VisionMobile Mobile Megatrends 2011 - Telecom Circle · Mobile Megatrends series Research...

Copyright VisionMobile 2011

VisionMobile

Mobile Megatrends 2011how telecoms business is transforming in the software era. updated 8 March 2011


Andreas ConstantinouMichael VakulenkoMatos Kapetanakis

(c) VisionMobile 2011

Knowledge. Passion. Innovation.

Licensed under Creative Commons Attribution 3.0 Unported License (http://www.creativecommons.org/licenses/by/3.0)You are free to Share or Remix any part of this work as long as you attribute this work to VisionMobile (www.visionmobile.com).

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Trusted by industry brands

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selected VisionMobile clients

2008-2010


Experience ecosystemshow telecoms + internet convergence is leading to the next megabrands

Mobile Megatrends 2011

The DELL-ification of mobileHow the mobile handset landscape is becoming much like the PC

Software: new era for telecomsand the new rules for innovation

Apps are the new webWhy apps are the new information paradigm for web 3.0

Developers, developersthe engine behind telecoms innovation

open + closeduse of open + closed strategies to commoditise + protect

Communities: a new currencyCommunities will provide the main differentiation above price, design and content

Stuck in the telecoms agehow carriers are stuck in the telecoms age and how to compete

Augmented Economicsmaking money at the edge of reality


The DELL-ification of mobileHow the mobile handset market is approaching PC-like commoditisation


Internet players agenda drive top-5 OEMs and OEM market is fragmenting, approaching the PC market

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Market share of top-5 OEMs (source: Gartner)


Profits are driven by end-to-end playersand away from the old top-5 OEM league

source: Deutsche Bank


OEM strategies: volume vs profit strategies

data source: Deutsche Bank

2010 market share %

= strategy expectations

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OEMs at different stages of integrationThree roles for handset manufacturers across the double helix

Leaders: new product experiencesand enviable margins

Innovators: incremental innovationstrong brand, performance, good looks and services

wannabee leaders

wannabeeinnovators

Assemblersrazon-thin margins

Horizontal player structure Vertical player structure


Lead, innovate or assembleThe new role models for OEMs in the post-Android era

1. Assemblers: Razor-thin margins

10s of assemblers use Android to deliver ready-to-market smartphones with complete service and apps

ecosystem competing head-to-head with major OEMs. iPhone me-too experience at $100 retail.

2. Leaders: unique product experiences

Manufacturers who can masterfully integrate hardware + software + services + industrial design into new

product experiences - from phones and tablets to TVs. Unique product experiences at $500 retail.

3. Innovators: incremental innovation

The old top-5 OEM guard. Differentiation is on strong brand, performance, good looks and services.

4. Mass producers: catering to developing markets

Mass producers rely on huge economies of scale to break even at $50, but make up nearly 50% of unit sales

in the mobile handset market.

?


The innovators are squeezed in

Leaders: new product experiences

Innovators:incremental innovation

Assemblers: razor-thin margins

performance pressure

price pressure

Revenue pyramid

Pyramid squeeze is accelerated by Google’s Experience handsets (fast hardware/software evolution) and Windows Phone


LeadersRole model: Apple

InnovatorsRole model: Samsung

Mass producersRole model: Nokia

AssemblersRole model: Dell

DELLification in 2015closely modelling the PC business

5% @ $500

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25% @ $250

25% @ $100

45% @ $50$37.5B

$56B

$90B

$37.5B

$200B

Profit pyramid Revenue pyramid

?

Present-day example


OEM + Android: winners and losers

The winners:low cost assemblersCost structure optimised for razor-thin margins

Android is a long-term opportunity for global reach

The losers:‘old guard’ OEMsCost structure requires high-margins

Android is a short-term life support

No Name

source: VisionMobile


The new world: Innovate or be replacedThe new rules of the handset industry

1. Software and hardware is commodity

- Software is a loss-leader, monetised by ads (Google), hardware (Apple), content (Amazon), services (RIM)

- Software is provided a la carte and pre-integrated by chipset providers (e.g. Qualcomm, MediaTek)

