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[Is profit share overrated as a measure of company viability? Guest author Jay Goldberg takes a contrasting viewpoint to our recent “Profit share trap” article, arguing that profitability has been the key to predicting Apple’s past – and future success.] I like to think I sparked a meme. In 2009, I wrote a analysis comparing the market share of the various handset makers and their respective share of industry profits. At the time, Apple’s had 1% or 2% share of the global handset market, and everyone was writing off the iPhone as an unimportant niche. And by everyone, I mean not just analysts but major companies like Nokia and Motorola. The mobile phone industry had a case of willful ignorance back then, but by looking at profit share versus market share it was pretty clear that something important going on here. Today, this ‘profit share ‘ line of analysis has become very common, some would say overused. Running a basis by looking at a single metric usually ends badly. There are pitfalls in focusing too much attention on profitability, especially when it comes at the cost of making good products and satisfying customers’ needs. Nonetheless, if you have to pick just one metric, profitability is the one that matters the most. Profits matter because they give companies options. I could launch a line of phones today and give them away for free. I could reach 100% market share, but I could only do it once. Profits, not market share or revenue, are what let companies survive. Many argue that Apple is facing a host of problems now: Competitors phones are cheaper; Apple cannot do the web or ‘big data’; low-cost phones from Asia, etc. The list is long. But everyone in the industry faces those problems. Apple has the ability to weather this sea of woes because they have profits. They can use those profits to do more marketing, or buy market share with discounts, or glue $100 bills to every iPhone. Samsung can too, but no one else can. By contrast, look at Blackberry. They are now barely profitable, and as a result analysts are wondering how Blackberry will be able to afford the next product cycle. No one is asking that about Apple and Samsung. Because of their profits those two can weather any storms that come their way. Profitability is the best way to assess the long-term health of a company. You can buy market share, but you have to invest for profitability, and invest wisely. There is no question that Apple needs to come up with ever-improving products and find new ways to inspire customers. But because of their profitability, they have options. Some would argue that as Android phones get ever cheaper and the OS itself gradually improves, consumers will migrate. After all, the functionality of an Android smartphone is ‘good enough’ when compared to that of an iPhone. But I think that misses the point of what Apple is doing. Their goal has always been to create products that are designed to invoke an emotional response. That was clearly on display during the WWDC keynotes, especially with the new TV ads. Apple can afford to do expensive brand marketing because it has ample profits with which to invest. If they had focused on market share years ago, they would be in no position to defend themselves today and would face constraints in their ability to make those kinds of products and those kinds of ads. Ask Blackberry. Or HTC. Or Sony. Or LG. #Apple #handsets #ios #profits

[An AngelList study about the top companies being referenced by startups in their one-line pitching. VisionMobile Sales Operation Manager, Chris Eleftheriadis, shares his insights on how nowadays startups communicate their value proposition to investors] Startups are abundant today – addressing every imaginable user need, and often in unconventional ways. Many of today’s startups, from e-commerce to healthcare, are combining many “business patterns” – social, mobile, media, marketplaces, gamification, reputation systems, and many more. And there lies the challenge: how do you communicate your startup’s value proposition in a one-line elevator pitch? Very often your elevator pitch will determine if you can get a meeting with an investor, or the number of positives from a partner onboarding campaign. This challenge of crafting a short, memorable, meaningful one-line elevator pitch has led startups to use more creative techniques such as referring or comparing to established startup success stories. Call it LinkedIn for X, AirBnB for Y, eBay for Z. As part of our research into ecosystems we asked ourselves an unusual question – Which are the most popular companies that startups are using as a reference or a meme in order to describe what they do? This question led us to some very interesting insights that we wanted to share in this article. We crawled AngelList, the go-to-site for tracking startup activity, to answer this question. To our surprise, we found so many relevant examples of referenced pitching that lead to notable patterns on how innovation is understood and communicated. The most referenced companies In our research of AngelList startups we identified more than 60 companies referenced by more than 1700 startups in their one-line pitches. The top 10 of those companies are already culture memes: they account for an impressive 46% of all startup references on Angelist. Linkedin tops the leaderboard with about 113 references identified with Pinterest and eBay following closely behind with 105 and 103 references. The top 10 is made up of Facebook, Yelp, Instagram, Groupon, Airbnb, Youtube and Amazon. We’ve also created a cool visualisation with the top companies being referred – as well as the startups who are using them to define themselves. Take a look! The Top 9 types of referenced pitching 1. Common. The most common of referenced pitching can be drilled down to 3 similar formats: – X for Y: Yammer for Education. – X meets Y: Yelp meets Hipster meets Foursquare: – The X of Y: The Pinterest of online dating 2. Funny (ironic). Very effective especially in its sarcastic form: – Facebook for the dead. – Instagram for basketball junkies. – Think “Netflix for Grandma” + “Help, I’ve fallen and I cant get up”. – Yelp for medical marijuana. 2.1. Funny (compound). Combining two or more companies: – If YouTube and Twitter made ridiculously good-looking babies. – If Pandora and Facebook had a baby, it would be… – LinkedIn and match.com had a baby who went to law school. 3. But better. In short “we’re doing same thing as them but better” – it’s kind of ironic but I guess it could work with some investors: – Better than Amazon” customer experience for any Brand. – LinkedIn on Steroids. – Search engine that beats Kayak.com’s fares by up to 80%. – VEVO/YouTube/Spotify/Pandora/MobileRoadie/OurStage – but better. 4. Equation. Plain mathematics – can’t be wrong! – (Google x Facebook x Amazon) + (Universal Reviews) – Ebay+Soundcloud= … – FLIMBY=Yammer+Delicious+Gotomeeting+more – Instagram + Trips = … 5. Explanatory. It’s like if the common type was a little bit more precise: – A Spotify with Pandora on top. – Solving the Enterprise Dropbox problem. – Think TripAdvisor but instead of reviewing a hotel you review your street. – What Open table is for restaurants we are for sports venues! 6. For nonprofits. This can be any type of description but explicitly for nonprofits: – Kickstarter on Steroids, tailored for nonprofits – Marriage of Salesforce, WordPress, Constant Contact, Ebay for Nonprofits – Spotify for Donors & Nonprofits – Yammer for Nonprofits 7. Crash collusion. It’s that unpredictable result when you mix things: – Blends Facebook, Pinterest, Google & Twitter creating world’s 1st social shopping network. – SurveyMonkey+LinkedIn+Facebook mashed together. – Think Flipboard and Hootsuite In One. 8. Regional. Same activity as the referenced company but focused on a specific region – in short pure copycats. – Yelp for Brazil. – GetTaxi for Southeast Asia & Middle East. – Kickstarter of the Arab world. – Russian LinkedIn. 9. User groups. Again, same activity but targeting only specific user groups. – TripAdvisor meets 1 million+ airline flight crew. – eHarmony.com for Gays and Lesbians. – Pinterest for MEN. – TripAdvisor for Muslim-friendly hotels. Referenced pitching is a double-edged sword. On one hand, it makes it clear to explain your value proposition and implies a sense of accomplishment. On the other hand, is it really safer to go with the flow and define your startup in terms of another, successful business or separate yourself from the crowd? What emerges from this research is that 18 out of 20 most referenced startups practice a multi-sided platform model. These are marketplaces connecting disparate user groups (e.g. OpenTable connecting restaurants with restaurant-goers, LinkedIn connecting professionals with HR recruiters), running affiliate programs (e.g. Amazon), or exposing business assets to developers via APIs whether short-head (e.g. Spotify apps) or long tail (e.g. Twilio). With 95% of referenced startups being marketplaces, the mechanisms for creating and capturing value in today’s digital world are governed by what we call ecosystem economics. Today’s innovation lies more in business models than technology. – Chris (@abyssnet) #ebay #startup #linkedin #angellist #facebook #pinterest

[Are the smartphone wars about profit share or market share? Guest author Sameer Singh argues that the case for profit is fundamentally misunderstood.] Over the past few days, there has been a lot of noise in the tech media about the supremacy of “profit share” over “market share”, specifically related to Apple’s performance in the smartphone market (but it can be extended to Samsung as well). Most proponents of this argument seem to fundamentally misunderstand the long-term relevance of the “profit share” metric. Let’s make a more educated comparison between the two metrics to understand how each can be used to analyze the smartphone industry. This article was originally published at: http://www.tech-thoughts.net/2013/05/apple-samsung-profit-share-trap.html#.Ua2-jmRgbkx Understanding “Market Share” & “Profit Share” Certain segments of the tech media seem to be obsessed with the profit share vs. market share comparison, with some championing a “ratio of profits to market share” metric. Unfortunately, the two metrics are not necessarily comparable. Market share is a measure of how a limited pool of consumers buy (or own) products from various vendors or platforms. The key drivers of market share are, obviously, competition and pricing (i.e. price segmentation of consumer markets). Even if a market is growing, market share trends give you a fairly good understanding of the platform/OEM dynamics in the industry. Profit share is a comparison of profitability among a set of competing companies. While profit share is also driven by the competition & price segments, it is also affected by dynamics within a company’s own supply chain. Having a high profit share does not necessarily mean that it was “taken” from competitors. It could also mean that it was “taken” from suppliers and/or distributors. This is especially true in the smartphone sector, where most mature market sales are subsidized by operators and supplier margins are squeezed by large OEMs. Since firms do not compete for a limited pool of profits, comparisons between market share and profit share are extremely difficult. Profit Share vs. Market Share: Which is More Relevant for the Mobile Industry? Since profit share does give us a good understanding of the relative profitability of competing companies, it is a good metric to gauge the current health of individual companies (specifically OEMs). But which metric is more relevant to gauge the long-term direction of a platform or an industry? Let’s ask Steve Jobs: “What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share.” As per this quote, circa 1995, Steve Jobs seems to think that market share is the more relevant metric to gauge long-term impact. But there’s no reason for us to take this quote as gospel just because it came from Steve Jobs. Let’s analyze his argument in detail. Historical industry patterns and disruption theory show us that as products improve and become “good enough” for mainstream use, it becomes more difficult to create a strong value proposition by making a “better” product. As this trend occurs, it becomes more and more