When One Door Closes…Another May Open
When One Door Closes…Another May Open
By: Tim Bresien
Jan. 1, 2000 12:00 AM
The slow death of Metricom threw their customers for a loop. Here was a company that provided a unique service, yet burned through a billion dollars, and is now seemingly missed by all. Denver-based Aerie Networks recently bought most of the key Ricochet assets for a mere $8.25 million during bankrupcy court proceedings. What went wrong? Here, leading voices from the industry give their take on why a great product wasn't enough... and what the future holds for investments in the mobile Internet space.
When one door closes, another door opens. Or does it? Those who are building mobile Internet service companies would like to believe that this axiom is true. But how do new entrants distance themselves from recently deceased providers who've blown through billions of dollars? Are there windows of opportunity for new players as reliable, yet highly unprofitable service providers fold? In the case of those who would follow San Jose-based Metricom (formerly Nasdaq:MCOM), yes. And no. Perhaps. And not likely. Definitely. Maybe.
The decline of Metricom and its Ricochet wireless Internet service, leading to bankruptcy court this past August, should provide a clear roadmap for future investments in the nomadic Internet access market: high-speed wireless access to the World Wide Web, its abridged versions, and corporate intranets. But it doesn't. In fact, Metricom's winding path to the promised land of profitability included multiple stops, restarts, and changes of direction, ultimately leading to the edge of a cliff.
While Metricom paved the way for future mobile access to the "full Internet" in an historical sense, it is unlikely that its footsteps will be retraced directly as the company created enormous financial potholes for itself, and left a negative Wall Street legacy for future generations.
But there are surely those that will follow in one form or another, either as service providers, equipment suppliers, or both. Companies with names such as Tantivy, ArrayComm, Wayport, Navini, IP Wireless, hereUare, and Teledesic seem to recognize a willing market for future products and services in this arena, although their strategies for serving it are entirely different from first-mover Metricom.
Fresh entrants to the marketplace are unlikely to go it alone as they compete for elusive enterprise dollars, because they will find newer incarnations of wireless data devices, platforms, and services that did not exist during Metricom's initial buildout. Understandably, most will not want to be known as the next Metricom!
"Given the option of high-speed mobile access," suggested late-model Metricom marketing material, "users will choose to work with information wirelessly the same way they are accustomed to while in the office. This means always-on connections, flat-rate pricing, full access to all things Web, and functional access to corporate systems..." But is this true? Was it ever? Andrew Seybold, who has written extensively on the subject and is considered by many to be the leading authority on the mobile computing industry, predicted more than a year ago that Ricochet would ultimately fail as a business. He sees future wireless data success for the voice network operators. "For them," he says, "data will be incremental revenue."
There's not enough room on the Metricom tombstone to engrave all of their flawed assumptions, but in retrospect, the company's Ricochet service may have doomed itself by targeting an ill-defined audience of potential customers, whose real-world demands for mobile data are evolving right along with the ever-changing wireless industry. Still, there were many vocal mourners at the time of Ricochet's demise, and few suitable options to replace the service.
For Metricom and their customers and investors, the truth hurt. They could not sustain the buildout of their groundbreaking 128Kbps wireless network while sitting on a billion-dollar debt. And in this financial climate, they found it impossible to raise additional capital.
Another truth is out there. And it falls somewhere between 51,000 Ricochet subscribers and the 47-million mobile professionals that market research firm IDC says will inhabit the U.S. by 2003. Before we hastily shovel Metricom onto the Internet-era funeral pyre, let's take a look at what went wrong and how it differs from the rest of the dot-com and telecom carnage. Let's try to separate that which was truly pioneering from that which was truly flawed.
Where Did They Go Wrong?
Most notable about the network was its use of shoebox-sized microcell radio transceivers that were mounted on streetlights and utility poles at an average rate of 5-7 per square mile. Data transmitted from a subscriber's laptop modem within any of Metricom's metro coverage areas traveled through one or more of these microcellular transceivers and then along a dedicated high-speed wired network to the Internet. A Ricochet modem attached to a customer's laptop computer (and recently to PDAs) provided connectivity at a flat monthly rate of $50-$80 per month.
Interestingly, the technology allowed for connection while in a moving vehicle. "Please note, we recommend using Ricochet while serving as the passenger in a car," according to a Metricom warning, "we do not recommend 'Ricocheting' while serving as the driver in a moving vehicle." Of course, accessing mobile data of any kind while driving can result in a more painful form of ricocheting: off a lamppost, over a median, or into a tractor trailer.
