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[The explosive growth of app ecosystems is creating serious bottlenecks in app discovery that only popular apps can overcome. Having 700 thousand apps is great for platform vendors, but not so great for developers, whose apps are lost in the heap. Andreas Pappas takes a look at the app discovery problem and considers whether social discovery is a better solution than the alternatives available today] This article is also published in our newly launched Developer Economics Portal – where you can find more solutions to the app discovery issue. One of the greatest marketing challenges facing developers is being discovered, i.e. breaking through app store congestion and in front of user eyeballs. With Google Play and App Store now reporting over 700 thousand listed apps, browsing through these is ineffective, if at all possible. In fact, large app stores and the entire mobile application space are increasingly resembling the web when it comes to discovering content: it’s a jungle out there. App discovery is a challenge for both publishers and users. However, their incentives are often misaligned: publishers want their content in the field of view of every potential customer while users want their field of view clutter-free and occupied by what’s relevant to them. Balancing these incentives is tough. As always, when there’s a problem, there is an opportunity: app-store independent discovery platforms are vying to solve the discovery problem, providing a variety of discovery methods (e.g. daily deals, cross-promotion) for both publishers and users. These platforms often have to compete with or challenge native app-store mechanisms and policies as in the case of incentivised downloads. The app-store is a storefront: it’s designed for users, not developers Developers have been criticising app stores for lack of innovation in app-discovery. Apple’s redesigned app store has attracted mixed feedback. Some publishers have been complaining about the removal of lists that previously allowed quick browsing through apps. The way apps are presented among search results in the most recent version of the App Store only shows one app per page, casting most apps into obscurity. However, developers should keep in mind that app store curation and whatever ranking methodology and the presentation format this entails is not designed with publishers in mind. It is designed to help users discover and acquire apps, not publishers to be discovered. As Chris DeVore points out: “blaming the app stores for poor discoverability is a little like blaming Google for not putting your site on the first page of results — getting found is the responsibility of the publisher, and is as much a part of the entrepreneurial game as building a great product”. This doesn’t imply that app stores should not cater to developers’ needs since they are the cornerstone of app ecosystems. However, if there is a tradeoff to be made on the user vs. publisher prioritisation, it will invariably be in favour of the user. The scarce visual bandwidth afforded by a small screen acting as a gateway to millions of apps is extremely precious for Apple and Google: it is a storefront that vendors will use to demonstrate the ecosystem’s value to their users. Compromising the value of this storefront to users comes with the risk of losing control of the gatekeeper function. This is why Apple in particular has been repeatedly cracking down on incentivised download schemes such as TapJoy although this cat and mouse game is still going on and even large publishers rely on it as a revenue source. Third-party services to developers’ rescue but at what cost? Fortunately, there is a host of tools and services available for developers to promote and market their apps although selecting the right ones among these can be a challenge. Marketing tools include cross-promotion networks (e.g. AppCircle, Chartboost), incentivised downloads (e.g. TapJoy), vertical/specialist app stores (e.g. Happtique), reviewer networks (e.g. AppFriday), ad-networks, deals of the day services (e.g. AppGratis), recommendation services (e.g. Hooked), review sites (AppAdvice), non-native marketplaces (e.g. GetJar and carrier app stores) to name just a few. App store optimisation (ASO) aims to improve app visibility within app stores, building on the foundations of search engine optimisation. For the most part, ASO focuses on improving app curation by including relevant keywords and content that will be picked up by app store search algorithms or hand-picked by staff. There is however, another side to ASO, focusing on algorithmic optimisation, essentially boosting app downloads to a level that will place an app among the most popular in a category so that it appears in the top app store listings for the category. Bot-assisted download services are known to be used for this purpose. While some of the options mentioned are free, others come at a significant cost. For example, promoting an app via a deals site (e.g. free-app-a-day or FAAD) may set you back a few thousand dollars (up to $10,000 has been reported), the exact amount depending on what your targets are. While this could potentially generate a few 100k downloads, the ROI depends on your revenue model and conversion rate, i.e. on the ability to retain and monetise the user influx. For most developers, particularly those new to the app economy, there is a steep learning curve to climb when marketing apps, quite steeper than getting to grips with a new development