10+1 myths about the mobile economy

VisionMobile

10+1 myths on the Mobile App Economy

Knowledge. Passion. Innovation.

Extracts from Mobile Innovation Economics January 2012

10+1 Myths on the
Mobile App Economy
Andreas Constantinou
Managing Director

Copyright VisionMobile 2011

VisionMobile
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Developer
Economics 2011:
How developers and
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app economy

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Clash of Economics Mobile Megatrends
Mobile Industry Atlas, 3rd ed.
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HTML5
and its impact to the
mobile industry

The Android Game Plan 100 million club
the commercial mechanics tracking successful businesses
behind Android and how in mobile
Google runs the show


VisionMobile - Trusted by industry brands
Clients

selected
VisionMobile clients
2009-2011


Myth: Apps are making profits
for Apple & Google

Reality: Apps drive the platform’s
core business - not content profits
for Apple this is device sales; for Google this is on-line ads

Industry focuses on app revenues
but misses the point


The mobile platform landscape
platforms are winning and losing by ecosystem strength

iOS 550 K
BlackBerry OS Symbian
40 K 90 K

Windows Phone Android
50 K 400 K

Apps and content create new empires
Apple Q2’2011: 4.2% of volume, 52% of profits


Apple core business is consumer electronics
Apple’s app revenues are small compared to the core business

Apple revenue by segment Q3 2011 ($ billions).

Apple core business is consumer electronics
Apple’s app revenues are small compared to the core business

“
We run the App Store just a little
over breakeven”
Peter Oppenheimer,
Apple CFO, Feb 2011

Apple revenue by segment Q3 2011 ($ billions).

Apple iOS platform and ecosystem
apps drive hardware sales for Apple
$$$ developers
media sw publishers
buyers content retailers
user
internet players
$$$/users
engagement

applications
$$$ same-side
and services

users and data plans
+ network
effects

subsidies

operators iOS platform

premium premium $$$
product experience


Network effects drive external investment
Network effects attract developer investment and innovation

developers
developer & brands
brands
investment $15B

iOS platform $1.5B
operators

Apple
app store cost

$125B
iOS device sales Copyright VisionMobile 2011

Myth: It’s all about smartphones

Reality: Ecosystem players battle
across four screens

Leading ecosystems battle across 4 screens
Experience roaming becomes the key to future platform competition

Mac computers iPhone iPad Apple TV

Chrome browser Android Android tablets Google TV

amazon.com Kindle

Myth: HTML5 is a platform
that can replace native apps

Reality: HTML5 is a
complementary technology
needs a leader to deliver a solution for
monetisation, distribution and retailing of HTML5 apps

HTML5 has many benefactors, but no clear leader
all pushing HTML5 and web apps for their own unrelated reasons

Apple looks to move the web away from Flash
offers best-in-class support for HTML5 in mobile Safari browser
Google searches for more ways to commoditize complements
offers strong HTML support in Chrome and Android web browsers
Facebook aims to break-down Apple/Google silos and distance Adobe
looks to take over native and web app discovery
Microsoft tries to leverage web innovation to Windows 8
designs strong support for HTML5 into next generation Windows versions
Mobile operators hope to regain control lost to native platforms
promote HTML5 as an alternative to smartphone platforms
Qualcomm works to create competitive advantage for its chips
offers hardware-acceleration for mobile browsers
Brands look use web as a low-cost way to go cross-screen
fund mobile web developers through projects
Tool makers facilitate web-to-native hybrid development
Adobe (PhoneGap), Sencha, The M Project, Red Foundry


HTML5 cannot compete with platforms
HTML5 is a complementary technology, not yet a full-fledged platform

App platform ingredients

Software Developer
Monetisation Distribution Retailing
foundations ecosystem

HTML5 ✔ = ✖ ✖ ✖

fragmented platform
always a step behind native will depend on app store

complex tool-chain waiting for a leader
Facebook? Google? Microsoft? Other?

most appealing to those who do not yet develop for mobile
complimentary tech to those who develops native apps


Platforms differ in level of HTML5 support

HTML5 Test Score
iOS 5 296
MeeGo 272
Opera Mobile 11.10 269
BlackBerry OS 7 260
FirefoxMobile 6 254
Android 3.2 'Honeycomb' 222
Android 2.3 177
Windows Phone 7.5 (Mango) 140

0 50 100 150 200 250 300 350

Source: html5test.com, Nov 2011. See also: http://www.lostinmobile.com/home/for-html5-ios5-wins.html


Myth: Android’s success is
mostly to do with its openness

Reality: Android is the most closed
open source project in mobile
software

..and we have proved it.

Source: Google-internal presentation disclosed as a result of Oracle's patent and copyright infringement lawsuit against
Google


How Google runs the show:
Six control points:

- Private codelines (6+ months ahead) available to 2 OEM partners per release

- Exceptionally fast pace of innovation 5 new versions (2 major, 3 minor) released in 1 year

- Gated developer community Android Market is the default channel for 300,000+ apps

- Closed-source apps Android Market, GMail, Google Maps, GTalk, etc under commercial agreement

- Android trademark use of Android trademark subject to commercial terms

- Controlled review process all reviewers work for Google, plus rampant NIH culture

109 Copyright VisionMobile 2011

Closed governance is used to control
clever use of governance models can be used to control products based on OSS

license type

dual license
Foundation (commercial + copyleft)
Qt (58%)
(58%)

strong copyleft
Linux kernel (GPL)
(71%)

weak copyleft
MeeGo WebKit Foundation (LGPL, MPL, EPL,..)
(61%) Mozilla (68%) (84%)
(65%)

permissive
Android (APL, BSD, MIT, ..
(23%) .)

