Operators tackle the mobile applications business
Mobile operators have a new mission these days: To develop a leadership role in application development and distribution.
On the one hand, they have no choice. They must prevent non-operator competitors from continuing to rule the market. On the other, there has never been such a great opportunity as now. Consumers are excited about applications. Smartphones are becoming mainstream and driving new app-based revenues. And developers are more interested and motivated to get involved in the mobile sector. All these factors are helping operators realize that by having a strong applications strategy they can derive new value out of their networks and differentiate their services in the market.
"The change in operators in the past year is phenomenal. They're embracing developers and building out platforms," said John Puterbaugh, founder and CEO of Nellymoser. The operator's role, he said, is to leverage their "network as a service" just as Apple leveraged its software and tools to create a business around writing apps for the iPhone.
But operators also are under pressure to quickly adapt their strategies for this new market. In particular, they must figure out how to serve the various developer communities that are relevant to their customers and partners, and they must figure out which distribution strategies will best meet their needs. Fortunately, because operators sit in the middle of the ecosystem, they can choose from any number of approaches.
"Part of the value of what we represent to the developer community is the ability to distribute and drive applications and content across multiple segments and multiple channels and form factors," said Leroy Williams, executive director for the Verizon Developer Community.
Verizon vs. AT&T
Verizon Wireless is an example of an operator-led approach to the applications business. It announced in July 2009 the creation and management of a developer program and application distribution system for smart phones, building a new Verizon Developer Community and VCast storefront. The approach will enable Verizon to work closely with developers to help them create apps that leverage the network's capabilities. Verizon has used the BREW platform since 2002 for feature phones and Williams said the company expects to continue to serve millions of customers via BREW "into the foreseeable future."
Verizon's main rival, AT&T, is emphasizing an aggregator-centric approach that leverages the expertise and services of aggregator partners to drive development and distribution. This type of approach can take much of the heavy lifting off the shoulders of the operator while driving revenues, though the operator may relinquish some control over differentiating service features that the operator-led approach might facilitate.
AT&T, however, wants to lead the industry in application choices for smartphones and thus it will participate in all the major smartphone OS app stores.
Verizon and AT&T also have each developed wholesale models to serve applications to their business partners. Verizon is using its nPhase joint venture with Qualcomm to provide an M2M application and service platform for large-scale enterprise deployments. AT&T has partnered with Jasper Wireless to facilitate third party apps for the M2M and consumer electronics markets. The Amazon Kindle, which uses AT&T's network, is a good example of how this model can work in the consumer sector. Operators can be expected to use similar models increasingly in the future.
Other options
Yet another approach draws on the use of trusted business partners to offer applications. An example is the U.K. operator 3, which partnered with Skype to offer VoIP calling to mobile customers. The approach allows the operator to control the customer experience while drawing on the partner's customer base, and it does not require a storefront.
Finally, operators also have established application business models specific to the enterprise. This approach can be a win-win for both operators and their corporate customers, because it can promote the creation of enterprise-level applications, such as location-based field-force or customer-facing applications that leverage the network's capabilities.
While operators have numerous business models to consider, selecting the right models and implementing them is not a casual matter.
Chris Kapuscinski, strategic marketing program manager with Alcatel-Lucent, said an operator will need to consider a slew of variables specific to its business before settling on a strategy. His company, through Bell Labs, has developed modeling techniques that can weigh the pros and cons of each application strategy based on variables such as the size of the subscriber base, smartphone penetration, churn level, number of developers and device platforms an operator desires to support to integrate a new app or service and customer costs.
The modeling can also be used to estimate the potential revenues and startup and operating costs for each option. An operator might find, for example, that there are very clear delineations in the startup and operating costs between the operator-led model and the use of aggregators. And for all its allure, offering an app store is not for every operator, Kapuscinski said.
"You really need to take a look at what's going on in your network to determine, from a cost-benefit perspective, whether one model is better than the other," he said.
