Mobile Megatrends 2014 by Vision Mobile

Copyright VisionMobile 2014

Updated: 26 June 2014


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Developer Economics 2014 6th ed.


Knowledge. Passion. Innovation.

Stijn Schuermans @stijnSchuermans

Andreas Constantinou @andreascon

Michael Vakulenko @MVakulenko

Updated 10/4/2014

© 2014 VisionMobile. This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Copyright VisionMobile 2014 4

Mobile Megatrends 2014

Apps: The Tip of the Iceberg

Mobile ecosystems: Don’t come late to the game

Google: stripping Android Naked

Handset business : Hardware is the new distribution

The future of HTML5: Beyond the Browser

Messaging Apps Are the New Platforms


APPS: the tip of the iceberg


1,000,000 apps ARE just the tip of the iceberg fundamental business model shifts are taking shape


There is a Fundamental shift in how value is created value is now in all aspects of user needs

Source: Eurostat household spending for 2011, VisionMobile

mobile telephony 2000s mobile creates value for communication needs

3% of user spending

mobile computing 2010s mobile creates value for all needs and near 100% of user spending

Housing, water, electricity, gas and other fuels

23%

Transport 13%

Food and non-alcoholic beverages

12%

Miscellaneous goods and

services 11%

Recreation and culture

9%

Restaurants and hotels

8%

Furnishings, household equipment

maintenance 6%

Clothing and footwear

6%

Alcoholic beverages,

tobacco and narcotics

3%

Health 3%

Communications 3% Education

3%

3%

Communications

7

household spending

EU27

household spending

EU27


Fundamental shift in how value is delivered and captured challenges the fundamentals of the traditional telecom-centric business model

…but, apps are just the tip of the iceberg

Source: VisionMobile

mobile telephony telcos are the gatekeepers and those who profit from mobile

mobile computing ecosystems are the gatekeepers

and those who profit from mobile

Housing, water,

electricity, gas and

other fuels 23%

Transport 13%

Food and non-

alcoholic beverages

12%

Miscellaneous goods

and services 11%

Recreation and culture

9%

Restaurants and hotels

8%

Furnishings, household equipment maintenanc

e 6%

Clothing and

footwear 6%

Alcoholic beverages,

tobacco and narcotics

3%

Health 3%

Communications 3% Education

3%

3%

Communications

8


Fundamental shift in how competition is defined challenges the assumptions of competitive positioning


competition between products

defined by product features

what product the customer will buy? (inside-out thinking)

9

competition between industries

defined by product benefits

what customer is trying to get done? (outside-in thinking)

vs. vs.

“buying a newspaper” “killing 10 minutes of time”

“buying phone service” “keep in touch with friends”

vs. vs.


Fundamental value chain overlaps players across industries compete for control across the value chain, but not for profits

Content

Distribution

Connectivity

Screen

User

Apps

Services

App Stores / Portals

Billing

Telephony

Network access

Software platform

Devices

Discovery / retailing

Customer insights

devices

Ads

software licensing

e-commerce

Ads

denotes vendor’s core business

networks


Apps are just the tip of the iceberg Mobile is changing - How value is created, delivered, captured - how competition is defined - Value chain overlaps - cross-industry subsidies


MOBILE ECOSYSTEMS: DON’T COME LATE TO THE GAME


It’s a green and blue APPS world For developers, iOS and Android dominate every developer market

Source: Developer Economics Q1 2014

Platform priority by country, for app developers


iOS dominates developer revenues Median revenue per app, per month (n=2,425)*



Below the iceberg.. The Apple and Google ecosystems Are 100+ billion dollar empires


The Apple GDP: The iOS ecosystem has grown to $163B Apple captures most of this revenue

iOS platform devices

App Store content platform

device sales content revenue share

accessories revenue share

content licensing revenues

direct revenues, user engagement

premium mobile computing

experience

revenues from sales of premium

devices

accessory manufacturers

accessories, revenue share

access to market

16

how value is captured

mobile app developers

Source: VisionMobile analysis Figures for 2012

content owners (music, books,

magazines, movies

content

apps and games

App Store

$129B iOS device

revenue

$22B app revenue, ads

revenue and contract sales

$6B content license

revenue

$7B accessory sales


The Android GDP: AN ecosystem valued at $149B Enormous defensive value for Google’s core business, but little direct value capture

Android platform technology

services, free content governance app store

eyeballs insights

apps user engagement and direct revenues

17


Handset OEMs

handsets

technology and services

mass-market mobile computing

experience

eyeballs

mobile app developers

Play Store compatibility certification

$117B handset sales

$3B est. revenue from ads

on Android devices

$19B app revenue, ads

revenue and contract sales

Source: VisionMobile analysis Figures for 2012


How did Apple, Google built ecosystem empires? What can history teach us?


