MOBILE APPLICATIONS: ACTORS & BUSINESS MODEL REVIEW

MOBILE APPS: ACTORS & BUSINESS MODEL REVIEW

Mobile applications are commonly made available through aggregators with online stores. However, due principally to the increased availability of smartphones and faster broadband on 3G mobile telecommunications networks, mobile applications are a major growth sector of the information and communications economy.

The mobile service business model has changed dramatically in recent years. In particular, the role of handset and OS providers has become more prominent, and the reliance of third-party developers on network operators for delivery of revenue streams has decreased.

Apps Stores revenue-sharing arrangements with developers, has led to other changes. They reshaped the revenue model with its 70/30 revenue split in favor of developers and the exclusion of network operators from revenue-sharing arrangements for mobile applications, attracting large numbers of new independents software developers (ISV).

1.    Developers

Developers are creators of mobile applications programs who do not work directly for the app store, device manufacturer or network service operator.

There are several kinds of third-party developer:

• Hobbyists developing mobile applications in their spare time for recreation and profit

• Professionals those developing mobile applications as a main source of income, either alone or as part of a business centered on mobile application development

• Contractors developing mobile applications on behalf of another entity or individual.

The number of third-party developers has increased significantly as the improved revenue arrangements and increasing client base attract more developers to app stores.

 2.      App Stores

Applications Stores are divided today in the following families:

• Device manufacturers including Apple’s App Store, Nokia’s Ovi, and Blackberry’s App World. These stores can be used only by consumers with the appropriate manufacturer’s device and proprietary software.

• Operating system developer including Android Market and Microsoft Windows Mobile. These stores can be accessed by consumers with devices from multiple handset manufacturers via the proprietary operating system software (OS).

• Mobile network operator including Telstra, Verizon and Optus. These stores can only be accessed by consumers with service contracts with the network operator. Consumers can use multiple handset brands to access these stores.

• Independent including app stores operated as independent commercial concerns, or by developers such as GetJar and Mobango. Access to these stores is not dependent on the brand of device used, service provider or proprietary software.

The mobile applications market exhibits a number of common characteristics across all app stores, including:

• Low barriers to entry: Apple, Android and Blackberry all have development registration schemes with software development kits (SDK) offered free or at low prices with additional support mechanisms. Mobile applications can be developed with SDK for low fixed costs.

• Strong competition: there are a large number of sellers and mobile applications available to consumers (more than 300,000).

• Low barriers to exit with few sunk costs, developers may enter and leave the market quickly.
• Extended value chains with multiple players mobile applications delivered through various platforms complicate the supply chain to the end-user. The responsibility for aspects of customer service can consequently fall across several different organizations or individuals. This increases the complexity of the relationship between service providers and end-users.

• Global nature app stores are accessible from smartphones and other devices globally, and have a global consumer base, although most of the major market players have managing companies based in North America (Apple, Google, Blackberry, Microsoft Windows and Palm). As a result, there are associated cross border and trans-jurisdictional market implications.

• Unpredictable revenue the financial viability of mobile applications is variable. The top 10 per cent achieve about 75,000 downloads and there are huge successes, such as Tap Tap Revenge’s reported revenue of $1 million per month. However, 50 per cent of mobile applications achieve about 1,000 downloads and, after the app store has taken its cut, developers may expect to earn up to $2,500 on average.

Most people agree that Apple’s opening of iPhone to third-party developers via the App Store in July 2008 was a key turning point in the adoption of smartphones and the use of mobile applications.

By 2009, combined platform revenues were $4.2 billion; today, some analysts are expecting revenues to reach $29.5 billion by the end of 2013.

3.      App Stores Developers Programs

The majority of app stores provide programs and support to encourage third-party development in their platform.

There are a number of components to this support:

• Distribution of revenue is weighted to favor developers the revenue split in the largest app stores is 70 per cent to the developer and 30 per cent to the store
• There are no access restrictions or qualifications in place

• Developer support includes access to SDK in the native code (software language) of their app store, developer forums, developer guidelines and other support mechanisms

• Start-up costs are low three of the largest app stores provide developer support programs for $200 and under 21

• Marketing information and user analytics are also available

• Secure payment mechanisms are provided

• Access is provided to a ready-made customer base

• Advertising of the app stores to consumers is provided by device manufacturers and, in some instances, network service providers

• Advertising of individual mobile applications in an app store is also available for example; developers can pay a premium to have a mobile application placed in the featured section in the Apple App Store.

Third-party developers may also operate across more than one app store. This means that the mobile applications can either be written in the native code of each platform or written in a higher level software language, which can run on all platforms the developer is selling on. The choice of developing language is complicated by restrictions proprietary platforms may place on using programming tools or controlling certain device features and by fragmentation across device platforms.

 4.      Consumer Access Models

The concept of online stores for consumers to download software applications is continuing to expand. The devices used to access app stores vary, and the numbers and types of device used are increasing. App stores and other platforms can be considered access points that allow consumers to obtain and use mobile applications, distributed by multiple app developers.

Pre-installed mobile applications can increase the commercial viability of devices. Pre-installation of mobile applications from other commercial entities method for device manufacturers to defray production cost, and increase the attractiveness of their device to consumers. It is also a useful method of creating additional revenue streams for carriers who preload the device to consumers.

