' Masthead Venture Partners

Market Overview: Mobile Applications

Beyond Ringtones and Games: LMNOs and User-Generated Mobile Media
Masthead sees an early-stage investment opportunity in next-generation mobile applications. Beyond ringtones and games, there are untapped opportunities in several new areas, particularly Location-Aware Media Network Operators (LMNO), providing applications for personal mobile device (i.e., the phone) users based on their specific geography and interests, and User-generated Mobile Media.

We are witnessing an unprecedented transformation in the phone: from solely a voice device into a multimedia tool for video production, blogging, vlogging, podcasting, and in general, a broadcast station and digital media center. The phone is becoming a Personal Media Device (PMD).

This phone metamorphosis presents an excellent opportunity for a company to build a single, reusable platform and deploy a portfolio of vertical, user-generated mobile media applications that would turn "users" into "producers" and create a marketplace for mobile user-generated content.

According to industry analysts, location-based consumer applications will be an $8 billion industry by 2008. The market is positioned to capitalize on a number of converging and disruptive trends including the opening of the mobile phone platform, the evolution of the mobile phone into a personal media device, and the personal publishing and self-expression trends of blogging, podcasting and vlogging.

Market Trends: Enabling Tomorrow's Phone

1. Mobile application market is growing.
The mobile application market is currently expanding as multimedia content is being driven by a number of fundamental trends. First, the number of mobile subscribers worldwide continues to grow towards nearly 2B handsets predicted in 2008. Secondly, the penetration of next generation multimedia devices continues to increase as the prices fall. Strong growth in multimedia terminals featuring built-in cameras, color screens, music and data capability have coincided with the emergence of embedded application environments such as Java and BREW. Finally, there is an ongoing need for the carriers to continue to seek to provide innovative content in order to combat declining ARPU (average revenue per user) trends. As a result, according to IDC, the mobile applications and services market will grow from $805M in 2004 to nearly $4B in 2007.

2. Carriers move away from a walled-garden approach.
Because of the carriers' need to increase the APRU, industry analysts have begun to predict that the U.S. industry will eventually emulate Europe's model in which the carriers' remove their walled-garden in favor of an off-deck distribution open billing approach. And while this diminishes the power of carriers as a gatekeeper for content, it potentially increases their revenue as they capture a slice of the exploding content stream through their frictionless billing service. QPass, a wireless transaction management firm, recently stated in a piece entitled North America Following Europe's Off-Portal Purchasing Trend, "Off-portal content will grow in the U.S. once operators realize they can only handle so much content via their own portals and they can make money from off-portal traffic. Most importantly, operators will enjoy significant revenue generation from mobile content and services as they bill off-portal space at a very low cost of acquisition." Sprint and Verizon have begun to show signs of this opening, and other carriers like Cingular, Nextel and T-Mobile have already done so. It has been reported that in the last year, these carriers have seen off-portal content sales grow at a compound annual rate of 410 percent

3. Trend towards self-expression.
Many dubbed 2004 the "Year of Blogs," as this self-publishing vehicle gained popularity in the mainstream. This trend towards user-generated content is both real and significant. Time Magazine reports that there are (as of 8/8/2005) 70 million blogs, 500 video logs and up to 10,000 podcasts around the world. According to the Pew Internet and American Life Project, 44% of Internet users have used the Internet to publish their thoughts, 21% have posted pictures to websites, and 11% of all Internet users read blogs. As these figures continue to grow, individuals are seeking supplemental methods for the production and consumption of content on the mobile telephone.

About Masthead Venture Partners
Headquartered in Cambridge, Mass, Masthead Venture Partners is a venture capital firm dedicated to providing early stage information technology, internet infrastructure and services, communications, and IT-intensive life sciences companies with the capital and hands-on operational support they need to develop into industry leaders. The firm has the advanced technical expertise, proven operating experience and deep industry knowledge and relationships to help entrepreneurs build companies with category defining potential. For more information please visit www.mvpartners.com.

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