2. Points of differentiation rapidly disappearing

- Android provides out-of-the-box, complete ecosystems; OEMs compete on equal footing to assemblers

3. The search for innovation is on

OEMs are search for new models of innovation beyond price, brand, performance and marketing:

- communities BlackBerry messaging or facebook deals

- made-to-order handsets; copying DELL’s PC model

- white label services for carriers where OEMs trade service revenues for carrier subsidies

- micro-retailing ‘slotting’ promos across distribution regions and channels


Software: the new era for telecomsand the new rules for innovation

image source: maschinenraum / Flickr


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$$$ and software DNA are key for platforms20 dead platforms in the last 10 years

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MOAP

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The battle for mass-market smartphone reach

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LG Wise

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14 out of 15 platforms are monetised indirectly by complementary products11 out of 15 platforms have developer ecosystems or industry consortia built around them


Components

Carriers Nokia RIM Apple Qualcomm Google facebook

Social networks

Cloud services

Developer ecosystem

Network

User interface

Operating system

Hardware IP

Manufacturing

denotes where vendor started

The battle for ecosystem completeness


Huge gap between telecoms & software worlds

success as defined in

2010success as defined in

2005


software: turning telecoms upside down

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back tosquare one


Huge gap between telecoms & software worldsTelecoms world Software world

Success factor installed base number of apps

Primary customer consumer developer

Speed of innovation 1 OS version every 2 years 5 OS versions/year

Time to market 1-2 years 1-2 weeks

Type of services comms-centric catering to entire needs portfolio

Risk-taking predictability / de-risking entrepreneurship / uncertainty

Access to innovation 100s of close partners 100,000s of developers

Business model B2B licensing B2C sales/ads/in-app sales

Channel to market voice, text and web smartphones

Discovery On deck / on device App store

First step “we need to sign an NDA” “we need to download the SDK”

Process Waterfall: RFI, RFQ, deliver, QA Agile: add feature, build, test, repeat

Attitude “developers will come to us” “we need to go to developers”


The new rules of innovation

1. Speed of innovation defined by internet companies, not hardware / networks

- Companies from the Internet domain (Apple, Google, Facebook) out-innovate companies from the mobile

industry domain (Nokia, Samsung, Sun) and the networks domain (Vodafone, China Mobile)

- Internet players are at top of the food chain and are becoming increasingly assertive

- Yet network operators still hold most value (insights and retail channels) in the last mile to the consumer

2. Innovation requires new competence and regional presence

- California is the center for software and services innovation. Japan/Korea is the center of CE innovation.

3. If you can’t innovate in software, you will be replaced

- The evolutionary game has just accelerated 10-fold.

- Players who cannot evolve at software speeds will eventually be replaced by alternatives

(oftware has superseded carrier efforts in non-comms user needs, location, billing, discovery, authentication

and mobile termination)


Experience Ecosystemstelecoms + internet convergence is leading to experience ecosystems


telecoms + internet + PC + consumer electronics = ?

our definition of convergence has changed

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Is the future of convergence?

Assemblers

Innovators

Leaders


Social circle

Developer ecosystem

User data roaming

Service roaming

User interaction design

Industrial design

Brand

Convergence is about experience roamingConvergence is about having an experience that roams consistently across ‘screens’

experience roaming across screens

convergence = x


Social circle

Apps ecosystem

User data roaming

Service roaming

User interaction design

Industrial design

Brand

Apple is the poster child of experience roamingApple leads by example, by delivering a consistent experience across divers screens

Experience roaming

Ping

App Store

MobileMe

iTunes, AirPlay

iOS

Apple

Apple

iPod

iPhone

iPad

Mac

Apple TV

Across screens

?


