Simon’s Blog

Techcrunch is reporting that a $150M venture fund aimed at Blackberry developers, will be launched on Monday (update: it’s now launched).   It’s a clear response to the $100M iPhone fund that was recently launched by Apple and Kleiner-Perkins.    Taken together, that means that there’s a quarter of a billion dollars of venture capital available for start-ups building systems on the iPhone and/or Blackberry platforms. That’s a sizable amount of cash.

If the VCs behind these funds are serious about investing this money in these areas (which they may, or may not be), that means we should expect, over the next few years, that five to ten really significant, well-funded, new start-up companies will emerge with a strong focus on iPhone or Blackberry.   What will these companies (need to) look like? Well, to count as a success from the point of view of their investors, each of these companies will need to achieve valuations of at least $200M within five years of being funded.

If such a valuation were to be based on revenues, that means the company would need annual revenues approaching $30M.   Let’s assume that in five years, there are 100M iPhones or 100M Blackberries in the market.    What if the company achieved 100% market penetration i.e. had 100 million users? That would mean the company received $0.3 per year from each user of the device.   With 10% share i.e. 10 million users, then they would need  $3 per year per user.  With a 1% share i.e. 1 million users, then they’d need $30 per year, per user, and with 100,000 users, then they’d need $300 per year per user.

A target revenue of between $30 and $300 per user per year could be realistic, depending the type of application or servce, and the target market. So that means opportunities where there’s a good chance of attracting between one hundred thousand and one million paying users could be interesting to the investors behind these funds.

If the valuation were to be based on numbers of users in the short-term, rather than revenues from users, then it would need to be an opportunity where there was a realistic route to achieving millions of users.   There are some obvious opportunities there: mobile search, mobile social networking etc.  It would be surprising if at least one mobile search and mobile social networking play didn’t get money from these funds.

All the opportunities, though, probably need Apple and RIM to deliver significant growth in device sales, from where they are now.    There’s a risk they that they won’t – smart phones have all but been failing in the market for the last five years. That means there’s could be big competition for developer mind-share from the massively larger feature-phone market (there are already billions of these devices in the market) providing that the technical problems with developing for feature phones can be resolved.

The problem with the feature phone market has been device fragmentation:  that is, you can’t develop an app, and have it “just work” on billions of different models and makes of phone.  Last week, though, Sun Microsystems threw a spanner in the works.  The company announced all-new, and surprising plans for JavaFX Mobile – the aim is to make JavaFX mobile apps run near-identifcally on every device produced by just about every handset manufacturer .    It’s a highly ambitious plan… but what if it works?  That would will be truly transformational for mobile application development because it would mean a mobile application or service could be used by billions of people.  You have only to look at the single current example of such a service – SMS text messaging – to see just how massively valueable that could be.

If you want to build a venture capital-backed mobile application/service business based on revenues, then building for iPhone and/or Blackberry is a reasonable bet, assuming the market increases in size rapidly from where it is now.   People that buy iPhones and Blackberries can at least afford to buy applications or pay to subscribe to services; and there’s a good chance they’ll be using these phones for business; so the Enterprise opportunities could be significant.   If, on the other hand, you want to build a free app or service, with really huge numbers of users, then JavaFX Mobile (which will likely run on Blackberries, but perhaps not on iPhones) could very well turn out to be the best platform to develop for.