Ericsson: Hothousing To The Core

The future is wireless, or at least that is what Nokia, Ericsson and a host of startups and network operators are earnestly hoping. But the quick success of 3G – The Third Generation of mobile telephony – is more than profitable icing for these companies; it has now become a matter of survival….

This article, which ran in the February, 2001 issue of Tornado Insider magazine, looks at the overall climate in European development of 3G, and then explores how each of Europe’s largest telecom networking manufacturers, Ericsson and Nokia, is coping with the challenge.


It’s been a morning of suits and PowerPoint slides at the Ericsson demo center, and in the back row sits a pale Gen-Xer dressed head to toe in black and wildly thumbing away at his cell phone. He turns out to be Ivar Gaitan, a project manager for It’sAlive. After we listen to technical overviews of Ericsson’s Mobile Location Solutions, he stands up and shows us a location-based game his startup developed.

“BotFighters will launch this month,” says Gaitan. “It is a location-based game that people can play on their normal GSM phone. Using SMS, players determine who is in firing range and can fire…” A small beep is heard. Gaitan suddenly stops his patter and says, with an apologetic, but nonetheless delighted, grin: “Whoa… Sorry, my friend is 400 meters away and….” He begins thumbing madly on his keypad-entered “fire command.”

The game is, like Asteroids and Pac-Man before it, a triumph of simplicity. But by nature of its location-based, “find-your-friends” theme, it’s the essence of community building – that is, community building at 1.5 Swedish krona, or about 15 US cents, a pop.

These types of “small ticks” are music to the ears of operators, and therefore the holy grail of network vendor Ericsson, which bends over backwards to get products like this, or actually any product that works well with its systems and increases usage, to market. And these types of products are expected to drive 3G usage when it arrives.

“Ericsson’s been cooperating with us on both technical and marketing aspects,” says Tom Soderlund, It’sAlive co-founder. “They’ve let us into their labs and given us access to technical information, but we also have joint marketing activities, demonstrating our applications on their systems.”

Ericsson, of course, has venture wings, with $300 million in capital under management. But Ericsson’s strategy for hot-housing takes on several discrete, and sometimes even internally competing, roles. First, as with traditional hardware manufacturers, it attempts to open standards and technologies to developers, as would Palm, Psion, or even Nokia.

As with most hardware manufacturers, the process of getting into bed with Ericsson as a garden-variety application developer usually begins with the startup visiting the Ericsson developers’ website (, where it signs on for technical specifications. The technical information on the Developerszone is substantial enough that Swedish bank SEB – with an in-house IT team of 1,400 people that recently launched online WAP banking services – has almost relied on that alone.

SEB’s Bons says the bank launched with services based on the Ericsson R380, but that it was not an exclusive deal with Ericsson. “That was a launch device. When other hand-held devices, like PDAs, are released that are similar in size and ease-of-use to the R380, SEB will support those devices as well,” he says.

“It’s been a joint marketing effort. What Ericsson really gave us was understanding of how the whole puzzle works and the interaction of the whole mobile environment with vendors and operators. We know quite a bit about the Internet, but we are newcomers when it comes to mobile. Ericsson has really contributed to our knowledge,” Bons adds.

The decision to move beyond the Developerszone stage to solidifying the relationship could come from a number of instigators. It could be, as in the case of It’sAlive, that the VCs involved previously worked with a division or part of Ericsson, or it could also be that the startup demonstrates it can fill what Ericsson refers to as a “white spot” in its strategy.

These white spots, or opportunities, are key to a startup. “When we started at the Developerszone,” says It’sAlive’s Soderlund, “we received technical information and the like, but as the game evolved and it became more of a complete product, and as Ericsson saw how hot location services were becoming, we got more help on the marketing side.”

Today, when Ericsson demonstrates its location-based services, an It’sAlive gamer is right there to show a real, up-and-running practical use. “It’s too early to say anything about whether this has got us any contracts, because it’s just been released,” says Soderlund. “But I can say we’ve got lots of sales leads from the relationship.” That’s a piece of a white spot. But entire white spots? What’s coming down the pipeline?

“The area I think is really, really hot, is integrating wireless LAN with 3G solutions,” says Marie Bern, investment manager at Speed Ventures, which invested in It’sAlive. “When we get seamless access over wireless LAN, there will be a lot of new issues that have to be addressed.”

“How do you, for example, solve roaming between networks, owned by different players and based on different technologies? How do you solve billing, when all traffic is IP-based and the operator no longer controls every access point? Wireless LAN has the potential to turn wireless communication as we know it upside down, and there are huge opportunities for startups within this field,” Bern says.

Ericsson plays a crucial role in sorting out the white spot solution providers from the mere partners, taking internal and external projects it feels may someday become part of its core business. If it does, the company is absorbed into either Ericsson or Ericsson Business Innovation (EBI). If it doesn’t, Ericsson spins it out by partnering with a VC or other investors, building the business as an external company, then exiting at release.

The exit strategy seems to be the crucial difference. Where Nokia approaches the issue of external vendors with a shotgun strategy – if you throw resources at them, they will come – Ericsson can take a more vertical view of hot-housing and look upon each new vendor as a potential core Ericsson business.

Take, for example, Red Jade, which declined to discuss its product other than to say it relates to wireless technology and entertainment. Whatever it is, the company and EBI are working hard at it; Stockholm-based incubator IT Provider saw EBI’s role in it as not just crucial, but as deal breaking. “It’s definitely part of the decision to invest in a company,” says Jesper Korrbrink, venture manager at IT Provider. “With Red Jade, we needed a very high level of technological know how, and we and Red Jade had the impression that the business just could not be done without Ericsson. It involved technologies in which they lead.”

Sometimes the hot-housed company comes from the reverse process: the result of an EBI-instituted project that didn’t really fit into the core Ericsson business. EBI spins it out with the help of external VCs. Such was the case with ConnectThings, which also had investments from IT Provider. Fortunately, ConnectThings can say what it does for a living: It makes barcode readers that will be embedded in future handsets.

“The barcode reader is integrated with the phone,” says EBI’s Hoff, “and whatever is scanned triggers information on the product to be displayed. If it’s a drug, you can see what kind of drug interactions or side effects [it has] or how to use it. Or if you swipe a CD in the store, you can hear the song on your phone’s MP3 player.”

For a consumer to get product information by swiping a barcode in an ad as opposed to typing in a URL is a very different delivery method. It could be very useful for people and businesses, but only if it’s not platform specific. A key point when considering Ericsson’s hot-housing strategy is that the result needn’t be exclusively an Ericsson product. “We are looking at implementing the service with all the handset manufacturers. It’s not Ericsson-focused in that sense,” says Per Troborg, ConnectThings president. “Our vision is that all mobile terminals will have a low-cost, small-sized barcode reader integrated right inside.”