Ict data market 2010 m ccorp_vietnam

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Table of Contents

GLOBAL WIRELESS DATA MARKET 2009...........................3

OVERVIEW OF US AND JAPAN MOBILE MARKET.............16

THE GLOBAL MOBILE APPS MARKET...............................25

APPLE APP STORE WORLDWIDE......................................38

APPLE APP STORE - IPAD AND IPHONE............................45

IPAD WORLD...................................................................54

2 TINHVAN©2010, Brian -All rights reserved |

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Global Wireless Data Market 2009

Executive Summary

The Global Wireless Markets continued to grow rapidly especially in India and China where the carriers (combined) are adding almost 30M new subscriptions every month. Amongst the two, India is outpacing China 2:1. China touched 750M subscriptions while India crossed 525M by the end of 2009. With 4.6B subscriptions, the global subscriptions penetration was above 68%.

The global mobile data revenues reached $220B and mobile data now contributes 26% of the overall global mobile service revenues.

As expected, the overall global mobile revenues stayed pretty flat for the year at around $1.1 trillion as many regions were hit by the recession and the competition pushed the ARPU lower for many operators. While the countries like US, Japan, China, and India showed very little signs of pullback, most of Europe and the developing world experienced a decline in overall service revenues in 2009. Additionally, all the major markets have their data contribution percentages above 10% now.

For some of the leading operators, data is now contributing almost 50% of the overall revenues. However, the increase in data ARPU is not completely offsetting the drop in voice ARPU for most operators. NTT DoCoMo continues to dominate the carrier ranking in terms of the mobile data service revenues, Verizon Wireless which became #2 replacing China Mobile and is slowly edging towards the #1 spot and is likely to overtake DoCoMo within the next few quarters.

Though 4G as a standard hasn't been defined yet, the discussions around LTE and WiMAX deployments grew intense. Telia Sonera became the first operator to commercially launch LTE. At CTIA, Sprint/HTC became the first players to launch a WiMAX smartphone and MetroPCS/Samsung took the honors for the LTE smartphone.


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2009 also marked the year when the global data traffic (monthly) exceeded the global voice traffic. In the US, the yearly mobile data traffic exceeded the voice traffic for the first time.

Bharti Airtel of India just acquired Kuwait-based Zain Group to become the 5th largest telecom group in the world (at the end of 2009, it was #9). There are now 14 telecom groups with 100M or more subscriptions. While China Mobile’s ARPU is 1/5th of its western counterparts, it operates its business at higher margin, around 51%. There are a number of global players mainly in Europe and Asia who have mastered the art of running lean operations and if they have good bank balance they are going to go shopping in the days ahead.

From the revenue perspective, the $50 billion revenue club is more exclusive with China Mobile, Vodafone, AT&T Mobility, and Verizon Wireless as its sole members.

As we sit at the cusp of the iPad era, there is a bigger transformation taking place and that is of the connected consumer electronic devices (CEDs). Few years from now, most popular CEDs will have connectivity. We are also approaching the start of phase where pricing of access will start to morph - we will see the introduction of family data plans (something we have been advocating for some time), ability to connect multiple devices to the same GB plan, more granular use plans (per session/day/week/mo/yr etc, roll-over GBs anyone?). As the number of connected devices/consumer increases, we will start worrying about Average Margin Per User (AMPU) or Average Margin Per Connection (AMPC) because ARPU won’t quite capture the dynamics of the industry.

Impact of Global Recession

• Telecom in general fared better than other industries. In some regions, it hardly caused a tremor. However, in most nations, the impact was felt by the operators. Amongst the 40 major operators we studied, SK Telecom, 3 Australia, KTF, T-Mobile Netherlands, Rogers, Softbank Japan, Singtel, Vodafone Italy, T-Mobile Germany, 3 Sweden, Telstra, China Unicom, and Vodafone Germany experienced increase in both the data ARPU and the overall ARPU during 2009. Some of increase was due to the fluctuation in international currencies e.g. Korea.


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• Looking at the data at a country level, most nations noted a decline in overall ARPU. Only Venezuela, Pakistan, Argentina, Bangladesh, Australia, and Poland showed positive increase in ARPU since 2008.

• Rule of Three is kicking in most markets with smaller players having to consider the M&A option to remain viable. T-Mobile/Orange, Bharti/Zain tie-ups are just the start of that process. We are likely to see many international mergers in 2010 and beyond as power in the mobile ecosystem self-adjusts.

• 5 new players joined the 100M subscriptions club. The new members are: Bharti Airtel (India), MTN Group (South Africa), Orascom (Egypt), Etisalat (UAE), and MTS (Russia). The top 9 telecom groups in the world are: China Mobile, Vodafone, Telefonica, America Movil, Telenor, T-Mobile, China Unicom, TeliaSonera, and Orange.

Service Revenues

• US extended its lead over Japan as the most valuable mobile data market in service revenue with US adding $44.56B vs. $32.5B for Japan in 2009. China with $20.3B was ranked number 3. US registered the highest growth amongst the top 3 with over 40% increase from EOY 2008 levels followed by Japan and China.

• The top 10 nations by service revenues are: US, China, Japan, France, Italy, UK, Germany, Brazil, Spain, and India.

• The top 10 nations by data service revenues are: US, Japan, China, UK, Italy, Germany, France, Australia, Spain, and Korea.

• NTT DoCoMo continues to dominate the wireless data revenues rankings with over $16B in data services revenue in 2009. Almost 46% of its overall revenue now comes from data services. DoCoMo also crossed the 95% 3G mark.

• NTT DoCoMo was followed by Verizon Wireless, China Mobile, AT&T, KDDI, Sprint Nextel, Softbank Mobile, T-Mobile USA, O2 UK, and China Unicom to round up the top 10 operators by wireless data service revenues.