The next battle is for Experience EcosystemsExperience Ecosystems create major exit barriers and drive cross-sales; they are therefore a

sustainable strategy for Innovator OEMs needing to survive margin pressures.

network effects

network effects


the future of convergence is experience roamingconvergence = screens + experience

!")"$!""($ !")+$

the future of convergence is in a single experience + developer ecosystem

powered by ARM hardware across mobile, PC & embedded


Apps are the new webWhy apps are the new information paradigm for web 3.0

Copyright VisionMobile 2011Source: Distimo, March 2011

OS vendors

OEMs Carriers Independent

Everyone wants their own app storebut few are above the radar = number of apps when above 10,000


App Stores are a control point for:

- discovery of applications

access to app discovery as a control point - as a gateway to affiliate,

matchmaker and curator business models

- distribution of applications

e.g distribution and delivery of apps as a control point - e.g. Android

uses Market to enforce compliance requirements on handsets

- monetisation of applications

an opportunity to extract a commission in the form of revenue share

for paid apps and in-app purchases

- exit barriers for users

app stores create ‘sticky gardens’; if users churn they lose their apps

- consumer insights

an opportunity to optimise device and service targeting

App stores are about control, not $$$

and an opportunity for:

Mobile Application Stores (end- 2010)

App Store Android Market Ovi Store BlackBerry

App World GetJar

FundamentalsOwner Apple Google Nokia RIM Getjar Networks

Distribution model via App Store on iPhone and iPod Touch

via Market on Android devices (closed source)

via download, and pre-loaded from 4Q09

?via web only

(direct + white label)

Platforms OSX Android Symbian, S40 BlackBerryJava, Flash, Android, RIM,

WinMo, Palm, Android

Key figuresSales basesince launch (2010 est.)

90M 77M 440M 125M0 (plans to pre-load icon

shortcut on phones)

Downloads per month as of end of 2010 (est.)

510M 270M 90M 60M 90M

Cumulative downloads since launch as of end of 2010 (est.)

10B 2.5B N/A N/A 1.6B

Applications to end of 2010 (est.)

300,000 130,000 25,000 18,000 76,000

Revenue model 70% to developer70% to developer

30% optional to operator70% to developer

(less w/ carrier billing)70% to developer

Ad-based apps + paid placement

source: VisionMobile research, DistimoNote: The sales base represents mobile devices sold and does not include tablets or other connected devices


Building an app store is not easy


platform companies

mobile carriers &

payment brokers

handset OEMs

platform companies

brands and retailers

Species

Genes

Why is building an app store so hard?App stores need 5 genes from 5 species across the value chain


1. Merchandising: App stores will take retailing where it’s never been before

- app retailing is bottleneck, resulting in price erosion as developers drop prices to bubble up to the top-25.

-This will drive retail sophistication: App Malls (shops-in-shop), bundles, time-limited offers, friend

endorsements, inventory micro-targeting, gift/beg options, second-hand apps, offers tied to carriers, etc

2. Diversity: App Stores will cater to 100s of niche segments;

Genre-centric stores (Games store), lifestyle-centric stores (e.g. sports or clothes brands), specialist content (e.g.

adult or enterprise), region-centric stores (e.g. Seattle apps)

3. Low barriers: App Malls will enable low-cost shops-in-shop setups

SDP vendors will offer the infrastructure, catalogue and recommendations technology allowing wannabe

app retailers to be setup at very low cost, with proven revenue models (setup fee + rent + sales commission)

3 pillars to the app store evolution 2011-13


Apps succeed where the web failed

- 2007: voice, text and web was main channel for services

the old school of mobile services: voice, texting, ringtones, televoting, MMS, Mobile TV,..

- 2011: 500,000+ applications on smartphones

- Apps are the single biggest digital channel since the web

- There are apps springing up everywhere there is a website

for every website, for every brand and for every corporate intranet

- Apps succeeded where cross-platform frameworks failed

Mobile web pages and widgets are poor alternatives to apps

Java and Flash failed to pick up where web left off

- The web is now the lowest common denominator across screens

across devices, the living room, the PC and the car


what is are apps?

apps are a new information paradigmFor.. Mobile apps Web pages

packaging Self-contained Set of pages

personalising access to location, contacts

explicitly typed info only

discovering app store text results or URL

monetising micropayments ads

interacting touch, sensors, keys mouse, keys

measuring downloads economy attention economy

.. information


Web apps will proliferate in mobile handsets driven by

- web benefactors Google, Microsoft, Apple

- technology commoditisation; WebKit and V8;

- consistent technology adoption WebKit on >350M handsets up to June 2010

- content owners with most assets on HTML/web

- platform vendors seeking to modernise their developer platforms

e.g. WebOS vs Palm OS, RIM WebWorks vs BlackBerry OS 6, Nokia WRT. BREW to follow?

