start our venturing in the mobile Internet space. Improving, but being always 9 months behind, won’t cut it.

Another consequence of the increasing money flow into the industry is that Ericsson risks severe brain drain when the mobile Internet expertise of our employees becomes liquid currency. The Ericsson management faces the need to address this issue.  Nordic countries are becoming the Mobile Silicon Valley. Money is flowing into this direction.  How long will people just sit and watch the lucky ones from Sendit AB, Icon MediaLab, Spray and Data Fellows? There are several ways of resolving this issue and building our own “Internet keiretsu” where sufficient upside fosters loyalty. Some activities - like the Ericsson Developer Program - are underway, but none of it is quite reaching the right level of ambition.

WHAT WORRIES WILL YEAR 2000 BRING TO ERICSSON MANAGEMENT?

We have to understand partnering. Partnering creates value. Partnering is a message to the market. Partnering is a normal way of growing the market: the decision NOT to partner should be subjected to the Ericsson board, case by case.  When Infospace acquired Saraide a few weeks ago (Ericsson has an equity stake in Saraide), several relevant Ericsson managers heard the news from me, not from Infospace or Saraide. The acquiror, Infospace.com, is one of the smartest and fastest Internet technology companies on the planet. This company which today has a market cap of around $8 bn, is heading for a dominant position as a content aggregator and targeting and personalization service bureau for mobile operators.  It was my top recommendation for acquisition some 9 months ago when its market cap still was around $ 1 bn.  It is still one of the top candidates for us to partner with. However, the more we wait, the less they will need us.  Shall we partner with them only when they have become a Microsoft?

Business level discussions on a top management level are key to success.  Shall Ericsson have a mobile portal or anything to do with portals? Should we talk to Internet companies in the first place? Are operators, our customers, going to stop doing business with us if we do?  These questions will surface in the year 2000 and our top management will be giving answers to them routinely.  We live in times when value is being redefined and role conflicts are a natural consequence, a weapon in a psychological warfare.  In my humble opinion, the key to a success is to lift the level of discussion from the operator technical departments (who wish to secure their employment) into the top management level. Strategically, Ericsson’s mission is to be the “restructurer” of the mobile industry, a vendor who helps an operator find and develop its competitive edge. The key to this is business model innovation which Ericsson has to provide, both embedded in its offering (e.g. portal solutions) as well as as a consultancy service. And now comes the (traditionally for Ericsson) difficult part: operator reactions have to be proactively managed by well-planned strategic marketing activity. The ones who will win themselves new “value territory” will be those who can explain upfront why that is a mutually beneficial proposition. That’s why we have marketing.

WE NEED TIGER TEAMS TO CHAMPION MARKET UNDERSTANDING

Key to Ericsson’s success in the future lies in our ability to help our customers differentiate and find competitive edges.  Our market segmentation arsenal shall offer us the means to help our customers differentiate (”Ericsson, can you offer us as an operator a service bundle targeted to the youth market?”). The key to creating segment-specific service bundles is a thorough understanding of that segment. Therefore, Ericsson need urgently fully dedicated global teams to champion that understanding. I call them Tiger Teams.

Vertical Industry Tiger Teams should be used to improve our understanding on the chosen industry segments, such as Financial Services.  The team would be responsible for helping our management to establish business-level dialogue with our customers and their customers. How do you create sustainable competitive advantage with communications solutions in the financial services industry? Can you describe the new competition emerging from online financial services and its impact on value creation in the financial services industry?

Consumer Segment Tiger Teams should take a similar role on our chosen high-focus segments, such as Youth.  How do young people communicate?  How can you create loyalty and reduce churn among that segment?  How can you extract more revenues from youth by enhanced payment solutions?  What can be learnt from the teenage-driven Japanese iMode market?  How can our Outdoor People segment benefit from Internet partnerships, such as http://www.adventureseek.com?

Application Tiger Teams should take an evangelist role by specializing on our selected Profile Applications which Ericsson develops to increase the “stickiness” of our service portal offering (project eMode): wireless email, instant messaging, mobile transactions, etc.  What is required from an excellent instant messaging service? What do the consumers say? What does the business user appreciate? What is leading market research telling us?  What are the innovative business models that can be attached to instant messaging? How can that support operator’s future business models?

Branding Tiger Teams - as discussed in last week’s newsletter - should be used to enhance and communicate the key elements of the “Power of Mobility” brand platform: Mobility, Personalization, Convenience and Quality of Life.  Who at Ericsson today knows all about personalization? Can our top management exemplify how personalization can be used on the web today and how it will change when services go mobile?

Competitor Tiger Teams should be deployed to better understand, anticipate and help preempt competitor moves. The team should be given the mission to adopt the role of a competitor’s top management team. Our top management, KAM organization and other relevant people should be able to call in a “replica of Jorma Ollila” to discuss planned strategic actions. As in the case of Jorma Ollila himself, it is a full-time job.

I would appreciate your comments.

IF I WERE IN YOUR SHOES I WOULD…

Where do sneakers and rubber boots meet? Nokia invested in its new partner Palm. The handheld manufacturer got a new CEO from Reebok, this should make cooperation with the former rubber boot maker Nokia easier.  Palm is apparently fighting its slowing subscriber growth by attacking lower consumer segments. I am also sure Nokia wanted to make sure its partner speaks the consumer market language.

