Presentation given by Andreas Constantinou - VisionMobile Managing Director - at Mobicamp (

1. Asymmetry abound the new rules of the app economy
Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

2. distilling market noise into market sense
MobiCamp 2012 Bern, November 2012
Asymmetry abound
Andreas Constantinou Michael Vakulenko
Managing Director Strategy Director
VisionMobile VisionMobile
2 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

3. VisionMobile
Distilling market noise into market sense
Developer Economics Telco Economics Trends watch
the de-facto research hub for the app New economic thinking for managing Tracking app and developer trends
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Developer Economics using big data to
research workshop predict app economy
reports: how Internet trends
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Mobile Insider Mobile
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a monthly workshop
Developer publication that Public workshops
outreach & examines the on the stage of the
segmentation: most important mobile ecosystem
understand, trends in mobile
segment and
effectively reach
developers Top-100 analyst blog
4,000+ subscribers
20,000+ monthly uniques
App
ecosystems:
Research and analysis
on the state of the app
economy
Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

4. Trusted by industry brands
Clients
selected
VisionMobile clients
2009-2012
4 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

5. Are you tweeting?
@visionmobile
5 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

6. asymmetry #1:
apps are the tip
of the iceberg
6 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

7. What is the nature of disruption in mobile?
Is it just about apps and over-the-top players?
Apps Over-the-top players
Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

8. The industry structure in mobile changed
from integrated to modular value chain
2000’s today
closed open
terminals
distribution telcos ecosystems
discovery on deck app store
or bundled on device
innovation 100s 100,00s
pool of system integrators of developers
value chain integrated modular
services integrated with networks services independent of networks
Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

9. The basis of competition in mobile changed
and with it has brought asymmetric business models
2000’s today
user needs
addressed 4 apps 650,000+ apps
(voice, text, contacts, camera) (app store and web browser)
telco services differentiated commodity
(voice, text, access, VAS) (compete on performance) (compete on price)
basis of
reliability & scale choice & flexibility
competition
business buy-sell asymmetric
core vs complement
models (standard merchand model)
9 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

10. Asymmetry #2:
Competition is not for profits
10 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

11. Are these players competing?
B2B
sales model
productivity software on-line ads
product transaction model subscription
on-line retail devices
OS devices
telecom services
B2C
11 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

12. They not competing in terms of profits
Players old and new are battling for control of end-to-end value chain
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 noted. Copyright VisionMobile 2012
Source: VisionMobile, unless otherwise

13. CC Attribution: Maschinenraum
Asymmetry #3:
Profit haves vs have nots
13 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

14. Smartphones reached 40% sales share in Q2 2012
483M units shipped worldwide
Smartphone shipments as a % of total handset shipments Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

15. An ecosystem-led phone industry
15 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

16. Apple and Samsung grab profits and revenues
in the smartphone business
16 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

17. Depriving the handset industry of oxygen
and changing the rules of profitability
100%# Commodity
modular
90%#
market
80%#
LG# 70%#
Sony#Ericsson#
RIM#
60%#
Motorola#
50%# Integrated
HTC# from metal
Nokia# 40%# to cloud
Apple#
30%#
Samsung#
20%# Integrated
across
10%# handset
BoM
0%#
2007# 2008# 2009# 2010# 2011# 2012#
Share of profits across top-8 handset vendors. Source: Asymco
Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

18. #Asymmetry 4:
PC disruption destroyed mobile
18 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

19. “What’s happened over the last five years shows not that Apple
disrupted the phone handset industry, but rather that
Apple destroyed the handset industry
by disrupting the computer industry.”
John Gruber (@gruber)
19 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

20. Android cracked the old OEM structure
and offered a ticket to the smartphone market for agile and PC players
Brought in new players And challenged
fast-moving challengers the old guard OEMs
Efficient cost structure plus ability to differentiate Cost structure requiring high-margins.
in software, hardware or both
Commoditising effect of Android makes high-
margins unattainable for OEM without own
ecosystem or meaningful differentiation
low cost assemblers
Cost structure optimised for razor-thin margins
Android is a long-term opportunity for global reach
No Name source: VisionMobile
Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

21. Only agile incumbents were able to compete
by investing in hardware integration and turning around feature to smartphone projects
Estimates
2 players
dominate
smartphone
shipments
10 OEMs with
more than 2%
market share
Source: Asymco
Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

22. The redefined handset industry shape
Polarisation of the have’s and have not’s. Consolidation at the top-end, fragmentation at the low-end
22 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

23. Asymmetry #5:
Core vs complement models
23 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

24. The economics of complements
widely used by Internet players in competitive strategies
Core product Complement
A product consumed
with the main product
Product demand increases
as complement prices decrease
24 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

25. 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 Android Chrome,
ad network neutrality WebKit
Closed Open
25 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