- and “buy in” to a developer community and a “hype-ready” platform

building a developer community is extremely expensive. It comes for free with web technologies

- the need to tap into new developer segments from the web domain

1.5 million web developers most of which are new to mobile

- The need to reduce development costs for cross-screen apps

mobile, tablet, PC, TV, consumer electronics, automotive, ..

Web 3.0 will adopt the app paradigm


Google rose due to openness, info chaos and lack of monetisation

- the open (crawlable) web,

- the lack of information semantics (needing Pagerank to create order out of chaos)

- the lack of a micropayments mechanism on the web (increasing demand for ads)

Google is now threatened from web silos, app stores and micropayments

- closed web silos (social networks like Facebook and app stores like Apple store)

- semantic information discovery in app stores (reducing greatly the search complexity)

- pay-per download, virtual goods and proximity payments (reducing the need for ads)

To survive, Google is trying to outrun the market trends

- launching is own walled gardens (Orkut and Buzz), its own app stores (Android Market and Chrome Web

Store) and integrating a payments technology (NFC) within Android handsets

Google under threat in web 3.0


Open + closed: two sides of the same coin

use of open + closed strategies to commoditise + protect


- Android, MeeGo, Webkit, Qt, Maemo, Eclipse, Linux all use open source

all projects use an open source license for the public source code

- Open source licenses are standardised and well understood

3 licenses used most often in mobile projects (GPL, LGPL, APL)

- But an open source license is only the tip of the iceberg

a license determines access to the project (e.g. Android public source code)

- Governance is what determines the rules of the game

the governance model determines access and influence into the product (e.g. Android handsets)

- Open licenses are used with closed governance

many projects restrict governance while maintaining an open source license

Open is the new closed


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

governance model (simplified)

open community managed community autocratic community

weak copyleft(LGPL, MPL, EPL,..)

strong copyleft(GPL)

permissive (APL, BSD, MIT, ...)

Linux kernel

license type

Qt

dual license(commercial + copyleft)

Android

FoundationFoundation

WebKit


Access

• Is source code available to all without discrimination?

• Are project mailing lists, forums, bug-tracking databases and developer tools available to all?

• Is the project roadmap available publicly?

Development

• Are decision-making mechanisms transparent and accessible?

• Is the code contribution and acceptance process clear and accessible?

• Are the requirements to become a committer clear and equitable?

• Can you identify who the committers to the project are?

• Are the requirements to become a reviewer clear and equitable?

• Can you identify who the reviews to the project are?

• Does the contribution license require copyright assignment (vs. a copyright license)

Derivatives

• Are trademarks used to control compliance and use of the project?

• Are go-to-market channels for Application Derivatives constrained?

Community

• Do different community members have different rights?

What are the criteria for ‘openness’ ?


Openness to commoditise product complementsbeyond open source, openness is used as a business strategy to commoditise product complements while protecting core assets

iOS Android Windows Phone

BlackBerry Symbian

Bundled services Closed Open Closed Closed Open

App developers Curated Open Curated Curated Curated

Device vendor Closed Open Open Closed Open

Software platform Closed Closed Closed Closed Curated

Hardware platform Closed Curated Closed Closed Open


Developers, Developers, Developersthe engine behind telecoms innovation


Based on

Mobile Developer Economics 2010F

ree

dow

nlo

ad: w

ww

.Dev

elop

er E

con

omic

s.co

m - Analysis of the developer experience from design to monetisation

- Across all 8 major platforms

- Based on a sample of 401 mobile app developers

- With significant experience in mobile development

More than 60% of respondents have 3+ years of experience in app development.

Nearly 30% have won one or more developer awards


software houses

apps developmentagencies

independent developers

Internet service providers

content publishers

systemintegrators

software integration services

The diverse world of software developersWith different business models and incentives

mobile games developers


Android has biggest mindshare

-Android has biggest mindshare

- Symbian/Java down from #1/#2 in 2008

- Most developers work on multiple platforms

The average is 2.8 platforms, across sample of 401 developers

Android is better than other platforms in terms of tools, platform features, and it’s easier to stand out as developer.”