difficult to maintain a premium over your competitor’s products, product pricing becomes a bigger purchase consideration and brand value suffers. This is especially true in the technology industry, where the pace of product improvement is extremely rapid and seems to be getting faster with each new technology cycle. This would already be fairly clear to anyone tracking the technology industry, especially the smartphone industry. Five years ago, brands like Palm, Nokia, Blackberry and Motorola dominated the industry, but are now barely relevant compared to Apple & Samsung’s dominance. Also, regional smartphone vendors like Huawei, Lenovo and ZTE have risen to prominence in emerging markets and are making inroads into key mature markets. As products become good enough, the software/services ecosystem evolves from being a differentiator to a hygiene factor, i.e. a necessary but not sufficient condition for a purchase. At that point, consumers expect a product to offer all the advantages offered by leading ecosystems and the lack of access to such an ecosystem becomes a significant entry barrier for an OEM (e.g.: Nokia’s struggles with Windows Phone). This is why the platform that offers the lowest entry barriers to OEMs (combination of a strong applications/services ecosystem and low cost of entry) is the one that ends up dominating an industry. In other words, the easiest path to hardware commoditization is the path the industry generally evolves in. Therefore, it is the platform with the greatest market share that has the greatest long-term potential. Based on this, it would seem that Steve Jobs was right about the supremacy of market share, at least for platforms. While profit share and OEM/hardware market share are good metrics to judge the current state of a company or OEM, they are quite irrelevant to gauge the current health or long-term potential of a platform. The Profit Share Trap Profit share in the smartphone industry is currently skewed because of the economics involved. Smartphones sold in markets with higher purchasing power are mostly subsidized, which ensures that today’s major brands dominate. Smartphones sold in markets with lower purchasing power are mostly unsubsidized, which ensures the dominance of low-end phones, and a number of low-end vendors (with far lower profits). This is has been the cause of the polarized profit share picture. But is this structure sustainable as the industry evolves? As smartphones become good enough for both consumers and carriers (there are signs that this may already be happening), purchasing patterns become more dependent on pricing and replacement purchases slow down. As price points drop, emerging market consumers will buy more cheap smartphones, while mature market carriers will attempt to benefit from improved product parity. Some carriers, like T-Mobile, may resist subsidies altogether (the economics in the US smartphone market make this a possibility), while others may attempt to push comparable smartphones with lower subsidy bills. This would benefit smartphone vendors with lower cost structures, i.e. today’s low-end/regional vendors (Lenovo, Huawei, etc.). These low-end vendors could accelerate this process through acquisitions. Since Apple’s pricing is static, its growth and volumes will begin to slow (this long-term trend may be even sharper in the tablet market as the price-demand relationship is more natural, without carrier-driven distortions). There is enough evidence of this already as Apple as struggled to add more operator partnerships at its current terms (including large carriers like China Mobile). Even a “low-end” iPhone may be too expensive to buck this trend. In the case of Samsung, they will be forced to lower prices or face lower volumes (already happening in India & China). As Apple & Samsung’s market dominance is challenged, suppliers will have more potential customers and see greater bargaining power, which would further pressure OEM profit margins. Based on this, it is clear that a polarized profit share picture is a necessity during the early stages of an industry cycle. However, as products become good enough, pricing pressure and supplier bargaining power limits profits. This “profit share trap” becomes more problematic as investors & analysts continue to expect the same, unsustainable level of growth and profitability. The only way to escape this trap is by diversifying (IBM is an example), becoming a services/software/component supplier to the increasingly competitive OEM space (Samsung has the advantage here) or by the riskiest approach – attempting another disruption (Apple’s rumored iWatch seems to be such an attempt). #Apple #handsetmanufacturers #handsetprofits #samsung

[We’ve just completed the largest developer survey to date and the results are starting to come in. Marketing Manager, Matos Kapetanakis, discusses some early insights, focusing on platform mindshare and the role of HTML5] UPDATE: The full report is now available for [vm_form_download link_text=’free download’ product_id=’4062′] Biggest developer survey We’re thrilled to announce that the Q2 Developer Economics survey we conducted throughout April was the most successful to date, zooming past the 6,000 respondents mark, making it the biggest developer survey globally. We broke through the 6,000 developer mark mainly thanks to the help of our 48 Marketing and Regional partners. Together we reached developers from an unprecedented 115 countries, from mature markets, like the US and Western Europe, to emerging markets, like Brazil, Russia, India and China. To reach developers on a global scale, we translated the survey in 10 languages (Arabic, Chinese, French, German, Japanese, Korean, Portuguese, Russian, Spanish, and Swedish), aided by our local partners, who helped us reach the local dev communities. Thanks to a partnership with Mobile Monday, we also promoted through over 20 local MoMo chapters in Asia and Oceania. And for those of you who took our survey and are eagerly awaiting the results of the prize draw – here are the winners! 1. One new iPhone 5 (won by @Adrianod1993) 2. Two Samsung Galaxy SIII (won by @devitry & @Sourav_Lahoti) 3. Two Nokia Lumia 920 (won by John P and Serge J) 4. Two BlackBerry Z10 (won by Shaun D and @99CentsApps) Exclusive prizes for respondents who also subscribed to our developer panel: 1. One AR Drone 2.0 (value USD 300 – won by @to_pe) 2. One Nest Learning Thermostat (value USD 250 – won by Frank D) 3. One Nike Fuel Band (value USD 150 – won by Branko N) In the next two months we ‘ll be diving into the results of the survey. The Developer Economics state of the developer nation report will be launched in July, as a free download thanks to the sponsorship by BlackBerry, Mozilla, Intel and Telefonica. This 5th incarnation of the Developer Economics report will feature the latest market trends, including Developer Mindshare and Intentshare, platform selection criteria, revenue models, revenues per app and many more. To whet your appetite until the July launch, you can read the previous, 4th edition of the Developer Economics report. To be the first get the Developer Economics 5th Edition report, sign up for our mailing list! Sneak peek: Android, iOS duopoly entrenched – with HTML closely behind Our early results from the Q2 app developer survey are starting to come in – starting with the Developer Mindshare Index 2Q13, i.e. the percentage of mobile developers using each app platform. As you can see in the graph, the use of Android and iOS is still predominant, with a few percentage points of change for both platforms when compared to our 4Q12 survey. You’ll also notice the continued growth of HMTL as the third horse in the platform race, slowly creeping up on iOS. These trends have been steady over the past year – but what do they mean? The continued positioning of Android and iOS as the top two platforms is a no-brainer: Android has the largest installed base and iOS enjoys the highest revenue potential overall – so why does HTML5 continue to grow? HTML5 grows in popularity as large groups of web developers are leaping over the ever-shrinking chasm from desktop to mobile apps. Moreover, HTML5 allows for the development and deployment of apps that work across different platforms, usually at a lower cost of developing HTML apps, and for most app categories. About two thirds of developers targeting HTML mobile develop web sites or web apps while just under a third are using PhoneGap. Stay tuned for more analysis on the route to market for HTML5 apps in the full report. HTML5 has wide industry backing across telcos, handset makers and platforms (Firefox OS, BlackBerry WebWorks and Tizen) going for it. At the same time, there are certain key disadvantages, namely access to native platform APIs, as well as the lack of a unified development environment and quality debugging tools. HTML5 is now challenging the duopoly as a development or deployment platform – with the route to market varying across browsers, hybrid apps (e.g. PhoneGap), JavaScript converters (Appcelerator) and dedicated platform frameworks (BlackBerry WebWorks). We still see a growing diversity in the go-to-market approaches for HTML5 developers, and one which we believe will continue to expand. We‘ll be analyzing the HTML vs. native tradeoffs in a future report, but in the meantime – what’s your take on the HTML vs. native debate? Sneak peek: Windows 8 and BB 10 are gaining traction As you can see from the early Developer Mindshare graph, Windows 8 and BlackBerry 10 have already attracted a reasonable amount of developer attention. What’s important here is that BlackBerry developers have been quick to migrate from the old legacy (5,6,7) platforms and adopt the latest, BB10 platform. What’s interesting to note in the graph above, comparing the use of BB platforms between the two latest surveys (4Q12 vs. 2Q13) is the fact that the BB 5,6,7 platforms are quickly fading into oblivion, with BB10 mushrooming to a substantial 15% mindshare in just 6 months. The mindshare of BB10 is slightly less than that of BB 5,6,7 six months ago, but the platform is still gaining in strength, as our data for the platforms that developers plan to adopt seem to suggest, so there’s room for growth. The extent to which the new BlackBerry platform can grow in Developer Mindshare depends primarily on the volume of devices that BlackBerry will manage to sell in the coming months, given that reach is the primary reason for platform selection. Competing against Windows Phone and BlackBerry 10, new entrants Firefox OS and Tizen are slowly gaining support from a few handset OEMs and network operators. Another open question is whether the HTML5 platform proponents – Tizen, Firefox OS and BlackBerry WebWorks – should band together towards a single HTML5 implementation or keep pursuing independent and conflicting strategies. What’s your take? Full report available in July We’ll be stopping our sneak peek here – stay tuned for the full report for more (out in July)! There, you’ll find an in-depth analysis of major trends, such as the shifting balance of power between the top platforms, devices vs. tablets, revenue models, as well as the main factors affecting app monetization. If you haven’t already done so, subscribe to our mailing list to receive word of the report publication. Until next time, – Matos (@visionmobile) #ios #html5 #mobiledeveloper #Android #windowsphone #Blackberry

