When Investing In Mobile, You Need Both Method and Magic
By Chris Moore
Mobile has become one of the most powerful technology platforms the consumer has ever experienced. These pocket-size super-computers are changing the way we live, work, and play, with always-on broadband Internet access, location, and user-aware context of delivery and predictive services. But even more notably to me as an investor, mobile has paved the way for some incredibly interesting business models that couldn’t even be imagined in earlier days. It’s only once every decade we have the opportunity to capitalize on a platform shift: first from PC to desktop web and now to the mobile Internet. Today for the first time, we have a truly global consumer platform as measured in billions of users, compared to the hundreds of millions we saw on the desktop Web. These companies have the potential to grow faster than ever before, given the size of the addressable audience, and the limited number of operating systems to support this global market.
While the Mobile Internet may become the ultimate remote control for your life, companies are still working to realize that promise. I constantly talk to entrepreneurs who are pushing the boundaries of what’s possible in mobile, solving for inefficiencies and imagining new methods for keeping pace with shifting consumer behavior. My view is that to succeed, a company needs both a clear “method” of underlying business metrics in order to deliver the “magic” a consumer experiences through instant gratification with the tap of a button. We search for companies that leverage the unique capabilities of the mobile platform to create these magical consumer experiences unlike their pre-mobile analogs.
Take Uber: In one tap, you order a car, watch as it arrives, view incremental supply via surge pricing, and best of all, arrive at your destination without a single hassle of payment. Now that’s magic! And that certainly was not possible until the ubiquity of mobile devices among both drivers and riders. It turns out that being a marketplace enabler without owning the infrastructure has the potential to be a really good business model.
Luxe, a Redpoint investment, provides a similar magical experience for parking. Circlingly a city block to find parking is all too familiar to city drivers. Luxe brings ease to drivers by bringing valets directly to their destination with the touch of a button. Even more interesting are the economic advantages when these models scale. By obtaining parking spots in large volumes, Luxe decreases the overall cost of spaces while delivering a unique experience. Like most marketplaces,network effects are at play: more users keep more valets busy, increase the income and incentive of valets.
Another Redpoint investment, Button, ties all of these app experiences together to deliver a magical experience with just a few swipes and taps. Find a restaurant through Foursquare, book it with Resy or OpenTable, and call an Uber to get there. Three or four taps and you’ve booked your night out with your phone as remote control.
In each of these cases, the magical consumer experience leverage the native capabilities of the mobile platform and business fundamentals.
On the flip side, we see some companies becoming operations and logistic companies instead of creating something truly new. We’ve struggled to understand many of the last mile delivery businesses because they layer additional costs onto already low-margin traditional businesses. In many cases, these companies have the magic but not the method. Of course, it’s always possible that some of these players will reconfigure the logistics to become profitable, but today we’re focusing on net-new magical experiences.
We employ a few strategies for finding the next big mobile disruptor. We actively track app store metrics to identify promising new apps as the begin to experience hyper growth. One metric we look at closely is frequency of use, as it’s often more important to understand how often a product is used, not simply how much time is spent on it. We also proactively identify the largest markets most likely to be disrupted, then canvas a landscape of mobile-first startups targeting those markets. We’re particularly interested in financial services and insurance right now, for instance. And of course, we are keen on the the ever-increasing capabilities of mobile devices, and the implications these new capabilities have in unlocking even more powerful applications.
We’re only just beginning to realize the potential mobile will have on disrupting other entrenched industries around us like financial services, housing and healthcare. Mobile will finally allow the internet to disrupt the remaining offline businesses. Inefficiencies that remain in these markets will be solved with innovative business models and technology innovations. These companies have the potential to grow faster than ever before, given the size of the addressable audience, and the limited number of operating systems to support this global market.
There has never been a better time to invest, with scale and market opportunity being largely driven by mobile. We’re betting on companies that can capture the method and the magic of our first truly global consumer platform.
