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The Mobile Business Got Tougher This Year

One basic market trend—consumers’ rapidly shifting attention to mobile devices—forced many Web, software, and hardware companies to take big risks this year.
December 31, 2012

Facebook’s IPO in May should have marked a triumph for its hoodie-wearing CEO, who made social networking a dominant technology on the Web.

Getting lost: Glitches in Apple’s mapping program, like the one seen here, drove home the risk the company took when it replaced Google maps with its own service.

But now Facebook users are rapidly shifting their attention to mobile devices, and the company’s uncertain business model for those smaller screens has required it to devise new ways to make money. Its $1 billion purchase of the popular mobile photo network Instagram underscored the business significance of these shifts.

Facebook wasn’t the only company struggling to adapt to the challenges of the mobile market in 2012.

From Apple’s smartphone patent feuds and mobile mapping showdowns to Microsoft’s Windows facelift, large companies faced off with rivals and showed a surprising willingness to rethink long-established strategies. Microsoft produced its own tablet computer, the Surface, competing directly with its usual hardware partners.

Some such risks seem to have paid off. Amazon essentially undermined the e-reader market it created by introducing the now-popular Kindle Fire tablet. Others backfired: Apple stopped allowing Google Maps to be the default navigation service on its devices, only to bungle the launch of its own service. Soon iPhone and iPad users counted Google as their savior when the search company launched an iPhone and iPad map app as an alternative.

Other companies spent most of 2012 fighting off irrelevance (see Nokia and RIM) that threatened them shockingly fast. For example, MIT Technology Review named Zynga to the annual list of 50 disruptive companies at the beginning of this year because of the success it had in creating addictive games for people to play on Facebook. Today, partly because more consumers are playing games on mobile devices, Zynga has been in a financial free fall, with executives leaving in droves.

Money also flooded into early-stage startups focused on mobile services, especially apps. Yet in 2012, many independent mobile software developers, while finding themselves heavily courted to create programs within a growing number of “ecosystems,” also often struggled to find enough users and revenues to turn a profit in an increasingly crowded market.

The need for alternative revenue streams is a major reason why more companies are focused on advancing mobile advertising and data collection technology. Take Drawbridge, a startup developing algorithms to improve ad targeting across any device, or Google, which introduced its fun “Field Trip” app that could actually be a gold mine for location-based advertising in disguise.

Technologies that were created for mobile devices are rippling into broader areas. ARM, for example, the company that designs energy-efficient chips for mobile devices, believes its designs could soon move into data servers and PCs, where the once-dominant Intel is now racing to innovate.

More broadly, some of the most fundamental shifts this year involved the businesses that fund new technologies. The model of venture capital is changing as the costs of launching and growing software and IT startups shrink. VC are struggling with low returns, and more and more startup founders are turning instead to “accelerators,” or programs that coach and fund nascent startups, angel investors, and “crowdfunding” platforms like Kickstarter because they don’t need to give up as much equity as VCs demand. That trend could gain momentum: a U.S. law called the JOBS Act passed in 2012, the result being that soon any individual will be allowed to invest in a startup in return for an equity stake.

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