[How do ecosystem economics shape the mobile competitive landscape? What are the key performance indicators and how should app ecosystem stakeholders evaluate opportunities? Andreas Pappas seeks answers to these not-so-trivial questions in this, first post, in a series of blog-posts on ecosystem economics.] Measuring ecosystem performance Since 2008 we have witnessed the rise of mobile app ecosystems – iOS, Android, BlackBerry and Windows Phone giving rise to millions of apps and billions of smartphones. We have also witnessed the collapse of legacy mobile platforms – Symbian, Java ME and BREW. This has led to this shift in mobile platforms, and the rapid growth of smartphones. The cause of this upheaval in the mobile and software industry had less to do with the openness of Android or the user experience of Apple and more to do with a change of business models. Legacy mobile operating systems (e.g. Symbian) were designed around handset makers’ business models. As such, they were optimised to improve supply efficiencies in terms of cost and performance. In contrast, new mobile app ecosystems (e.g. Android) are being designed around developers’ business models. As such, iOS, Android and Windows Phone are optimised to create and sustain demand from both users and developers. The triumph of iOS and Android is a testament to the superiority of ecosystems economics over legacy business models. The demand-led growth of app ecosystems has led to a non-linear growth of smartphone shipments that surpassed feature phone shipments for the first time in history. In addition, the winner-takes-all property of ecosystem economics has led to the Apple-Google duopoly. Today‘s platform landscape resembles the desktop OS market of the 90s which was dominated by a single platform, Microsoft Windows. The elusive nature of ecosystem economics The economics and business models of app ecosystems are based on network effects. By connecting users to developers, ecosystems create network effects, that is, they drive demand between users and developers: the more users, the more handsets, and therefore the more developers, the more apps and so more users. It’s a positive feedback loop that gives non-linear growth properties that outcompete traditional linear economies of scale. Network effects take place not just between users and developers, but also between all four sides of app ecosystems, including handset manufacturers, and network operators. The next chart shows the network effects at play within the iOS ecosystem, and the value added and captured, by each side. Network effects are just the foundations of ecosystem economics. There are many more properties of ecosystem economics such as external subsidies, exit barriers (lock-in), stored value, non-linear growth, winner-takes-all effects, and many more. We will examine ecosystem economics as part of a future research paper – any comments on what we should include? Because of their non-linear growth, ecosystem economics lead to winner-takes-all outcomes and highly concentrated markets. The first players in the market are able to inhibit the growth of latecomers by having disproportionately fast growth, but also by introducing exit barriers. Today’s iOS and Android duopoly, and the difficulty that followers like Windows Phone, BlackBerry, Bada, Tizen, and Firefox OS face in catching up with the leaders, is a direct result of the economics driving mobile ecosystems. The only way to compete with Apple and Google is not head on, but by changing the basis of competition or by diluting the control points. How can this be achieved? We will expand on these options in a future post. While we are convinced that ecosystem economics dictate the power play in mobile app ecosystems, the nature and the mechanics of such economics are not well understood. We all talk about ecosystems and network effects but rarely see these outlined, explained and quantified. Understanding and quantifying ecosystems economics is the key to understanding the competitive landscape of today’s app economy, assessing the value of an ecosystem and making informed decisions regarding the long term viability of platforms and the investment opportunity for developers, enterprises, handset OEMs, network operators and consumers. We have developed a unique understanding of mobile ecosystems by modeling ecosystem economics and measuring developer economics.  In our effort to improve our understanding and our ability to assess the success or failure of an ecosystem, we are building a model that takes into account a variety of hard data and perceptions to determine an ecosystem performance index. The aim is to capture in a metric, the relative performance of each ecosystem against each other, in a way that also conveys information about its long-term viability and the size of the investment opportunity for developers, enterprises, handset makers, network operators and consumers alike. Ecosystem performance There is an abundance of data out there that points to the relative strength of each platform: every once in a while Apple and Google announce app-store data such as apps available, downloads, activations and money paid to developers to highlight their dominant position in the market. Analytics firms publish metrics around user engagement, monetization or eCPM for each of the platforms they monitor. VisionMobile measures the Developer Mindshare Index and developer revenues via our Developer Economics research and benchmarks ecosystem characteristics through our Market Sonar service. Such metrics provide a glimpse of ecosystem performance and provide a great service as marketing messages for headline generation. But how important is all this data to ecosystem stakeholders? How are we to assess whether platform A is in a better position than platform B and what momentum each platform carries going forward? In other words, if an enterprise were to invest in one of these ecosystems, how would they go about evaluating them and reaching an investment decision from the perspective of users, partners or developers? Ecosystem value is an indicator of the capacity of an ecosystem to create value for its stakeholders. The stakeholders of a platform include all those that capture and add value to an ecosystem, including consumers, enterprises, developers and businesses investing in or supporting the ecosystem (e.g. handset makers, operators, platform vendors). In order to measure this value we first need to understand how value is added to and captured from an ecosystem and to define performance indicators that are linked to the value of an ecosystem. In the following sections we will look at each stakeholder group separately in order to determine the performance KPIs that matter to each group. Ecosystem value to users Back in the day of the feature phone, consumer choice focused on which phone was best in serving four use cases: making phone calls, sending texts, taking photos and storing contacts. Differentiation across these use cases was quite limited among devices so other factors such as cost, design, carrier tariffs and coolness factor weighted much more on users’ decision process. With smartphones it’s not just about creating value around these four use cases, but more about the number and the value of use cases that an apps ecosystem creates for the user. Nowadays phones are more like tools: flashlights, compasses and spirit levels. Phones are also media players, TVs and game consoles using via apps/services such as iTunes, YouTube and Angry Birds. Users now select a phone based on thousands of use cases that are realized via a million apps. It is not just the app count that matters, but also the quality, diversity, reliability, robustness of the apps and the ecosystem. The right mix of these ingredients is the key to creating user value and tapping into the new type of ecosystem economics. At the same time, enterprise users value a different set of features and ecosystem metrics with security and separation of business/personal accounts featuring high on the list. Total cost of ownership is also important to enterprises that use a mobile platform to optimise their business processes. The diversity of handset price points is also a significant ecosystem metric. Android has achieved wide adoption partly due to the availability of Android handsets from $50 to $500 points, while iOS covers mostly the top range. In western countries, operator subsidies can have a significant impact on consumer choice as they make devices more affordable to consumers at the cost of a contract lock-in. At the same time, in the price-sensitive, emerging markets that now drive smartphone growth, subsidies rarely apply. Regional variations may have a significant impact on the overall value of a platform to users; availability of apps and services in local markets varies and therefore the utility of a platform may also very accordingly. In China, for example, Android is usually stripped of most or all Google services such as access to Google Play, thus diluting the value proposition of Android in this market. Apart from the factors that attract users to a platform there are also inhibitors that prevent consumers from switching to a new platform. These relate to user investment in a platform – including the experience adaptation tax (i.e. the cost of adapting to a new UI), the cost of repurchasing apps on that platform, the need to seek alternatives where apps don’t exist. Ecosystem value to developers Our Developer Economics research has found that when selecting a platform, the most important consideration for developers is user reach, which is an indicator of the addressable market for developers. It is important to note that not all developers capture value in the same way; so other factors such as familiarity with the development environment, learning curve and cost of development are also important criteria for developers when selecting a platform. Ultimately, though, app development is a business and monetisation is critical to the mid- to long-term success of this business. The number of enterprises and verticals that adopt a platform is also a key source of developer value as enterprises and verticals that commission apps on a platform create business for developers. Moreover, availability of developer tools and services can act as attractors for developers as they minimise onboarding friction and facilitate development, marketing and monetisation: Cross Platform Tools are a special case here, allowing developers to work across platforms and therefore damping the effect of platform switching costs; however, lack of support for a platform among popular CPTs may have an adverse effect on developer onboarding. Discovery, distribution and monetisation services have also become essential elements of mobile app ecosystems because they reduce friction points between developers and users. At the same time, absence of such mechanisms (as in the case of mobile web apps) can be detrimental to the future prospects of a platform. However there are also several inhibitors for developers. For example, capital investment (e.g. as required for iOS development), high development costs, poor local reach of a platform and insufficient monetisation opportunities will deter developers from adopting a new platform or will drive them away from one platform in favour of another. Development costs are a key element of the ROI equation and keeping these under control is a priority among developers as indicated through our Developer Economics surveys. Development costs may creep because of additional quality controls, marketing spend etc. Deriving platform value The analysis presented above touches on just a few of the indicators that determine the performance and value of a platform and is by no means complete. In our effort to model platform performance, we’ve identified around 40 KPIs, i.e. indicators relating to how platform stakeholders derive value from a platform. Building a model for platform value that takes into account all these indicators is of course non-trivial as not all KPIs are readily available or easily measurable and the weight of each KPI on the overall platform value is difficult to establish. So, to start with we’ve identified six KPIs that we consider important to the health and viability of an ecosystem and scored the two major platforms across these KPIs. While these numbers are important to different stakeholders in the app ecosystem, it is not obvious how much each of these contributes to the overall value of a platform. So while monetisation is better on iOS, developer mindshare is higher on Android, suggesting that reach is more important than revenue. At the same time, developers on iOS earn $7.4 per million users while developers on Android earn just $2.11 per million users, suggesting that developer value increases much faster on iOS than for Android for each new user added. This is an active area of research that we‘ll continue reporting on. Meanwhile, do let us know your thoughts and which factors you think are most important when considering platform value. What have we got right? What have we missed? Andreas @pappasandreas #Android #ios #mobileecosystem

George Voulgaris, Business Partner, presents Developer Economics 2013 and Insights on Private Data on the Cloud at the FIA2013 conference in Dublin on May 9th and May 10th. Get in touch for a meeting!