Launched in both Washington, DC, and Seattle in the mid '90s, with service at 28.8Kbps, Ricochet gained a loyal following in a relatively short period of time. They had hoped to have service in 46 markets by the end of 2001, although a lack of funding and changes in strategy resulted in only 15 cities being operational at the time the network was shut down. The service utilized unlicensed spectrum, yet the company acquired various spectrum licenses for future use as well.
By August 8, 2001, when the company closed their doors and the Ricochet network went dark, they were operating their second-generation service at speeds approaching 128Kbps in Atlanta, Baltimore, Dallas, Denver, Detroit, Houston, Los Angeles, Minneapolis, New York City, Philadelphia, Phoenix, San Diego, and San Francisco. As with the early DC and Seattle markets, a rabidly loyal subscriber base seemed to follow. By June 30 of this year, the company claimed 51,200 subscribers; 34,500 for the 128Kbps service and 16,700 for the original 28.8Kbps service - loyal subscribers, vocal advocates, but not nearly enough of them.
Hindsight Is Easy
The Metricom story is not unlike that of Iridium. Not today's privately held Iridium, (which is actually called Iridium Satellite LLC), but the original, publicly traded, high-flying, 66-satellite LEO (low earth orbit) company that launched with great fanfare back in the late '90s. It took nearly a decade to develop, and less than a year for the company to fall back to Earth, burning through billions, maiming Wall Street's credibility, and causing major headaches for Motorola, their chief investor.
Today's Iridium exists only because they were acquired for next to nothing, their debts absolved from bankruptcy. Today's Iridium still claims that they're the only communications system providing true global communications coverage (including oceans, and all land areas - even the Poles). The difference is that they are now targeting a very narrow market of defense contractors, exploration and military users, and government agencies. They are likely to find a measure of success in these redefined niche markets.
But there was a time when you might have been convinced that Iridium was going to have a brick-sized phone on the hip of every traveling executive. That it would bring instant voice communications infrastructure to underserved populations of the developing world. Or, maybe not. These were overly ambitious goals to say the least. Metricom also boasts a decade or more of R&D on a very sophisticated wireless system, and great technical achievements. They also had blue-chip investors such as MCI Worldcom and Paul Allen's Vulcan Ventures, which aren't likely to take comfort in the results of bankruptcy auction proceedings. Today's Iridium exists only because their investors bought the network at a fire sale. Literally. They actually saved the satellites from being routed back toward the Earth and burned up in its atmosphere. Ricochet had no such option, although you could imagine a future where the company's vaunted microcell transmitters are serving only as rusty perches for crows and pigeons.
Aerie Networks' newly christened subsidiary company is called Ricochet Networks, and it's a safe assumption that they will leverage Metricom's previously spent marketing dollars by lighting up parts of the network in the near future. The company will focus on partnering with other service providers and community groups in order to serve (and create) a larger demand for high-speed access at lower price points. "Ricochet has an incredibly loyal customer base that has made clear that they want their Ricochet back," says Mort Aaronson, president and CEO of privately held Aerie Networks. "As a former customer I too am passionate about restarting the Ricochet service."
Lots of Options
Yet confusion reigns. Bluetooth startup service provider Cerulic has gone under. Privately held MobileStar teeters on the brink of insolvency, and publicly traded data providers Omnisky and GoAmerica trade at a fraction of what they once did. A recent report from New York-based Allied Business Intelligence sees subscriber revenue from access to hotspots growing to $868 million by 2006. "Wireless LANs are going to allow consumers the freedom to use their handheld devices or laptops in a much more powerful way," says Joshua Wise.
In addition, you now have wireless "freedom fighters" such as the Bay Area Wireless User's Group (BAWUG), SFLan, NYCwireless, SeattleWireless, and others being created to serve their local constituencies. They are reminiscent of pirate radio. Some have developed and funded wireless co-op networks, while other rogue groups have identified and created wireless LANs within their communities and, in violation of service provider agreements, are encouraging laptop and PDA users to share the available (plentiful and free) bandwidth. Who knows where this will lead? These issues surely weren't predicted in the original Ricochet business plan.
