a16z Podcast | Mobile Falls Hard for Virtual Reality

Mobile World Congress (MWC) Scale and Scope:

• Hosts 90,000 to 100,000 attendees annually.
• Represents the global mobile telecoms industry, valued at approximately $1.2 trillion (over double the advertising industry and ten times the online advertising sector).
• Encompasses the entire value chain, from billing software and base stations to camera sensors and handsets.

Apple's Absence and Market Shifts:

• Apple does not officially exhibit or announce products at MWC.
• The event has evolved into a primarily "Android world," having shifted from its historical roots as a Nokia-dominated forum.

Historical Context of 3G Infrastructure:

• European operators spent €110 billion on 3G spectrum auctions in 2001.
• Commercial viability of consumer 3G phones outside Japan did not arrive until 2005; widespread smartphone adoption did not explode until 2010.
• Telcos' strategic visions of monetizing mobile services (e.g., mobile banking, app stores) largely failed to materialize as anticipated.
• European telco revenue has remained flat for over a decade despite infrastructure investments.
• The mobile revolution was ultimately driven by Apple and Samsung rather than the telcos or legacy players like Nokia and Microsoft.

Current MWC Product Trends (2016):

• Modular Phones: LG showcased modular devices as an attempt to differentiate from the iPhone design paradigm.
• Samsung Strategy: The Galaxy S6/S7 series focused on iterative improvements rather than revolutionary changes.
• Lifestyle Branding: Sony is attempting to reposition as a lifestyle brand rather than a pure hardware vendor.

Virtual Reality (VR) Ecosystem:

• Market Dynamics: Android manufacturers are pivoting to VR due to the commoditization of standard handsets and OS.
• High-End Tethered Solutions:
  • HTC Vive: Priced at ~$2,000, requires a ~$1,500 PC, and competes directly with Oculus.
  • HoloLens Developer Kit: Priced at $3,000.
• Mobile-First VR:
  • Samsung Gear VR and LG tethered headsets offer mobile solutions but lack the high-end experience of PC-tethered units.
  • Low-end "Cardboard" style solutions are widely available but offer a compromised user experience.
• Future Outlook:
  • Benedict Evans predicts mass-market VR will arrive within 2–5 years via mid-to-high-end smartphones paired with affordable headsets.
  • Apple is expected to remain a "fast follower," likely entering the market with a defining product in 2017 or later despite rumors of active development.
  • VR is currently viewed as a feature for high-end market segmentation rather than a primary revenue driver for manufacturers.

The "Condor" Case and Emerging Market Dynamics:

• Algerian Conglomerate (Condor): An Algerian family business expanded from cement and white goods into smartphones, now holding 33% of the Algerian market.
• Value Chain Shift: The industry has fragmented into a PC-cloner model where global manufacturers (Foxconn) produce devices, while regional players handle assembly, branding, and distribution.
• Distribution as a Moat: Success in emerging markets depends on controlling local retail networks (e.g., Condor's 150 stores in Algeria) rather than just hardware innovation.
• Other Regional Players:
  • Wiko: Strong distribution in France with China-made phones.
  • Micromax: Leading in India.
  • Cherry Mobile: Active in the Philippines.
• Xiaomi's Model: Attempts to replicate Xiaomi's "online flash sale" hardware/software differentiation model in India have been partially successful but have not yet achieved market dominance.
• Margin Pressures: The commodity nature of the hardware results in razor-thin margins, comparable to the TV industry (~0.5%), making differentiation via software and brand critical.

Google's Android Strategy and Challenges:

• Google's Response: Google is moving to bring more services and hardware capabilities in-house to control the ecosystem.
• Platform Dependency: As the smartphone becomes the primary platform (replacing the browser), the OS owner gains significant leverage over user acquisition and service delivery.
• Samsung's Decline: The dominance of Samsung within the Android ecosystem has waned, creating uncertainty for Google regarding which OEMs will lead the future.
• Competitive Pressure: Apple's iOS strategies increasingly limit Google's reach (e.g., restricting search access) to protect their own product ecosystems.

Long-Term Market Forecasts:

• PC vs. Mobile Sales: Annual smartphone sales (~2 billion) are expected to be 10x PC sales (dropping to ~200–250 million), with a mobile install base 5x larger than the PC install base (~1.25–1.5 billion).
• Future Market Structure: The market may resemble the "white goods" or TV sector, characterized by numerous regional players rather than global consolidation.
• Manufacturing Shifts: As products become more commoditized (standardized chips and screens), assembly may move out of Shenzhen, though the cluster of expertise may persist.

Industry Value Chain Disaggregation:

• Historical Evolution: Control has shifted up the stack from network operators (who built their own gear) to hardware manufacturers, then to operating system owners, and finally to service providers.
• Legacy Decline: No original cellular technology creators (Nokia, Ericsson, Motorola, Siemens) remain in the handset business; Samsung is the sole survivor.
• Next Disruption Layer: The next layer of value creation lies in "discovery, acquisition, and engagement" (e.g., WeChat in China, Facebook globally), moving beyond the OS layer.
• Key Technology Acronyms: The focus of the industry has shifted from technical standards (WCDMA) to application layers, with AI, VR, and AR currently being the primary strategic themes.