[The next smartphone disruption comes not from the power struggle between Apple, Google and Amazon, but from silicon. Guest author Jay Goldberg analyses the Mediatek phenomenon and discusses how the smartphone power basis is moving further down the stack] The ‘platformisation’ of basebands The word “platform” gets used often in the mobile business. It is a heavily loaded term, which gets thrown around a lot, up there with ‘cloud’ and ‘open’ in terms of repeated, overused terms. Despite this linguistic abuse, there is still a lot of value in having an actual platform. Businesses seek to build platforms to create some form of lock-in. Use one platform and it can become hard to move off it, creating repeat business for its owner. A platform can block out competitors, bind customers in and create valuable partnership opportunities. In the mobile industry, the most widely known platforms are probably the operating systems for smartphones, like iOS and Android, where we commonly speak of ‘platform wars’. However, there is another layer of platforms much further down the phone stack that can cause as much disruption to the smartphone industry as the iOS/Android software platforms. Basebands are to mobile phones what CPUs were to PCs: the key piece of silicon that end up driving most of the other hardware choices for a device. Technically speaking, a baseband is a modem that controls the communications between the phone and the carriers’ base stations. However, baseband vendors like Broadcom, Qualcomm and Mediatek have pursued an integration strategy for many years. The end result of this is that when phone makers buy a baseband today they are also typically buying that baseband, the radio transceiver and increasingly the applications and graphics processor for their device as well. The baseband vendors have created a platform from this one product. These vendors now commonly provide tools, testing and help with carrier certification. The transition of mobile basebands from a product business to a platform business took place about ten years ago in mobile, largely coincident with the rise of 3G networks. It was this ‘platformization’ of the business that drove Texas Instruments, once the king of basebands, out of the market. Today, the best known baseband vendor is Qualcomm, who designed and then reaped the benefits of a platform approach to handset silicon. Prior to Qualcomm’s arrival, much of the software that went into basebands (aka the protocol stack) was written by the handset vendors themselves. This required hundreds if not thousands of engineers, and hundreds of millions of dollars in annual expense. Qualcomm did much of this software work, freeing up its handset customers to deploy capital elsewhere. And went on to become the leading handset baseband vendor for 3G phones by a wide margin. However, the transition to platforms continues. The Mediatek phenomenon While Qualcomm is the best known baseband vendor they may not be the largest anymore. That title arguably goes to Mediatek of Taiwan. As the dominant 2G baseband vendor Mediatek took the platform approach one step further and in doing so created one of the most important forces in mobile today. Mediatek grew up in the one of the most competitive industrial landscapes there is – the consumer electronics supply chain in Taiwan and China. They sold chips for DVD players and optical drives for many years to low-margin assemblers of PCs and other electronics. Through some trial and error, clever thinking and luck they created a new business model for the cell phone industry. They recognized that their traditional customers had very limited engineering talent. These were typically companies with a few assembly lines capable of putting chips on a board and wrapping that board in plastic. None of these companies had the ability to design cellular phone software or build pretty user interfaces. These companies relied on their chip suppliers to provide basic software like device drivers and user interfaces. So Mediatek took all that software work and bundled it into a complete package which they called a reference design for mobile phones. These reference designs were essentially blueprints for building a basic, 2G feature phone. Anyone with a 10-engineer team could buy a Mediatek chip and this would come with everything they needed to build a phone. Mediatek even went a step further than Qualcomm. At the time, in the early 2000’s, most of Qualcomm’s customers were still large handset makers who had the ability and desire to build some of their own pieces of software. Companies like Motorola no longer had to build the protocol stack for their basebands, but they still wanted to customize each device in certain ways. Mediatek’s customers did not even want this much. Mediatek added device drivers, suggested specific components parts and laid this all out. Over time, they also added a huge range of software options that gave their growing customer base some ability to customize phones in certain ways like local languages, color screens, Java licenses or Bluetooth. This was far less customisation than the big handset vendors could produce but required almost no customer engineering. Mediatek was just looking for a new product to sell to existing customers, but they opened the door for all these small assemblers to begin selling inexpensive phones. This group came to be called the ‘Shanzhai’ or ‘grey market’ or ‘white box’ handset supply chain. Today, we call them branded Chinese handset makers, and they contribute over half of the phones sold each year. I have greatly simplified the history here but I would refer you to the works of Professor Willy C. Shih of Harvard Business school who has written extensively on the Mediatek phenomenon. Most mobile industry pundits in the US and Europe still underestimate the size of the Mediatek ecosystem. Mediatek powers over 500 million handset units every year – which means that Mediatek powers more handsets than Samsung makes. By my latest estimate, major third party analyst firms still undercount Mediatek and its competitors by 300 million to 400 million units a year. This is a big number to miss, but it is hard to get an exact count of Mediatek’s customers as the ease-of-use means that the barriers to entry are very low, and there are ample new entrants (and exits) all the time. Shifting the balance of power in the platform market Mediatek has not enjoyed this opportunity all alone. In China and Taiwan new competitors have popped up, notably Shanghai-based Spreadtrum and RDA Micro and Taiwan-based M-Star (which is now being acquired by Mediatek). Nor has this lesson been lost on Qualcomm which is actively building its own presence in this market with its own set of Qualcomm Reference Designs (QRD). There are three important implications of Mediatek’s business model. First, Mediatek demonstrate that handset vendors do not have to own their own silicon. In the US, the success of Apple and its own A5 line of applications processors has created the impression that successful handset companies need to design their own chips. Apple’s A5 has all kinds of iOS specific functions burned into silicon which gives the iPhone certain performance and probably cost advantages. But Apple is, as always, a special case, as few other vendors have the scale, or the margins, to do this. There are still thousands of Mediatek customers making a good business selling phones using off-the-shelf silicon. Second, the handset business is now, more than ever, a race between time and innovation. The major handset vendors, other than Apple and Samsung, are generally lacking in profits. There is a yawning low-end tier of handsets. Companies that cannot innovate in some way will be relegated to competing with the Mediatek ecosystem, competitors who have very low labor costs and limited R&D budgets. If you think your business is competitive, imagine competing in a market where the average selling price for a feature phone is $20, retail. This is particularly important now because Mediatek and Spreadtrum both began selling Android reference designs last year. We have seen a corresponding drop in handset prices in many markets and a surge in smartphone adoption globally. This is great for consumers but very challenging for handset vendors. And this is by no means a China-only or emerging markets phenomenon. Mediatek-powered phones are now common in Europe and steadily creeping into the US. Third, Mediatek’s adoption of Android should be seen as a key shift in the industry’s balance of power. For years, one of the key attractions of a Mediatek reference design were its software and UI capabilities. This brought Java into many new phones, and is probably still a decent piece of licensing business for Oracle’s Sun unit. Mediatek and Spreadtrum adoption of Android gives that OS a virtual lock on the China handset ecosystem. We have witnessed first hand how other OS offerings have dropped this particular ball and now have little hope of fighting their way in. I detailed this effect recently highlighting the growth of low-end Android devices. In my view, the volume that the China handset ecosystem now brings makes it a hugely important block in determining other, complementary segments of the industry. Mediatek and Spreadtrum, via their reference designs, wield the vote for that entire block in making software decisions going forward. This gives them considerable weight in the industry, but weight which has yet to be fully felt by industry players in the US and Europe. Mediatek’s rise makes for an important study in how power and economics are shifting in the mobile industry. Mediatek went from shipping 10 million smartphone reference designs in 2011 to 110 million in 2012, with 200 million projected for 2013. But a lot can still change here. Qualcomm looks set to give Mediatek a serious run for the money. More handset vendors, notably Huawei and Samsung, are looking to build their own silicon and may yet succeed. Nonetheless, Mediatek and the whole reference design model is still in early days of reshaping the mobile industry. And reshape it it will. – Jonathan (@jaygoldberg) #Android #chipset #lowendsmartphones #mediatek

We’d like to present our latest infographic, based on the latest Developer Economics report – themed around developer tools. This infographic presents some of the key findings from the published report (which is available for download here). 72% of developers use Android, 56% use iOS – HTML is the third most popular choice among mobile developers, 50% of whom use the HTML-based set of technologies as a deployment or development platform 67% of developers are below the “app poverty line” of $500 per app per month –  BlackBerry and Windows Phone lagging behind in terms of monetisation, but leading platforms also have issues. 61% of iOS and 68% of Android developers are below the poverty line 74% of developers use two or more platforms concurrently – Multi-platform offers much better monetisation potential, as developers who use more than one platform have higher revenues than those who just use one Advertising is the most popular revenue model, used by 38% of developers – but subscriptions pay more Ad services are reaching mass adoption for developers – 34% are using at least one ad-service tool – 90% of developers use at least one third-party tool or service, with an average of 1.47 tools used concurrently Want to be part of the next Developer Economics? Our online survey is still live (closes May 6 2013) – have your say and claim one of our great prizes! (like our infographic? feel free to embed it – see codes below the post) #ios #mobiledevelopers #appmonetisation #Android #windowsphone #Blackberry #html

[With so much excitement about smartphone growth, we often forget that the biggest opportunity still lies ahead, in connecting the next 5 billion smartphone users to Internet and apps. Guest author Tom Christian Gotschalksen talks about the idiosyncrasies of emerging markets, and the business model innovations that are needed to close the smartphone gap] Smartphone growth has taken the wireless market by storm, having exceeded the one billion mark back in October. The US and western European markets for smartphones are about to saturate, and with those also the related industries of apps, content and mobile Internet connectivity. Now US carriers are looking for growth outside of US, and Internet heavyweights like Twitter, Google and Facebook are targeting emerging markets where the remaining five billion users are still to connect to apps and the Internet. In Asia, Africa and Latin America there is a wave of new, aspiring digital natives. They are enabled by $50 smartphones, and the burgeoning second hand smartphone markets, creating a huge demand for Internet services, apps, games, and Internet connectivity. But there are two important challenges in connecting the next 5 billion smartphone users to the Internet and apps. It’s the business models behind data and handset subsidies, which are in dire need of innovation. The cultural gap Smartphone users in the west have been influenced by the services they were exposed to on the fixed Internet. Take for example, the Nordic European youths. They have been the leading mobile innovators for two decades, who grew up with the Internet, and developed strong preferences for what services are used for what. Search often equals Google, mail often equals GMail, and messaging often equals SMS. In contrast, new smartphone customers in emerging markets are very often “Internet virgins”. In these emerging markets, the barriers to smartphone and Internet growth are very much about price and affordability, but also about understanding cultural differences. Handset subsidies: Mind the affordability gap Handset subsidies