Android developer

“


Android 3x easier to learn than Symbian


Developers becoming market savvy

Commercial above technical reasoning

-Large market penetration (70% of respondents) is

more important than ability to code & prototype quickly (45%)

- Revenue potential (55%) is more relevant than

good documentation (35%)

technical considerations are irrelevant, the choice of platform is ALWAYS marketing-driven.”Mobile web developer“


App Stores reduce time-to-market by 3x

App Stores minimised time-to-shelf from 68 days to 22 days and halved time-to-payment “


application planning

retailing & monetisation

platform selection

develop, debug & support

market readiness

in-life application use

The app developer journeyThe many facets of the app developer experience

- IDEs, SDKs and documentation

- UI tools

- emulator and on-target debugging

- community & official forums/websites

- profiling tools

- test frameworks

- porting tools

- premium technical support

- platform hype

- addressable market

(devices/regions)

- platform features

- learning curve & coding effort

- conferences & competitions

- audience targeting

- concept design

- feature design

- prototyping tools

- market research

- focus groups

- developer certification

- app signing, certification & approval

- regional testing & sandbox networks

- beta testing with peers and end users

- localisation frameworks

- packaging and SKU management tools

- go-to-market channels

- promotional tools

- co-marketing programs

- revenue models

- billing & settlement

- analytics & sales tracking

- user ratings

- user support

- application updates

- cross-selling

- privacy compliance

** *

*: mostly applicable to developers who sell apps


application planning

retailing & monetisation

platform selection

develop, debug & support

market readiness

in-life application use

Key developer pain pointsbased on Developer Economics 2010 research

Localisation lack of localised apps for most regions, lack of

localisation tools for developers

App submission & certification application certification is expensive, approval takes too

long, and signing is complicated

Application marketinglack of effective marketing channels to increase app exposure and discovery

Dubious long-tail economics average RoI through an app store is much less than the cost of producing the app

most vendor effort goes here


Are you a mobile developer?Want to share your own views on app development?

Join in Developer Economics 2011. Have your say on the hottest issues in app development and win a $1,500 Amazon voucher.

www.visionmobile.com/devopen until end March 2011.

created by

sponsored by


Communities: the new currency


Communities are the new frontier

Building a brand, product or technology is science

Building a community is a form of art

Whether it’s a consumer, enterprise or a developer community

New techniques are emerging; game mechanics and religion engineering


you can buy an audience but.. you can’t buy a community

an audience is people who interact with a service.

a community is a network of people who interact amongst them

you can buy an audience (eyeballs or subscribers)

but you can’t buy a community (network interactions)


Communities are the new differentiator

Service brands, OEMs and carriers have tried to create own communities

But found that community creation needs a very different rulebook

And ended up partnering with communities (Facebook, Twitter, etc)

Exclusive deals with communities will be the new differentiator above price, design and premium content.


Communities are the new currency

Zynga's CityVille grew to 100 million users in just 43 days

Facebook is a platform between 500M+ users and 2.5M+ developers

Facebook is #1 social network across the world except China, Russia, Brazil, Japan

Skype: 8 million paid users and 25% of global international calling traffic


Carriers: stuck in the telecoms ageand how carriers can compete


Carriers in the midst of an identity crisis

Carriers are telecoms-age species in a software age

- Carriers have grown in the telecoms age; this affects their ability to adapt and their speed of innovation

..In an identity crisis

- Carriers are still undecided as to whether they want to be an access company (e.g. LightSquared, KPN), a

supermarket (own services), a shelf (retailer/curator of 3rd party services) or a broker (matchmaker between

developers and consumers). They want to be everything to everyone.

Losing battle after battle for control points

- non-communication needs (apps), location (GPS), billing (app stores), service retailing & discovery (app

stores), authentication (Twitter/facebook), mobile termination (Google C2DM), subscriber activation

(iPhone soft SIM?)

With no innovation in their core business

- voice, texting and SIM cards have seen no innovation in the last decade.


