TMCnews Featured Article

This has been an unusually busy week with two major industry conferences running at the same time. Big U.S.-based events tend to dominate the headlines, and it’s easy to overlook other items, especially those coming from Europe. Being in the minority this week – i.e. not attending any conferences – not only was I able to follow a broader range of news, but I also had time to digest them with a less harried perspective.

One such item was the announcement that Atomico’s Ventures II fund had launched. Whether this is familiar to you or not, the connection to service providers may seem remote, so bear with me as I make my case. I’ll begin with Atomico, which is a U.K.-based investment firm founded by Niklas Zennstrom and Janus Friis. Is this starting to make sense?

Niklas and Janus co-founded Skype (News - Alert), and building on this success, started Atomico in 2006 to support the development of other innovators.  Their first fund has run its course, and the current news is about the new fund, Ventures II. Niklas and Janus are best known for Skype, and while the company has a direct bearing on service providers, this is not a Skype story. My focus here is about what Ventures II represents for the evolution of the service provider environment.

I’m not here to analyze the operating details of the fund, but will start by pointing out that their investments to date have little if anything to do with telecom. Their portfolio seems all over the map, in businesses such as beauty products, social gaming, online music and netbook operating systems. Furthermore, their focus is the E.U. – this is not the place to find the next big thing coming from Silicon Valley.

If you’re still with me, it’s time to make this relevant for service providers. Atomico’s broader vision is to invest in promising entrepreneurs with Web-based businesses primarily focused on consumers or SMBs. These could come from any sector, and in time I have no doubt they will fund companies that will be of direct interest to service providers.

Atomico invests in what it knows best, which I think is one of their strengths. This means Internet or Web 2.0-style businesses – not hardware and not software. These businesses have three key attractions – they’re not capital-intensive, they can get to market quickly, and can be very successful investments if things go right. Sure sounds a lot like Skype.

They created a very effective formula with Skype, and Atomico understands the necessary elements to replicate this in other businesses. Some of these will be communications-based and some will not, but there is enough here for service providers to warrant paying attention. Internet-based businesses represent the future in many sectors, especially telecom. Having been so successful with Skype, you may wonder why they sought not to invest in related or complementary businesses. Well, you could simply say they don’t want to fund anything that could compete with or dilute Skype, but it’s more likely the case there are newer frontiers that don’t yet have a Skype-like player. The Internet is a vast opportunity, and with its Wild West nature there are many new spaces to explore. In that regard it’s hard to think of anyone better suited to spot these opportunities and nurture them than Atomico.

The key here is that this new fund exists to drive innovation and ultimately disrupt as well as transform industries – and I would include telecom here. Aside from the vision, they have the two vital ingredients – capital and a track record. I should add that their track record includes both success and failure, which in my mind makes them even more credible. Skype was a hit and Joost (News - Alert) was a miss, and the founders have learned from both. This is part of being a successful innovator, and to remain competitive, service providers need to embrace this, and expect to have occasional failures.

I’ve written before that in the world of Telco 2.0, service providers won’t survive by introducing one new service every year. They’ll need to roll out dozens of services and perhaps hundreds of new applications, fully expecting that many will not make it. To do this, they need a continuous engine to drive innovation, and very few are willing or able to do this in-house. BT (News - Alert) was an early example of this with their Ribbit acquisition, but that move has yet to earn its keep. Perhaps Telefonica will fare better with Jajah, but for the majority of operators, they’ll need to partner somehow, some way.

I’m not saying Atomico is their savior, but I view them as an important example of where innovation is coming from. On that note, service providers should not discount this just because there are no communications startups in Atomico’s portfolio. Skype was disruptive because it changed the game for carriers – not just by making calls free, but by changing our behaviors and expectations about the communications experience.

As a result, carriers are offering different services today and are more engaged with their customers. This trend will certainly continue, and I’m pretty certain that a year from now carriers will be offering services that may not even exist yet. They may very well be from companies Atomico is supporting right now, so the point is to monitor innovation from wherever it comes and be open to trying new things. Nobody has figured out the Internet yet, and that’s what makes all of this so fascinating.

I also need to add a bigger picture tag (News - Alert) to this analysis, especially for North American carriers. Atomico is E.U.-focused for a good reason. The Skype/eBay experience gave the founders a taste of the highs and lows that come from the Silicon Valley culture. They know that the investment climate is different in Europe, and they no doubt see great untapped potential that can be brought to market with more adventurous support.

The Internet is perhaps the greatest man-made global phenomenon yet, and in my view, Atomico is another step forward in making innovation more international and borderless. I see this as great news for service providers, as it gives them a broader pool to draw from in seeking innovation partners. In time, the concept of a regional or even national carrier will go away, replaced by Web or cloud-based operators who partner with innovators from all over the world. The U.S. does not hold a monopoly on innovation, and if Atomico is right, service providers need to think more broadly about how to stay competitive.