Closed governance open governance

open governance index

Myth: Apple directly competes
with Google and Microsoft

Reality: Apple, Google and Microsoft
have very different core businesses

They just establish the same complementary assets
across the value chain

Key players have very different core businesses
Players old and new expand across value-chain to capture more profits

Apps
Content
Services

Ads Ads
App Stores / Portals
Distribution
Billing

Telephony
Connectivity
Access
Network access

software
Software platform
licensing
Screen
Devices Devices

retailing
Discovery / retailing
User
Customer insights
denotes vendor’s core business Copyright VisionMobile 2011

Myth: All developers want
is to sell apps

Reality: Distribution is overall
more important than money
for most developer segments and consumer brands

VisionMobile

Developer segments and their motivations
Builds on jobs-based approach, i.e. what developers are trying to get done

Motivations & drivers

Hobbyist developers/students Fun and coolness

Independent software vendors Sales and opportunity

Commissioned developers Probability of winning a project

Marketing agencies Client requests User reach
is the key
factor for
Brands and verticals Brand affinity and user engagement
making
platform
Digital content publishers Large addressable market decisions

Venture-backed startups Attract investment

Corporate IT ROI, information security


Myth: All you need to attract
developers is APIs

Reality: The bar for developer
offerings is very high

You need simple, zero-entry-cost offerings
Programs need to consider entire developer journey

Developers need zero barriers
- Developer pays +
2 developer
✖
pays for API use
broken loop

1 user pays for app or service

+ User pays -
1 developer 3 users pay for
gets free APIs telco services
+ ✔
4 gets rev share
positive feedback loop
2 developer deploys app or service


Supply vs demand mismatch in developer programs
most vendor effort goes here opportunities in last mile to user


Myth: Telcos need to find a way
to increase ARPU

Reality: ARPU has a ceiling because
it deals with comms needs only

Communications spend needs to be seen in the context of
overall consumer spend by segment

Apps tap consumer $$$ beyond telecoms
1990-2010 2011+
Operators targeting comms needs Apps opening mobile to all needs

Source: US consumer expenditure survey, 2009 Copyright VisionMobile 2011

Myth: Voice is the most stable
telco business

Reality: Voice is under pressure
to unbundle

The integrated telco will always by more
expensive/slower/worse than OTT alternatives.

The domino effect in mobile value-chain
from handsets, to value-added services, to core services
OTT messaging and voice

platform app stores

iOS Android


The case for voice APIs
Huge spike in developer interest for voice/SMS APIs

Last 14 days All time
(to 4 October 2011)

Telcos need to compete with OTT players on voice APIs


Myth: Traditional telco economic
tools are good to compete with
OTT

Reality: Telco need new economic
tools to play in the software era

Two such economic tools are demand-side economies of scale;
and economics of complements

Google Android ecosystem
drives commoditization of mobile

industry $$$ app developers
verticals media publishers

monetisation same-side
Ad network
& user reach + network
effects
$$$ applications
and services

users and data plans ticket to smartphone market

subsidies devices

operators Android platform Handset OEMs

End-to-end Eyeballs
Product Experience


Networks effects stronger than economies of scale
user value

Platform business
value grows
exponentially due to
increased number
of interconnections

Conventional business
value grows linearly due to
cost saving and decreasing price

scale


The economics of complements
widely used by Internet players in competitive strategies

Core Business Complement

A product consumed
Main product
with the main product

Product demand increases
as complement prices decrease


How Google uses economics of complements
to drive its core business of online advertising

Google Core Business Google Complements

On-line advertising mobile networks handsets browsers
(95% of profits)

Commoditisation of mobile
increases demand
for Google products
Closed net open source Chrome,
ad network neutrality OS WebKit

Closed Open

Myth: Telcos can directly
compete with OTT players

Reality: Telcos need to unbundle
in order to compete in software era

The integrated telco will always be more expensive/slower than
OTT alternatives.

The all in one telco business
..is take all or nothing

Telephony
Messaging
Services
Voice plans
Data plans
Access


Unbundling the telco
into three business layers

Leverage digital channels, retail and OTT
assets plus local presence as a profit
center.
Distribution business

Unbundled voice
Messaging APIs
Billing APIs
Services business Authentication APIs
Customer analytics as a service

Ubiquitous data connectivity
across billions of terminals
Access business


Knowledge. Passion. Innovation.

want more?

Updated: 12 November 2010

visionmobile.com/workshops


get in touch Knowledge. Passion. Innovation.

andreas@visionmobile.com
Andreas Constantinou | Managing Director | +44 2033 844163

Updated: 12 November 2010


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Editor's Notes