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The Mobile App Store Landscape 5 years Ai (After the iPhone)*

[Where is the app store frenzy heading after all?  Guest blogger Francisco Kattan discusses why it’s a winner-take-all game]

2009 was the year of the app store wannabes.  Following the remarkable success of the Apple App Store, OEMs, mobile platform vendors, mobile operators, and traditional aggregators either created new app stores or repositioned their existing offerings as app stores.  There are now between 24 to 32 app stores depending on who is counting (see Distimo’s app store report and the WIP App Store Wiki for reference), and more stores are surely to follow.  However, key questions remain about how the app store landscape will emerge after the current period of hysteria subsides and the dust settles.

– Are we going to see many app stores on each handset?
– Will app malls emerge to host multiple app stores within?
– Will operator stores gain critical mass?

Andreas Constantinou wrote an excellent article that defines the app store building blocks and predicts a “dime-a-dozen” app store future.  I will build on this post, but will offer an alternative view of how the landscape will evolve.

It’s a Winner-Take-All Contest
If we were to extrapolate the current trend, we could expect a future where each handset will host many app stores.   An LG Android device on the Orange network would have the LG App Store, the Android Market, and the Orange App Shop.  The Verizon version would have the V CAST store in place of the Orange App Shop.  On top of this, you could add the Getjar multiplatform store and several specialty stores for say, games, health, and productivity apps to name just a few.  Can you imagine the mess this would create for the user experience?  Which app store do I launch? Which apps do I find on which store? Are apps duplicated on multiple stores?  Are the prices the same across stores or do I need to shop around?  Are the versions of the apps consistent across stores?

Fortunately when the dust settles consolidation will occur and one app store will command nearly all the market share on each device.  Sure there may be a couple “also rans” with a small share, but as history has shown us, these two-sided platform battles tend to result in winner-take-all contests (see definition of two-sided markets here).   We’ve seen similar battles already play out on the web with Amazon winning e-commerce, eBay winning auctions, and Google winning search.

Why winner-take-all markets happen has already been well documented.  Economists Frank and Cook documented this phenomenon with their Winner Take All Society book and Rich Skrenta wrote a nice post on the battle for search supremacy that led to Google’s reign. In two-sided markets there are two sets of users (consumers and developers in the case of app stores) and once both sets of users pick a winner, it is very hard for competitors to gain much share. To cut to the chase, the app store battle in mobile will also result in a winner-take-all contest for the following reasons:

  • Low switching costs.  Given how easy it is for a consumer to switch from one app store to another, any advantage of one store, even if small, will cause more consumers to visit the better store. Why buy at the world’s second best store when the best store is only a click away?  This initial advantage could be in terms of time-to-market, quality or quantity of applications, user experience, or pricing.
  • The word spreads.  Word of mouth, accelerated by social networks, will cause a snowball effect attracting more and more users to the store with the initial advantage.
  • Developers vote.  As more consumers visit the winning store, more and more developers will prioritize that store for their applications offering that store an even greater advantage.
  • Economies of scale.  As one store gets significantly larger, it will enjoy greater economies of scale and therefore a cost advantage over competing stores.

A positive feedback loop cements the ultimate winner.  The more consumers that visit one store, the more developers will create apps for that store, and the greater the economies of scale the winner will enjoy. This battle will play out on a device by device basis with the Apple App Store already the winner on Apple devices (to be accurate, there was no real battle in this case as Apple’s policy does not allow competing stores).  A battle will play out for say RIM devices on the Verizon network (V CAST versus App World), another one for Android devices on the Orange network, etc.  So while we are initially headed for a “dime-a-dozen” app store landscape as Andreas predicted, over time we will see significant consolidation.  And as the number handset platforms themselves consolidate (surely to happen, but this is outside the scope of this post), we’ll have even fewer stores.

The Two Exceptions that Prove the Rule

  • Adult Content.  Niche stores will exist to satisfy needs that, by policy, are not met by the winning store.  Adult content stores such as MiKandi are a clear example.  Another example is Cydia, an app store for jail broken iPhones.
  • Enterprise App Stores.  App stores designed for IT organizations to manage application distribution and provisioning within an enterprise have unique requirements that the consumer stores will not meet.  In addition, the low switching costs described above do not apply to enterprise stores.  Examples of Enterprise stores include Mobile Iron and Ondeego.

Think Department Store, not App Mall
Rather than app malls that host multiple stores, the winning app stores will be like department stores with applications organized by category.  Games, health, productivity, entertainment, etc. will be departments within a big store, not specialty stores within a mall.

