Move over B2B and Internet infrastructure, the wireless Internet is Silicon Valley's next big thing. Showing the kind of mad abandon that was thought to have died with this spring's stock market correction, investors, both private and public, have been pouring money in companies that have anything remotely to do with the Internet and wireless devices.
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The logic for such enthusiasm is compelling. Unlike PCs, which cost hundreds of dollars, are tough to carry around, and have to be hooked up to a physical phone line to access the Internet, wireless devices are (in many cases) free, easily portable, and can access the Internet from almost anywhere. Even more important, in developing countries, such as China and India, wireless device adoption (primarily cell phones) is far outpacing PC adoption, making it quite likely that wireless devices will be the primary means of accessing the Internet for a majority of the world's Internet users.
Acutely aware of this massive opportunity as well as investors enthusiasm for anything related to the wireless Internet, companies such as Yahoo! (Nasdaq: YHOO), Amazon (Nasdaq: AMZN) and American Online (NYSE: AOL) have all announced major wireless initiatives and the few public companies that specialize in the wireless Internet, such as Phone.com (Nasdaq: PHCM), Liberate (Nasdaq: LBRT), Palm Computing (Nasdaq: PALM), and Aether Systems (Nasdaq: AETH) have all seen their market capitalizations soar.
Lost in all this enthusiasm however is the sober reality that the wireless Internet is simply an extension of the existing Internet infrastructure. That means that opportunities for new companies are largely incremental in nature and that existing Internet infrastructure players are likely to be significant competitors in this space.
For investors, this situation makes it critical to evaluate the prospects of wireless companies against not just other "pure play" wireless competitors, but also against existing Internet infrastructure companies and technology.
For example, a whole class of wireless "middleware" companies are springing up with the intent of enabling users to do such things as read information, complete transactions and query databases over their wireless device.
Sound familiar? Sure it does -- that's just what a whole group of companies such as Art Technology Group (Nasdaq: ARTG), BroadVision (Nasdaq: BVSN), and Vignette (Nasdaq: VIGN) have been doing for years. These companies have been focused on delivering information via a plain old Web site, not a wireless device. Indeed, most large companies have spent tens of millions of dollars on such software to get their Web sites up and running and fully integrated into their customer databases and legacy systems.
To hear these new wireless start-ups tell it, they are going to be the Art Technology Groups and BroadVisions of the wireless world, providing users with the same kind of Internet experience over a wireless device that today they can only get via a Web site. In return, companies are expected shell out millions of dollars for wireless Internet software, just like they shelled out millions of dollars for plain old Internet software.
Why can't the incumbents simply provide wireless Internet capabilities via their existing software? According to the start-ups, among other things, the incumbents lack programming skills in the unique languages of the Wireless Web, such as Wireless Application Protocol (WAP) and BlueTooth.
Not exactly rocket science
While these skills are important, today's wireless start-ups are overemphasizing the importance and complexity of these young standards. What's more, many of these start-ups fail to point out that Web developers have created a series of technologies that make it possible for almost any Web site to "talk" with almost any device.
At the heart of these developments has been Extensible Markup Language (XML) and its offspring Extensible Style Language (XSL). Using these two technologies it's actually quite easy allow any existing Web site to "talk" to almost any kind of device.
For example, today XSL allows Web sites to modify the format of web page based on type of browser requesting the page. It doesn't take a brain surgeon to see that this same technology could be easily used reformat a Web page for wireless delivery.
Using a combination of XML and XSL, translating a given message, query, or web page into WAP or other wireless protocols is almost laughably easy for an experienced programmer. In fact some programmers have joked with me that they might spend a weekend writing an HTML to WAP converter and then release it for free, just to collapse the wireless Internet software market for kicks.
Of course, the great wireless hype won't go away that that easily, but investors should be prepared for a slew of wireless Internet announcements from the existing Internet software vendors. These announcements are likely to quickly take the wind out of the sails of many wireless start-ups and ignite some pretty brutal competition in the industry.
Hardest hit will be those "wireless middleware" firms that are essentially duplicating many of the capabilities that Internet software companies have already built. Once the existing Internet software companies release versions of those platforms that natively render in wireless protocols, the need for many wireless middleware start-ups will evaporate almost overnight.
Pockets of opportunity
Investors can take heart that there will indeed be some pockets of wireless Internet investment opportunity. In general, the most promising investment areas will be completely new areas that incumbent Internet software firms can not easily enter. Some of these areas include handset software, wireless traffic management software, and a few wireless specific applications, such as GPS-based location specific software.
Still, even in these areas investors will have to pay close attention to the existing giants of the voice-based wireless infrastructure such as Nokia (NYSE: NOK), Motorola (NYSE: MOT) and Ericsson (Nasdaq: ERICY) as these firms will no doubt be tough competitors in the wireless Internet world.
So prepare yourself for the Great Wireless Hype and remember to avoid getting carried away as so many did in the B2C and B2B markets. Instead, focus on those companies that are involved in solving a problem unique to the wireless world that is difficult if not impossible for existing companies to tackle. Following this discipline should lead to long-term gains, not short-term pains.
As for today's wireless Internet companies, well they better get plugged into reality quickly lest they become just another victim of Internet hype.
Bill Burnham is a General Partner at Softbank Venture Capital and was a former Wall Street e-commerce analyst. Softbank is an investor in ZDNet. For more information on Softbank Venture Capital and a list of current job openings, go to www.sbvc.com.