App Ecosystems and their Relevance to Communication Service Providers (CSPs)

49th FITCE CONGRESS, Santiago de Compostela, September 02, 2010 Bernd Wunderlich

2010 IBM Corporation

Poll Question

Who knows about the Wholesale Application Community (WAC)? Who thinks it will be successful?

2010 IBM Corporation

Why CSPs should care - Mobile App Market is going to grow from 4.1bn in 2009 to 25 bn in 2014
Overall World Mobile App Market from 2009 to 2014 Market Size: 4.1 bn US$ in 2009 to 25 bn US$ in 2014
App Sales and Ad Market1
30

Bn US$
20 10 0 2009 App Sales 2012 2014 Advertisement

Total market size higher as wider revenue opportunities exists, e.g. upgrade of data plan, reduced churn

Market Growth: 62% CAGR from 2009 to 2012

App Download Market Share 20091 Android Palm 6% 1%

Market Share: 93% Apple in 2009, 6% Google catching-up

1Source:

Apple 93%

Sharma Consulting 2010

2010 IBM Corporation

The Market Gap of 93% of the Apps being sold to only 10% of Smartphones on the market can be filled by CSPs or further Device Manufacturers
Smartphone Market Development
Smartphone Market PenetrationApp1
100%

Smartphone Market by Share 20142 Apple 10% Android 12%

% of Phone 80% Shipments

60% 40% 20% 0%

10%

21%

42%
34% Smart Phone Unit CAGR (20082013)

Others 19% RIM 17%

2007
Smart Phones

2010
Enhanced Phones

2013
Basic Phones

Symbian 42%

The increasing penetration of Smartphones, the two sided business model and Mobile Data Rate offerings are enabling the strong growth of the Mobile App Market In 2013 there will be 2.8 bn smartphones versus 1.8 bn desktops
1Source:

Gartner, Forecast Global Add-On Functions, April 2009, Forecast Mobile Devices Asia Pacific, 2009, Forecast Mobile Devices Worldwide, 2009 Frost and Sullivan

2Source:

2010 IBM Corporation

The over-the-top delivery paradigm has led to unprecendented disruptive change in the mobile ecosystem. The Two-Sided Business Model and Powerful Devices are key Drivers that enable this change. CSPs struggle to maintain their level of relationship.
Simplified App Store Ecosystem
Wholesale App Store
(Device Manufacturer, Operator, Independent)

Retail

Development

App Insertion/ Approval

App Hosting

App Sales/ Delivery

Consumption

Broadband Network
(DSL, CATV, Edge, UMTS, LTE)

Billing/Charging, Network Enablers, Quality

Source: TM Forum 2010, IBM Analysis 5 2010 IBM Corporation

The Apple Phenomenon - Why is Apples App Store so successful?

Characteristics Robust and user-friendly SDK (Software Developer Kit) with 800,000 downloads 70%/30% Developer/ Apple Revenue Split attracts >50,000 Active Publishers Currently Most attractive Customer Centric SmartPhone First centralized Mobile Application Storefront with easy to navigate marketplace Easy payment/account management on iTunes (One Click App Purchase)
Source: Morgan Stanley, 148apps.biz, IBM Analysis 6

The Network Effect

Better economics attract more developers to the iPhone platform, creating more apps Rising number of available apps (>252k) increases consumer choice

More downloads leads to higher profitability for developers

More apps drive more consumers to purchase iPhones (26M+) and download iPhone apps (2B+)

2010 IBM Corporation

Industry Problem Definition shows that the Market is dominated by Apples closed system. The industry fragmentation makes entry more difficult.
Stakeholder Pain Points Advertiser: Do not have single point of contact from CSPs -> Advertisers therefore prefer supporting Google (Admob) dominant player (152bn impressions, 100 M$ rev in 2009) and Apple. CSPs: Do not want to become a bit pipe only, but Apples (app store launch in 07/2008) closed system makes market entry difficult and costly due to device fragmentation. Device Manufacturers: Problems to enter the market as Apple is the dominant player, need to take high investments and have difficulty to obtain profitability, but have a lot too loose. Developer: Devices and technologies are fragmented, developer needs to write apps on multiple platforms, which results in high development costs while addressing small market size per device -> developers therefore prefer iPhone and Android IT Players: Closed system does not support market entry.