For clarification I’m defining a “mall” from the point of view of the customer experience, as in the real world.  Customers walk into a mall and discover multiple branded stores, each with its own checkout process.  An example of an app mall is the now defunct Nokia Download. You may recall that Nokia Download (formerly called Nokia Content Discoverer) touted its “advanced shopping mall experience” when it was announced, hosting multiple stores such as Handango and Jamster (called aggregators at the time).

The mall concept does not work because it hurts the user experience for no extra value:  users end up clicking on unknown store brands adding an extra layer of user interface that gets in the way of the app discovery process.  Moreover, if each store in the mall requires users to enter a form of payment the user experience suffers even more.  Although there are more reasons why Nokia Download failed, the user experience of its mall concept was an important factor and as a result Nokia is now busy copying the more successful department store model with the Ovi Store.

This does not mean that there won’t be aggregators behind the scenes.  In fact, the ingestion process could include a publisher like Symbian Horizon or a syndication service like Getjar’s.  However from a user experience point of view, it’s a department store, not a mall.  Amazon is a good model for the winning app stores.  There may be many sellers behind the scenes, but it looks much more like a department store than a mall.  There is one prominent store brand with many departments, a single shopping cart, and a single checkout process.

Will operator stores gain critical mass?
Once upon a time operators had a virtual monopoly for the distribution of mobile applications (depending on the region). Apple changed all that, of course, and the tables are now turned resulting in a developer exodus away from operators (for more on this see My Number One Wish for Operators).   To regain developer mindshare many operators are launching their own “app store style” stores, implementing many of the lessons learned from Apple, including the 70% rev share, developer set pricing, and click-through agreements.  Verizon announced V CAST, Orange has App Shop, O2 is testing Litmus, AT&T has App Center, Vodafone has 360, etc.  But will these operator stores succeed?  I think it depends on the type of device (feature phone vs. smartphone) and on the size of the operator.

Operators lose the app store battle on smartphones, but win on feature phones
Operators have a natural disadvantage to attract developers compared to the smartphone platforms because they are more fragmented.  There are dozens of operators compared to only a handful of smartphone platforms.  Developers are better off working with the small number of smartphone platforms to get worldwide distribution across all operators instead of targeting each operator separately (each with their own SDK, certification requirements, business terms, and fragmented device line-up).  To compensate for this disadvantage operators would have to add much more value with their own stores.  Carrier billing and access to network APIs are areas where operators can add value, but these capabilities are likely to also become available on the native handset stores.  Operators can also differentiate by tapping into their huge advertising budgets to market their apps, enticing developers whose apps are difficult to discover given the unlimited shelf space in the stores.

Another option for operators is to increase store switching costs for their customers by not preloading competing stores on devices they sell.  This would require customers who want to shop elsewhere to find, download, and install other stores on their own.   Verizon Wireless is a good example of an operator trying this strategy.  Verizon does not preload RIM’s App World in favor of its own (upcoming) V CAST store.  However, as operator influence over smartphone providers continues to erode (a trend surely to be accelerated as devices such as Google’s Nexus One are sold directly to consumers), this option will go away forcing operators to truly differentiate their stores, or else. We’ll see how this plays out, but operators will likely lose the app store battle on smartphones unless they find a way to significantly differentiate and do it fast before the native stores consolidate their advantage.

The battle for app stores on feature phones is quite different for two reasons:

  • This category of devices is much more fragmented and operators can gain an advantage by providing a common platform across them to attract developers. This approach neutralizes the fragmentation advantage that OEMs enjoy in the smartphone category, as discussed above, and is precisely the strategy that AT&T just announced at CES: AT&T will launch Qualcomm’s BREW Mobile Platform across its mid-tier devices to attract developers for its AppCenter store
  • Operators enjoy much more influence over feature phone specs and content than on smartphones.  This will enable many operators to exclusively preload their own stores on these devices essentially blocking alternative stores.

Although the smartphone category is where the growth is, there is still a very large and mostly underserved market at the high end of the feature phone category.  These devices have large displays and often full QWERTY keyboards (touch or physical), representing a large untapped market for mobile applications that operators can serve.