have been an important factor in getting new users to adopt smartphones in the more mature European and US markets. The subsidy model takes much of the credit for the rapid smartphone growth, not only for handset manufacturers, but also for the connectivity, services and apps industries on top of smartphones. The handset subsidy model also works in emerging markets, but its efficiency can be improved by adjusting to specific emerging market factors. For example, the affordability gap for different segments is a lot bigger than in classic mature markets. Many international network operators have lost revenues by failing to realise that their market is both a mature market, and an emerging market at the same time – for example, in an emerging market a small percentage of smartphone heavy spenders can be huge in terms of share of customer revenues, but are often underserved. At the same time, Internet services companies like Facebook and Google have oftentimes underestimated the growth journey from a free rudimentary service (e.g. Facebook Zero) to a paid, fully-featured version of the service, failing to guide customers through to a better experience as affordability and willingness to spend increases. What’s your take on this? For handset subsidies to adapt well from western markets to emerging ones with higher affordability gaps, a more fine-grained subsidy model is needed. In a typical subsidy agreement between a device manufacturer and a network operator, the subsidies are fixed per customer. This is directly counter-productive, as it doesn’t consider variances in the affordability gap. Smarter operators implement a scalable strategy for subsidies taking into account not only customer information (individual customer profitability data), but also advanced demographics to diversify subsidy levels based on neighbourhood characteristics. Better estimates for customer profitability (and therefore subsidy levels) can be derived from the key services spend. A more fine-grained subsidy system will benefit the entire ecosystem – device manufacturers, mobile operators and Internet service companies, but will also require better cooperation and coordination between those parties. Retailing data: fixing the mobile Internet Mobile data tariffs are another typical example where most users are offered the same price points regardless of the value that data access has to them. For more than a decade, network operators have devised complicated pricing schemes, designed to decrease price transparency and to lure customers on to more profitable plans. The challenge is that these pricing schemes are seldom rooted in increasing value for the customer, and are inflexible by design to avoid cannibalisation of core telco services. That again limits the opportunity to grow with the customer as their value of using the services increases. The retailing of mobile data access is broken, and there is a substantial opportunity to develop better tools to measure the value of a specific action for each customer, so that discount systems can be applied to better deal with the gaps in affordability and value that we see in emerging markets. Opera WebPass (an activity I was involved in) is a promising step in the direction of getting retail tools in the hand of network operators, so that they can start to fix their retailing system for mobile data. The tool differentiates itself from the classic “stick” model (such as deep packet inspection) by providing a “carrot” model, i.e. giving users choice. WebPass allows operators to retail mobile data in small increments, and in a way that adds user value – e.g. by charging $1 for 1 hour of Facebook access. It also closely aligns with the app store pay-per-use model already known among smartphone users. Combined with advertising tools it creates opportunities to introduce trade-offs as part of the purchasing process. Bundles can add further pricing flexibility: for example, an operator that has seen five one-hour passes to Facebook being bought by one user can introduce a 30% discount on a week pass at the next purchase. Moreover, the data provided by Facebook about the user’s social graph could lead to offering a discounted top up messaging pass based on many friends using messaging apps. More scalable and flexible data retailing, utilising customer value metrics should lead to better pricing, increasing affordability for new customer segments, better tools for developing engagement, better profitability, and better yield management of network resources. Some network operators are already on this ride, investing heavily in CRM and analytics systems from their trusted vendor partners. The challenge is that these systems are incredible costly, and that local operator deployments limit data harvesting to fewer transactions, leading to both less data for analysis as well as low scalability and high cost. The Asian culture of micro top-ups The cultural differences between western and eastern markets also play an important role, especially as the Asian culture has a different view on the future. These cultural differences manifest in people preferring prepaid (top-ups) over post-paid subscription models. In many Asian countries customers are topping up their accounts on a daily basis, rather than weekly and monthly as you see in western countries. Micro payments and micro top ups require an extensive retail network. Moreover, given the lower credit card use, cash is the only viable purchasing mechanism in many of these societies, which becomes a significant cost in the model. The smarter operators are reinventing their retail models to focus not only on provision levels for the retailer, but also on how fast cash flows back to the retailer. One of the world’s most advanced retailing systems is run by an Indian Operator, allowing hundreds of thousands of bicycle retailers to sell top ups around the country with a same-day transaction turnaround. The system minimizes cash transport. Provisions and bonuses are usually awarded electronically to the retailer in the form of top up minutes in the next day morning, and are converted to cash in the pocket of the retailer with his first sales that day. The system incentives retailers to sell the Indian operator’s SIM cards above those competitors, since the bicycle retailer has money to buy food for their family that same day. The Asian culture of micro top ups represents a challenge for the subsidy model, as it means people tend to shy away from contracts. In the more extreme cases you will find people carrying 5-6 SIM cards, which have a stored value similar to that of credit cards in western markets. It is difficult to sell phones with contract time and expect recurring revenues, as users swap SIM cards in and out, depending what SIM card offers the best rate for what they want to do. To become the “SIM card of choice”, network operators have been experimenting with two discount pricing models to retain subscribers. Firstly, a classic model where the user receives bonus minutes based on loyalty. Secondly, a more radical model where the user receives discounts during the day requiring the SIM card to be in the phone for them to be received. Twitter as a discovery service New models are also being introduced to grow revenues smarter, through basic free offerings like Google Freezone, Twitter Access, or Facebook Zero, combined with top ups on top of those. Twitter is a good example given that as much as 40% of all tweets contain a link. Twitter is, in that case, not content per se, but rather a discovery service. Once available freely, Twitter becomes a shopping window with a continual flow of reasons for the subscriber to get on the Internet. The challenge in unlocking the potential of this Twitter-as-a-discovery-service model has so far been the legacy operator billing systems. This is a hard landing for the user who clicks a Twitter link and is met by a price point. New billing functionality is required to develop this model further, which can borrow ideas from the advertising industry in converting clicks to transactions. It means presenting the right deal to the right user, monitoring anything from interest to clicks to transactions, and learning who responds to what. It will certainly mean more fine grained use of discounts as well as individualized discounts and offerings. The paradox of emerging markets As markets become more saturated, competition between network operators expands from winning user share to winning revenue share. An Asian operator that was bundling WhatsApp in its smartphone offering discovered that the bundle drove increasing revenue share by tapping into a segment of BlackBerry users. BlackBerry users in Asia are high spenders, sometimes spending three times more than average. For those users, BlackBerry messenger became both a messaging and community tool. When Apple launched, parts of BlackBerry-only user circles “defected” to iPhones. As BlackBerry Messenger was not available for iPhone users, users in BlackBerry circles needed a new messaging tool to reconnect to those defected iPhone users. WhatsApp hit that need and the Asian operator used a WhatsApp bundle to become far more attractive than its peers in that profitable BlackBerry user segment. The example shows that most emerging markets are both emerging and mature at the same time. The lack of this understanding has led many operators to underserve the higher spending smartphone segments. International operator groups operating in many Asian markets have had a hard time developing products for the more profitable customer segments as they present a small opportunity on a market by market basis. However, if you apply the Internet scale product model, this presents a sizeable revenue opportunity for telcos. The challenge is that telcos do not have products themselves for these segments and therefore rely heavily on partners to serve them well. Moreover, operators partnerships do not scale well across geographies, and so partnerships become messy and inefficient for Internet service companies not setup to deal with hundreds of different operator systems and requirements. Compensating for network quality Another dimension to consider is the often poor network quality in emerging markets. This is a consequence of the need to build low-cost networks that must remain profitable with the bottom-of-the-pyramid segments. In addition, there are other infrastructure challenges, like power outages, inefficient frequency and spectrum allocations. This network quality challenge is fundamental, and doesn’t magically go away by adding 3G or 4G. Opera Mini’s growth to over 200 million active users (50-60 million on Android), has a lot to do with solving issues with unreliable networks in Asian markets. The Opera Mini browser reduces traffic and caches content making network quality issues almost disappear. It goes to show that customer experience needs to be addressed across the chain, not just within the operator CTO domain. As network capacity increases and usage grows, the gap between peak hour and off peak traffic increases. As such, the cost structure of running a mobile network is very much related to peak capacity, implying that there is a lot of capital that is not working outside of peak. This calls for operators to start thinking better in terms of optimization as well as yield management. Combined with need to use discounts smarter, growing ARPU and developing customer profitability, more dynamic pricing and capacity utilization tools are needed. The next 5 billion of connected consumers The key takeaway from emerging markets is that the business model innovation for devices, services and connectivity products, is still is in its early infancy. There is a huge need to remove friction, increase flexibility, and become more analytics-driven in pricing and distribution. Pricing of not just handsets, but also retailing of network connectivity will be a key element in this development going forward. Companies who understand the barriers to use of mobile services in emerging countries are not only well positioned for future growth, but more importantly positioned to shape user behavior for the future. Operators and Internet service companies are both important pieces in connecting the next 5 billion smartphone customers. At the same time, they have still not found a lean way of co-producing the right customer experience for these users. In western markets, the global, scale-centric Internet model and the legacy local telco model exist side by side. The business model of almost unlimited data subscriptions avoids the friction between service providers and telcos. Emerging market characteristics challenge this model, increasing the friction, and force the Internet service companies into more integrated business models with telcos. There is an important open question: How big of an impact will the smartphone growth in BRIC countries – and the resulting behavioural changes in consumers – have on global innovation. The lack of market understanding and sometimes arrogance, might again shift the Mobile Innovation hub from Silicon Valley to Asia, the same way we saw the shift from Northern Europe to Silicon Valley five years ago. US Internet companies are global companies in terms of products, revenues and customers, but the very central western leadership and development structures will need to learn or diversify, to keep up the pace of innovation now accelerating in those emerging markets. These are not technology questions. They are about market leadership and willingness to change from within how companies like Facebook, Google and Twitter run their service development. They are about how willing are operators to embrace the future opportunities rather than trying to preserve their legacy business models. The change has just started, and it is about enabling the next 5 billion of smartphone consumers. – Tom Christian @tcg1301 #businessmodels #dataplan #smartphone #telcos