• Each of the top 5 carriers exceeded $10B in yearly mobile data service revenues in 2009

• Data revenues for the top 10 operators now account for almost 43% of the global mobile data revenues.

• The biggest jump in data revenues was experienced by Verizon, Softbank, and AT&T. DoCoMo saw an 11% increase for the year.


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• Most of the operators in the developed nations are contemplating future strategies to boost data revenues such that the decline in voice revenues is at least compensated for. There are very few operators who have experienced increase in overall ARPU.

• China reported approximately $20.3B in data revenues for 2009 and the percentage contribution from data services is around 32%, data ARPU is around $3.2. For India, data ARPU continues to stay below $0.50 as most of the new adds are voice only subscribers and there is continued price pressure in the market.

• China Mobile remains the most valuable telecom operator with over $195B in market cap. It is followed by Vodafone at around $122B. Telecom groups in mature markets are under enormous pressure to either come up with a global expansion strategy or accelerate their existing plans.

• In 2009, SMS’s vice like grip on data revenues continues to loosen a bit with many carriers seeing an increase in non-SMS data revenues. On an average, Japan and Korea have over 70-75% of their revenue coming from non-SMS data applications, US around 50-60%, and Western Europe around 20-40%.

• NTT DoCoMo has been at the cutting edge of the mobile data evolution by creating new markets. They are exploring new technologies and social experiments ahead of almost anybody else in the market. Our long history with the Japanese and Korean markets has taught us that while the individual strategies in each market will differ, one should study the trends, technologies, and ecosystem dynamics in these markets to get a sense of what’s coming.

• From the revenue perspective, the $50 billion revenue club has limited membership with China Mobile, Vodafone, AT&T Mobility, and Verizon Wireless as its sole members.

ARPU

• Most of the major operators around the world have double digit percentage contribution to their overall ARPU from data services. Operators like DoCoMo, and Softbank are over 46%. KDDI, 3 Australia, 3 Italy, 3 UK, Vodafone UK, O2 UK, Telstra, and 3 Sweden exceeded 35% and many others are on the verge of crossing the 30% mark.

• NTT DoCoMo reported the highest data ARPU for the year while Rogers took away the honors for the highest overall ARPU. Other notable percentage increases in ARPU were from 3 Italy, SK Telecom, KTF, T-Mobile Germany, 3


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Sweden, and T-Mobile Austria. The Japanese operators saw a decline in ARPU by 3%.

• The biggest percentage contribution by data ARPU has been consistently registered (since mid 2002) by two Philippines carriers – Smart Communications and Globe Telecom with over 53% (or $2) contribution coming from the data services.

• Softbank of Japan looks set to be the first major operator (outside of Philippines) with more revenues coming from data services than voice.

Mobile Data Traffic

• We have been calling attention to the tremendous increase in mobile data traffic for some time. The discussion has hit mainstream and many operators are scrambling to nail-down their short-term and long-term strategies to manage the data traffic growth in their networks.

• The global mobile data traffic exceeded an Exabyte for the first time in 2009. In fact, the data usage is growing so fast that this year, the two territories experiencing the most growth - North America and Western Europe are both going to exceed an Exabyte in mobile data traffic.

• 2009 also marked the year when the global data traffic (monthly) exceeded the global voice traffic.

• For many of the superphone heavy operators, devices like iPhone and Android account for more than 50% of their total data traffic.

• 2010 will mark the first year when the total number of mobile broadband connections will exceed the total number of fixed broadband connections.

Subscriptions

• India continues to be the hottest market on the planet in terms of net-adds with (again) a world record-setting month in Jan 2010 with 19.9 million net adds. To give you a perspective, this is almost 1.5 times the number of subscribers US added in the whole year. It is like adding a Canadian wireless market every month. For the year 2009, India added 177 million subs vs. 106 million for China. Combined, one year of growth in these two market is equivalent to the size of the third largest market - the US, to date. Making


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money on the net-adds is a different proposition all together (more discussion on the international market in our global market update later this month)

• Thanks to the explosive growth in the emerging markets, the global mobile market went past 4.6B in 2009 and is likely to cross the 5B mark in 2010. The global mobile subscriptions now represent over 68% of human population on planet earth.

• China crossed the 700M subscription mark in July while India's total went past 500 in Nov. In the meantime, US crossed the 90% subscriptions mark in 2009.

• In the last 10 years, the growth patterns in the mobile industry have completely reversed. In 1998, the developed world accounted for 76% of the subscriber base, in 2008; the percentages have flipped with developing world now accounting for 76% of the subscriber base and are likely to increase to 85% by 2018.

The top 10 nations by subscriptions are: China, India, US, Russia, Brazil, Indonesia, Japan, Germany, Pakistan and Italy.

Mobile Apps

• The total number of app downloads in 2009 reached 7 billion resulting in approximately $4.1B in revenues 12% of which was from mobile advertising.

• The number of non-carrier appstores jumped to 38 from 8 in the previous year.

• While Asia had the highest percentage of the download share, North America had the highest share of the apps revenue accounting for over 50% of the total revenue.

• The paid ASP in 2009 was approximately $1.9 and the advertising revenue generated from the free applications was approximately $0.09/user/app/year

• For a more detailed analysis of the mobile apps market, please see below page “ Global Mobile Apps Market”

Others

• Messaging still accounts for the lion-share of data service revenues. However, other services such as Mobile Music, Mobile TV and video streaming, Voice navigation, PNDs, Mobile Games, IMS, LBS, Mobile advertising, and others


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have gradually chipped away the share from messaging. Alternate devices with wholesale cellular agreements are also flooding the market. In Japan, Mobile Commerce is expected to do much better than Mobile Advertising. Though not much talked about, enterprise applications are also being adopted widely esp. in North America as more workers become mobile and corporations seek efficiencies in their operations and supply-chain.

