Mobile Cloud Computing - Still in the Sky or Earthbound?

July 2010

In this edition of our quarterly newsletter, we aim to demystify the mobile cloud.

The Cloud

Let us review the cloud model very briefly. The cloud generally refers to hardware and software resources not located on customer premises and made available on-demand over the Internet. Resources can refer to computing power, storage, building blocks for applications, or entire applications accessed via a web interface. Such an Internet-based delivery model offers customers flexibility, agility, ubiquitous access and reduced CAPEX among other advantages.

For software delivered in this manner, this model has been nothing short of revolutionary as the unprecedented success of Salesforce.com would testify. SaaS levels the playing field by offering SMBs the same enterprise grade software by obviating the large investments previously required. As far as storage is concerned, we have seen a host of promising start-ups such as Box.net, Dropbox, Nomadesk, oodrive and Diino offering on-demand storage and associated collaborative features in recent years. Enterprise storage giant EMC acquired Mozy back-up service as early as 2007 to boost its storage as a service portfolio. For computing power, the model has now started making inroads with virtualization allowing thin-clients on ‘dumb’ hardware to harness computing power over the cloud on an ‘as-required’ basis.

The Mobile Cloud

The key question is if the mobile cloud is essentially the same as the “web” cloud with the only difference being that access is made through a mobile device. From a user’s perspective, the answer to that question is probably ‘yes’, barring heightened privacy concerns. If you have accessed the Facebook app on the iPhone, checked your Gmail or navigated using Google Maps on a smartphone, you have already used the mobile cloud. Here, the data and the computing resources are in the cloud and the browser or a dedicated native app with limited functionality address device specific issues such as user interface (UI), usability, etc. Yet, given a more complex ecosystem, the implications and challenges for the mobile cloud are fundamentally different.

The key underlying factors driving the mobile cloud (beyond those for the web cloud) include:

• Increased mobile broadband take-up worldwide. Smartphones along with other MIDs (Mobile Internet Devices) such as the iPad already outnumber PCs and will continue to drive mobile cloud applications.
• Trend towards increased access of enterprise data and applications through smartphones. According to IDC, a market research firm, there will be more than 1.2 billion mobile workers in 2013, constituting roughly 35% of the entire workforce. Mobile workers are already leveraging the mobile web to access data and applications.
• Multiple devices in concurrent use (and frequent device replacements) create the need for end-users and enterprises to sync data between multiple devices providing an incentive to move applications and storage to the cloud.
• Limited processing as well as relatively small storage capabilities of mobile devices also speak for data and intelligence to be transferred to the cloud.
• Higher OS (operating system) fragmentation as compared to the PC market reflects higher need for device (OS) agnostic cloud applications.
• Newer standards such as HTML5 as well as mobile virtualization are also driving the mobile cloud.
• Initiatives such as the GSMA OneAPI will also allow apps to be deployed across multiple networks, further boosting the mobile cloud proposition.

Ovum, a market research firm, estimates that more than 2 billion users will have access to mobile broadband by 2014, a central premise to the proliferation of mobile cloud services. Further, the processing power of even the most advanced smartphones do not quite make the cut yet when it comes to serious number crunching. You simply can not scale the processing power on an as-needed basis. Another argument often touted in favour of the mobile cloud is that storage is limited. This is questionable given that flash prices have come rocketing down and phones are equipped with more and more memory with each passing day. A far more important consequence of the mobile cloud storage is the convenience of access from multiple devices. Further, consumers typically change their phones at least every couple of years (if not more often) and cloud-based storage facilitates this migration in a major way. This is why cloud storage and back-up services have been at the forefront of operator initiatives thus far. HTML5-based browsers are able to cache data for offline access (important for continued functioning of apps in patchy coverage areas) and can intelligently synchronize any changes between the cloud and the device.

While analyst firm Juniper Research estimates the market for the mobile cloud at a mere $400 million in 2009, they expect this number to hit $9.5 billion in 2014 growing at an astounding annualized average growth rate of 88%. Consumer apps such as the Facebook app have had the most mindshare of late, but Juniper predicts that 75% of the mobile cloud applications will be focused on the enterprise by that time.

Another analyst firm, ABI Research, predicts that 19% of all subscribers will use mobile cloud-based applications by 2014, i.e. roughly a billion people. They believe that a staggering 240 million business users will be accessing some form of cloud based mobile applications by 2015 translating into $5.2 billion in revenues.