environment. When it comes to marketing, one size doesn’t fit all and quite often a fair amount of trial and error will be necessary. When designing a marketing strategy the first step should be to set targets and KPIs that are in line with the business objectives and revenue model used: a few 10k downloads will not take you far when advertising is your sole revenue source. An important metric to keep track of is the cost-per-install (CPI), i.e. how much it costs to acquire a user. However, this metric must be adapted to the specific revenue model for each app: not all installs will have the same impact on the bottom line. In other words, some users are more valuable than others. If loyal users are the target, then cost-per-loyal user is what you should be tracking. Before selecting a promotion channel developers should research alternatives. On several occasions, simple, free strategies may work quite well: dropping the price of your app or making it free for a period of time is likely to be picked up by a number of sites that will then showcase your app for free. This could potentially drive downloads at a much lower or even zero CPI compared to daily-deal services. A PR campaign that targets the right media channels can also have similar effects. The user problem: Is the app store a sustainable discovery medium? It is becoming increasingly evident that app stores offer extremely limited bandwidth when it comes to app discovery. There is so much they can show and as the number of apps grows, competition for screen-space will become even tougher in the future. From a user perspective the present app store-based discovery model is showing signs of weakness and its long-term utility is questionable. To some extent this is a result of popularity-based rankings. While popularity-based discovery works quite well for mainstream apps, app ecosystems have matured to a level where the long-tail has become an equally important element of the ecosystem. Users often seek apps for very specific use-cases and a niche interest. Discovering these apps using popularity-based criteria is bound to fail. On the contrary, social media work really well for addressing discovery issues associated with the long tail. Hubbl, Crosswalk, AppFlow and AppGrooves are startups aiming to bring a social element to app discovery, while Twitter and Facebook are also well placed to leverage their scale in this area, as demonstrated by Facebook App Center. Personalised mobile app store fronts powered by the social graph can potentially provide a much better discovery experience for end-users. This is the natural step forward for Apple following the acquisition of Chomp and the Facebook integration on iOS6. Presently, the only personalisation currently provided by Genius, are recommendations based on similar apps to those you have downloaded. Google Play has also introduced basic personalised & social discovery capabilities mainly filtered by user location and choices of people who have downloaded similar apps or that belong to your Google+ circles. Amazon, having a strong background in recommendation engineering can potentially provide a much more fulfilling discovery experience, however, a scroll through the “recommended for you” category on the Amazon app store was disappointing. It is evident that major app store vendors are taking note of the discovery issues for end-users and are taking steps to provide a better user experience by integrating social and personalised elements in discovery. However, a meaningful discovery experience can only be provided if one has access to the right data such as your location, interests, groups and friends for example: there is still some way to go before Google Play will be able to recommend the right travel app for your planned trip to Bolivia or an app that will help you monitor a medical condition. Partnerships, based on social and consumer data, will be key in providing a fine level of personalisation but for app store vendors this may come at the cost of relinquishing some control over the discovery experience on the platform. For developers, a departure from the present popularity-based model to a social-based model will create better opportunities to target campaigns more effectively and acquire more loyal users. Social discovery is much a better option for aligning developer incentives with user incentives when it comes to app discovery. – Andreas you should follow me on Twitter: @pappasandreas #appleappstore #googleplay #Apple #Android #appstores #apps

[Today in association with Ericsson we are publishing a discussion paper, the Telco Innovation Toolbox. The paper introduces novel economic thinking that is the result of over 2 years of research of ecosystem economics and telco disruption and is available for free download. The paper introduces ten economics and strategy frameworks that will help operators to accelerate their “digital” strategies, make the right innovation investments and avoid costly mistakes.] The topic of telco disruption brought upon by over-the-top (OTT) players is high on telecom industry agenda. However few realize that telcos are being disrupted because the basis of competition in mobile has fundamentally changed. It has changed from “reliability and scale of networks” to “choice and flexibility of services”, driven by the transition from “mobile telephony” to “mobile computing”. The change is fundamental and irreversible. The new basis of competition in mobile The telecom industry is facing a conundrum today: providing undifferentiated