Industry Leaders Speak Out
There are increasingly distinct schools of thought as to the most relevant form of wireless data access that we'll see in the future. There are those that see instant access to the data that resides on corporate intranets and on wireless-enabled Web sites as the largest potential market. "Look at some of the devices that are really being pervasively deployed today," says DCM's Doll. "The BlackBerry service is a phenomenally successful offering right now. That's mobile data in a very focused and targeted application-dependent form, and it's been growing like gangbusters."
Proponents of 2.5G envision data services that can be accessed easily and immediately from handheld devices, while there's another school of thought that considers mobile access to the full Internet to be worthwhile and marketable. Metricom was at the forefront of the latter movement. Out of the Metricom era, one issue is becoming clear: the independent data-only access provider will be a difficult business case to build in the future. Wireless LANs may subsume many target users of Ricochet-like services, while the advanced capabilities of packet-based 2.5G and 3G networks serve the larger mobile data markets.
Metricom's Ricochet service was pioneering in its scope and by its very definition of a new wireless market. Perhaps it found favor only among the upper percentiles of a technology-savvy business class that could determine the benefits of the service for themselves. You can stand outside of Metricom headquarters on West Julian Street and watch passenger jets as they approach the San Jose International Airport for landing. They pass almost directly above the building. Thousands of traveling salespeople, field engineers, entrepreneurs, venture capitalists, and executives zoom past the Metricom building every day. It's ironic in a way.
Searching for Replacements
"Today, there are no real, practical alternatives," said Georges Auberger, VP of engineering and cofounder of Spotlife, a San Mateo, CA-based creator of personal video publishing and delivery platforms. His company's system administrators had relied on the Ricochet service for 24-hour access to their network. Slower CDPD offerings aren't viable solutions for his group.
"Ex-Ricochet users in San Francisco are building out 802.11 networks that they can share," said Edwin Ong, chief strategy officer and cofounder of FileFish, a Mountain View, CA, provider of enterprise software for data mobilization and management. He was referring to the IEEE 802.11 standard for wireless LANs. Some former users are no doubt seeking out the most viable hotspot opportunities. In fact, there were rumors of former subscribers banding together in Silicon Valley in an attempt to raise enough money to bid on the San Francisco-area market at the bankruptcy auction. The true believers!
Dipanshu Sharma, founder of stealth-mode San Diego startup V-ENABLE, brought up an interesting point during our conversation, one that hadn't occurred to me previously. Metricom's death has already had a profound impact on those who hoped to contribute to its irrelevance, although on their own timetables: the wireless developers themselves. "Think of all the 2.5G and 3G wireless startups. They were all doing their demos on Compaq iPaqs with Ricochet," he said.
Companies that are in fund-raising mode were able to meet with venture capital firms and private investors, and actually show live demonstrations of their applications on a PDA. You can imagine a hard-won meeting or a chance encounter with an investor being successful when an entrepreneur could say, "this is what it will be like" in reference to their future wireless network applications. "It's much harder to raise money when you can't show your demo," said Sharma. "That's the bottom line."
What Is the Legacy?
According to Susan Welsh De Grimaldo of The Strategis Consulting Group, there are fundamental questions that future service offerings must answer: What level of ubiquity will people require? Will they be content to have coverage just in core urban areas? What are the compelling applications?
So what is the legacy? Well, at this point the Metricom legacy is whatever you want it to be. If you believe in the promise of a mobile Internet, you can find some evidence of subscriber demand. If you believe that only a fraction of wireless users will demand full World Wide Web content, you can find your proof of that as well. I think it is clear that Metricom's default subscribers were computer-savvy and very comfortable with wireless technology in general. Any service provider or manufacturer that seeks funding for mobile broadband access endeavors will have to convince investors that the mass markets can identify and will demand high-speed wireless access to the Internet. Otherwise, you're looking at a mere fraction of the laptop computer and PDA populations as your target customer base, and they'll have an increasing number of service offerings available to them from the established carriers.
It seems reasonable to think that high-speed connectivity to the home and business, coupled with secure, nomadic access opportunities for the traveler, will continue to provide an enticing future view. The new generations of companies will be much more likely to work with the established wireless carriers as opposed to competing against them. I also suspect that any spectrum auctions for 3G service (and beyond) will be populated with household names. So in addition to defining a market space, Metricom may have assembled an unprecedented and highly motivated focus group that could (and should) be used as a resource for all players who propose technology or applications for tomorrow's mobile Internet markets.
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