Distilling market noise into market sense

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Developer Economics 2010: The Role of Networks in a Developer World

[In the final part of our series on our latest research - Mobile Developer Economics 2010 and Beyond - Telefonica's James Parton discusses the challenges facing mobile network operators in their quest to stay relevant to mobile application developers. Full research report available for free download or see part 1, part 2 and part 3 of the blog series on mobile developer economics]
The article is also available in Chinese.

"The Role of Network Operators in a Developer World"

Historically, operators have been one of the few options available to developers when bringing new applications and services to market. Typically this has been in the form of placing applications in the operator mobile web portal or via a handset preload agreement within the operator variant software build.

However operator go-to-market channels have suffered from a lack of transparency, lengthy bureaucratic processes and the inevitable arrogance of a dominant gatekeeper.  The rapid rise of app stores has completely rewritten the rule book, and now provides independent developers with a more open and democratic way to get their product in front of potential consumers.

The Developer Economics 2010 report graphically highlights this trend, with less than 5% of the 400 developer respondents persevering with the operator channel. Clearly app stores have delivered real economic benefits to developers, with time to shelf being reduced by two thirds, and time to payment being reduced by 22 days (see part 2 of our blog series) when compared to the Operator channel.

There are some notable exceptions to the trend. Andrew Fisher, CEO of Shazam, frequently highlights the Operator channel as one of the reasons for Shazam’s wide spread success, and recommends companies to invest in developing operator partnerships. Christopher Kassulke, CEO at HandyGames confirms that major games developers also prefer to invest in selling games via operators, due to the higher per-download price points and the sustainable, predictable revenues that the operator channel offers.

Opportunity lost?
A key question for operators is “Has the app distribution opportunity been irreversibly lost?” An interesting insight from the Developer Economics report is that the app store phenomenon is perhaps not as widespread as portrayed. Beyond the iPhone and Android ecosystems dominated by native app stores, there is a significant gap in the market for operators to assist in the distribution of apps and services. This is especially significant in the growing mobile web app sector.

Of course it goes without saying; unless operators fix the legacy issues with their lengthy bureaucratic processes and ‘ivory tower’ attitude then the distribution opportunity will remain untapped. One of the interesting friction points will be the open market model vs. selective editorial cherry picking of apps favoured by many Operators.

Open market vs Cherry picking
In an open market model, there is no editorial body deciding the catalogue of applications presented to consumers. A complaint often heard from developers is “Who do they think they are, deciding if my app is good enough?” The customer is presented with unfiltered choice made available by any and all developers. The downside of this approach is the “lost in the noise” issue increasingly voiced by developers, the reduction in quality or increase in copyright-infringing apps and the over reliance on your app appearing in the “recommended” or top 10 listing of the relevant content categories to drive downloads.

Operators favouring the editorial selection model (‘cherry picking’) will argue less is more. Based on an understanding of their user base, operator content managers will work with developers to select the most appealing and appropriate apps. This directly addresses the “lost in the noise” issue as the catalogue will be much smaller vs. an open model app store. This approach should also deliver higher conversion rates if the apps are effectively matched to the needs of the audience. Cynics will argue that the operator content managers are not qualified to make the right selections, and this method heavily favours established brands like Facebook which are “safe” vs. lesser known independent developer offerings, thus stifling innovation.

Now developers need to figure out how to make their apps stand out from the crowd. Giving your app away for free just won’t cut it in the long run, as there is no emotional or financial bond between your app and the user. Pinch Media research shows that the average shelf life of a free iPhone app is less than 30 days, with only 20% of users returning to the app after the first day of installation. You don’t want to be the app equivalent of the shortlived May Fly ?

Key to ensuring your app will appeal to consumers is working directly with your intended audience at an early stage. Why waste time and effort if you don’t have an understanding of the following critical questions:

  • Which features will make a difference to people?
  • What is your addressable market?
  • How much are people prepared to pay you for your trouble, if anything?

