Technology is easy. Creating innovative business models is hard

I was checking in on Twitter a few days ago when I noticed this tweet from mobile analyst Horace Dediu that includes a graph depicting the evolution of the U.S. auto industry. As the graph illustrates, many auto companies launched between 1900 and 1924, and almost as many closed down. Meanwhile, the adoption rate began to pick up only as all that startup (and shut-down) activity slowed. The lesson, as Dediu noted, is that business model innovation often must occur before mass-market adoption can.

That’s especially true for the mobile industry, which was once a relatively siloed segment but now is a sprawling space that permeates many other industries. Apple demonstrated the power of innovative business models when it launched the App Store, which – finally – created a fair and rewarding marketplace for developers to sell their wares, wresting control away from the carriers and igniting the smartphone market. The emergence of innovative business models will be crucial for some other sub-segments in mobile as well. Here are a few examples:

  • The mobile payments market continues to face some major hurdles, from a lack of infrastructure to multiple competing systems to the fact that, well, most people aren’t that interested anyway. And any compelling mobile payments system must provide rewards for every player in the value chain: Retailers, technology vendors, app developers and carriers all want a slice of the pie, and some of them want access to the invaluable data any popular system will generate. At the same time, those players will have to give consumers a reason to use their phones to pay rather than credit cards or cash – perhaps a mobile coupon component that provides real value, or a loyalty program like Starbucks’. All those things will be possible only when multiple players in the value chain collaborate and form complex new business models. Which is why I’m still skeptical the market will take off any time soon.
  • Mobile advertising is beginning to get legs in a big way, and I agree with those who believe we’re just seeing the tip of the iceberg. Revenues will grow dramatically as location-based ads begin to take hold, as mobile ad networks continue to grow (particularly on the local level) and as analytics providers increasingly help advertisers target their pitches to the right users at the right time and place. And because mobile ads will increasingly feature actionable things like click-to-call or even coupons that are redeemable at the point of purchase, they will require sophisticated models beyond PC-based things like CPI (cost per impression) or pay-per-click.
  • Perhaps no sub-segment of mobile is more promising than the internet of things, which is already giving rise to a mind-boggling variety of connected gadgets. Unlike smartphones and tablets, though, few of those devices will be a good fit for the traditional model of monthly data plans tied to specific devices. How do carriers monetize devices that talk to each other through a central hub that connects to the network, for example? Does the patient or a health insurer pay the cost of a pricey ingestible health monitor, and how can that price be lowered to make such technologies more widely available? And then there’s the matter of creating app ecosystems for the coming wave of devices. Google was able to partner with two venture capital firms to fund the Google Glass ecosystem, but how will smaller hardware companies encourage developers to build apps for their products?

In many cases, the technology to support these sub-segments is well established: NFC has been used in mobile payment trials in the U.S. for the better part of a decade, GPS has enabled the delivery of location-based ads for several years now and M2M – which is becoming known as the internet of things – actually existed before the birth of cellular networks. But the development of complex and innovative new business models oftentimes takes much more time than the development of new technologies. As these new business models evolve, each of these markets will begin to fulfill its potential.