2000 2001 2002

app

ecos

yste

ms

softw

are

plat

form

s

Android

iOS

2007 2008 2009 2010 2011 2012 2013

= dead end

Apple, Google emerged out of the ashes of 20+ dead platforms. Only the first-mover app ecosystems survived

A la Mobile

Access ALP

Azingo

Comneon Apoxi

Danger OS

e-SIM Intrinsyc OS

IXI Mobile Mizi Prizm

S40

Motorola L-J Nokia GEOS

OpenMoko

OpenWave MIDAS

Palm 5/6

Sasken Aria

SavaJe OS SKY-MAP

TTPCom Ajar

MeeGo

Tizen

Firefox OS

Windows Phone

Blackberry

Maemo

Bada

Jolla

first two platforms with an app store

Ubuntu

bubble size = apps available

Only the first-mover, app ecosystems survived


iOS, Android built app ecosystems with superior economics app ecosystems have very different economics to platforms before them

software platform

communications platform

app ecosystem*

examples Linux

participants handset makers users users and developers

wins by sharing costs and risks of software development

connecting large number of users

connecting users with developers

economics economies of scale

same-side network effects

same- and cross-side network effects with winner-

takes-all dynamics

growth potential linear quadratic exponential

*also referred to as a computing platform


App ecosystems won by superior growth potential

21

scale (users or devices)

valu

e to

eac

h us

er

App ecosystem value grows

exponentially due to increased number

of interconnections

Software platform value grows linearly due to

cost saving and decreasing price

mor

e us

ers >

…


ecosystem economics resulted in a duopoly

22


..Actually four duopolies network effects have created duopolies and huge barriers to entry for late comers

Source: Developer Economics; VisionMobile estimates Figures for Q3 2013


What’s the secret Sauce? Can Apple’s and google’s success be replicated?


Apple, Android deliver benefits to all sides exponential growth comes from cross-side network effects across all five sides

mobile platforms

app developers

handset makers operators

25

brands advertisers

reach eyeballs increase ad value with insights engage audience

reduce costs be able to compete in

smartphone market

find choice & novelty (apps) be sure of quality

convenience support identity

increase ARPU lock-in users

achieve personal fulfilment have commercial success

belong to a community


To compete, Challengers have to achieve the impossible three conditions necessary to compete with Apple / Android

mobile platforms

26

2 activate all sides of the network simultaneously for same-rate growth

1

3 Incur additional opportunity cost for participants due to limited resources (e.g. to adopt WP you have to abandon Android)

achieve the same outcomes cheaper/faster/better

Three conditions to compete:


Predictably, Many have tried, none have succeeded.

27


Mobile App ecosystems Create black oceans

Inspired by “Blue Ocean Strategy” (2005) by W. Chan Kim and Renée Mauborgne (INSEAD)

Blue ocean uncontested markets

no competition

e.g. luxury home appliances

Black ocean ecosystem-driven markets

impossible competition

e.g. app ecosystems

Red ocean existing markets

fierce competition

e.g. mobile handsets

no name


How do you compete IN a black ocean?


leveragE, don’t compete How Facebook seems the world of mobile platforms

30


FB and Amazon Leverage & attack weak points OF ecosystems Operating systems are a commodity, no longer the basis of competition

operating system

runtime APIs tool chain

app platform

monetization distribution retailing

app ecosystem

developers users

compete head-on attack weak points & leverage ecosystems duopoly

31

tools ecosystem

analytics monetisation discovery

*rumored $2.6B in OEM incentives for 2014.

Amazon adds: +better discovery

+active paying customers +integrated device

*

FB adds: +better discovery +ad monetisation +deep app links +free SDK bundle


In the future, ecosystems will compete by experience roaming ecosystems will compete not by size, but how well the experience roams across screens

Mac computers iPhone iPad Apple TV

Chrome browser Android Android tablets Google TV, Chromecast

Windows, Office Windows 8 Windows Phone Xbox

PC smartphone tablet living room

32

Online store Kindle Fire Soon to come? Fire TV

dashboard

CarPlay

Open Automotive Alliance

Windows in the Car

?