So where do carriers stand in all this? Operators, who face margin pressures in developed and developing countries alike, are looking to the mobile cloud to enable their ‘smart-pipe’ models. At the Mobile World Congress in February, you could sense the urgency of the situation by observing the sheer number of initiatives announced that would have been deemed as non-core activities only a few years ago. Be it m-Health, applications or mobile payments, operators are looking to finally fully leverage their most important asset: their reach. As far as cloud services are concerned, mobile operators can, besides exploiting their reach, also leverage their infrastructure and provide data centres to play a crucial role in unleashing rich applications.

We examine the three major pillars of mobile cloud services where operators and their suppliers stand to participate: collaborative storage, computing and infrastructure as a service and applications.

Collaborative Storage

Unsurprisingly, the first commercial mobile cloud initiatives relate to storage. Interestingly, even before usage of the word ‘cloud’ had caught on, operators had begun offering address book and SMS back-up services to customers to increase ARPU and perhaps more importantly reduce churn. Today, the scope of data deemed worth backing up has clearly scaled beyond the address book with rich personal content such as photos, videos and music omnipresent on most phones. The game changer has been the advent of connected smartphones that can now access personal and enterprise data - and even store large chunks of it locally.

This accessibility of data from the smartphone makes the carrier a key stakeholder in the mobile cloud storage ecosystem. Cloud storage and collaboration start-ups such as Box.net, Dropbox, Nomadesk, Diino, oodrive, etc. all realize the value of making data accessible via smartphones. For example, Nomadesk from Belgium allows access to their web drive today through iPhone and BlackBerry clients.

Perhaps, more significantly, dedicated cloud storage firms have begun to work together with carriers. Nomadesk, partners with Bell Canada to provide SMBs collaborative storage and works with other operators by providing them white label solutions. This arrangement works for all parties involved: the operators bring in their relationships with customers and mammoth hosting infrastructure if required; the smaller start-up brings in the know-how of efficiently scaling cloud storage. Vodafone, for example, is working with Decho, an EMC subsidiary for online storage, to offer cloud storage and back-up for all devices including PCs taking its business beyond the realm of wireless. O2, T-Mobile and BT all have initiatives in this direction. There is an important advantage that mobile operators have over their fixed line cousins who could also offer similar services: they can follow the subscriber around and can afford to endeavour to be the ‘smart-pipes’.

Through our research and interviews, we have identified various commercial arrangements that exist between the carrier and the cloud company including:

• Revenue share
• License model plus maintenance fee
• One time finders fee

These storage start-ups now also publish APIs which allow third-party cloud applications to use cloud storage for storing application related data.

The first wave of acquisitions of such firms was mostly related to traditional storage firms shoring up their cloud presence. For instance, EMC acquired the creators of Muze in 2007 and external hard disk manufacturer Lacie acquired Wuala from Switzerland in 2009. Gemalto, a leading digital security and SIM card firm, acquired O3SIS of Germany which provides software for subscribers to manage and share personal data on their phones. The second wave could see carriers or their suppliers or even enterprise application giants buy into the Storage as a Service market given the above mentioned synergies.

Computing and Infrastructure as a Service

Recent offerings by operators have gone beyond storage. The past year saw major announcements by Orange and Verizon relating to hosted and on-demand computing resources. Orange announced ‘on-tap’ flexible computing resources for enterprises which are ‘tweakable’ on a processing power, RAM and storage granularity level. This announcement came on the heels of a similar one by Verizon, touting a new catch phrase ‘Computing as a Service’.

Readers should note that these two operators have a strong background in providing services for enterprises. Other operators with a purely ARPU focused outlook to life will not find it as easy to provide such services and may require inorganic initiatives to cover the technology gap. With Computing and Infrastructure as a Service, the most significant advantages that carriers have over specialists are enterprise reach, data center operational experience and ability to support mobility. Still, this segment will continue to see sustained competition from the more web-focused players such as Amazon and Google.

Applications Galore

Mobile Applications and related app stores have exploded creating immense value for various stakeholders, notably developers and device OS vendors. For manufacturers such as Apple, it has led to a certain de-commoditization of the device with the real value being delivered via the third-party apps. It would be an understatement of glorious proportions to say that operators have been left out in this opportunity valued at $25 billion in 2014 by Juniper. In fact, they have not only been bystanders, they have literally watched the dollars flow through their networks.

To be fair, operators attempted to address this market through own initiatives that predate the now well-publicized Wholesale Application Community (WAC), announced at the MWC 2010. The WAC builds upon existing efforts such as BONDI, a unified device API that accesses the most relevant features from devices; OneAPI, a framework of standard Network APIs developed for the most part by a promising European start-up, Aepona; and other projects such as Joint Innovation Labs from Vodafone, Verizon, Softbank and China Mobile.