However only tier 1 operators are large enough to attract developers to their own stores.  Even tier 1 operators are better off getting together to form a much larger market to attract developers as we have seen with the JIL alliance or the collaboration between AT&T, Orange and America Móvil (just announced at CES).  Smaller operators will have to rely on third party stores that can aggregate applications and syndicate them across multiple operators.  A good example of an operator pursuing this strategy in North America is Sprint.  Sprint has announced that it will remove its own application offerings from its smartphone line-up and will partner with an external aggregator to launch a white label store for its feature phone line-up.  Other operators will have to follow the same approach.

What are your thoughts?  Do you buy into the winner-take-all argument?  Are we going to see app malls or department stores?  What role do you believe operator stores will play?

– Francisco

[Francisco Kattan has worked in the mobile industry for 10 years and has deep expertise across the entire ecosystem, including devices, operators, developers, and content providers.  Francisco has held leadership roles at Edify, Openwave, Adobe, and currently Alcatel Lucent where he is Senior Director, Developer Ecosystem.  You can follow Francisco via his blog, on Twitter and he can be reached at franciscok [/at/] stanfordalumni.org. This post reflects the author’s personal opinion and not necessarily that of his employer.]

* As an aside, the launch of the iPhone changed the ecosystem so dramatically that we need a new way to measure time in mobile.  Any discussion about how the mobile ecosystem works must specify Ai or Bi (After or Before the iPhone) in the same way historians use BC and AD to date events.

  • http://www.anscamobile.com Carlos

    Very informative and a very good article. Thanks Francisco for sharing your viewpoint and as a creator of tools to enable all types of users to create mobile applications, developers will vote to determine who the winner is.

  • Michael V.

    Interesting arguments. One critical aspect that needs to be considered here is operator billing. IMHO, this is a must to make it truly mass market. Stores capable of aggregating across operators, platforms and app will rule.

    Yes, iPhone is different, but we cannot expect anybody replicating Apple's approach in the Ai era….

  • http://www.viewfromlondon.com Matt Millar

    I don't buy the "winner takes all argument" – this didn't actually happen in the internet, or the high street.

    (it's possible to buy significant volumes of goods from people other than amazon.com – have a look at Tesco.com for example)

    What does an Application Store really provide?

    1. Discovery of applications

    2. Billing for applications

    3. Install management of applications

    Billing and install management are perfectly capable of being handled by underlying services – particularly in the case of operator billing.

    Which leaves us with discovery. Today "App Stores" are the only way to effectively find applications on devices – however I would expect this to evolve to a much richer set of routes that include

    a. Social recommendations & viral discovery

    b. Advertising

    c. Search

    d. App Stores

    How do consumers discover internet content today?

    a. Social recommendations – twitter/facebook

    b. Advertising

    c. Search

    d. Portals

    On the internet the trend has been away from portals (the equivalent of an application store) and toward search/advertising and social recommendation.

    As application stores evolve I think they might go the same way as the AOL type portal services, and operator walled gardens of the past.

  • Martin

    My take:

    * Every connected device (car, tv, netbook, mobile) will come with a single app store branded by the manufacturer (e.g. Renault)

    * Developer environments will move to a few cross platform frameworks (e.g. Qt) and device specific API add-ons and device specific publishing channel

  • http://franciscokattan.com Francisco Kattan

    Carlos,

    I agree with you that developers will, to a great extent, determine the winner. This goes beyond determining the winning app stores – developers will also determine the winning mobile platform. We saw this battle happen on the desktop already, with Windows winning the most developers and also the platform battle. This is why competition for developers is at an all time high now, with ecosystem players investing heavily into their developer programs, creating multimillion dollar funds, etc.

  • http://franciscokattan.com Francisco Kattan

    Michael V,

    You make good points. About operator billing: I agree this is critical to improve the user experience and also to reach to demographics that have no alternative methods of payment (such as kids without credit cards). It can also enable in-app payments that developers are desperately looking for. But there is a downside to operator billing that is often dismissed: customer service. I think most consumers would prefer to deal with their credit card company to dispute a charge than with their telco. Imagine waiting on the operator’s long call center queues and IVR jail just to get a $1.99 app charge off your bill? However I still think consumers will prefer operator billing because these app purchases are usually impulse buys and the better experience at the point of sale will outweigh the post sale customer service issues. Billing is clearly an opportunity for operators – if they move fast.

  • http://franciscokattan.com Francisco Kattan

    Hi Matt, great insights, as usual ;-)

    By winner-take-all I meant that one player will have a very large share, not 100%. Google has only 85% share, for example, so there are clearly other players. However you are raising a much more fundamental point with your comment. You are saying that WE MAY NOT NEED APP STORES AT ALL in the future (just like we don’t need AOL type portals or operator walled gardens anymore).