GOOGLE: STRIPPING ANDROID NAKED


Android: NOT Google’s gift to the world


Android IS the most closed open source project Open to developers, closed to handset makers

35

Source: VisionMobile, Open Governance Index, 2011

Open Governance Index VisionMobile, 2011

free download


Android IS closed to handset makers on 3 control points

36

App store, billing relationship Access to 1 million apps, media content on

Google Play Store only available to OEM licensees

Killer services Gmail, Calendar, Now, Maps, YouTube, Drive, Hangouts, … only available to OEM licensees

Trademark & brand Only Google licensees can claim

to sell an “Android handset”


Handset makers inevitably reacted Google control points were systematically attacked and eroded

37

One Platform Foundation

App store, billing relationship OnePF provides single app packaging format

and in-app billing for all stores Amazon, Yandex successfully provided own stores

Killer services Samsung replaced many of Google’s apps with its own

Trademark & brand Vendors and operators promote their own brand over Android


Google strikes back with a 4th control point: APIs

38

App store, billing relationship Access to 1 million apps, media content on

Google Play Store only available to OEM licensees

Killer services Gmail, Calendar, Now, Maps, YouTube, Drive, Hangouts, … only available to OEM licensees

Trademark & brand Only Google licensees can claim

to sell an “Android handset”

Google Play APIs and Services


Google stripped Android naked Google moved critical APIs out of open source OS, into proprietary service

39

Google Services (APIs) Google Apps Android OS

Google Maps API Location APIs Games APIs

In-App Billing Google Wallet Instant Buy Could-to-Device messaging

Account Authentication Account syncing Google+ Sign-in

Google+ Sharing APIs Google+ Photo Syncing

Photosphere support Google Mobile Ads Remote Location

Remote Wipe Google Settings App

Malware scanner Cast API

Search/Now Calendar Keyboard Chrome

Maps Gmail

Hangouts Google+

Drive Play Books Play Music

Play Movies Play Magazines

Play Games Voice Keep

YouTube Wallet

Phone app

Settings Lock Screen System UI

(button bar, notification panel) App Framework & APIs Linux Kernel & Drivers

Hardware support

differentiated APIs and apps baseline

migration of APIs and apps that are most valuable to developers & OEMs


Immediate advantage: fragmentation relief Google Play Services is automatically updated on 99% of Android handsets

40

share of devices that support

Google Play Services

v2.2

v2.3

v4.0

v4.1

v4.2

v4.3

share of devices running a given

version of the Android platform

Source: Google

November 2013


Long term impact: control over app ecosystem Developers are now forced to adjust app for each Android fork

41

Development Distribution Discovery

Platform APIs

Developer tool-chain

Backend services

Active developer community

Marketplace connecting developers to users

Monetization tools

Partnerships

Discovery, promotion, placement, search, recommendations

Solution quality

gatekeeping developers users

control points before

control points after


Android FITS INTO Google’s strategy: Flatten, expand, mine Android flattens, Google Play Services and apps help to expand and mine

42

Flatten Expand Mine

Flatten anything

standing between eyeballs and ad

inventory

Uses the economics of complements to increase the value of Google’s core

product

Expand the footprint of

ad inventory

… across the user journey, by introducing new (free)

services like Gmail, Google Maps, YouTube, Google TV,

Chromecast

Mine information on

every user

Helps Google to better micro-target users, directly increasing the value of its

inventory

goals

control points in mobile

other examples


OTT SQUARED: MESSAGING APPS ARE THE NEW PLATFORMS


The dust of the platform wars has settled Time for a new form of ecosystem wars


Messaging apps are the 2nd wave of mobile ecosystems Gaining momentum among users and recognition among investors

45

Acquired by Facebook for $19B

Valued at up to $70B by Nomura

Rumored to prepare for $28B IPO

Acquired by Rakuten for $900M

Received $280M Series D investment Investors include Alibaba

Preparing for $2B IPO

MAU source: vendor reports, (*) Business Insider estimate

?