This marketing insight gap was highlighted in “Developer Economics 2010”, showing that perhaps the app sector is not as mature as previously presumed. Worryingly the vast majority of developers do not invest in any formal market research or even user testing, outside of friends and colleagues.

Recognising that many development companies may not have specialised marketing people or the resources to conduct formal research, the operator can help fill this gap by opening up access to their customer base to encourage co-creation and testing with real end users, free of charge.

This model of match making developers with end users was championed in the UK in early 2009 when we launched O2 Litmus. This fresh approach quickly gained recognition for its innovative model. To date over 7,600 O2 UK customers have volunteered to participate in the development and testing of applications with developers. Typically engagement levels run at around 10% of the tester base actively working with developers at any one time. Approaching 100 individual apps have benefitted from customer co-creation in O2 Litmus, generating over 2,500 test installations to date.

Programming the network
I have previously written about the potential for Operator delivered network enablers (API’s). Developer Economics 2010 highlights the challenge that faces the operator community in effectively evangelising this message. Only 5% of respondents felt that it was the role of the Operator to expose network API’s.

The pace of technological innovation is not being matched by business model innovation. Increasingly developers feel constrained by the business models on offer. Pay per download dominates (two thirds of respondents), with subscription and advertising following.

This signals another significant opportunity for Operators, and an important angle to the exposure of operator network enablers. It is easy to limit the conversation around enablers to the technical feature set of each enabler. The untapped opportunity for both developers and operators alike is wrapping the exposure of enablers with new innovative business models, such as revenue share on the transactional traffic generated

If developers can plug in additional revenue streams from the usage of operator enablers, this will address both the lack of commercial monetisation options available to developers, whilst introducing richer functionality to their app experience.  If executed correctly I believe this can effectively address the developer perception issues highlighted in the report.

I will close the post with a developer quote from Developer Economics 2010 that perfectly sums up both the opportunity and challenge facing mobile Operators today:

“The first mobile company to TRULY reach out to web developers will have an edge over the competition, but right now I don’t see any candidates, except for Google. If Google became an operator our problems would be solved”

- James
Head of Telefonica Developer Communities
You should follow James on twitter at @jamesparton

[James is a Chartered Marketer specialised in Mobile. With an award winning track record of product delivery including twenty five major launches, featuring twenty first to market achievements, including MMS, mobile video, mobile music downloads, the UK DVB-H Broadcast TV trial in 2005, and the ticketing and interactive services supporting The O2 Arena in London. Recognised by Revolution Magazine as one of the “Future 50”, James is a regular industry speaker, panellist, judge, blogger, and has lectured in Marketing and New Product Development at The University of Oxford Faculty of Continuing Education and Reading University.]

Full report is available for free download, thanks to the kind sponsorship of Telefonica Developer Communities. You can follow Telefonica Developer Communities through their blog.

Are you a mobile app developer? Want to be part of VisionMobile’s next developer research and voice your own opinions? Take a moment to fill out the registration form.

  • RichardC

    Developers will only ever be able to produce great applications using developer tools that are native to the OS, and it's the OS that has evolved to give developers the best channel to market. Anything the operators can achieve with selected developers is niche. Operator-sponsored cross-platform developer environments (i.e. WAC) is the right way for operators but they will be competing at a standing start with the major application stores plus the developers themselves are not crying out for a cross platform environment so it hardly looks promising for operators. Its kind of ironic that the report says 80% of developers from the survey think operators should just focus on delivering data anywhere.

    Operators should focus on apps that are tied into particular services which are based on the mobile network and the operator brand, such as ticketing for music events for example. These types of services can be tied in with applications that subcribers will pay extra for. In this sense it is the operator that must define the application services that are relevant for a mobile network rather than telling application developers how to develop applications.

  • http://www.ibegyourparton.co.uk James Parton

    Thanks for the comment Richard.

    I agree that for Operators to have a chance of driving awareness and adoption of their API's they should take their API's to developers via integration into their existing IDE's and via OS partners, and not expect developers to come to them.

    In terms of the wider question o the attractivess of Operator offerings to developers, I guess only time will tell.

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