• Nokia dominated the year as usual but the revenue share is shrinking and so is the lucrative smartphone share. Apple, RIM, and Google are relentlessly attacking the top tier while Samsung, LG, and others giving a tough fight for the bottom tier. We see a new middle tier emerging that has the form factor of a featurephone and functionality of a smartphone. The smartphone category is getting further split into regular qwerty smartphones like Blackberry and the touch and full browser based superphones like the iPhone and Droid.

• The year was dominated by several blockbuster device launches like the iPhone 3GS.

• Next few years will be big for infrastructure providers as many countries both developed and developing get into upgrading their infrastructure.

• Willcom, the small Japanese carrier that started the flat-rate unlimited phenomenon filed for bankruptcy last month.

• In the US, the increase in messaging volume catapulted US as the number one texting nation by messages/user/month going past the long-time leader Philippines.

• Deployment of 3.5G technologies is in full swing. However, it is the discussion of 4G that is occupying the headlines, even though 4G hasn't been fully defined yet and the current candidates for 4G are nowhere near the performance goals of 4G (150Mbps/50+Mbps). Many larger operators have laid out their plans for deploying LTE starting this year.

• Regulators playing an active role in making the markets competitive and attractive in the long-term.

• The velocity with which the smartphones are being introduced into the market esp. the western markets, one wonders if in five years, we will be using the moniker to describe devices and if the "dumbness" in the device market will be practically eliminated. Led by Apple's Appstore success, significant investments are pouring into the appstore world. In parallel, the debate over apps vs. mobile web is intensifying. The implications of the transition will be significant on the ecosystem on many levels.


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Mobile Markets: The New World Order

Arrows indicate change in position in 2009

Mobile Revenue Distribution


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Recession, Competition or Both?

Wireless Data ARPU in Different Global Markets (2009)


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$5 $10 $20

Japan ($24, 44%)

South Korea

UK

ChinaUS

Germany

Canada

Italy

Spain

HongKong

Average Wireless Data ARPU (USD) for carriers in a country

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Singapore

Switzerland

Norway

New Zealand

Belgium

Austria

France

Netherlands

Russia

Greece

DenmarkPortugal

Israel

India

Sweden

Finland

Thailand

Brazil

Indonesia

Philippines ($1.8, 47%)

Czech

Turkey

Mexico

Malaysia

Asia

Europe

Americas

Australia

Venezuela

Wireless Data ARPU of Major Global Carriers (2009)


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NTT DoCoMo

KDDI

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Verizon

T-Mobile US

AT&T

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3 UK

Vodafone UK

KTF

Vodafone Spain

Vodafone Italy

Vodafone Germany

3 AustraliaO2 UK

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RogersChina Unicom

China Mobile

Reliance

Bharti

Vodafone India

T-Mobile UKT-Mobile Germany

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Asia

Europe

Americas

3 Italy

50%

Orange France

Orange - UK

3 Sweden

SMART ($2, 53%)

Telstra

Size of the Global Mobile Market (2009)


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Global Population approx 7B

Each dude represents approx 100M subs


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Top Carriers by Wireless Data Revenues

Top Telecom Groups by Subscriptions


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Top Telecom Groups by Revenue


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OVERVIEW OF US AND JAPAN MOBILE MARKET

A. US Wireless Market – First Quarter, 2010

Executive Summary

The US wireless data market grew 6% Q/Q and 22% Y/Y to exceed $13.2B in mobile data service revenues in Q2 2010 - on track so far to meet our initial estimate of $54B for the year.

Having narrowly edged NTT DoCoMo last quarter for the first time, Verizon Wireless continued to maintain its number one ranking for the 1H 2010 in terms of the operator with the most mobile data revenues (though the difference was thinner than the amoeba membrane). The total wireless connections for Verizon were almost 100M with 92.1M being the traditional subscriber base. Rest of the 3 top US operators also maintained leading positions amongst the top 10 global mobile data operators.

Sprint had the first positive netadd quarter in 3 years and has been slowly and steadily turning the ship around. T-Mobile did better on the postpaid netadds but overall additions declined again. The larger question for the market is if 4large players can stay competitive. Generally, the answer is no. But these are different times and there are a number of permutations and combinations that are possible.

The US subscription penetration crossed 95% at the end of Q2 2010. If we take out the demographics of 5 yrs and younger, the mobile penetration is now past 100%. While the traditional net-adds have been slowing, the “connected device” segment is picking up so much that both AT&T and Verizon added more connected devices than postpaid subs in Q2 2010. Given the slow postpaid growth, operators are fiercely competing in prepaid, enterprise, connected devices, and M2M segments.

Data traffic continued to increase across all networks. By 1H 2010, the average US consumer was consuming approximately 230 MB/mo up 50% in 6 months. US has become ground zero for mobile broadband consumption and data traffic management evolution. While it lags Japan and Korea in 3G penetration by a distance, due to higher penetration of smartphones and


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datacards, the consumption is much higher than its Asian counterparts. Given that it isalso becoming the largest deployment base for HSPA+ and LTE, most of the cutting edge research in areas of data management and experimentation with policy, regulations, strategy, and business models is taking place in the networks of the US operators and keenly watched by players across the global ecosystem.

As we had forecasted, the tiered pricing structure for mobile broadband touched the US shores with AT&T becoming thefirst major operator to change its pricing plan based on consumer consumption. We will see the pricing evolve over the next 2-4 quarters as the US mobile ecosystem adjusts to the new realities and strategies for mobile data consumption.

In the connected device category, iPad like its flashy cousin dominated the headlines, the sales numbers, and the industry profits. The device sent every slate maker back to the drawing board, many projects were cancelled and strategies are still being formulated to capture a new burgeoning space and Apple again has a massive lead of mindshare and pocketbook.

Kids of the now generation are growing with connected electronics that is fundamentally altering the behaviors and expectations of interaction, communication, consumption, and monetization.