voice, text and data services to smartphone users leads to a competition on price and diminishing margins. At the same time, staying in business requires that telcos keep up with ever-growing demand for data and continued investments in building wireless capacity. Investments in networks are still necessary, but they alone are no longer sufficient for profitable growth. What’s next? Harvard Business School professor Clayton Christensen recently said: “I think, as a general rule, most of us are in markets that are booming. They are not in decline. Even the newspaper business is in a growth industry. It’s not in decline. It’s just their way of thinking about the industry that is in decline.” The telecom industry too can greatly benefit from looking at familiar challenges from a new perspective. Telecom is a booming industry with ever-growing demand for mobile data and a rising number of subscribers. But the basis of competition in mobile has changed putting pressure on legacy business models. Building networks alone can no longer guarantee profitable growth for telecom operators. Competing head-on with asymmetric business models of OTT players won’t help either. Instead, seizing the full potential of this booming industry means leveraging mobile digital ecosystems to create meaningful differentiation, lock-in for core telco services and incremental revenues. This requires an understanding of ecosystem economics, development of new organisational capabilities and resetting the KPIs for “digital” initiatives. The Telco Innovation Toolbox introduces ten important economic models and strategy frameworks that will help operators to make the right choices in their innovation investments and accelerate their efforts to reinvent telco business. We describe ecosystem economics in the context of telco business in chapters 1 to 4, discuss the impact of traditional financial tools and the need for new innovation processes and KPI in chapters 5 and 6, and finally suggest how to leverage ecosystems to the benefit of the telco business in chapters 7 to 10. The full paper can be downloaded for free here . As usual, we are looking forward to your comments and feedback! #telcos #research #asymmetricmodels #ott #carriers

[VisionMobile analyst Stijn Schuermans muses about the similarities between the app economy and other businesses like FMCGs and music. What can app makers learn from other industries and how can these lessons help developers monetising apps?] In a recent post on our newly launched Developer Economics portal with facts and insights for app developers – build.developereconomics.com – colleague Mark Wilcox likened the app economy to a retail business: In the early days of relatively empty app stores, simply launching a good product was often sufficient to get noticed and soar up the store charts. However, as with any fast-moving consumer goods (FMCG) business, the value within apps has shifted from the contents (the functionality) to the packaging (the user experience) and marketing. I agree: packaging is crucial and the fight for shelf space is fierce, just like in retail. In the app business, this is called “app store optimization” (ASO). Here’s an interesting thought: with which other industries can the app business be compared, and which lessons can we apply from those other industries to make developers more successful? One industry that strikes me as pretty similar is the music industry. It too is experiencing a shift in competition: the internet has made it much easier for musicians to reach an audience. At the same time, this has undermined the traditional album-sales business model, making it much harder for musicians to make a living from their trade. Sounds familiar? Direct sales of either apps or albums is no longer a sustainable business model, or at least it can’t be relied on anymore to make a living. There’s just too much competition (700.000 apps in the app store; everyone with an instrument and some YouTube skills), including from free apps and music. Some lucky ones are still making millions, but most who try hardly make any money at all. In our Developer Economics 2012 survey, we found that as much as half of the app developers live below the app poverty line, i.e. they don’t make enough money to sustain themselves. Apps and music sales are hit-driven businesses. In the music industry, people are tackling this issue by moving to indirect sales methods: the revenue focus shifts from selling CDs to selling performances, special edition releases (direct to fan) and merchandise. The tracks themselves are often given away for free on a website or through an online music service to drive interest and discovery. Marketing guru Seth Godin has a nice way of explaining how this works: first, you create a tribe, i.e. a group of raving fans, he says. Then, you will have their permission to sell them souvenirs, for which they will happily pay a good price. The merchandise model has made its way already into the app economy. The most obvious and well know example is Rovio, the mobile-first gaming company that already derives 30% of its revenue from physical goods related to its Angry Birds hit and aims to reach 50% in a few years time. However, this is not very helpful to other app developers: Rovio is not successful because it sells merchandise. Instead, Angry Birds merchandise sells because the game was a hit in the first place. This said, all apps related to non-digital brands basically use the same model implicitly: they use apps to drive physical-goods sales. Most of those apps will be free. The money comes from the goods being retailed. I find this to be an immensely encouraging message for developers: the real app economy is a whole lot bigger than the numbers reported from paid apps, in-app purchases and advertising! Opportunity is abundant. What do you think? Which other lessons can app developers take from the music industry and others? – Stijn (@stijnschuermans) #appdevelopers #apps #mobiledevelopers #musicindustry