We’ve just launched our latest Developer Economics survey. If you’re a developer take the survey, have your say on top mobile platforms, web vs. native & more and win one of many prizes. If you’re not a developer, help spread the word! [Tweet this]

[How do app developer revenues vary by country, or platform? Does the number of platforms make a difference to app revenues? Which models bring in the most revenues? We revisit our November analysis of app monetisation with more insights from our Developer Economics 2013 survey across 3,400+ developers – while launching our latest survey, which is available here] Back in November, we looked at which apps make money based on research on how app revenues vary by platform, app category, country and more. In this article we update our analysis on app monetisation based on the latest research from Developer Economics 2013 across 3,400+ app developers, including analysis that did not make it into the report. We ‘re also proud to launch our very latest Developer Economics survey, which reaches across thousands of app developers and provides the data for our famous state of the developer nation reports. Thanks to the sponsorship by BlackBerry, Mozilla, Intel and Telefonica it possible to provide these reports and additional insights, for free, to the entire mobile community. Take part in the survey, spread the word and help us drill deeper into the app economy and what makes it tick. We have prizes aplenty for developers, with 7 devices up for grabs (one iPhone 5, two Samsung Galaxy SIII, two Nokia Lumia 920 devices and two BlackBerry Dev Alpha handsets) – plus an AR Drone 2.0, a Nest Learning Thermostat and a Nike Fuel Band for participants who also subscribe to our developer panel. Last, but definitely not least, our friends at Bugsense are giving away one month of free crash reporting to each and every participant. [ab_testing prettylink=’blogDS13′] Developers in North America lead the revenue leaderboard We’ll start by taking a look at income distribution by the region where app developers are based. Last time we saw that US developers earned almost double the revenue of UK developers. Based on our Developer Economics 2013 data, North America (and particularly the US) is still in the driving seat of the mobile app economy with developers in North America generating about 30% more than their european counterparts, who in turn generate 47% more revenue than developers in Asia. To some extent higher revenues for NA developers are explained by higher consumer spending in the US and higher penetration of iOS, which as we will see later on, still generates higher revenues than other mobile platforms. Note that across this analysis we are restricting our sample to mobile app developers, and have excluded the top 5% of revenue earners in order to minimise the effect of outliers. While app development activity is booming in Asia, the average app-month revenue is quite lower than in the US and Europe, although developers in Asia develop, on average more apps and use more mobile platforms. As we explained in the previous article, there are multiple reasons for this revenue gap, but the prevailing reason is the fact that paid apps are not popular in most of Asia, the country that drives the Asian app economy. Instead, developers in Asia rely much more on advertising revenue, which, according to our findings is the least profitable revenue model. iOS still monetising better than other platforms iOS continues to dominate platform revenues, generating, on average, 30% more revenue per app-month than Android. The revenue gap has reduced by 5 percentage points compared to that reported in our Developer Economics 2012 report in June 2012. At the same time, Windows Phone has caught up with Android and seems to be doing slightly better. Although the 5% advantage is arguably within the margin of error, Windows Phone has significantly improved its position relative to the figures reported in the Developer Economics 2012 survey, when it generated, on average, about half as much revenue as Android. How has the landscape of platform monetisation changed in Q2 2013? Join the survey and help us track the state of the developer nation. Multi-platform developers earn more There is a wide revenue gap between developers/publishers using 6+ platforms and those using 5 or fewer platforms, with those developing for 6+ platforms generating, on average, 75% more revenue. However, only a small part of the developer population (4%) develops on 6+ mobile platforms; these are probably established services with a large footprint that want to ensure that their apps are universally available (e.g. Facebook, Skype etc.) or large software houses with a large enough pool of resources to target multiple platforms for their customers. Those developers employing just one platform are probably solo, amateur developers or have not yet had the success that warrants (and allows) an expansion onto more platforms. As developers become more successful, they will expand onto new platforms and generate more revenue. So while, expanding on more platforms is not sufficient to generate more revenue on its own, those that do find success are likely to invest in a multi-platform strategy. Extending apps to new markets is a profitable strategy We asked app developers how they decided on which apps to develop or work on next and then looked at the way revenues vary depending on their strategy. While most developers will develop apps they want to use themselves (50%), this is apparently the least successful strategy and should not become the sole deciding factor for your next app. Developers that use some form of market research such as discussing with users, monitoring apps stores or directly buying market research are much better off, generating at least double the revenue of those who just develop the apps they want to use. However, market research is not widely used among the developer population: only 24% of developers discusses with users, highlighting a lack of business maturity and also a gap in frictionless 2-way communication channel between developers and users. Overall, the most successful developers are those that extend apps to new markets, either to new geographies or different verticals. To some extent, these strategies rely on copying the recipe of an already established and successful business: these are apps that have been tried and proven in at least one market and are generally less risky options or “low hanging fruit” for developers. Why start from the ground up when you can stand on the shoulders of giants? The most lucrative revenue models are off limits for most developers When talking app monetisation, there are over 10 different revenue models to chose from. Device royalties and distribution licensing fees are the top-grossing models but are quite rare among app developers due to their high barriers to entry. These models imply deals with device manufacturers and distributors which means long, expensive sales cycles and a successful app to start with. Among the rest of the revenue models, commissioned apps (development for hire) come on top since they come with a low risk and guaranteed income for developers that work under contract. The next most lucrative revenue model is the subscription-based model but this also comes with caveats: a subscription service implies a significant investment in licensing, and maintaining quality content or services that keeps users engaged on an ongoing basis. Among the revenue models that are most popular and more accessible to developers, In-app purchases come on top, generating, on average 34% more revenue than Freemium and 43% more revenue than Pay-per-download. In-app purchases and Freemium models are becoming increasingly popular, now being used by a quarter of developers as they seem to be appealing to consumers. We ‘re revisiting the topic of most lucrative revenue models in our latest survey. Join in and help us size the app economy. Smart developers use smart tools Finally, we take a look at how developer revenues correlate to the use of third party tools and services. It’s interesting to see how app revenues correlate with usage of performance tracking and management tools like user analytics and crash reporting. Developers using crash reporting and bug-tracking tools such as Crittercism or BugSense generate on average, three times more revenue than developers who don’t use these. Similarly the usage of User Analytics (e.g. Flurry, Apsalar) services is also associated with much higher revenues, with those using user analytics services generating 168% more revenue than those who don’t. Both user analytics and crash reporting services are used by experienced developers who recognise the importance of optimising for user acquisition, activation and retention, while reducing in-the-field crashes and the resulting user churn. Track the state of the developer nation These insights are made possible by our ongoing surveys. Join the latest Developer Economics survey to help us draw deeper insights into monetisation, the size of the app economy and the debate of HTML5 vs. native. In this survey we ‘re focusing on the population of iOS, Android, WP, BlackBerry and HTML5 developers, across countries, app categories and developer types. If your are a developer take the survey, or otherwise spread the word and watch this space for an update on revenues, platforms and the state of the developer nation. And don’t forget to fire away with those comments, rants, criticism, praise or simply feedback on what you ‘d like to see next. Andreas (follow me on twitter @PappasAndreas) #developereconomics #ios #developerresearch #onlinesurvey #Android #Blackberry #windows

[Google announced changes to Android management last week. With around 500 million current users now, the mobile operating systems seems set on its course of reaching 1 billion users by later next year. Android still has many troubles though including fragmentation, rising security concerns, ambivalence in its relationship with hardware partners and ongoing developer monetization issues.  Sheer numbers may wash away these problems, but many questions remain.] Last week important news came out of Android. Andy Rubin who had founded the company and later ran it after the acquisition by Google announced that he was moving on to unspecified new projects within Google.  The company had very little to say on the matter beyond that, and the void was filled with speculation. Google made several other changes to management and products last week. The company provided a lot more background on these and they quickly took up the headlines. In the end, we were left with many questions about what exactly is going on at Google. I made several inquiries around the ecosystem but no one else seemed to know what was happening at Android. The new head of Android, Sundar Pichal, will continue to run the Chrome unit as well. This caused the blogosphere to speculate that Chrome and Android would someday be merged.  This is possible, albeit unlikely any time soon. More to the point, it really seems that there is more to this story. We still do not quite understand what took place inside Google, but it seems that this marks a good time to review the Android operating system (OS) and its prospects. Mr. Rubin is leaving Android in good shape. The company reported that the OS has had 800 million activations to date. Using my (so far accurate) model, this implies daily activations around 1.8 million. A healthy clip, albeit growth may be slowing a bit simply as a result of the numbers getting so big. Source: Google and D/D estimates This year will see some important changes in the Android marketplace. By my estimate roughly one third of Android devices that will ship this year will come out of the branded Chinese handset makers (the artists formerly known as the “shanzhai”).  I put the estimates below together based on data from the chip makers, notably Mediatek, Qualcomm and Spreadtrum. I see this figure as a good proxy for “low-end” smartphones, those that retail for less than $150 at retail. I may be undercounting some of the low cost phones sold through prepaid channels in Europe and the US from the major global brands, but that is probably offset by the fraction of China branded phones shipped into those markets. What should stand out from all this is that these so-called “low-end” phones are growing at much faster rate than the rest of Android. And my guess is that the 2013 estimates for these are probably still a bit too low. The Android installed base is also growing very quickly. In their Rubin announcement Google noted that Android had already been activated on 750 million phones. The blogosphere commonly mistakes this figure for the installed base. In fact, that number is just the total devices sold to date, but plenty of those phones replaced existing Android devices. By the same model, the actual installed base is currently about 500 million devices, not a bad number. But bear in mind that the comparable figure for iOS is about 400 million, still very close. Beyond the headlines Despite these healthy numbers, there are five key vulnerabilities for Android – fragmentation, developer monetization, uneasy partners, security and business models. We will not get into the fragmentation issue here. It’s been covered extensively in the past, and see no sign of it changing any time soon. Drop me a line if you want more on this. A big question remains developer monetization. Just about every metric and survey out there shows a continuing discrepancy between the value of an iOS subscriber and that of an Android subscriber. Android users, on average, spend less on apps, view fewer ads, browse less traffic and spend less time on their device. This is not true for every app, but is true, by a wide margin, for the entire ecosystem. The causes of this are a topic of hot debate within the industry.  