All this has setup an fascinating period in the communication/computing industry. Convergence is everywhere and is leading to fundamental reset of the value chains and ecosystems.

What to expect in the coming months?

31% of the US subscription base is now smartphones. The pace of product introduction is accelerating with each quarter. Devices of all shapes and sizes are coming into the market literally every week. Players are having to re-evaluate their businesses and long-term strategies. Several new impressive devices got introduced during the course of 1H of 2010 including the iPad and EVO.

There are several players whose future is at stake (to put it mildly). The competition has grown fierce and companies are finding it hard to take ideas from R&D to products in market in a short amount of time.

Microsoft announced its comeback with the W7 commercial launch imminent. The change in UI was refreshing and the expectations are quite high. W7 v2 is likely around the corner to update on the flaws of v1. HP acquired Palm in an attempt to become relevant again in the mobile device space. It has been


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an action packed 1H 2010 and we can expect more of the same for the remainder of the year.

2010 has also been active on the regulatory front as the national broadband plan was unveiled in March and the subsequent debate over the course of nations broadband future kept the spectrum, net-neutrality, and exclusivity issues at the forefront.

To start planning for 4G, 5G, and beyond, US should think about rolling a 50 year broadband plan. While more spectrum is always helpful, will we have all the spectrum we need in 2050? or do we need to invent new technologies and business models that use spectrum more wisely? This topic will keep the industry occupied for some time to come. (We will be going in-depth into this subject at our Sept event with some very senior and experienced executives)

2010 is also the year of network rollouts. T-Mobile has been rolling out HSPA+ at an impressive rate, Clearwire announced its intention to move to LTE, Verizon is betting big on LTE and looking for competitive marketing advantage over the course of the next 12 months. AT&T has been adding backhaul, upgrading to HSPA+ and planning for LTE all at once. Even the smaller carriers like MetroPCS are looking for competitive advantage with quicker LTE launch and beat others by carrying the first LTE smartphone.

US wireless data market

Service Revenues

• The US Wireless data service revenues grew 6% Q/Q to $13.2B in Q210. Compared to Q209, the mobile data service revenues grew 22%.

• Verizon and AT&T accounted for 75% of the increase in data revenues in Q2 2010.

• T-Mobile’s 3G drive is starting to pay off. While the net-adds were still in the red, its data growth is starting to match with its peers. The 20% 3G smartphone base definitely helps.

• Verizon Wireless again nudged past NTT DoCoMo in overall mobile data revenues by a whisker. By the end of the year, China Mobile and AT&T are also likely to cross their Japanese counterpart in quarterly mobile data service revenues.


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• AT&T and Verizon now account for 70% of the market data services revenues and 62% of the subscription base.

ARPU

• The Overall ARPU increased by $0.46 reversing the declining trend of the past three quarters. Average voice ARPU declined by $0.13 while the average data ARPU grew by $0.58 or 4% Q/Q.

• The average industry percentage contribution of data to overall ARPU is now 31% in Q210.

• Verizon led in data ARPU with $17.37 followed by AT&T and Sprint. In terms of % contribution, all the top three operators exceeded the 30% mark. T-Mobile ended the quarter with approximately 25% of its revenue coming from data services.


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Subscribers

• Overall netadds stayed stable at just over 3M with AT&T gaining the lion-share (though their count now includes the connected devices while other operators don’t specifically include that in the calculations).

• The texting see-saw between US and Philippines continued in Q210. US averaged around 639 messages/user/mo marginally behind Philippines.

• For the third straight quarter, AT&T reported more net-adds from connected devices than postpaid subs. Connected devices are now 7% of AT&T’s subscription base.

• Sprint got back into the positive net-adds territory again after 3 years. T-Mobile’s net-adds continued to decline. T-Mobile’s 20% and Sprint’s 23% subscriber base is now prepaid. The national prepaid penetration is touching 20%.


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B. Overview of the Japanese Mobile Market

Japanese mobile market quick glance

85% of mobile phone subscribers use online services.

96% on 3G & 35% on 3.5G.

50%of subscribes on flat-rate data plans.

55% are GPS enabled phones.


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The market growth

Broad coverage of 3G network.

Flat-rate data plans.

Operators had more influence upon mobile ecosystem than in GSM

markets.

Many people commute by train and use mobile in the train

Latest trends of operators

DoCoMo is going to be a recommendation platform.

iPhone is putting up a good fight, but the market size is still small in Japan.

Monthly subscription plan is important.

Mobile traffic is growing larger than PC traffic.

Mobile ad growth forecast in Japan


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Latest trends of mobile market: E-Commerce


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THE GLOBAL MOBILE APPS MARKET

Executive Summary

Mobile applications (apps) have been around since the late nineties and the apps stores have been available for a quite some time as well. Operators have been offering content and applications on their appstores for most of the last decade. But it wasn’t until the launch of Apple Appstore that the appsworld started to blossom in earnest. First, it fundamentally changed the revenue model in favor of the developers which has become the current defacto standard (70/30) in the mobile apps business. Second, it brought more developers into the ecosystem as it fostered the notion of focusing on just 1-2 platforms rather than the entire device ecosystem to be relevant. Third, the time-to-market equation changed for developers so that they can get the application from conception to market in a fraction of a time of what was possible in the past. Finally, the importance of a seamless end-to-end user experience to increase usage and monetization became a core principle in the mobile apps space.

While Apple has played a significant role in reenergizing the mobile apps space by bringing more consumers and developers into the ecosystem, there is significant activity outside the iPhone or smartphones space that is often not discussed. The purpose of this research study is to take a holistic look at the mobile apps space across all platforms and on a global basis to get a sense of the size of the mobile apps market and the direction it is headed.

