NEW YORK-The best is yet to be in the conjunction of wireless and the Internet, and that means plenty of opportunity, said Lior E. Yahalomi, managing partner of CMGI @Ventures.
The Menlo Park, Calif., venture fund, established in 1995 to invest solely in Internet-related companies, plans to raise $1 billion during the next three to five years to back start-ups in this dynamic sector.
Yahalomi, whose investment theme is emerging technologies, sees five primary reasons why the wireless Internet is not yet as developed in the United States as it is elsewhere in the world. Telecommunications carriers are playing a high-speed game of catch-up, regretting their earlier strategy built around voice calling as the killer application.
Wireless carriers’ current adaptation to a data-centric world must take into account the robust U.S. wireline infrastructure, which has spoiled American consumers in their expectations of the Internet access experience. This comparison includes the fact that wireless data speeds are relatively slow, that multiple air-interface standards are cumbersome, that wireless data devices are still evolving toward optimal performance, and that Internet content needs tailoring to different environments.
However, one company’s problems are another’s business opportunity. It is the venture capitalist’s task to identify each next wave and ride in just ahead of it.
“If you agree with the pervasiveness of the Internet, you will agree that three to five years down the road, there won’t be any non-Internet companies. It will be in every step of product life cycles because of the efficiencies it brings,” he said.
“In many ways, wireless is attached to the Internet because companies want to re-create content just for wireless. They need tools and technologies to convert the content to wireless as another channel of distribution.”
That is why CMGI has a stake in 2Roam, a company whose translation protocol permits other companies, like eBay, to deliver their wireline content to wireless devices. Likewise, it has backed companies like AnswerLogic and Deama, two application service providers dedicated to making information searches on the Internet easier.
“The wireless Web will be a tremendous transaction tool, but it needs three to five years down the road to get to full potential,” Yahalomi said.
While content may well be king, the supporting infrastructure also matters a great deal.
“Look at optical technology. Today, routing and switching are predominantly optical. One way to think about it is as a completely new technology that comes in at the bottleneck of the Internet and is used to accelerate the transfer of data and code over the Internet,” he said. “Messaging, compression, OSS (operations support systems) are infrastructure services and products that create more efficient delivery of code and data.”
As part of its overall investment strategy, CMGI @Ventures also looks at content and commerce technologies, including electronic customer relationship management and supply-chain management. A related and emerging area is known as enterprise resource planning, which integrates financial management and sales and services databases.
“ERP companies like Oracle and SAP only target 4 percent of the world’s corporations-the largest,” Yahalomi said. “The Internet allows development of software to create integration for smaller companies that will significantly reduce their distribution costs and create value for them.”
Typically, CMGI @Ventures looks to make seed stage investments, buying 30 percent to 50 percent of new companies “that have a few scientists with a good idea,” he said.
The venture-capital firm prefers to be the lead investor as it partners with others, which include Cisco Systems, America Online Inc., Microsoft Corp., Oracle Corp. and Lucent Technologies Inc. These large technology corporations have their own venture-capital arms and, to varying degrees, also are engaged in purchasing smaller companies that fill a void in their in-house expertise.
“Building relationships with these (large) companies is part of our exit strategy,” Yahalomi said. “The IPO (initial public offering) market is preferable, but it is not the only way. In many cases, these companies we invest in are bought by other companies.”
