Back in 1996 we did seminal analysis of the 10 cent wireless minute introduced by Microcell of Canada and came up with the investment theme titled “The 4Cs of Wireless”. To generate sufficient ROI wireless needed to replace wireline as a preferred access method/device (PAD). Wireless would have to satisfy minimal cost, coverage, capacity and clarity requirements to disrupt the voice market. We found:
- marginal cost of a wireless minute (all-in) was 1.5-3 cents
- dual-mode devices (coverage) would lead to far greater penetration
- software-driven and wideband protocols would win the capacity and price wars
- CDMA had the best voice clarity (QoS); pre-dating Verizon’s “Can you hear me now” campaign by 6 years
In our model we concluded (and mathematically proved) that demand elasticity would drive consumption to 800 MOUs/month and average ARPUs to north of $70, from the low $40s. It all happened within 2 short years. (BTW, Microcell, the innovator, was at a disadvantage based on our analysis.)
What we didn’t realize at the time was that the 4Cs approach was broadly applicable to supply of communication services and applications in general. We further realized the need for a similar checklist on the demand side to understand how the supply would be soaked up and developed the 4Us of Demand in the process. We found that solutions and services progressed rapidly if they were:
- easy to use
- usable across an array of contexts
- ubiquitous in terms of access
- universal in their appeal
Look at any successful product or service introduction over the past 30 years and they’ve scored high on all 4 demand elements. The most profitable and self-sustaining products and solutions have been those that maximized perceived utility demand versus marginal cost. Apple is the most recent example of this.
Back in the 1990s I used to say the difference between wireless and wired networks was like turning on a lightswitch in a dark room filled with people. Reaction and interaction (demand) could be instantaneous for the wireless network. So it was important to build out rapidly and load the systems quickly. Demand growth was exponential. Conversely a wired network was like walking around with a flashlight and lighting discrete access points providing linear growth.
The growth in adoption we are witnessing today from applications like Pinterest, Facebook and Instagram (underscored in this blogpost from Fred Wilson
) is like stadium lights compared with the candlelight of the 1990s. What took 2 years is taking 2 months. You’ll find the successful applications and technologies score high on the 4Cs and 4Us checklists before they turn the lights on and join the iOS and Android parties.
Fred Wilson's 10 Golden Principles