The overall mobile apps downloads are expected to increase from over 7 billion in 2009 to almost 50 billion by 2012 growing at the rate of 92% CAGR. The revenue from mobile apps which includes both paid downloads and revenue from advertising and virtual goods is expected to increase from $4.1 billion in 2009 to $17.5 billion by 2012 at the rate of 62% CAGR. Though ondeck (operator managed) mobile apps sales exceeded those from offdeck in 2009, by 2012, offdeck is expected to hold the lion share of the mobile apps revenue.

The dynamics of the app market are quite different in emerging nations where to effectively monetize the significant app momentum (app downloads/active user and growth rates in some of these countries exceed


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those from the western markets, irrespective of the device type), creative strategies are needed to attract new consumers and different business models will be required to make the regional ecosystems viable.

Overall, by enhancing discovery, improving user experience, dropping price barriers, and increasing developer revenue share, the apps ecosystem can continue to prosper.

The paper presents the results of the study in more detail as well discusses the future of mobile apps and how the app economy is likely to evolve.

The Mobile Apps Explosion

The overall global subscriptions base is expected to exceed 5 billion by the end of 2010 (figure 1) with over 27% of them being data subscribers (messaging not included) meaning that they are either actively downloading content and apps and/or actively browsing the web. In the next three years, the data penetration is expected to reach 45% with North America leading the way with almost 60% of its base as active data subscriptions. The advent of apps helped fuel the growth in data subscribers as the availability of flat free pricing attracted users to upgrade and try out new applications.

In the US, almost all smartphones and many featurephones are now required to have a data subscription.


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The year 2009 saw an explosion of the Appstores. Non-carrier appstores jumped from a mere 8 to 38 last year (figure 2). Almost all OEMs, big or small, have launched their own appstores. Additionally, many vertically focused, or country specific or platform specific appstores are trying to take advantage of the gold rush. This dynamic evolution is fueled by thousands of new developers who are developing for specific platforms.

The shift from the old revenue share model where developers used to get as little as 10% of the revenue to a 70% share of the revenues has made the whole mobile apps ecosystem attractive for developers. Also, the development and the go-to-market costs have come down significantly, especially for the developers who want to focus on just 1 or 2 platforms. Even though the fragmentation of platforms remains a significant problem, developers don’t have to port applications to devices that will have little to zero ROI.

The explosion in mobile apps has come about by the troika of three specific trends that have empowered consumers to become appfanatics. First, the devices have become more powerful with up to 1-2 GHz processors. Second, the wireless networks are delivering consistently high bandwidths and better user experiences with 3G+ deployment. Finally, the creativity of developers has blossomed with access to native APIs, richness of the platforms, ease of development, and the favorable revenue sharing terms.


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Additionally, many in the ecosystem including operators are pursuing an on-device storefront strategy to make the user experience of search, discovery, and fulfillment better. The app marketing done by Apple and others has raised the level of exposure to the consumers who want to try out new apps and spend discretionary money on new apps.

The mobile advertising ecosystem has also become more robust to provide developers with an added avenue to monetize their applications. Many developers like Tapulous and mig33 see apps as a way to build fiercely loyal communities of millions of users and once the user base gets scale, it can be used to sell other digital and virtual goods to start a new revenue stream. The creative elements in mobile advertising has seen a significant improvement on platforms such as the iPhone and Android and made the ads more engaging for the consumer and rewarding for the advertisers.

Smartphones vs. Featurephones

The classification of devices into buckets has been a long standing debate in the industry. In the early days, the division was easy as the form factor, functionality, OS, and capabilities of smartphones was quite distinct from the featurephones which used to have limited processing power, smaller screens, and were primarily for voice and messaging. However, over the last 12-18 months, the edges between the categories have blurred significantly.

While no one will confuse the current version of Apple’s iPhone or Google’s Nexus One to be featurephone or conversely a Motorola Razr or Nokia 2720 to be a smartphone, it is the middle category that is becoming more difficult to separate out.5 Consider devices like the Samsung Instinct6 which is a 3G device with capabilities for video, applications, emails, and with up to 8 GB, it can’t be confused for a featurephone, yet, since it is a Java phone, some might categorize it as a featurephone based on the platform.

Similarly, INQ1 by INQ Mobile the first social mobile device is based on BREW - hardly considered a smartphone platform yet its mobile data usage is higher than even the iPhone.7 Similarly, Japan’s largest mobile operator NTT DoCoMo reaped the benefits of mobile data services without the introduction of smartphones in any meaningful way, it was more due to the deeply integrated services that were in tune with the culture of content consumption as well as lucrative 91%/9% revenue split in favor of the developers and publishers that encouraged them to participate and invest in the ecosystem.


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We are clearly seeing a middle category emerge that provides functionality of a smartphone in the form factor of a featurephone.8 For the purposes of this paper, we included devices with large screen form factor, virtual or physical qwerty keyboard, application download and streaming capabilities in the smartphone category.

Mobile Apps Market

The dynamics of the global apps market vary by region. In North America and Western Europe where smartphone penetration exceeds 25% and 3G penetration is above 40% (as of 2009), the total number of downloads on smartphones is significantly higher than those on the featurephones. Thus, despite the lower penetration, the revenue generated is more than revenues generated from featurephone downloads. One of the reasons is the high number of active data users on smartphones compared to featurephones. In China and India, featurephones rule and as such the downloads and apps revenue are relatively higher from such devices. Figure 4 shows the distribution of devices in various regions by devices type.

In 2009, the total number of apps downloads (global) were approximately 7 billion with Asia leading the way with 37% of the global downloads. By 2012,


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the total number of apps downloads are expected to grow at 92% CAGR to almost 50 billion downloads per year (figure 5). This is in part due to increasing number of featurephone users becoming active app users and due to the increase in the number of apps downloads/user/month across the board.

The corresponding revenue figures for 2009 were over $4.1 billion growing 62% CAGR to $17.5 billion by 2012 (figure 6). While Asia had the highest percentage of the download share, North America had the highest share of the apps revenue accounting for over 50% of the total revenue.


