Mobile applications - More than a hype
Mobile applications, short name: apps, currently receive enormous public attention. Application stores of several providers offer various apps for download to your mobile phone. These apps offer all kinds of functionality, from navigation, communication and location-based tools to games and other entertainment software. Is this the revolution of the business for mobile phone services?
There has been a time when it was solely up to network operators to introduce new services and to offer them to their customers. That was when all services were deployed centrally in the network. The breakthrough of Internet and access to it from the PC has however started the trend of services being implemented at the edges of the network. The advances in technology, in particular regarding processing capacities, has enabled the construction of powerful smartphones. This together with the higher data rates enabled by 3G technology has finally enabled also sophisticated mobile applications to be realised on the edges of network, i.e. on the mobile terminal.
Inflation of app stores
In the past one to two years a number of app stores have been launched on the Internet. From these stores users can download thousands of applications to their smartphone. While Apple has been a pioneer in that development and with 140,000 apps has the largest store, there are other stores like Nokia’s Ovi, the store of Blackberry producer RIM, or Google’s store for Android. The enormous growth of these stores has been enabled by leveraging the creativity of an external developer community that can easily submit their applications and have them made available on the app store. Attractive in that respect is that the store operator takes care of collecting the purchase fee from the end users that download the apps – an enormous relieve for developers. The success of the external developer model has even inspired a carmaker like Ford to consider offering a service development kit for their cars’ on-board computer, enabling third-party developers to build applications, as reported by the Wall Street Journal. It is, however, not clear yet if Ford will open their own app store. The run for opening up an own app store is certainly attractive for any player from a commercial perspective. Gartner has forecasted a turnover of 6 billion dollar made by app stores in 2010 – a 50 percent increase compared to 2009, and 30 billion dollar in 2013.
From the users’ perspective the ability to update their smartphones with additional applications from the app store is an attractive feature as it allows a kind of personalisation of the device. While in the past users who wanted to have the latest features had to buy a new phone, they now can simply download additional functionality. This is of course limited to applications, and if you are unhappy with hardware-related features, like, e.g., battery lifetime, you still need to purchase new hardware. It is also not clear how many users actually make use of the abundance of applications. The New York Times has reported that the average user installs only 5 to 10 applications which in turn concentrate on the most successful ones.
A severe disadvantage is certainly that apps are not portable to terminals of another manufacturer. This means that you will either stay with your brand or lose all your dearest applications. At least you would need to re-purchase the apps from the store of the manufacturer of the new phone – if they are available there. Apple, for instance, practices in general a very tight control over what users can do with their phone – and for instance my Portuguese colleague who now lives in Germany is not happy that she is not allowed to download apps available on the Portuguese app store from Germany.
Standardisation of apps
Having some sort of standardisation in this environment of proprietary services would certainly be beneficial. One of the articles in this cover theme describes a promising initiative called BONDI which is part of the Open Mobile Terminal Platform (OMTP), and which has a number of influential members. The eStore that Ericsson announced at the recent Mobile World Congress in Barcelona could be another step in this direction, as it targets multiple terminals in a vendor-independent fashion. Mobile operators will be able to built their own customised app store with the eStore. Of course, external developers will have the chance to upload their applications and to receive their share of the revenue.
Implication on operators
The success of the apps model is extending the threat to telecom operators of being degraded to bit-pipe carriers from the fixed-line Internet world to the mobile domain. While new data-heavy applications might be welcomed by operators for getting some return on their 3G investments, they also require operators to continuously invest in the network. Rajeev Suri, head of Nokia Siemens Networks (NSN), estimates that data volumes will increase by 10,000 percent by 2015 due to the growing popularity of smartphones. At the same time sales price of data packages are dropping. It seems therefore inevitable for network operators to find a new business model that allows them to generate additional revenues. A Deutsche Telecom board member admitted recently in an interview that the relevance of the old classical model declines and that Deutsche Telekom therefore will adapt its business model. And Telefónica CEO César Alierta explained in February 2010 that those who cause high data traffic will in the future have to pay for it.
Initiative of mobile operators
The announcement of 24 mobile operators at the Mobile World Congress to open a joint, central store for smartphone applications is probably one answer in this direction. The participation of large operators as e.g. Vodafone, China Mobile, Telefónica, América Móvil, Orange, T-Mobile etc. representing a total of 3 billion mobile subscribers worldwide shows the power behind the initiative. While details are not clear yet, the alliance announced that it will develop a joint standard within the next 12 months.
In the coming months we will see how how the mobile apps market will further evolve. Some people argue that there is a lot of hype around apps. However, the turnover generated with mobile applications already today seems to indicate that mobile applications have already passed the stage of mere hype.
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