Mobile applications may be downloaded and installed by consumers in several ways:

• Via the device, consumers can directly access the device manufacturer’s store through a menu on the device Access may be enabled through 3G or Wi

• Via the internet, consumers can access the device applicable, the network provider’s and then download and install mobile applications. Access to the internet may be enabled through 3G networks or Wi applications Smartphones Tablets Multiple access points for the mobile applications market

Mobile applications may be obtained by end-users in two main forms as pre-installed applications or downloaded applications. Pre-installed mobile applications are selected by device manufacturers and usually include: calendars, alarm clocks, camera/photo apps) weather mobile applications, Google maps, a compass, a music, video, games) for example, web browsers, texting and voice installed mobile applications can increase the commercial viability of devices.

The mobile applications from other commercial entities on devices are a method for device manufacturers to defray production cost, and increase the attractiveness of their device to consumers.

Consumers can access the device manufacturer’s app store (or, if applicable, the network provider’s app store) via the web browser on their device, and then download and install mobile applications.

5.      Business Models

Prior to the introduction of smartphones, telecommunications network operators were the main suppliers of mobile services (and fixed-line services). End-users’ choices were influenced predominantly by network coverage, pricing, provision of handsets and value-adding services (such as voicemail, text, email and limited 2G web access via GPRS). Hardware and software component suppliers had only an indirect relationship with end-users, and third-party suppliers provided complementary goods and services.

While not all consumers directly obtained their handsets through their network operator, operators still controlled service subscriptions. Further, with the initial introduction of web browsing and email capabilities, network operators launched ‘walled garden’ application platforms to maintain their centrality in the value chain.

It has also driven the proliferation of non-network operator app stores as handset manufacturers and OS providers seeking to capitalize on alternative revenue streams.

Today network operators are no longer the primary source of revenue for app developers, and consumers of mobile applications are not reliant on the walled gardens of their network operator to access mobile applications.

The growing popularity of smartphones and tablet devices has continued to fuel this shift in the market, and access to third-party applications via a variety of devices is now being dominated by device and operating system manufacturers (through their app stores),

The Wholesale Applications Community (WAC), an alliance of 48 telecommunications providers, device manufacturers and sponsoring businesses (for example, Alcatel Lucent) has launched a wholesale app store. In response to the current success of non-operator app stores, the WAC model allows network operators to sell mobile applications to their subscribers independent of the device being used via an open platform, and charging them via their phone bill. Network operators capture a percentage of the mobile application purchase price as well as the revenue raised from data use.

At present, many network operators are only receiving revenue from data use for mobile applications or are reliant on partnerships with device manufacturers to obtain a share of mobile applications sales revenue.

The current contest for market share in the application market is now primarily between the opposing business models of operating system and device manufacturer app stores.

Operating system business models offer an open source system, with consumers able to access mobile applications from multiple sources. Device manufacturer models are closed proprietary environments limiting distribution of mobile applications to consumers via a single source their app store.

Mobile applications range in price, from free to over USD 999.

The average cost is under $10, with over 50 per cent of all mobile applications across all the app stores priced at $2 or less.25 Payment for paid mobile applications is made through one-off transactions or ongoing subscriptions in the following ways:

• Credit card; is the most prevalent method. The interface is established through a consumer account (for example, an iTunes account for Apple or a Google account for Android).

• Carrier billing; this method is common for mobile commerce transactions. Payment appears on a consumer’s bill or in the form of a call-credit deduction or charge. This is similar to current payment arrangements for mobile premium services. The revenue split in this situation may incorporate a percentage to the carrier. For example, Nokia’s Ovi store provides for a revenue split of between 40 and 50 per cent of the end-user purchase price to the carrier, with the remainder divided between the developer and Nokia on a 70/30 basis. For a mobile application costing $1.19, this would result in a distribution of approximately $0.59 to the carrier, $0.42 to the developer and $0.18 to Nokia.

• Voucher redemption; app store-specific vouchers are available at multiple commercial outlets. These may be redeemed for credit via a user account. Credit card companies also provide gift vouchers that may be used for the same purpose.

Closed proprietary app store business models offer systems integration for consumers and a seamless user experience.

App store business models that use an open source operating system may not be able to offer as efficient systems integration due to the fact that multiple players may be involved in the provision of devices to access the App store. However, the open source operating system business model allows consumers more choice in terms of sourcing mobile applications and greater transferability of information between platforms.

Both business models have inherent advantages and disadvantages for consumers, who will ultimately choose which is more significant to them.

Meanwhile, network operators are seeking to offset the costs of increasing demands on their networks in terms of speed and resources from mobile applications. The WAC’s commercial app store is one method of doing so, as it allows network operators to once more access the mobile application revenue stream. The success of this business model is dependent on the experience it can provide for the user.

The different app store business models highlight the inherent differences in approach to access and control on different platforms.

In the longer term, the success of each business model may depend on consumer attitudes to these differences.

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Leave your questions and comments to:  herve@delhumeau.com

Broadband Value Added Services

Broadband VAS could have been defined technically but VAS concept embracing much more than technology, it has to be considered as a premium mass market.

Broadband VAS includes consumer services such as ultra high speed internet, online gaming, streaming audio, and broadcast high definition and interactive TV. It’s business offerings such as video conferencing on-demand (VoD); Voice over IP (VoIP), E-learning and application hosting. It’s on-demand and pay-per-use services that attract new customers, expand markets and – perhaps more importantly – open new revenue streams for current subscribers, with relatively minimal incremental costs to the service provider.

However, for most service providers, the missing piece in the broadband VAS puzzle remains cost-efficient operations to support the rapid introduction, profitable volume deployment and ongoing maintenance of these dynamic offerings and the quality of service (QoS) requirements that go along with them.  “The final conclusion is still the same, namely that spending on connectivity is much more important for communication services than spending on content can ever be” (Source: Odlyzko, A., Feb. 2001 First  Monday)