Openwave, the father of the mobile browser, is logically positioned well to take advantage of the current push towards a true mobile internet experience, but it is also being left behind in many areas by entrants from the PC internet world, with their larger budgets and strong political alliances. In light of this, and recent financial struggles, the company has put itself up for sale, and is likely to attract a range of buyers. The company that, in our view, should make a strong play for Openwave is one of its key partners, Qualcomm, which could include the smaller company’s software in the heart of its highly advanced mobile internet developments, focused on its UIone interface platform and Brew content system.
Openwave has announced the resignation of CEO David Peterschmidt and said it has retained Merrill Lynch as a financial adviser to explore strategic alternatives including a possible sale. Peterschmidt was replaced by Robert Vrij, previously president of worldwide field operations for Openwave. The company also withdrew its prior outlook for the third and fourth quarters due to ‘inherent uncertainty’ during a product transition. It forecast revenue of $65 million to $70 million for the quarter ending March 31, substantially below Wall Street’s expected $87.5 million. The announcement comes amid a proxy battle with Harbinger Capital Partners, Openwave’s second largest shareholder, which owns 10.6% and has fought in recent months to reconfigure the company’s board.
Openwave, as well as struggling to move from its somewhat outdated WAP-based heartland products to next generation mobile internet software, has faced a year’s worth of bad news, starting with a stock option backdating investigation that led to earnings restatements and class action lawsuits. Openwave shares have crashed in the past year, falling from a 52-week high of $22.95 in April 2006 to $8.71 last week. In the third quarter of 2007 it reported a $24.5m loss on revenues down from $103m to $91.4m year-on-year. Last month, it reported revenue of $84m in its second quarter of 2007 compared with $104m in the year-ago period, with a net loss of $15.8m compared with net income of $8.4m a year earlier.
However, despite its financial problems, Openwave has many attractions for a larger acquirer, especially one like Qualcomm that is strategically focused on creating a leading mobile internet software platform, and that needs innovative technology components for this drive, more than it needs a company with strong revenues. Qualcomm and Openwave announced a joint development geared to 3G handsets in 2005 and in September 2006 they announced mobile browser integration for Brew. This centers on Openwave’s device layer, which implements a standard set of APIs that integrate the Openwave Mobile Browser, Mercury Edition, for Brew.
Qualcomm might also be attracted to the roster of operator customers that Openwave boasts, not just for its embedded mobile browser systems – the first to hit the market back in the days of first generation WAP – but new departures such as the personalized Smart Radio music service from subsidiary Musiwave, which is used by 35 cellcos including Vodafone, T-Mobile International, Telefonica and Orange. One of the most important aspects of Qualcomm’s software expansion of the past few years has been to give it a foothold among carriers, particularly in Europe, that were closed to Qualcomm in its CDMA-only days, and which still have a natural suspicion of the vendor. Its greatest triumph in this respect was signing up O2 for its UIone user interface platform, a breakthrough achievement in the hostile terrain of Europe’s GSM/UMTS operators.
Openwave fits very neatly into Qualcomm’s view of the way mobile internet software should develop, in a way that enables operators to do more than offer just a dumb pipe. The key to this is personalization, and it was this requirement – especially strong among European cellcos as they aim to retain differentiation while accepting the inevitability of allowing users unfettered internet access – that drove the CDMA giant to acquire the UK’s Trigenix, the creator of the personalized UI technology UIone, now a key element in its software strategy and the basis of Alltel’s market leading mobile internet service CellTop.
The cellcos are highly focused on differentiated user interfaces too, especially in the wake of recent advances by companies like Nokia and Apple, which are deploying popular techniques of the fixed line ‘Web 2.0’ on mobile devices – including dynamic and highly interactive interfaces, widgets for one-click access to services and so on. This means one of them could snap up Openwave to support their own inhouse developments, though most will be more likely to outsource as much of this as possible to partners. An exception might be Openwave customer Sprint Nextel, which is trying to steal a march on its larger wireless rivals in the US through highly advanced ‘pre-4G’ devices and services.
There is also the possibility that a PC internet giant might seek to improve its mobile capabilities – not a strength for any of the leaders as yet – by incorporating Openwave. The most likely would be Google, itself highly focused on mobile Web 2.0 techniques. Recent moves by Openwave have demonstrated its interest in this market – where Opera is threatening to take the lead and dominate the vacuum left by Microsoft’s mobile browser limitations – and in adapting internet software effectively for mobile systems. Openwave recently acquired the UK’s WiderWeb, to add capabilities to reformat web content for cellphones, something Opera also promises.
For Openwave, this was the signal that it would finally move into the business of harmonizing desktop and cellular internet platforms and experience, rather than arguing that the peculiar features of the mobile device require a separate system for decent performance – the thesis behind WAP, in which Openwave was a key pioneer. As such it would increase its appeal to both Google and Qualcomm, by offering a bridge for closed-garden operators to the open internet.
Even more important in Openwave’s attempt to attract a good purchase price by pushing mobile internet hot buttons such as personalization is its Personalization and Profiling System (OPPS), which includes data collection, segmentation and profile generation and a subscriber profile that can be used by applications and recommendation engines in a network. OPPS lets operators customize a subscriber experience based on his or her previous activity, as well as individual demographic and subscription information, and includes a ‘contextual merchandising’ capability, to deliver targeted information from brands and agencies to mobile subscribers.
All this would fit very neatly into Qualcomm’s own ambition as a software house. The chipmaker, like Nokia, has recognized that it can boost its margins and its overall control of its market by offering a complete environment, including software, to its customers, and that many of the factors that make a difference for operators, such as easily customizable user interfaces and over the air distribution/maintenance, lie in software ‘ but software that can still deliver more effectively when integrated with and optimized for the hardware architecture.
The cornerstone of this strategy has been Brew, the content download platform, and Qualcomm has added significantly to this over the past two years with acquisitions such as Trigenix and elata, which have contributed graphics rich, customizable user interface and multi-network content delivery capabilities (see Wireless Watch 26 August 2005 issue). Such moves have strengthened CDMA and extended the appeal of Brew to other platforms, notably W-CDMA, giving it an entry to previously closed markets such as Europe, as the O2 deal showed. In future, the same functionality can be adapted for other platforms such as dual mode cellular-Wi-Fi and OFDM-based networks. Most recently, Qualcomm formed a venture with Chinese company TechFaith to enhance user interface techniques to market in China and elsewhere.