Taking baby steps in the software age

Carriers don’t know how to use software

- Carriers software efforts are mediocre; see Vodafone VSCL, VFX and widgets

- Using WAC to profit from apps, when Apple/Google are not profiting from apps

Carriers are accelerating the PC-like commoditisation of handsets

- skewing the natural OEM selection process (by ranging handsets on a OS basis) and forcing

Innovator OEMs to struggle while nimble assemblers thrive

- The $100 smartphone means loss of subsidy power for carriers, therefore loss of differentiation

Carriers are funding their antagonists

- most Android projects 2007-2009 were carrier-funded.

- Android and iPhone are playing AT&T and Verizon like puppets on strings; e.g. Verizon now

heavily marketing iPhone, while AT&T heavily pushing Android.


The real value of carriers

The real value of carriers is still untapped

1. Leverage apps to drive core business, not generate revenues

- Deliver voice and messaging apps that build on core network business, at 10x deployment speeds

- quit pushing for higher communications ARPU, but leverage apps to extent revenues across untapped

segments of consumer spending portfolio (transport, health, food, housing, etc)

- expose network APIs that drive lock-in to core business, not APIs that generate revenue

- leverage apps to drive premium customer acquisition, customer retention and increase switching costs

2. Divide and conquer among app stores

- Don’t create new app stores (WAC) but divide and conquer among existing app stores

- Create shop fronts for app retailing and promotions

- Monetise by helping developers target apps to the right demographic in real time

- Offer recommendation services by tapping into users’ social graph



3. Increase power over OEM suppliers

- Shift handset purchasing model to a performance based per-device bonus based on hitting ARPU,

messaging and churn targets; leverage on network analytics.

- Resist a price war on handsets by favouring an oligopoly of traditional suppliers

4. Become the VISA of mobile

- aggressively grow carrier billing usage via in-app payments

- provide micro-billing at VISA-like rates activated via SMS

5. Invest in retail differentiation

- as devices commoditise, retail will become a stronger control point for customer acquisition

- Invest in retail differentiation, for example visual service retailing, bundling services/apps in handsets,

deploying handset PoS configurators and carrying out PoS customer segmentation analysis.



6. Customer experience management

- Identify influencers and improve lifetime value metrics

- Understand customer behaviour and enable behavioural targeting by third parties

7. Drive wholesale business beyond mobile

- Drive wholesale model in CE business (ala Kindle) to de-risk and differentiate bandwidth pricing

8. Handset customisation: focus on merchandising and addressbook

- focus on a single app (active idle screen) to be provisioned on all smartphones + some Java handsets

- idle screen app can encompass service merchandising/promos and addressbook functionality

- leave all other apps to 3rd parties!


a note of caution

is WAC repeating history mistakes?

- WAC is a framework for creating carrier-owned app stores

even if carriers don’t have most of the genes to create their own app store

- and making money from apps

when Apple/Google use apps as a complementary business, not as a revenue generator

- Needs software agility, but moves with telecoms rigidity 12 months since announcement and no distribution channel, no marketplace, no billing

Telecoms rigidity and ‘design by committee’ is the key reason why LiMo failed

- Smartphone focus, but feature phone opportunity Smartphone focus (Opera, S60, iPhone), where competition is fierce. Opportunity is in feature

phones but challenge is fragmentation of widget runtimes and buying power - why i-mode alliance failed.

- Distribution channel will fail once runtimes fragment Same reason why a Java app store would fail.

- Distribution will fragment among carriers Each carrier to have different app requirements and revenue shares

Same reason while the BREW app store (since 2001) failed to reach Apple’s proportions


Augmented economicsMaking money at the edge of reality


Augmented economics: the study of the economy created by superimposing value on top of our physical world


What is augmented economics?making money by connecting the physical world with virtual worlds

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The money in augmented economics

“The power to capture attractive profits.. is in these stages that complex, interdependent integration occurs”Clayton Christensen et al

In augment economics, the platform that links the physical with the virtual world stands to profit the most.

“The next Google might be a physical world connection company”S Schaffer


Knowledge. Passion. Innovation.

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[email protected] us to schedule an on-site workshop.

Updated: 12 November 2010

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