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If we look at the revenue from the perspective of ondeck vs. offdeck and paid vs. advertising (figure 7), ondeck paid had the biggest share of the pie followed by offdeck paid. Advertising based revenue accounted for about 12% of the overall revenue though by 2012, advertising is expected to generate 28% of the app revenue.

Operators still have a larger share of the apps revenue for a couple of reasons a) the ASP on an operator deck is almost twice the offdeck average


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and b) featurephones still make up the bulk of the global market device base. However, the balance has been gradually shifting in favor the offdeck ecosystem.

While the growth in the mobile apps market will continue to astound many, one should keep things in perspective. Overall, the global mobile services (operator reported service revenues) revenue exceeded $861 billion in 2009 with approximately $220 billion coming from data services (including messaging).9 So, even though the mobile apps revenue is growing at a fast pace, it represents a relatively small percentage (albeit growing) of the overall data revenues in the ecosystem.

Business Models - Distribution of App Revenue

The business models for apps have evolved over time. Initially, the focus was entirely on the paid downloads or the subscription based models that bundled other forms of content like the ringtones and pictures with applications.10 However, over the last 3-4 years, advertising based models have become both popular and successful with developers and the app ecosystem. In fact, for some developers, the advertising revenue on some platforms (like Android) is bigger than the revenues generated from the paid downloads. Some mobile players have focused on building loyal and vibrant communities which creates an audience for selling/up-selling/cross-selling virtual, digital, and even physical goods virtual, digital, and even physical goods

The main forms of monetization for apps are:

1. Paid

a. Subscription

b. In-app

2. Advertising

a. Impression-based

b. Performance-based

c. Promotion

3. Virtual Goods

4. Up-selling/cross-selling other goods

5. Hybrid


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There are two broad categories of paid and advertising. In 2009, advertising contributed almost 12% to the overall apps revenueThis share is expected to more than double by 2012 to almost 28%. In some of the developing regions, advertising will account for more than 50% of the apps revenue by 2012.

If we break down the revenue by featurephone/smartphone and ondeck/offdeck, in 2009, featurephone ondeck paid apps revenue had the biggest market share with 35% followed by smartphone ondeck and offdeck paid apps revenue streams respectively.

Average Selling Price (ASP)

The price range of applications in various stores can vary from $0.99 to $999. However, if we look at the average selling price of only the downloaded apps, the paid ASP in 2009 was approximately $1.9 and the advertising revenue generated from the free applications was approximately $0.09/user/app/year (figure 8).

Though advertising revenues per user per application doesn’t equate to ASP of the app, for the purposes of this paper, we are looking at the advertising revenue that can be generated by each free downloaded application/user/month. As always, there is pressure on the ASP and as the number of the apps consumed per user increases, we are likely to see the paid ASP decline by 29% in three years while the advertising revenue/app is likely to stay relatively flat. The improvement in targeting and creative elements will make mobile advertising more attractive and engaging thus negating the pressure on CPMs/CPCs. Additionally, we are likely to see new measurement metrics emerge in mobile advertising that will help in monetizing the free apps a bit better.


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We are also likely to see the increase in the sales of virtual goods and redemption of the coupons and promotions. The various channels of mobile advertising like the web, messaging, video, search, display are going to work more tightly together to make the mobile advertising experience for the consumer and brand better.

Business models in Emerging Markets

There are significant differences in ASP by regions. North America has the highest overall ASP with $1.09 followed by Europe with other regions below $0.20 (figure 9). Itis evident that the business models required for the emerging markets will be quite different than the western markets as the market economics and dynamics are quite different. Most consumers are on prepaid so more data plan choices are needed to convert subscribers into data users. Then, given the propensity to pay, mobile advertising will play a more significant role in the app economy in countries like Indonesia, Brazil, India, and China. As seen in the western markets, providing a bucket based or an unlimited data offering takes away the fear factor from the consumers and data usage including app downloads jumps significantly.

For the emerging markets, it is a volumes game. While the ASPs will be smaller, if an overall strategy is executed well, the volume of data usage and app downloads can make up for the smaller per unit revenues (either from paid downloads or advertising).


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Indeed, the data shows that despite these markets being featurephone heavy, application downloads in emerging markets can actually exceed downloads on

smartphones in western markets.

Mobile Apps vs. Mobile Web - Impact on Evolution and Revenues

There is a lot of discussion and debate in the industry on the topic of Mobile Apps vs Mobile Web in the industry. As we have seen in the past, three critical factors will determine how this plays out over the next few years:

1. Penetration of HTML5+ browsers on mobile

2. Difference between the native OS support and browser access to the same APIs

3. Implementation differences between various browsers

As things stand in early 2010, there are pros and cons to both approaches and as such it is not an either/or situation but rather the decision is based on the type of the applications. Developers will choose native vs. browser direction for their apps based on the business and technical goals for their apps. Today, native provides much richer functionality and access to


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capability and as such much richer experience than a browser does. For example, the recent Winter Olympics app by AT&T (figure 10) combines different elements of image, text, news feeds, social networking, video, and in-app advertising in a seamless fashion. To accomplish that in the browser will be difficult.

The user experience won’t match the performance of a native app. This issue is even more pronounced for highly interactive games from companies like EA, Gameloft, Glu, and others.

On the other hand, the fragmentation issue in mobile only gets worse with each year with new devices, different implementations and operating systems, the cost of rolling out an app across multiple devices around the world can increase exponentially.13 As such, the browser provides the prospect of being the great unifier so you can truly design once and run everywhere (where the browser is available). For the simple apps that are less interactive and require less multimedia capability, like the popular social networking and news/weather apps, browser provides the perfect avenue to maximize impact with least amount of development.