*


Messaging ecosystems: - mobile-first - twice over-the-top

telcos

platforms

messaging


The New ecosystems TURN ENGAGEMENT INTO in e-commerce contrary to Google/Facebook who monetise engagement through ads

47 source: http://wattsjones.org.uk/post/61010619439/messagingappmonetisation


Many Messaging ecosystems use asymmetric business models adding value in one value chain and capturing value in another

48

business model

type symmetric asymmetric

value created designing and manufacturing

handsets

connecting users and developers

connecting users, OEM and developers

helping users communicate

value delivered telcos App Store Google Play messaging network

value captured selling handsets selling devices selling on-line ads e-commerce

2000’s 2010’s


WeChat’s asymmetric business model displace traditional telco business triggering deflationary economics

49

Stickers, games, sponsored content, ads

e-commerce, APIs

mobile operators

$$$

SMS better messaging

and free calls

engagement

kills legacy SMS business model

user reach $$$

commoditization



How wechat captures value through e-commerce messaging apps are e-commerce platforms

50

WeChat sells movie tickets when you are near a cinema

Xiaomi sold 150,000 flagship devices in under 10 minutes on WeChat

WeChat sold taxi rides through the Didi Dache app

WeChat offers health insurance services

source: http://www.techinasia.com/

WeChat offers air-ticket service throutgh LY.com

Pay for bottled drinks through WeChat


E-commerce is taking over app business models revenue model popularity and median revenue per app per month (n=5,715)



HANDSET BUSINESS REBOOT: HARDWARE IS THE NEW DISTRIBUTION


The platform duopoly is here to stay How has the handset business been affected?

53


handset profits Are owned by Apple & Samsung. Why? The duopoly of profit share in the handset industry

54


In 2007/8 iPhone and Android created two disruptions

55


As a result, today’s handset leaders are vertically integrated Modular handset makers struggle to avoid the commoditization trap

Horizontal player structure Vertical player structure

no name

Integrated across Bill of Materials

Integrated metal-to-cloud

Acquired by platform owner Following Samsung’s recipe Producing own OS and processors

Now enterprise services company Unbundling BBM and cloud services

Modular handsets

component vendors capture profits,

handset assemblers do not

Samsung and Apple capture all profits in handset market

“Competition to the best” Profitable growth

Now enterprise services Unbundling BBM & cloud services


What’s next for the handset business?

57


the handset market now faces a third disruption New players no longer use handsets as as profit center; but as distribution medium

Handset integrated

with services

“Competition to the best” Profitable growth

Horizontal player structure Vertical player structure

Profits are driven by services,

hardware is a commodity with handsets offered

at break-even


The emerging model: Hardware as distribution channel not the source of profits

59 Source: VisionMobile

emerging model hardware = distribution

traditional model hardware = profits

No Name

take most profits

“demolition derby” break-even or

lose money


THE FUTURE OF HTML5: BEYOND THE BROWSER


The future of HTML5 mobile is bright

61

HTML5 is open

HTML5 can compete with

native platforms

*source: VisionMobile Developer Economics Q1 2014 & Q3 2013

✔ ✔ HTML5 is

cross-platform

✔

HTML5 is popular at 52% mindshare*

✔


Is the future of HTML5 bright?

62


Is the future of HTML5 bright? It is, but NOT for the reasons you would expect

63


HTML5 is a technology, IT won’t replace mobile platforms lacks key ingredients to compete with leading mobile platforms

64

Key ingredients

Software foundations

Developer ecosystem Monetisation Distribution Retailing

✔" = ✖" ✖" ✖"HTML5

fragmented platform always a step behind native complex tool-chain

islands of developers using common language,

but different API sets

needs a leader not consensus

Facebook? Google? Mozilla? Other ?


openness is not within primary audience needs The open nature of HTML5 doesn’t intrinsically help anybody do their job better

65

mobile platforms

app developers

Handset OEMs operators

brands advertisers

reach eyeballs increase ad value with insights engage audience

reduce costs be able to compete in

the smartphone market

find choice & novelty (apps) ensure quality

convenience adjust to my identify

increase ARPU lower churn

achieve personal fulfilment have commercial success

belong to a community


Key ingredients

Google & Facebook are creating new web walled gardens�adding missing ingredients on top of HTML5 enabling technology

66

Software foundations

Developer ecosystem Monetisation Distribution Retailing

application runtime, developer

tool-chain, & platform APIs

Developers building and

publishing apps around the

software foundation

micropayments, ad networks

and settlement

app distribution to end users

through SaaS or devices

app discovery, promotion,

placement, search &

recommendations

HTML5 with Chrome API web developers Google Wallet PC, Mac, Android,

iOS, Chrome OS Chrome

Web Store

HTML5 with Facebook APIs

web, Flash and mobile developers Facebook Credits 1B+ Facebook

users Facebook app

recommendations

HTML5 browsers (fragmentation) web developers ? ? ?