2010 IBM Corporation

Fragmentation of Plattforms, Channels, Standards, and Devices increase development costs and limit consumer adoption and therefore a higher market growth for mobile Apps
Multiple Plattforms
Android, Apple, LiMo, WebOS, RIM, Symbian, Windows Mobile

Multiple Channels
Device manufacturers, application providers, aggregators and CSPs result in >70 App Stores

Multiple Devices/ Features

Fragmentation Threat

Smartphones vs. Feature phones Differing feature sets

Multiple API Standards

Device: Cross-platform WAP, HTML5, JIL, BONDI, PhoneGap, etc. Network: GSMA OneAPI
1Source:

Ovum Eden Zoller, IBM Research

2010 IBM Corporation

The Wholesale Applications Community (WAC) is a not-for-profit open global alliance of currently 24 of the worlds leading CSPs and 3 device manufacturers trying to solve the industry fragmentation.
WAC Overview WACs objective is to increase the overall market for mobile applications WAC will achieve this by enabling developers with a write once, deploy everywhere, on any device scenario. WAC will use existing standards (JIL, OMTP BONDI, GSMA OneAPI) and drive a common standard. WAC will provide a central Developer Program which will talk to developers with one voice. The CSPs are responsible for the App Storefronts and the Retail part.
Source: www.wholesaleappcommunity.com 9

CSP Retail Storefronts

WAC Infrastructure Shared Development Env. as a Service Developer Community Support Network and other Enablers Service Dev. Toolkit & Emulator App Certification and Approval Wholesale Exposure Storefront Wholesale App Repository

WAC Assets, Standards Developer Developer Communities Communities JIL & OMTP JIL & OMTP BONDI BONDI Device API Device API 2010 2010
Common W3C Common W3C Device API Device API Standard Standard >2011 >2011

GSMA OneAPI GSMA OneAPI Other Other standards standards

3rd Party Storefronts

WWWC (W3C) = World Wide Web Consortium OMTP = Open Mobile Terminal Platform

2010 IBM Corporation

WACs Roadmap to Success WAC to crossing the chasm of gaining Advertiser, Developer, and End User attraction through supporting an Open DeviceAPI, introducing a variety of Business Models, and quick moves
WACs/ CSPs Competitive Advantages Deep Customer Relationships to 3 Billion Customers Worldwide Information about the customers usage and behaviour Charging and Billing Capabilities and Trustful Relationships Influences on the devices (e.g. through subsidization, distribution) Influences on standards Financial Resources and Network Assets WACs Critical Success Factors Time to market (Standards, Platform, Devices, Applications on WAC repository) CSPs to establish various business models (Freemium, Subsidization, Ad funded,etc.) Right Skills (Leadership, Technical Skills, Marketing/ Partner Management, Advertiser) Attain Mindshare - Attractiveness to Developer Community & Advertisers Financial Resources and Product Innovation

10 10

2010 IBM Corporation

Strategic Options for CSPs demonstrate that the WAC option is the option with the highest likelihood to succeed
Strategic Option Do Nothing
Attract. to Developers Flexible Business Model Influence on Devices Attract. to Subscriber

Implications Might become a bit pipe provider Loose revenues to substitutes for e.g. SMS Little influence on market Little chances for future business Limited number of Apps Might not be profitable Ways to differentiate with through own business models Issues might be the Time to Market

na

na

na

na

Partner with 3rd party Ecosystem Create own App Ecosystem

Partner with WAC

levels of support: none little medium

good

very good

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2010 IBM Corporation

Conclusions
App stores are a very important component of the future mobile internet CSPs need to play in this market if they want not simply become a bit pipe provider Apple owned 93% of the App market in 2009, but only 10% of the Smartphone market. CSPs, Device Manufacturers, and Third Party Application Provider compete for the market gap. CSPs need to be able to address the two-sided business model and attract developers and customers alike, while gaining support from device manufacturers. WAC seems to the strategic option with the highest likelihood to be successful CSPs should not see revenue of App sales as the only revenue source, but need to address a variety of business models to be successful.

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2010 IBM Corporation