However, when considering a global market, one needs to be mindful of the rate at

which HTML5+ browsers will penetrate the market (or in other words what’s the “effective reach”). While things might move relatively quickly in the western markets, in many of the developing markets, the penetration of devices with HTML5+ browsers (and fast broadband mobile networks) will


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only increase gradually over the course of this decade. As such, the HTML5+ browser reach will be limited, so developers will weigh against the technical and business requirements of the applications with cost to build such applications and how that fits in with their business strategy and revenue goals. Some might decide to build both versions with web version for some markets and native apps for the others. Browser won’t be the great unifier that some hope for anytime soon.

While there is hope that browser will have same access to APIs that any native apps does, native support is generally always ahead of the browser support and the leading developers looking for an edge in user experience are likely to go native. For some it is a matter of semantics. For example, many web shortcuts or URLs are available as app icons which primarily link to a website. A good percentage of the downloads for the most popular social networking app - Facebook is via an app icon that can be downloaded as an app.

Finally, it is a misconception that there won’t be fragmentation in the implementation of the mobile browsers by OEMs. There will always be differences due to the primal urge to differentiate and as such developers can expect to have these differences in the future though the fragmentation in browsers is only marginal to that created by the native OSs.

Given the above, we are likely to see both worlds (native and web) coexist for a long time to come. Depending on the needs of the applications and business models, both models will stay in place for the foreseeable future. The dominance of one over another will largely depend on the device capabilities and reach in any given region.

In fact, a larger focus should be on app search and discovery, quality of content, end-to-end user experience, zero billing friction, developer ecosystem and how to make developers more profitable and successful. These issues are important to tackle to keep the app economy vibrant and healthy. Operators and OEMs can play a crucial role by opening up the network and device APIs and building a fair and sustainable business models that help the smaller developers. For example, in some Asian countries, the operators still get 40-70% of the app revenue. Smaller developers who don’t have the scale of billions of downloads will find it hard to survive in such an economic climate.

Additionally, data plans should be attractive enough to fit the needs of the subscriber, for example, Bharti Airtel introduced daily, 3 day, monthly data packs with varying data caps so that users can pick the plans per their needs. One should segment the user base granularly and design data packs that fits the needs of each of these segments. Such strategies enable quicker


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adoption especially in countries where mobile is the primary vehicle for Internet access.

Apps to go where no app has gone before

Connectivity breeds apps. It is a given that as consumer electronic devices become wirelessly connected, consumers are looking to download apps on those platforms. Apps download on the iPod have been every bit of a success as they have been on the iPhone.

Similarly, we will see a significant uptick in the apps for devices such as the the iPad, telematics platforms in vehicles, digital cameras, navigation devices, picture frames, weight scales, and the list goes on and on. These apps will entertain and amuse consumers, analyze data on the devices, connect users with content and friends, and will interconnect various end-points in the pervasive mobile ecosystem in a much more

profound manner.

Conclusions

Over the course of the last two years, thousands of new developers have entered the app ecosystem. With the capability to design better user experiences and a more lucrative business model, developers have been designing apps for literally every possible scenarios. From highly interactive games that only used to run on consoles to simple news or weather look up apps, there is practically an app for every scenario from bar exams to simulated libation consumption.

The app ecosystem itself is adjusting across multiple dimensions of regions, offdeck/ondeck, device type, and paid/advertising/virtual goods. The growth in the quality of the mobile advertising has opened up new revenue streams for developers.

More accurate analytics, control over pricing, and generally a shorter time-to-market capability is providing developers to have a better understanding of how users react to apps, features, and pricing and enables developers to adjust their strategies accordingly.

As the number of active data subscribers across the planet continues to grow and as new forms of consumer electronics devices come online, we will continue to see the proliferation of apps in many directions.


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Apple App Store Worldwide

The major findings are:

The most popular applications are the most expensive in Europe ($3.86 average), and the least expensive applications are in North America ($2.43) and Asia ($2.69). Although this may reflect that less expensive applications are more popular in North America and Asia, this may also be caused by the fixed price tiers that Apple uses for converting application prices to other currencies.

Overall and worldwide, prices of the most popular applications have decreased 15% on average during the period, December 1, 2009 through


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February 28, 2010. The largest relative price decrease occurred in Australia where prices dropped 27% from $3.77 to $2.74.

The most popular applications in the Navigation category are the most expensive in Europe. This is due to the large number of turn-by-turn navigation applications covering different regions in Europe (e.g. TomTom Western Europe, Eastern Europe, UK and Ireland).

Games is the most popular category in Australia and North America (USA, Canada and Mexico), where 51% and 39% of the applications respectively, ranked in the top overall category are games.

The average price of the most popular paid applications is displayed above and is broken down by continent. The most popular applications are most expensive in Europe ($3.86). The most popular application prices are least expensive in North America and Asia where they cost $2.43 and $2.69 respectively, on average. Although this may refl ect that less expensive applications are more popular in North America and Asia, this may also be caused by the fi xed price tiers that Apple uses for converting application prices to other currencies than USD (EUR, GBP, etc).


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The average price of the most popular paid applications for each region is displayed above for the period December 1, 2009 through February 28, 2010. The largest relative price decrease occurred in Asia where prices dropped 27% from $3.77 to $2.74. Prices of the most popular applications in Asia decreased 10%, dropping to $2.78 on average.


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The average price of applications broken down by category (Games, Books, Navigation) and continent is displayed above. The most popular Books and Games titles average at $2.49 and $2.82 respectively. Navigation applications are most expensive and prices differ most per continent as well. This is caused by the large number of turn-by-turn Navigation applications covering different regions in Europe (e.g. TomTom Western Europe, Eastern Europe, U.K. & Ireland).


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Besides differences in average prices between continents, the most popular content differs per continent as well. As can be seen above, Games are most popular in general. In Australia and North America however they are most popular compared to the other continents, where respectively 51% and 39% of the applications ranked in the top overall category are games. Books and Navigation applications comprise only a small percentage of the most popular applications in each continent.