HTML5 may end up a yet another walled garden despite the promise of openness


Browsers don’t deliver on cross-platform capabilities Only 37% of Android apps can be developed for a mobile browser

na#ve&JavaScript&API,&98%&

Web7to7na#ve&converter,&63%&

Web&wrapper,&49%&

Mobile&browser,&37%&

Percentage of apps in Google Play US store that can be implemented with each HTML5 route to market, i.e that utilise APIs available through that HTML5 route to market alone.


Browsers are heavily fragmented across platforms HTML5 features and APIs vary widely across browsers

68 Source: html5test.com, April 2014.

0" 100" 200" 300" 400" 500" 600"

BlackBerry 10.2 Chrome 33

Opera Mobile 16 Firefox Mobile 27

Jolla Sailfish Android 4.4

Nokia X » iOS 7.0

Windows Phone 8.1 Sony Playstation 4

Google TV (Chrome 11) Amazon Kindle

HTML5 test score


API iOS Safari Android Browser

Windows Phone IE

Blackberry Browser Opera Mobile Chrome Firefox

Audio settings - - - - - - -

Battery - - - - - - Since v.11.0+

Bluetooth - - - - - - -

Calendar - - - - - - -

Camera - - - 10.0+ 11.5+ - Since v.15.0+

Compass 4.2+ 3.0+ - 10.0+ 12.0+ Yes 6.0+

Contacts - - - - - - -

Filesystem 6.0+ 3.0+ 8.0+ 10.0+ 11.10+ 18.0+ 10.0+

Geolocation 3.0+ 2.1+ - 6.0+ 10.60+ Yes 4.0+

Mic - - - 10.0+ 11.5+ - 15.0+

Motion 4.2+ 3.0+ - 10.0+ 12.0+ Yes 6.0+

Network Yes 2.2+ - Yes Yes Yes 12.0+

NFC - - - - - - -

Notifications - - - 10.0+ - Yes Yes

Power management - - - - - - -

SMS - - - - - - -

Telephony - - - - - - -

Vibration - - - - - - 11.0+

WiFi - - - - - - -

Web app APIS are heavily fragmented across platforms HTML5 API implementation varies widely across browsers



For now, HTML5 apps offer a trade-off to native apps

70


Web vs native trade-Offs for app development

native smartphone apps hybrid apps web apps

Ease of discovery through native app stores

through native app stores

search or referrals (Facebook, twitter, other)

Reach fragmented across multiple platforms

fragmented across multiple platforms

works on almost all devices

Depth of experience full access to platform resources

access to native APIs at the expense of a less capable UI

limited by browser sandbox

Customer ownership and terms

Apple App Store enforces onerous terms

Apple App Store enforces onerous terms

complete ownership of customer

Engagement and recurring use

notifications and home screen icon

notifications and home screen icon

no notifications, difficult to get user to save the link

Monetisation potential

high on iOS, lower on Android

high on iOS, lower on Android

no accepted method of payment

Ease of cross platform development

developed separately for each platform, with some code reuse using CPTs

significant reuse of UI components for some apps

significant fragmentation for advanced apps

71


But the future of HTML5 Is beyond the browser

72


HTML5 Is the 3rd choice AMONG MOBILE DEVELOPERS


39% of HTML5 Mobile devs are going beyond the browser Overall five HTML5 technology routes to market to choose from

*source: Developer Economics Q3 2013


Architectural frameworks

CSS UI frameworks

JavaScript UI frameworks Web wrappers

Web-to-Native Converters

Native Javascript APIs

2D Gaming Engines

3D Gaming Engines

A flurry of tools to support off-browser web apps Hundreds of tools to make that possible


Knowledge. Passion. Innovation.

Andreas Constantinou CEO & Principal Analyst [email protected] +44 20 8123 1738

Track developer trends Learn DIGITAL Business Models Master the success patterns of ecosystem leaders and design effective digital business models

Developer Economics 2014 6th ed.

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Transcript of Mobile Megatrends 2014 by Vision Mobile