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Canada's app developers in sweet spot as world goes mobile
Omar El Akkad — Technology Reporter
From Monday's Globe and Mail
Published Sunday, Nov. 14, 2010 9:44PM EST
Last updated Monday, Nov. 15, 2010 3:21PM EST

On a recent fall day, a courier ran across an airport tarmac in Idaho, his hands carrying a box of computer servers from IBM. For Ted Livingston, this delivery was a genuine business emergency.

Mr. Livingston is a university dropout in Waterloo, Ont.. A year ago, he started a small software company called Kik Interactive Inc. Today, it is still small – just 12 employees – but has suddenly gained cachet as the designer of one of the hottest software products for smart phones.

The software application, or app, lets users of any major smart phone “chat” with one another – that is, exchange messages by text, in real time – much the same way BlackBerry users converse on the widely used BlackBerry Messenger. The concept was simple, but even Mr. Livingston could not have anticipated its popularity. In the two weeks after it was launched in late October, more than one million mobile users signed up for it. Whoopi Goldberg even gave it a mention on The View.

So quickly were new users downloading Kik Messenger that its servers, the hardware that helps run websites and applications, were at risk of crashing under the pressure – hence the urgent order to IBM to deliver the goods to Idaho, where Kik rents space in a data centre. “We were starting to see 300,000 new users in a day,” says Ted Livingston, a computer engineer who quit the University of Waterloo last year. “Waiting three days to get a server was just too long.”

Since the death of Nortel Networks, the Canadian tech industry has been on search for the next big thing. But the next big thing, it seems, is small. Canadian Tech 2.0 is being built on the single most important trend in technology today: The world is going mobile.

The desktop computer, which turned Microsoft Corp. into the biggest technology firm in the world, is giving way to the smart phone and the tablet computer (and a new top dog, Apple Inc.). Software programs, sold in boxes, are being replaced by apps that can be downloaded in seconds. And all of this is happening at unprecedented speed. It took 60 years to sell a billion television sets. It’s expected it will take only 10 to sell the same number of smart phones. The PC is not dead, but its era of dominance is clearly over.

As a result, the playing field is being reset on the entire technology industry – and at the moment, that’s to Canada’s advantage. Small, nimble app developers and startups are popping up all over the country, fuelled by a small but growing pool of venture capital and helped in no small part by the presence of Research In Motion Ltd., one of the world’s biggest makers of smart phones.

RIM’s hometown of Waterloo has been the centre of the action, of course. But Toronto, with its booming mobile developer community, its large university population and its role as the centre of Canadian finance, is giving Waterloo a run for the title of Silicon Valley North.
Through the ascendance of mobile, Canada’s technology industry has the opportunity to start punching above its weight, at last.

ON THE 44TH FLOOR of the Brookfield Place tower in downtown Toronto, John Albright and Kevin Talbot gather in a boardroom to explain how they plan to take on the world.

The two men are co-managers of BlackBerry Partners Fund, a venture capital firm backed with money from RIM, Royal Bank of Canada and Thomson Reuters. With $150-million under management, BBP claims to be the world's largest independent venture capital fund focused solely on mobile technology.

Until now, the firm has invested only in a handful of startups outside North America. Today, it’s opening offices in Asia, the Middle East and Europe, hoping to capitalize on what Mr. Talbot describes as the “Wild West opportunity” of what is potentially the most lucrative segment of the technology business today.

“All our focus going forward will be on mobile,” he says. “In mobile, geography is meaningless.”

His optimism is grounded in several facts. App developers also have a cost advantage over traditional software makers. The online application stores set up by Apple, RIM and Google Inc. provide a ready sales outlet – no trucks, no physical distribution network. Even the cost of renting space in server farms has plummeted.

But the most important factor is that consumers are adopting smart phones faster than almost any other type of gadget in history. So the gold rush is on.

“At some point, every employee is going to have a smart phone, and every one of those smart phones is going to be GPS-enabled,” says Stephen Montano, marketing director of a startup called BerryTracking, whose software lets employers monitor the location of staff such as door-to-door salespeople or delivery truck drivers. Just a small piece of the market will make his company a success, he says. “The sky’s the limit, and being part of something where the sky’s the limit is kind of cool.”

For Canada, the app race provides an opportunity to build a stronger indigenous technology business.

There has never been a shortage of brains here – only a shortage of investors with an appetite for risk and a willingness to fund their ideas. But mobile applications aren’t as capital intensive as many other forms of technology development (the cost of developing one varies widely, but some small games can be built for only a few thousand dollars).

Since the business is still in its infancy, it is not yet dominated by Silicon Valley. In fact, so far no one place has achieved a critical mass of app developers. And there is not the same need to be physically close to U.S. technology hubs to get attention: Anyone who develops a popular app like Kik’s messenger service is likely to get noticed by venture capitalists, no matter where they are from.

But these low barriers to entry also mean that anyone with a good idea has a shot at the market. And some influential figures in the country’s technology community believe that for Canada to be a player in mobile applications in the long term, it needs to build that critical mass – to create a new hub of Canadian digital activity.

For all the success stories, the Canadian tech sector is still rife with bottlenecks. Money is still an issue. According to a report released in August by Canada’s Venture Capital and Private Equity Association, when it comes to venture capital fundraising, “the Canadian market continues to be outpaced by the U.S. market by a factor of 35, and investment levels are still down significantly from only three years ago.”

Many venture capital firms still don’t believe there is a deep enough pool of entrepreneurs in Canada. A report by Deloitte, released this summer, polled venture capital firms about various factors affecting the industry. In Canada, 47 per cent of VC firms cited a “lack of entrepreneurial talent to build a new company” as a factor creating a poor venture capital climate. In the United States, only 6 per cent of firms cited the same problem.

That’s in part why various industry groups have been lobbying the federal government to develop an overarching digital strategy aimed at improving the country’s low productivity ranking and improving the competitiveness of the country’s tech sector.

Of all Canadian cities, Waterloo is the closest to achieving the size needed to become a permanent force in app development, thanks to RIM and what is arguably Canada’s best computer engineering university. Over the past few years, the two entities have created a booming ecosystem of talent – the popular BlackBerry Facebook application, for example, was created by University of Waterloo students. Over time, the talent pool has prompted companies such as Google to set up significant operations in the city.

“Waterloo understands mobile,” says Mr. Livingston of Kik Interactive. “One of our main competitors [in the instant messaging business] is down the hall from us. It really shows that Waterloo has a better understanding of mobile than most other places, including places like Silicon Valley.”

But with less fanfare, Toronto has emerged as another Canadian tech powerhouse, fuelled by operations such as the Ryerson University’s Digital Media Zone and the deal-making opportunities that come with proximity to Bay Street, the country’s financial epicentre.

Parked in a communal space one floor above Google’s Toronto offices, the DMZ is a space for budding entrepreneurs to get their projects off the ground, with help in the form of mentoring, financial assistance and other resources. Less than a year old, the DMZ has already seen two of its start-ups leave the nest, after they received funding from venture capital firms. In all, more than a dozen companies are currently working out of the DMZ.

For Ryerson president Sheldon Levy, that’s not nearly enough. “The observation is that this is way too small,” he says. “We need multiples of these here – we need to bring 10 DMZs, all in this region. We need to swarm the area with talent.”

As Mr. Livingston puts it: “We want to create that rock star Google-Facebook culture here. We want to give young people a strong reason stay in Canada.”
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