The U.S. Closes the Mobile Innovation Gap

It was a familiar refrain: The U.S., the birthplace of the Internet, was a wireless backwater. Even early in this decade, many viewed the U.S. as a developing market, fit mostly for hand-me-downs from the more advanced Europeans and Asians. Unlike unified Europe, the U.S. market was fractured by warring radio standards and dotted with dead zones. Long after cellular was a way of life elsewhere, Americans still carried beepers and left messages saying to call cell phones only in emergencies. America was to be pitied, and the competitive upshot was huge: The next great innovations in wireless, including the mobile Internet, were likely to arrive from outside the U.S.

Yet the competitive balance is shifting. As the focus of the wireless world moves toward Internet communications, the U.S. strength in software, most notably at Google (GOOG) and Apple (AAPL), is pushing the U.S. ahead as a laboratory for wireless development. American users are catching up, too. In the past year, the U.S. surpassed Western Europe in the number of subscribers to the high-speed networks known as 3G, according to consultancy comScore M:Metrics (SCOR). "The industry needs to stop talking about the gap between the U.S. and Europe," says Kanishka Agarwal, vice-president of mobile media at Nielsen. "We have caught up, and we have already passed."

The change has been dramatic. While a year ago 6% of Americans who bought phones purchased smartphones, capable of Web access and application downloads, their ranks rose to 16% in early 2008, according to consultancy Nielsen Mobile's survey of 70,000 U.S. wireless subscribers. Over the same time, in Western Europe, the jump in recent smartphone buyers was smaller, from 11% to 17%, according to Nielsen.

Stride for Stride With Europe

The U.S. is now neck and neck with Western Europe in use of short text messages (SMS), multimedia messaging, and mobile games. More Americans, meanwhile, use mobile e-mail and instant messaging, according to Nielsen Mobile. Mobile Web browsing in the U.S. is also on a tear, but it's still a few percentage points behind the Europeans. Some 17% of Americans browse on the mobile Web, compared to 20% of Western Europeans, according to Nielsen.

True, both regions lag behind the hottest Asian markets in data speed and mobile Internet usage. But the progress in the U.S. has boosted the country as an advanced wireless market and laboratory for Europeans as well as Asians. "It used to be the biggest sandbox they could play in was outside the U.S.," says Mark Donovan, senior analyst at comScore. "Now it turns out this is a big market."

At a new Nokia (NOK) lab in San Diego, 400 employees are tailoring Nokia's products to AT&T's needs. Japan's NTT DoCoMo (DCM) and other Asian carriers are scouting Silicon Valley looking for local mobile startups to fund. European mobile software makers like Nokia-controlled Symbian are expanding their U.S. offices. The U.S. is fast becoming a fulcrum for mobile advertising, games, and other applications, says John Forsyth, vice-president for strategy at Symbian in London. "Our head turned westward completely in terms of talking to developers."

Apple Changes the Game

The biggest game-changers are Apple and Google. In July, Apple debuted its iTunes App Store, offering hundreds of applications from third-party developers in many countries worldwide. Easier to use than most previously available mobile stores, Apple's effort has attracted scores of programmers who've already created more than 3,000 innovative applications (BusinessWeek.com, 9/5/08). After 10 years of efforts, Symbian has released fewer than 10,000 third-party applications. "Apple has fundamentally changed the industry from a focus on hardware to a focus on software and content," says Ken Dulaney, an analyst at consultancy Gartner (IT). "We can drive innovation for sure."