    I can see the merits in your argument: just like Egghead Software thrived initially (as the 80’s version of an “app store”), but now people search on-line and buy software directly from Intuit, Microsoft, Adobe, and McAfee, I can see a scenario where consumers discover their mobile apps via search or social networks and buy directly from developers. It’s definitely a possible scenario. However I think that as long as the developer community is highly fragmented there will be a need for a centralized distribution channel for developers, and for consumers to have a TRUSTED and BRANDED source of applications, with a consistent user experience, reviews, recommendations, and payments. During the “Bi” period (Before the iPhone) there were already tens of thousands of MS Mobile, BlackBerry, Palm, and Symbian apps scattered throughout the internet, but it wasn’t until the “Ai” style app stores began to centralize distribution under a single brand that the market for apps properly developed.

    I agree with you however on the point you made about discovery. In fact, discovery of apps is already the biggest issue with the Apple App Store, in my opinion. With unlimited shelf space and 100K+ apps, it’s too difficult for new apps to get discovered via the store catalog. This is why, in this “Ai” period, is much more important for developers to promote their apps via alternate channels such as social networks and search (compared to the “Bi” days when operator decks had limited shelf space and the main issue was getting on deck, not marketing).

    Thanks for your perspective, Matt. Perhaps we'll hear from others on this topic as well.

  • http://franciscokattan.com Francisco Kattan

    Hello Martin,

    Thanks for your comment. I think you’re right. So many consumer electronics devices will be connected in the future (the ones you mentioned, plus cameras, game consoles, media players, navigation systems, exercise equipment, etc.) and each could be a platform for consuming apps. You mentioned that the device manufacturer will likely brand these app stores (Renault, in your example). If you have a chance, it would be great if you could share why you think so.

    The cross platform frameworks you mentioned will certainly be much more useful for developers targeting not only mobile, but also all the other form factors. The Open Screen Project (that I worked on while at Adobe) is a good example of an industry initiative tackling this problem.

    Thanks everyone for all the comments thus far! Great discussion.

  • http://www.viewfromlondon.com Matt Millar

    Francisco,

    I do think the evolution to "no app store" model is the most interesting potential here.

    You are right that before the iPhone there were many sources of applications – and that the apple App Store significantly changed the landscape – but was that because of an application store?

    While Apple did things better than anyone before, there had been multiple, very competent attempts at application stores that had failed.

    It may be that Apple's success was less down to the innovation of the application store, or even the design and execution of the application store, but relied heavily on both marketing and consumer understanding of applications on phones.

    The fact that for 10 years before the iPhone you had been able to buy Java games for phones, and the young consumer market understood this – but the consumer market who bought their first java mobile apps in 2000 at the age of 15, are now 25, and for the first time can afford to buy an iPhone – so the critical 25-35 consumer demographic (who are the first iPhone buyers) are familiar with applications – hence the initial success – that led to this crossing the chasm to a broad audience (though let's not forget that the Apple App Store buyers are a self selecting group who have already bought iPhones or iPod Touch devices) – coupled with Apple's superb, and continual marketing of "There's an App for that" has resulted in the successful growth of the mobile app market.

    If we roll forward 5 years, do we get to a point where consumers _expect_ any brand to have "an app for that" – just as today they expect any company to have a website. So the need to push a TRUSTED, BRANDED app store, goes away – just as the need for a TRUSTED, BRANDED internet portal has gone away.

    If I'm right – and the current App Store phenomenon is part of an evolution , and the app stores have a limited lifespan and we'll evolve away – the winners will be those companies who solve the problem of discovery of applications – so the biggest threat from mobile to the web is to search engines – as applications become more used on mobile phones current HTML based search methodology no longer works. A new paradigm is needed.

  • Martin

    @Matt,

    I hope you are right because app stores are clearly limiting the access to information and that is not what internet is about ("information wants to be free"). But two arguments against it:

    1. apps are not like web pages. So comparing it with www is not completely accurate. Apps are increasingly platform dependent. e.g. iPhone, Android, Symbian, Bada.

    2. platform manufacturers see enormous potential in locking the customer in. There is a reason why the only way to install an app on iPhone is via the app store.

    In the end it depends what way the users lean. Will it feel like the app stores limit my quest for information, entertainment etc? or will the convenience of app stores be more important? (automatic billing, all apps are made for my device, etc.)

    @Francisco

    I think the app stores will be branded by the manufacturer because the product is. Why would an app store be branded by "Orange" in a Renault car?