INNOVATIVE BUSINESS MODELS

The IP telephony hosting service from iBasis might be a sign of a trend where voice services will be a private-labeled feature of an e-business offering and the traditional telecom industry will die…

Does the “hard-coded button” have to be on the phone? What if it is on the wireless remote control in the e-wallet? Planet Portal introduced a card reader that read special “URL cards” which will be sent to millions of users as a part of loyalty programs (compare with the “carpet bombing model” of AOL). According to the article, this device is eventually planned to go wireless. Also, it can track users surfing behavior and target ads accordingly.  Revenues come from the usual suspects such as advertising, sponsorships, tenancy deals, etc. Note that the venture arm of Deutsche Telekom gave them their seed financing and they plan to give out 4 million cards in Germany. I see this as a precursor to branded prepaid mobile Internet offerings.  I am actually talking to the company and they promised to send me a beta device.

Riding on open source. We all have read how LINUX resellers have recently become billionaires.  Others are joining to pursue models where added value is being offered on open source technology. SendMail is building a business on the email protocol SMTP, Covalent Technologies builds upon Apache web server open source. Interestingly, Will Thomas from Ericsson IPO office in Menlo Park left a few weeks ago to head Internet Engines, pursuing the goal to make milllions on the Internet “signaling” conventions DNS and  DHCP.

Barnesandnoble.com is diversifying its business model from book selling into content distribution in general, acquires 32 % of enews.com, a magazine subscription portal. To view Barnesandnoble.com and Amazon.com as direct competitors is no longer the whole picture…

The next phase in the evolution of online bill presentment (such as paymybills.com) is the advent of comparison-shopping attached to bill presentment. .Here comes lowermybills.com, lanching in February, funded by Internet incubator eCompanies.  eCompanies is probably a “stamp of success” to this venture. Its founders Jake Winebaum (ex-head of Disney Internet properties) and Sky Dayton (founder of Earthlink) are both from the dynamic Internet generation (founded eCompanies on a snowboarding trip).

I was reading that USAutonews.com is receiving venture funding from Cisco Systems Capital. The funds will be used for buying the web startup some Cisco gear to get their business going. Since Ericsson is doing plenty of vendor financing, I wonder whether we have considered equity-based financing as an option to participate in the upside of greenfield operators. The question might grow in relevance as more and more operators are setting up tracking stocks for their mobile Internet operations (see AT&T).

IMPROVEMENT OPPORTUNITIES AT ERICSSON

Something quite positive: Ericsson seems to be taking leadership in the development of the emerging IPv6 industry. Our majority stake in the Danish company Telebit is enabling us to inherit a leading position. See http://www.ipv6forum.com/.

QUICK TAKES - Fotonation and Kablink.com have announced a solution whereby you can upload photos from a USB-enabled camera directly onto the Kablink community website…  You might want to take a look at my bookmarks at the Hotlinks site (not very impressive collection), this kind of elementary groupware will be very popular.  A WAP version of this?…  A year ago I ran into an exec from Be, Inc. who said their have handheld 3G plans for their OS. Is anybody looking into this (click for an analysis)?…  CMGI is building an instant messaging powerhouse by acquiring capabilities for permission marketing focused IM: Tribal Voice, Activerse, Engage…  Ever wondered where a guy like Michael Porter (the guru from Harvard) invests his money in? The “personalization portal” Onepage.com is such a company…  Ztango.com develops a software gateway platform and applications for wireless Internet services. I have not had time to study this more in depth…  Cahoots, is developing real-time web communications software, founded by a “serial entrepreneur” Kamran Elahian…  Nettech Systems develops
middleware applications that enable access to Internet and enterprise data from mobile devices, just acquired MobileWare…  Ericsson spun out CyberGENIE, the new company is called Cygnion…  ValueStar rates local
service and professional companies in regard to customer service and makes the information available over the Internet. This is a typical local application dialtone - you want to give feedback right there and then when you are angry…  Tellme Networks are about to launch their technology which voice-enables web content in an interactive manner. Kleiner-Perkins has invested in them…   3Com seems to be active in the appliance communications space. Coactive Networks, which develops products to connect control systems, appliances, and other devices to enterprise networks and the Internet, said it received $14 million in second-round funding led by new investor 3Com Ventures…  PacketVideo, the 3G video startup I have been following recently, got a second round of financing led by the Siemens fund…  BlindGift.com is an online gift service that enables users to send gifts using only an e-mail address, very interesting…  A new entrant in the c2c space, GiveMeTalk.com, provides do-it-yourself Internet talk radio services…  - (To view the embedded hyperlinks, view this section online at http://webacademy.ericsson.se.)

SELECTED THOUGHTFUL READING -  A new study says online games could become a $5 bn industry worldwide by 2004…  Yasumitsu Shigeta, a 34-year old, mobile phone entrepreneur in Japan, is one of the richest people in the world.  He fully understands how the Internet will revolutionize business models…  Palestinians are selling their high-tech workforce to Israeli startups with good results. This is perhaps the real Middle-East peace process. Siemens is taking notes…  E Ink is developing wireless paper-thin displays with Motorola and Lucent, I am sure someone at Ericsson is doing it as well (?). The article puts the technology “five years away”…  The Red Herring “10 Trends for 2000” is worth reading…  How will the world look like in the year 3000? A recent scenario workshop of Global Business Network tried to find some answers. However, it might be more useful to read what Scientific American writes about the communications industry in the year 2025…  Red Herring ranks the top VCs by the percentage gains of the stock of their technology portfolio IPOs from the time of the IPO until year-end….  - (go to http://webacademy.ericsson.se for links to stories)

* * *

This is a weekly newsletter describing the non-confidential part of my work during the past week and how I see market evolution affecting Ericsson (as interpreted my me in my role working for LME/DMA in San Francisco as a business developer with a focus on Internet applications and enablers). The report will be published every Monday. For subscriptions go to http://webacademy.ericsson.se/elists.