Theories include the weakness of the Google Play marketplace, the demographics of Android users, the quality of apps. All of the above play a role, and probably other factors as well. This is an important problem, and one that is still being explored. There are estimates of iOS monetizing anywhere from 2x to 10x better than Android per subscriber. Let’s assume that the number is 3x. That means there need to three times as many Android users than iOS users for the average app to be indifferent between the two platforms. By doing the math, Android does not reach that level until 2016. Many factors could alter this equation. Android user growth in the next few years is going to be strongest in emerging markets, and monetization rates are much lower there. Tablet usage is growing and here the difference between monetization seems to even more heavily favor iOS. On the other hand, Apple could slow. My calculation above includes some assumptions about iOS growth continuing at a healthy clip. If Apple’s stock price is any indicator, this view is not widely held. Regardless, it will be many years before monetization on Android can approach that on iOS, and on a per user basis it seems unlikely that the gap will ever truly close. The next concern is how hardware partners feel about Google. There are clear signs of growing unease here. Samsung’s Galaxy S4 launch last week never mentioned Google or Android.  Most of the other Android phone makers are struggling to make any profit. Among the China-branded OEMs it would be tough to say there is a true love for Android. The larger vendors are doing what the carriers ask of them, and the smaller vendors build for whatever their chip suppliers can provide.  Nor have the carriers ever been that fond of Android. They question Google’s long-term objectives and the company’s many side projects like Google Fiber, which are directly competitive. Add to this signs that the government in China could always make building Android phones less palatable for vendors there. The Chinese government and Google have a long-standing conflict, and this leaves Google little leeway to support handset makers there. A Battle of Models Nonetheless, the sheer numerical weight of close to 700 million Android phone shipments this year and over a billion next year could wash away most of these problems. Yet there is still one overriding concern that should weigh on the outlook for Android. At heart, Google and Android are not the same thing, and the way things stand now their business models are in many ways in direct competition. Ask any Google employee in Mountain View and you will find that there is a distinct sense of Android being separate. They have their own buildings and their own cafeteria, which used to be closed to other Googlers. Under new management, this may change, but the sense of difference remains. Google’s goal is to have as many people use its search as possible.  One of the simplest, most elegant business models on the planet. Android’s model is much less clear. If you want to build an Android phone today, you can download the software, write all the hardware drivers, and you have a phone – but with one big exception. The Android team will not let you link that phone to the Google API – including Gmail, Google Maps and crucially the Google Play marketplace. In a bid to control fragmentation, team Android has used access to the Google API as a key inducement. And getting access to that API is not simple, requiring approval, a contract and various other hoops. Google wants everyone to have access to that API, Android wants only Android devices to have that access. This explains why the Google apps for iOS are still so good, and why so many Google employees still carry iPhones.  By my estimate, close to half of the ‘mobile revenue’ that Google calls out every quarter comes from searches initiated on iOS devices. This is not to say Android is a bad idea. When Google launched Android they realized they might face a world in which their search would be hindered on mobile. (Set aside for the moment that when they acquired Android their biggest fear was Windows Mobile.) And clearly their reliance on iOS could have been just as threatening. Launching Android, like Chrome on the browser, was a way to make sure they could maintain a voice in mobile and at the same time lower their traffic acquisition costs for mobile search. No one every really predicted that Android numbers would grow as quickly as they have. So the company now faces a dilemma from which there is no easy solution. If they open up access to the API the effectively lose control of fragmentation. If they continue to restrict access to the API they limit avenues for other parts of Google’s business. Of course, there are ways around this. You can buy a $45 Android tablet on the streets of Shenzhen, and it will have access to the full Google API. But if you try to trace back the source of that API key… let’s just say there are many things in China that are not fully clear. And this may be the third approach. Google may officially limit API access, but turn a blind eye to some of the cracks. An unfortunate side effect of this is that it creates some weird new flavors of fragmentation. (In)Security Which leads to what I think is going to emerge as a major headache for Android – the vulnerability of Android devices. Android devices have become magnets for spam and malware. There are ample studies both in industry (PDF) and academia (PDF) that point to this. There are many, many stories of apps that track users calls, download their data, and worse.  From my conversations in China, it is clear that many phone manufacturers there are building software into their phones. These are generally benign or even helpful apps, a way for hardware makers to earn a few extra yuan. However, it demonstrates the ease with which a large number of handsets could be infected at a very deep layer. At Mobile World Congress last month, I spoke to a number of smartphone security vendors.  All of these offer solutions that are much safer than stock Android, but push most of them a bit and they will admit that if someone is really determined to act very badly and very technically, they can ‘root’ Android devices beyond the ability of anyone to detect or curtail. I do not want to come across as alarmist. There are vulnerabilities in home computers, and work laptops, in industrial systems and probably lots of other places we do not want to consider.  The digital security industry has always been a race between the white and the black hats. Nonetheless, expect to hear a lot more about Android security in coming years. Post-Script Finally, I wanted to add a last-minute item to this list. Last week, Google performed another round of spring cleaning and killed off my favorite, most-heavily-used mobile app – Google Reader. You can read about why they did this on many blogs, but it is an important lesson. Free things cannot be relied on. Would Google ever kill Android? This seems impossible today. One can safely predict with 100% certainty that this will not happen this year. But at some point, people have to ask this question. The handset makers have always questioned Google’s commitment. For most users, the answer is immaterial, they could just find another phone when their contracts are up or their phone dies. For the average app developer, the proverbial two guys in a garage, there is similarly little risk here. But if you are a major company and are investing heavily in mobile platforms, the longevity of a platform bears consideration. Conclusion Android is doing well. No question. And will continue to do well for many years. Again, no question.  But that does not mean it is dominant, the way Windows was on the desktop for twenty or so years. There are plenty of vulnerabilities here, and we have not even gotten into the whole Amazon issue. But there is conflict with the relationship between Android and Google. At heart, I think this conflict is a symptom of something bigger. Talk to most people in software today and they will preach to you the mantra of the web and HTML5. Up until very recently, most people in the industry assumed that HTML5 would someday remove the need for native operating systems. The idea being that web tools are widely used by millions of designers, and that eventually browsers will be good enough to power all apps. This is the underlying assumption behind Firefox OS. While this faith has wavered a bit lately, most people still believe it at some level. For Google, the company upon which so many fundamental web technologies emerge, we have to believe that this is the vision they are aiming for. In a world in which the phone is just a browser, then Google wins all the search business it ever needs. In that vision, the need for a mobile OS eventually withers away. My sense is that many at Google still believe this is the ultimate outcome. (I used to be in this camp, but my faith, alas, has lapsed of late). And if that is where we are all headed, then Android and iOS and all the rest are merely transitional stages to be borne through, not eternal pillars of the firmament. – Jonathan (@jaygoldberg) #google #mobilestrategy #mobileplatforms #Android #appeconomy

A few weeks ago in association with Ericsson we published the Telco Innovation Toolbox paper. The paper introduces ten economics and strategy frameworks that help operators to accelerate their “digital” strategies, make the right innovation investments and avoid costly mistakes. Previous posts published on our blog explained the economics of telco disruption. Today’s post focuses on how telcos need to respond to remain relevant and discover growth opportunities. You can download the [vm_form_download link_text=’full PDF report here’ product_id=’3751′]. Turning openness into a competitive advantage “Open” can mean different things to different people. Standardization and interoperability (a form of openness) were among the key factors that allowed mobile telephony and SMS to scale and achieve ubiquitous cross-carrier capabilities. As long as telephony and SMS were tightly integrated with telecom networks, interoperability of services between telecom operators meant interoperability of networks. For example, for SMS and MMS to work across operator boundaries, networks of different operators must interoperate at the service layer. The transition to IP made services independent of networks and changed this fundamental assumption. [Tweet this] IP has become a universal interoperability layer between transport networks, while interoperability at the service layer took on a totally new meaning. For example, Whatsapp could displace much of SMS and MMS traffic and achieve huge global reach without the need for interoperability at the service layer between different networks. Openness is a fundamental characteristic of multi-sided platforms, as explained in our previous blog post, which described the success recipe of digital ecosystems. Such platforms are designed with open APIs to lower barriers to entry and drive acquisition of diverse ranges of partners that produce valuable apps, hardware accessories and other complements to the platform. Successful platforms at the same time are closed (integrated) around core businesses of their owners. In other words, openness is needed to create the ecosystem of complements. Integration or “closed-ness” is needed to capture value by the ecosystem owners. [Tweet this] For example, Apple is open towards app developers, but very closed around its core business of consumer electronics. Google is open to web developers, but closed around their computing infrastructure and search ranking algorithm. The same holds true for companies like Facebook, Amazon, Netflix, Microsoft, and many other ecosystem owners. Clear understanding which parts of the value-chain need to be open, and which closed, is an important source of competitive advantage. Companies that make the mistake of being open around their core business end up surrendering their ability for meaningful differentiation, and are forced to compete on price. For example, all the noble speak about “openness” did not help Nokia to make Symbian a viable alternative to iOS and Android. This is because Nokia made Symbian open at the level of the core platform, exactly where Nokia as an OEM needed to be integrated (closed). Nokia needed to focus on making Symbian “open” and attractive to developers, not to other handset makers. Lack of integration around an ecosystem owner’s core business leads to what Michael Porter calls “competition to the best”, or the granddaddy of all strategy mistakes: going down the same path as everybody else, and thinking that somehow you can achieve better results. This is a hard race to win. Every advantage over competitors is bound to be short-lived. Integration around the core business is necessary to deliver unique value, elevate barriers to entry and achieve sustained profitability. For example, telco API initiatives better be focused on creating unique value to the telco’s subscribers, thus establishing lock-in and barriers to entry around core telco services. Key questions telcos need to ask when evaluating innovation investments How can you open up your complements; i.e., how can you reduce friction for ecosystem partners in order to create more value in the ecosystem as a whole? How can you integrate around your core business of voice data and texting in order to extract