  • http://franciscokattan.com Francisco Kattan

    Matt,

    Thanks for the elaboration. You make really good points. However I agree with Martin. The “no app store” model you propose where content is scattered throughout the internet (rather than centralized in a store) makes more sense for free internet content than for platform dependent, paid applications. I think consumers will prefer a trusted and branded source for the latter. But only time will tell us for sure.

    I do think Apple deserves much more credit than you are implying with your comment. I think the success of the App Store IS the result of Apple’s innovation much more so than the result of consumer familiarity with mobile apps, consumer self selection, and Apple advertising. In particular, Apple:

    1. CREATED A MARKET with a device that is great for consuming applications

    2. LOWERED THE ENTRY BARRIERS FOR DEVELOPERS with a shorter time to market, no certification fees, and reduced device fragmentation; and

    3. CREATED THE APP STORE: a distribution channel for developers to directly reach consumers without intermediaries, with unlimited shelf space, developer set pricing, a generous rev share, and a great user experience.

    As you pointed out, many attempts at app stores failed during the “Bi” era (Before the iPhone). But they did not fail because stores were not needed. They failed because of poor design. Although they appeared as “competent attempts” at the time, with hindsight, I think Apple has shown us otherwise.

  • http://franciscokattan.com Francisco Kattan

    Great discussion. We are now discussing three potential models for the evolution of the mobile app store:

    1. App stores will be “a dime a dozen” (Andreas Constantinou’s original post)

    2. App stores will consolidate significantly: “winner-take-all” (this post)

    3. App stores will disappear altogether: “no app store future” (Matt Millar's great contribution above)

    I'd love to hear from others as well. Which model do you think is most likely?

  • http://visionmobile.com/blog Andreas Constantinou

    Francisco,

    Perhaps the three models are indeed different *angles* into the same future of App Stores. Here's how I see these models converging into a "unified theory":

    1. The Dime-A-Dozen view talks about diversity and sophisticated segmentation of apps, i.e. where there is an app store for each lifestyle segment or geographical micro-region. In this instance, app stores are the equivalent of App Channels.

    2. The Winner Takes All view talks about a single App Store provider per platform. I see this applying to a single *department store* provider per device or platform, but in general 5-10 mega department stores dominating the landscape. Each department store has multiple shops-in-shop i.e. App Channels.

    3. The No-App-Store view talks (in part) about app stores disappearing or becoming transparent and the only value being that of discovering apps. I would agree in that the boundary App Store building blocks (i.e. developer market and discovery channels) will be the ones that remain visible and differentiating, whereas the remaining building blocks (billing, distribution, delivery) will become transparent and offered as commodity blocks by the mega department stores.

    Andreas

  • http://www.mobilemarketingspot.com Matt Clements

    "there will be a need for a centralized distribution channel for developers, and for consumers to have a TRUSTED and BRANDED source of applications, with a consistent user experience, reviews, recommendations, and payments."

    couldn't agree more here – those customers that by app's like to know that what they download and install isn't going to cause issues with their phone. So a trusted source is key here.

  • http://franciscokattan.com Francisco Kattan

    Andreas,

    Thanks for weighing in the discussion. I do think that the department store and shopping mall models could merge, as long as the brand of the specialty stores in the mall doesn’t get in the way the discovery process and the user experience. The No App Store model is a little different because there would be no intermediary between the developer and the consumer. In the PC world, it would be like buying Quicken directly from Intuit and Photoshop from Adobe. This is a possible scenario, but I think it is unlikely as long as the developer community is highly fragmented.

    To add to the discussion, Bango just published a new article that supports Matt’s “No App Store” model: “Life beyond the app store, developers look to go direct” at this link: http://news.bango.com/2010/02/03/life-beyond-the-… I can see many developers selling direct as a way to supplement their app store sales, but not as a replacement of the app stores.

  • http://franciscokattan.com Francisco Kattan

    Matt Clements,

    Thanks for your comment. I agree that fear of malware is a good reason for consumers preferring a trusted and branded store. With more open operating systems on devices, the risk of virus, spam and phishing attacks increases.

  • http://franciscokattan.com Francisco Kattan

    Great discussion about the future or the app store model. I'd love to hear other views this topic.

    What about the other topic on the original post: what role will OPERATOR STORES play in the app store landscape? Do you believe operator stores will reach critical mass? How will operator stores differentiate? Will they be successful on smartphones or only on feature phones?