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Apple App Store - iPad And iPhone

This report focuses on the Apple App Store for the iPad and iPhone in the United States. The major findings are:

» The number of applications in the Apple App Store for iPad has grown to 4,870 since the release of the iPad on April 3rd. In the last two weeks alone, the number of iPad applications has grown by 32.7%.

» The largest application category on the iPad is Games with 1,577 titles (32%), followed by Entertainment and Books with 455 and 396 titles, respectively.

» Of the 186,414 applications in the Apple App Store for iPhone, 73% are paid, while 80% of the 4,870 applications in the Apple App Store for iPad are paid.

» An application in the Apple App Store for iPhone costs $3.82 on average, as opposed to $4.67 in the Apple App Store for iPad.

» On the Apple App Store for iPad, Medical and Finance applications are the most expensive at $42.11 and $18.48 on average, respectively. This is significantly more than the average price for applications in these categories on the Apple App Store for iPhone ($10.74 and $5.74).

Number of applications

The number of applications in the Apple App Store is displayed above for the past three weeks. Nine days after the release of the iPad, the Apple App Store for iPad contained 3,670 applications: 2,654 applications that were exclusively compatible with the iPad and 1,016 universal applications*. In the last two weeks alone, the total number of applications in the Apple App Store for iPad has grown by 32.7% to 4,870 applications on April 26. The total number of applications now available in the Apple.


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As shown above, 73% of the 186,414 applications in the Apple App Store for iPhone are paid, while 80% of the 4,870 applications in the Apple App Store for iPad are paid. The largest category on the Apple App Store for iPad is


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Games, and it attributes significantly to the higher percentage of paid applications: 82% of the 1,577 Games in the Apple App Store for iPad are paid, while only 69% of the 34,181 Games in the Apple App Store for iPhone are paid.


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The total number of applications available in the Apple App Store for iPad is 4,870 (April 26). The largest category on the iPad is Games with 1,577 titles (32%), followed by Entertainment and Books with 455 and 396 titles, respectively.


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Along with differences in the proportion of free versus paid applications between iPad and iPhone, the average prices differ as well. On average, an application in the Apple App Store for iPhone costs $3.82, as opposed to $4.67 in the Apple App Store for iPad.

On the Apple App Store for iPad, Medical and Finance applications are most expensive at $42.11 and $18.48, respectively. This is significantly more than the average price for applications in these categories on the Apple App Store for iPhone ($10.74 and $5.74).

The higher price of Medical applications is signficantly influenced by six applications published by Lexi-Comp which are priced between $9.99 and $299.99.


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Highest ranked paid applications - Apple App Store for iPad


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Highest ranked free applications - Apple App Store for iPad


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Highest ranked paid applications - Apple App Store for iPhone


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Highest ranked free applications - Apple App Store for iPhone


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iPad World

The Apple App Store for iPad was officially launched along with the iPad on April 3, 2010. This report covers the Apple App Store for iPad and iPhone in the United States as of April 6, 2010. The major findings are:

» In total, there are 2,385 applications that are available exclusively for the iPad. The largest category on the iPad is Games with 833 titles (35%), followed by Entertainment and Education with 260 and 205 titles, respectively.

» Games and Entertainment applications are more popular on the iPhone than on the iPad: 70% of the most popular applications on the iPhone are published in either one of those categories, compared to 40% on the iPad.

» 83% of applications on the iPad are paid, while only 73% of all applications are paid on the iPhone. The average price of all paid applications that are solely compatible with iPad is $3.61 compared to $3.55 for applications compatible with iPhone.

» Medical applications are most expensive on both the iPad ($9.39) and iPhone ($10.73). On the contrary, Education ($9.10), Healthcare & Fitness ($4.41), Music ($6.86) and Sports ($4.95) applications are significantly more expensive on the iPad. Books are currently cheaper on the iPad than on the iPhone which may be influenced by the iBookstore availability on the iPad.


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The total number of iPad applications is displayed above. In total, there are 2,385 applications that are available exclusively for the iPad. The largest category on the iPad is Games with 833 titles (35%), followed by Entertainment and Education with 260 and 205 titles, respectively.

Please note that applications that are compatible with both iPhone and iPad are excluded from this analysis.

Number of Ipad Applications


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As depicted above, Games are more popular on the iPhone than on the iPad: 56% of applications in the Top Overall category on the iPhone are Games, compared to 32% on the iPad. The same is true for Entertainment: this category accounts for 14% and 8% of the most popular applications on the iPhone and iPad, respectively. News (6%) and Productivity (8%) applications however are signifi cantly more popular on the iPad in these two categories. Interestingly, the four most popular paid applications are Productivity applications: Pages, Numbers and Keynote by Apple, Inc. and GoodReader for iPad by GoodiWare Ltd.

Most Popular Ipad and Iphone Categories


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Aside from differences between the iPad and the iPhone in terms of the most popular content, pricing differs as well. As shown above, 83% of applications on the iPad are paid, while only 73% of all applications are paid on the iPhone. The average price of all paid applications that are solely compatible with iPad is $3.61 compared to $3.55 for applications compatible with iPhone.

Proportion Paid: Free


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Along with differences in the proportion of free versus paid applications between iPad and iPhone, the average category prices differ as well. Medical applications are most expensive on both the iPad ($9.39) and iPhone ($10.73). Opposed to this, Education ($9.10), Healthcare & Fitness ($4.41), Music ($6.86) and Sports ($4.95) applications are signifi cantly more expensive on the iPad. Books are currently cheaper on the iPad than on the iPhone which may be infl uenced by the iBookstore availability on the iPad.


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Average Categories Price

Highest ranked paid iPad applications


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Highest ranked free iPad applications


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