If the operators are to deliver on the WAC promise (that roughly translates into ‘develop once for all operators and devices’), these efforts would have to be combined with agility, not a word that you typically associate with a process that involves more than one operator. Carriers needn’t look much farther than the plummeting traffic on their own mobile websites to realize the value of ‘open’ as opposed to ‘walled gardens’.

Whether this well-intended initiative will work out at the end of the day remains to be seen, but it should be clear that operators bring real value to the table in the application landscape given their inherent nature of business. Network functionality such as location information has long been locked to most app developers as a result of proprietary protocols used. In fact, the lack of standard networks APIs has given birth to whole segments of businesses such as roaming service providers. Operators can also enable innovative and flexible charging models for applications and leverage customer data for taking applications to the next level. Further, as a gateway, they are in pole position to provide authentication, analytics and potentially behavioural information at an annonymised aggregated level.

Privacy is indeed a major concern (and a major opportunity for operators) when it comes to mobile cloud computing. A scenario with a user installing hundreds of applications over his lifetime essentially translates into hundreds of app developers having access to his/her data. In an environment where many are worried about just one platform, namely Facebook, having access to personal information, imagine the uproar when multiple platforms have access to the user’s private information. These concerns can be an opportunity for operators who could play the gatekeeper to mobile applications. One promising start-up from the UK, Private Planet, brings the privacy aspect to the forefront by providing private clouds for each subscriber. The idea is that each user gets his/her own private cloud server hosted by the operator. The data required for each application can then be stored on the user’s private cloud. Further, this model allows the user to have his/her own content shop and trigger peer-to-peer e-commerce transactions, another scenario where operators can claim their cut. Third-party applications could be installed on the private cloud, with Private Planet providing the Software Development Kit (SDK) for developers. The operator (and Private Planet) thus become a clearing house for content, applications and payment. Other cloud storage players such as SugarSync and Box.Net have created APIs which enable application developers to store application data on the user’s cloud based virtual disk.

Bottom Line

In conclusion, we are bullish about the mobile cloud and believe that it will be a top priority for operators and their suppliers. Newer entrants to the wireless world such as Google and Apple as well as the specialist cloud companies, have firmly entrenched themselves within the mobile ecosystem, but will not be left unchallenged by incumbents. While the mobile cloud computing market is still in its infancy, it is indeed becoming a major playing field for venture capital and strategic investors alike. We see also see a clear exit window opening up for more mature firms within the industry. The mobile cloud is simply too compelling a proposition to ignore and provides key revenue streams for all participants in the ecosystem.

Featured European start-ups

Diino with offices in Stockholm, Atlanta, London and Mexico City has over the past years developed back-up, storage and file sharing technologies. Today, Diino is one of the leading providers of back-up, secure online storage and file sharing technologies. Diino provides an easy, powerful, cost-effective and secure way for individuals and businesses to store, access, share, back-up and publish files. Diino’s service is offered as a subscription-based service hosted from Diino´s own data centers.

Founded in 2004, with worldwide headquarters in Ghent, Belgium and U.S. headquarters in New York, Nomadesk’s mission is to be a unique (key) provider of on-demand file sharing, synchronization and data security solutions for the mobile or "nomadic" professional. Over the past five years, Nomadesk has created the easiest and most secure way to share, synchronize and back-up critical files, both online and offline.

Oodrive was established in September 2000 as a publisher of ECM (Enterprise Content Management) solutions dedicated to the security and exchange of files. This pioneer of the distribution of SaaS (Software as a Service) has become in few years one of the undisputed leaders of the French market. Oodrive's success has spread rapidly across national borders, particularly as a result of developing strategic partnerships with major European companies such as Fnac and Darty.

Private Planet is a venture focused on personal cloud computing, offering cloud-based personal data storage, cloud-based communications and cloud-based applications running in an open personal server environment. Private Planet offers device software support for iPhone, Mac OSX, Symbian, Windows, Linux, BlackBerry, Android and Meego delivering personal cloud-assisted and cloud-hosted services. Private Planet assisted computing creates an environment for the end user that enhances their digital content and service experience and allows the simple creation of digital social networks. The architecture allows users to share their content in a peer-to-peer-fashion with other users 24/7 from their cloud computers. Private Planet's is headquartered in London, UK.

Aepona provides software products and service delivery solutions enable the emerging Network as a Service (NaaS) business model and unleash the full potential of network assets for operators. Telcos can profit from the current trend towards Mobile Cloud Computing by publishing and monetizing their assets as web-based APIs towards enterprises, web-based service providers and application developers. Aepona’s Universal Service Platform is a comprehensive, carrier-grade solution that contains all of the essential business and technical functions for Mobile Cloud Computing.