  • http://www.twitter.com/nokleby Christian Nøk

    I very much support Matt's views on this matter. However, I do agree that the big portal sites on the web have disappeared in favour of search enginges to locate content, but when it comes to video/TV content we see the opposite happening. Instead of each distributor/broadcaster/content owner making their content evailable solely on their own site the trend is yet again pointing towards aggregation in the form of portals like Hulu, TV.com etc. This shows that aggregation at certain levels benefits and is preferred by consumers.

    The walled gardens of today's App Stores will be challenged by open web standards and web runtimes in the years to come. HTML5, CSS3, enhanced 3D rendering in browsers etc. will slowly start to loosen the binding between content and devices (and device dependent eco systems). The browser environment will prevail over native OS apps, making room for entirely new players to fight for the best retail position for mobile content.

    Start tweaking your recommendation engine today!

  • http://franciscokattan.com Francisco Kattan

    Christian, thank you for sharing your great insights. You make a good case for web standards over native development and the breaking of the link between content and devices. HTML5 and web runtimes will certainly have an impact on mobile app development and probably also distribution. I’m a strong believer in the power of the web as the platform for applications. However I think this evolution will take a much longer time. When I wrote this post I was considering a timeframe of “5 Years Ai (after the iPhone)” which is only 2012. In this timeframe, I believe that native applications will prevail and so will the app store model (see my reasoning below). However given your and Matt’s contributions, we should expand the scope of the discussion and consider how mobile apps would be distributed in an HTML5 world. As you noted, even in the case of some web content like video there is still a benefit to centralization. It’s also worth noting that even today many web app shortcuts are distributed via app stores. Getjar for example distributes web shortcuts in cases where a native app is not available for the user’s handset.

    Although a future where “the web is the platform” (as Google likes to say) is very likely, it is still in the distant future for two main reasons:

    1) Browser replacement cycles are long.

    For HTML5 Rich Internet Apps to replace native apps we need to get to a point in time where HTML5 browsers are widely deployed. I have not seen a forecast but I think it is safe to say this won't happen for a few more years because browser replacement cycles are long. As an example on the PC Internet Explorer 6 still enjoys a 20% market share almost 5 years after IE7 was launched. Although mobile replacement cycles are shorter, it's still a slow process that will take some time.

    2) Handset manufacturers such as Apple and RIM will continue to push for native applications that take advantage of the unique capabilities of their devices.

    In order to maintain differentiation device makers want apps that run better on their devices. Because of this they will continue to expose APIs that are unique to their platforms and will encourage developers to write apps that take advantage of them. You can easily imagine that in an HTML5 world where "the web is the platform,” applications are more likely to offer the same experience across all devices. This tends to commoditize the device makers as it curtails their differentiation.

    Case in point: I just attended RIM's developer conference at Mobile World Congress in Barcelona and the number 1 message RIM communicated to developers was: develop your applications to integrate deeply with the RIM platform. RIM has exposed a number of proprietary APIs that enable third party applications to integrate with RIM's own applications and is pushing them hard. RIM is even branding apps that take advantage of such proprietary APIs as "Super Apps." As stated on RIM's own blog: Super Apps are "apps that become a seamless part of the core user experience, an extension of the inbox, calendar, address book and other native apps." It's a good pitch. However it's also a way to ensure that these apps are tied to the RIM platform.

  • Andre Trocheris

    Service Delivery to Smartphones disintermediates Telcos. Even with Google/Android repaying up to 30% to Telcos, Network Operators are losing control of the application business, including communications (e.g. VoIP). Telcos need a competitive advantage for their business sustainability and distributing Smartphones appears as a tactical move to secure their short-term revenues but not their margins.

    To compete favorably with OTTs and device vendors on applications, and be appealing to developers, Telcos firstly need to get a momentous position on application markets. They could appropriately target the “very large and mostly underserved market at the high end of the feature phone category”, where they would benefit from a structural and distinctive advantage. By definition, OTTs don’t own telecom networks, which enable to serve feature phones on a browsing mode. Most of recent handsets run Java, hence have an embedded browser.

    Besides, Telcos could deliver services to Smartphones too for non-recurring usages. The point is that downloading client SWs for occasionally used services would be rapidly cumbersome. Therefore Telcos could opportunely expand their footprint on application markets from features phones towards Smartphones, since they would be legitimate in the business as on the other hand they already control the channel to market.

    Beyond that, once they will be firmly positioned on the application business, Telcos could leverage other differentiating assets.

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