26. OTT competition with telcos is asymmetric
OTTs drive access revenues, but long term weaken telcos by taking over user ownership
Core product Complement
asymmetry
A product where a business A product consumed
generates profits with the main product
OTT products Complement
asymmetry
Consumer electronics, high-speed mobile Internet
on-line advertising, e-commerce… access
mobile broadband is the fuel for the OTT businesses
26 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

27. Google’s three strategy directives
Flatten
Flatten everything that stands between eyeballs and Google’s
ad inventory. Uses the economics of complements to increase the value of
Google’s core product. Android and Chrome strategies are examples.
Expand
Expand the footprint of Google inventory (i.e. ads) across user journey by
introducing new services like Gmail, Google Maps, YouTube, Google TV.
Mine
Mine the information available on every user of that inventory. Helps Google to
better micro-target users directly increasing the value of its inventory. Mobile
payments will provide even more customer intelligence.
27 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

28. Apple and Amazon: asymmetric biz models
Targeting different use cases and segments
core business! complement! primary use case!
retailing
iPad! device! digital lifestyle device!
content!
retailing
Kindle Fire! device! content consumption!
content!
Asymmetric
business models
Apple uses content to sell devices
Amazon uses devices to sell content
Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

29. Amazon expertise: Convert engagement into sales
The retailing business depends on ‘foot traffic’ to Amazon properties
Recommendations
Traffic to Amazon
29 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

30. For Amazon, Kindle is an alternative to Google
’foot traffic’ can be acquired by ads, affiliates, developing apps or subsidizing devices
$$$ - Search ads
Online ads
Traffic to Amazon
$$$ - Referrals
Affiliates
Traffic to Amazon
$$$ - Amazon apps
Smartphone apps
Traffic to Amazon
$$$ - Device subsidies
Subsidized devices
Traffic to Amazon
$$$ - Revenue share
OEM as affiliates? Source: VisionMobile
Traffic to Amazon
30 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

31. “Openness” is the façade of a complements strategy
Platforms are closed around core business and open around complements
core business consumer
on-line ads on-line ads e-commerce
electronics
apps, telecom,
complements apps, telecom, apps, telecom,
content, apps, content,
content, platforms,
handsets, telecom
accessories browsers
browsers
Facebook
platform iOS Android
Platform
Kindle
31 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

32. Asymmetry #6:
Platform vs products
32 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

33. Apple is not in the business of apps
derives most of the revenues from sales of iPhone, iPad and Mac
Apple revenue by segment Q1 2012 ($ billions). Source – Company reports, RRW.
33 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

34. The mechanics of Apple iOS ecosystem
ecosystem around iOS platform is designed to drive hardware sales
developers
sw publishers
content retailers
internet players
brands
$$$ and applications
user engagement and services
verticals
telcos reduce friction
for the iPhone business
users and data plans access to market
subsidies
complements, revenue accessory
share
manufacturers
operators iOS platform
premium premium $$$
product experience
Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

35. Network effects drive external investment 2011 figures
The ecosystem expansion is financed by developers investing into the platform
developers
& brands $8B
brands investment developers
iOS platform $900M
operators
Apple
app store cost
$90B
iOS device sales Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

36. The mechanics of Google Android ecosystem
drives commoditization of mobile
industry $$$ app developers
verticals media publishers
Ad network monetisation
& user reach
telcos reduce friction $$$ applications
for Android distribution and services
users, data plans,
ticket to smartphone market
25% rev. share on app sales
subsidies devices
operators Android platform Handset OEMs
End-to-end Eyeballs
Product Experience
Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

37. Asymmetry #7:
Winner takes all game
37 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

38. Blue vs Red vs Black oceans
Black oceans are markets where newcomers find it near-impossible to compete
Blue ocean Red ocean Black ocean
no competition fierce competition impossible competition
e.g. Mobile Health e.g. wireless connectivity e.g. app platforms
38 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

39. Exceptional competitive advantage due to network effect
drive exponential growth and lock-in of users and developers
users are locked by habits
iOS platform
Developers are locked
represented by apps by skills and experience
App Store locks developers to users
Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

40. 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
40 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

41. Winner takes all game – devices and apps
41 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

42. Winner takes all game – device profits
Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

43. Winner takes all game – platform mindshare
43 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

44. Winner takes all game – platform intentshare
44 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

45. Winner takes all game – platform abandonment
45 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

46. want more?
“Mobile Innovation Economics”
strategy workshop on the clash of
telco and Internet business models
http://visionmobile.com/product/mobile-innovation-economics/
Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012

47. Thanks for listening
Knowledge. Passion. Innovation.
Questions / comments?
@andreascon
Want to have this presented in person?
andreas@visionmobile.com
Want to learn more about VisionMobile?
www.visionmobile.com
Updated: 12 November 2010
Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
Copyright VisionMobile 2011