Copyright VisionMobile 2014
Updated: 26 June 2014
Copyright VisionMobile 2014
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Developer Economics 2014 6th ed.
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014 5
APPS: the tip of the iceberg
Copyright VisionMobile 2014 6
1,000,000 apps ARE just the tip of the iceberg fundamental business model shifts are taking shape
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
Fundamental shift in how competition is defined challenges the assumptions of competitive positioning
Source: VisionMobile
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.
Copyright VisionMobile 2014 10
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
Copyright VisionMobile 2014 11
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
Copyright VisionMobile 2014
MOBILE ECOSYSTEMS: DON’T COME LATE TO THE GAME
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
iOS dominates developer revenues Median revenue per app, per month (n=2,425)*
Source: Developer Economics Q1 2014
Copyright VisionMobile 2014 15
Below the iceberg.. The Apple and Google ecosystems Are 100+ billion dollar empires
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
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
how value is captured
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
Copyright VisionMobile 2014 18
How did Apple, Google built ecosystem empires? What can history teach us?
Copyright VisionMobile 2014 19
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
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
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 >
…
Copyright VisionMobile 2014
ecosystem economics resulted in a duopoly
22
Copyright VisionMobile 2014 23
..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
Copyright VisionMobile 2014 24
What’s the secret Sauce? Can Apple’s and google’s success be replicated?
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
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:
Copyright VisionMobile 2014
Predictably, Many have tried, none have succeeded.
27
Copyright VisionMobile 2014 28
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
Copyright VisionMobile 2014 29
How do you compete IN a black ocean?
Copyright VisionMobile 2014
leveragE, don’t compete How Facebook seems the world of mobile platforms
30
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
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
?
Copyright VisionMobile 2014
GOOGLE: STRIPPING ANDROID NAKED
Copyright VisionMobile 2014 34
Android: NOT Google’s gift to the world
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
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”
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
OTT SQUARED: MESSAGING APPS ARE THE NEW PLATFORMS
Copyright VisionMobile 2014 44
The dust of the platform wars has settled Time for a new form of ecosystem wars
Copyright VisionMobile 2014
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
?
*
Copyright VisionMobile 2014 46
Messaging ecosystems: - mobile-first - twice over-the-top
telcos
platforms
messaging
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
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 value is captured
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
E-commerce is taking over app business models revenue model popularity and median revenue per app per month (n=5,715)
Source: Developer Economics Q1 2014
Copyright VisionMobile 2014
HANDSET BUSINESS REBOOT: HARDWARE IS THE NEW DISTRIBUTION
Copyright VisionMobile 2014
The platform duopoly is here to stay How has the handset business been affected?
53
Copyright VisionMobile 2014
handset profits Are owned by Apple & Samsung. Why? The duopoly of profit share in the handset industry
54
Copyright VisionMobile 2014
In 2007/8 iPhone and Android created two disruptions
55
Copyright VisionMobile 2014 56
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
Copyright VisionMobile 2014
What’s next for the handset business?
57
Copyright VisionMobile 2014 58
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
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
THE FUTURE OF HTML5: BEYOND THE BROWSER
Copyright VisionMobile 2014
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*
✔
Copyright VisionMobile 2014
Is the future of HTML5 bright?
62
Copyright VisionMobile 2014
Is the future of HTML5 bright? It is, but NOT for the reasons you would expect
63
Copyright VisionMobile 2014
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 ?
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
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.
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014 69
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
Source: VisionMobile
Copyright VisionMobile 2014
For now, HTML5 apps offer a trade-off to native apps
70
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
But the future of HTML5 Is beyond the browser
72
Copyright VisionMobile 2014
HTML5 Is the 3rd choice AMONG MOBILE DEVELOPERS
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
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
Copyright VisionMobile 2014
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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