value from the ecosystem? Which regulations, standards or alliances are forcing you into “competition to the best” scenarios? Therefore, which innovation efforts are likely to lead only to short-term competitive advantages? Closing thoughts To succeed, telcos need to learn to play by the rules of the ecosystems. Reinventing the telco means looking beyond traditional telco business models in the context of the changing telecom value network. This paper introduces new economic thinking that telcos should use to accelerate their “digital” strategies, make the right innovation investments and avoid costly mistakes. To succeed, telcos need to learn to play by the rules of the ecosystems described in this paper. Moreover, each operator will need to define their own innovation mix, according to what best suits their local market, assets and financial conditions. Some operators will opt to focus on the utility business, providing price-competitive voice, text and data services (for example, Iliad/Free in France). Others will invest in complementary innovation, to maintain the growth and profitability of their core business (for example, Deutsche Telecom or AT&T). And others, like Smart Philippines, or Telefonica, will aggressively experiment with new business models and markets. In the words of Harvard Business School Professor Clayton Christensen, in his Business Week article, “Your Strategy Is Not What You Say It Is”, real strategy is defined by the flow of investment decisions companies make to achieve their goals. Despite all the talk about innovation, today many telcos are still putting most of their money into old-school investments like network expansion and device subsidies. [Tweet this] Such investments are only good for driving telco access business. It is difficult to act based on theory, without first collecting as much data as possible. However, data are always about the past, and their meaning becomes clear only when the game is over, as Harvard Business School Professor Clayton Christensen says. Telcos cannot afford to wait for data before making safe decisions. The time to act is now. As usual, we are looking forward to your feedback! Please click here to leave us a comment or send us an email to strategy /at/ visionmobile dot com. Don’t forget to download the [vm_form_download link_text=’full Telco Innovation Toolbox report’ product_id=’3751′] .- Michael @mvakulenko #openness #telcoinnovationtoolbox #telcos

[With WiFi being more than 10-years old, you might think that it’s become dated. Think again; in the last 2 years WiFi has seen a renaissance of innovation from numerous companies like DeviceScape, Instabridge, Karma, LIFX, Lockitron, Twine, WeFi, Wiman.me and many others. Guest author Niklas Agevik reviews the initiatives behind the resurgence of WiFi innovation and the reasons behind it]. Wi-Fi is now over 10 years old, but a new wave of innovation is leveraging those same technology foundations. Why? Firstly, the smartphone revolution has created 100 of millions of Wi-Fi endpoints. In addition, Wi-Fi has become too ubiquitous to ignore. It’s also unregulated enough to spur new use cases. FON, a large Wi-Fi sharing community, announced last year that they have 7 million hotspots and the new 5th generation Wi-Fi routers (802.11ac) clock in at data speeds of over 1 Gb/s. Everything from VisualLight, a Wi-Fi enabled light bulb to hotspots for sharing Wi-Fi with strangers has appeared in just the last two years. Read on to understand how Facebook can be used to grant Wi-Fi access, how FON got 7 million hotspots and how mobile operators in US and France are challenging the incumbents by relying on Wi-Fi. Wi-Fi: The bad old days For as long as Wi-Fi has been around people have dreamt of large scale Wi-Fi networks which can provide ubiquitous wireless Internet access. Many of the first initiatives for free Wi-Fi access were community-driven. “Elektrosmog” in Sweden, dating back to 2001, was one of the earliest, biggest initatives. The movement had hundreds of members that had installed open Wi-Fi routers in as many places as possible. It was in no way unique – similar initiatives existed in almost every major city in the world, many of which still survive. Skype, initially dubbed “Skyper” (short for “Sky peer-to-peer”) was intended as a way to create a free P2P mesh network. The free voice call aspect was a mere afterthought to lure users into joining the network and the naming change to Skype happened because the domain name Skyper was already taken. There have also been attempts with “software only” approaches that leverage already deployed home Wi-Fi routers. A good example is Wisher, a software client for OS X and Windows XP that synced Wi-Fi credentials between its users. Unfortunately, it never got a large enough following and disappeared. The most famous large scale attempt of an open Wi-Fi network is Martin Varsavsky’s FON. The original idea of FON was that users would install FONera routers that shared their own home Wi-Fi network with other FON users, with the upside being that by installing a FON router every user gained access to all other hotspots in the FON network. As in the Wisher case, however, users never ordered enough FONera routers for the network to truly take off. FON is now successfully partnering with fixed line operators to have the FON software included by default on all routers, removing the need of users to buy a separate piece of hardware. This allows FON and the fixed line operators to quickly add millions of hotspots that can offload traffic from 3G networks. Customers include BT, MTC and Softbank. [UPDATE]: Another company working with fixed line operators is Anyfi. But instead of opening up a hotspot like FON their software tunnels secure Wi-Fi signals over the Internet, giving each subscriber remote access to their home Wi-Fi. Anyfi are said to be in trials with operators but do not yet seem to have any major deployments. Other initiatives include the Open Wi-Fi Movement, which wants people to open up the guest SSID on their home routers to passers-by, and German-run wifis.org, which has built a popular way for anonymously contacting the owner of a certain Wi-Fi hotspot. Wi-Fi Innovation vs 3G innovation EDGE, 3G and LTE have been mostly restricted to phones, tablets and M2M applications. This stands in contrast to Wi-Fi. The freedom of the spectrum that Wi-Fi operates in and the availability of cheap Wi-Fi hardware has fostered an enormous amount of innovation and ingenuity. For a few years it seemed as though Wi-Fi had been relegated to the back seat while consumers bought mobile data subscriptions, moving the spotlight to mobile broadband. But Wi-Fi innovation has hardly stopped. In the last year alone we’ve seen several highly successful crowd-funded Wi-Fi projects like Lockitron, a Wi-Fi enabled physical lock,LIFX, a Wi-Fi enabled light bulb, and Twine, a Wi-Fi enabled platform for capturing sensor data. To pundits in the mobile industry it should be worrying that none of these projects are even offering a 3G version. So why aren’t they? According to Cameron Robertson from Lockitron the main reasons for not producing a 3G version was the higher power consumption and the requirement of a mobile data plan. The proliferation of smartphones has contributed greatly to Wi-Fi innovation. US-based OpenGarden’s app creates an automatic mesh network between all devices running the app using Wi-Fi or Bluetooth. A user running OpenGarden on their smartphone or computer will automatically hop on to the OpenGarden mesh network using any nearby access point. Other good examples are DeviceScape and WeFi that collect open Wi-Fi networks and automatically connect users when one is nearby. A quick look on Google Play shows plenty of Wi-Fi-related apps in the top 500 hundred lists doing everything from hacking (!) WEP keys to analyzing the optimal configuration for your home Wi-Fi router. The popularity of such apps shows the importance of Wi-Fi in the minds of consumers. “Social Wi-Fi” There’s also the concept of “social Wi-Fi,” which as of yet means different things to different people. Socialwifi.net, Wiman.me and even Facebook itself are testing a variety of social mechanisms for granting Wi-Fi access, the most popular requiring a user to like a page on Facebook or check in on Foursquare in exchange for access. In the US, a new MVNO simply named “Karma” is selling a mobile hotspot connected to the Clearwire WiMAX network. The social part being that users get extra megabytes of data by sharing their mobile hotspot connection with anyone who connects to the hotspot and logs on with Facebook. Another example is Instabridge (of which I am a co-founder), an app that allows its users to selectively grant Wi-Fi access to Facebook friends or addressbook contacts. Wi-Fi and mobile operators: friends with benefits Free Mobile in France offers users a lower cost on their home broadband if they agree to be part of the Free Mobile Wi-Fi network. By combining this network with another network of public hotspots they push users over to Wi-Fi whenever possible and cut prices on mobile data subscriptions. The results speak for themselves: the new entrant took a 5.4% market share in just six months. Bouygues and SFR have been forced to reorganize themselves to compete with Free Mobile. Operators who were not seriously considering working with Wi-Fi before have certainly changed their mind now. Free Mobile is not the only MVNO using Wi-Fi to lower prices. RepublicWireless in the US have also bet heavily on that users can cover a majority of their data and calling needs with Wi-Fi. RepublicWireless offers an “all you can eat” voice and data plan for just $19 / month without a contract. The catch is that all their phones are preloaded with RepublicWireless’ own VoIP app that routes calls through Wi-Fi whenever possible. 2012 also saw the launch of FreedomPop. Like Karma, they also rely on Clearwire’s WiMAX network. FreedomPop provides a sleeve for iPod touches that allows an iPod touch to be used as a VoIP phone and function as a Wi-Fi hotspot for up to 8 different devices. Operator-controlled Wi-Fi calling apps have also gained traction. Apart from offloading the network they also help increase indoor coverage. In 2012 many operators started experimenting with Wi-Fi calling, T-Mobile and its Bobsled app being on the forefront. Incumbent mobile operators are also openly embracing Wi-Fi. Boingo recently announced an offloading deal with the CCA which Dave Hagan, Boingo’s CEO, refers to as their first “true Wi-Fi offloading deal.” Another telling sign of the industry embracing Wi-Fi is that Ericsson finally caved in and accepted Wi-Fi as an important technology after ignoring it for years, by buying BelAir Networks to strengthen it’s non-existing Wi-Fi portfolio. (During my time at Ericsson, Wi-Fi wasn’t seen as neither important or relevant). New standards and certifications such as Passpoint and Hotspot 2.0 have also been created to help increase Wi-Fi usage. Passpoint certified routers allow devices to check which nearby hotspots they can authenticate towards and automatically connect to them based on pre-defined policies like for example if they belong to a Wi-Fi operator the mobile operator has a roaming agreement with. In essence, mobile operators are betting on Passpoint to allow them to integrate Wi-Fi in their 3G network, just like any other base station. The first Passpoint-enabled routers were certified by the Wi-Fi alliance last year. But operator-controlled Wi-Fi is not without controversy. Several analysts have raised concerns over how much control operators should and can have over Wi-Fi. After all, the operators’ main asset is their GSM, 3G and LTE licenses and networks leveraging those licenses. Why should they dabble in other technologies in which they have no strategic advantage? Fortunately for operators, device manufacturers have been quick to integrate new Wi-Fi related standards on the device side, lending credence to the idea that some of these new standards will actually be used commercially and not just be more paper tigers. EAP-SIM, which allows SIM-based authentication to hotspots has been available on Apple devices since iOS 5. Samsung has made a custom Android implementation in its Samsung Galaxy S3 devices and it should only be a matter of time before it’s included by default on all Android devices. With smartphones losing their “smarts” as soon as they lose their Internet connection, handset makers of course have a vested interest in enabling easy Wi-Fi access. Apple and Amazon have bet heavily on the importance of Wi-Fi with their latest devices, the Apple iPhone 5 and the Kindle Fire HD. They both list the Wi-Fi speed as one of the top features of their devices. Wi-Fi innovation in 2013 and beyond For years, Wi-Fi has been seen as 3G’s cheap and unreliable step brother. But Wi-Fi has improved. New standards and technologies that increase both speed, range and reliability may change consumers’ perception of Wi-Fi. Most people in the mobile industry have not yet realized how mature this technology has become. Handset makers will be in the driving seat because of their pursuit to create great consumer devices where people expect a reliable Internet connection. Their customers, the end users, will continue to embrace Wi-Fi and use it in more situations. This will leave us with two winners: any player with access to a large Wi-Fi network, including fixed line operators with large home Wi-Fi deployments, and either completely new MVNOs or operators that combine their 3G and LTE networks with Wi-Fi to provide cheap mobile data and voice plans. Where will innovation come from next? Let us know your thoughts! – Niklas Follow Niklas on Twitter #mobileinnovation #mvno #telcos #wifi