[Apple and Samsung are sucking the oxygen out of the room. What’s the recipe of their profits and why are all the other OEMs struggling? In this reiteration of April 2012’s Mobile Insider, VisionMobile analyst Stijn Schuermans gives insight into sustainability and profits in the handset market.] The mobile handset market is in turmoil. Since Apple launched the iPhone in 2007, OEMs have been rushing to jump on the smartphone bandwagon. Five years later, few have managed to do so profitably. Even if more companies are gaining a significant market share, only two seem to be making a profit out of it: Apple – the creator of the market in the first place – and Samsung, a fast follower. Attractive profit margins are elusive for most of their competitors. Some are toppling from their former glory (Nokia, RIM), while some newcomers seem to be gaining speed (ZTE, Huawei). But will they manage to become profitable? This article is based on an issue of Mobile Insider, a monthly publication by VisionMobile. that examines under-the-radar and forward-looking trends in mobile. Each issue focuses on a specific topic distilling the insights in an easy-to-digest 5-page format. Mobile Insider is part of Telco Economics, a range of strategy research and workshops that deliver a 360° view on the new economics of the mobile industry and changing role of telcos in the era of digital ecosystems. The state of the handset market Mobile handsets are expected to be a quarter of a trillion dollar market in 2012, with 1.75 billion units sold. Four out of ten units are expected to be smartphones, which considering their higher average selling price, will account for the vast majority (more than 85%) of the handset industry  revenues. In our recent 100M Club infographic, we provided an extensive overview of how many units each of the main platforms and vendors in the handset market ship. The biggest players don’t necessarily make the most profits, however. The table below shows the profit margins for different vendors in the first three quarters of this year, as estimated by Arete and Asymco. The most successful companies in the handset market anno 2012 are without a doubt Apple and Samsung. Apple, despite having only a handful of smartphone models, captures a substantial part of the market, and experiences strong growth (58% YoY increase in units and 56% YoY increase in revenue in Q3 2012). It also has an exceptional profit margin compared to its competitors. Samsung’s handset division accounts for more than half of its revenues and for 69% of its operating profit in Q3 2012 . Operating profit margin of the division improved to 18,8% from 13,5% a year ago. In Q1 2012, Samsung ended Nokia’s 14-year reign as largest handset maker by volume. Smartphones play by different rules than feature phones When Apple launched the iPhone in 2007, the basis of competition in mobile phones changed radically. Instead of performance of the device (hardware features like battery life or colour depth, software features like address book), the success of a smartphone now depended on the ecosystem it tapped into (i.e. apps, driving much wider use cases for the device). The success of app ecosystems is driven by network effects that create lock-in, turning them into “winner-takes-all” markets. Two dominant ecosystems emerged: iOS and Android. Any handset manufacturer that missed the Android train was left behind. Notably, Nokia failed to compete using Symbian, the dominant pre-smartphone platform, which was built for OEMs, not developers, and could not keep up in the new apps-driven ecosystem world. One other company – RIM – did have a valuable ecosystem, built on a messaging network and email synchronization. However, its value went up in smoke when the foundations upon which it was built were commoditized by OTT internet services like Gmail and WhatsApp. Mobile phone production is now a commodity Back in the day, the proprietary devices we now call feature phones followed a traditional industrial model: supply-side economies of scale were key to keeping costs down and margins up. This led to a gradual concentration of the market, resulting in a small number of dominant players, headed by Nokia. In 2008, soon after the appearance of the modern smartphone, Google launched Android, a free to use platform to build smartphones, with the explicit intention to lower barriers to entry for handset makers, and therefore commoditize the making of smartphones. Android succeeded in its goal: time-to-market decreased, development costs went down and smartphones converged into a virtually homogeneous form factor. As barriers to entry went down, many companies small and large could now make Android smartphones. This is immediately apparent in the market concentration, which plunged after 2008 as devices became more and more uniform, as shown in the chart below. Many companies are now getting a chance in the smartphone market: the amount of OEMs with more than 2% global market share went from 6 to 10 in two years time.  However, in this commodity market, market share doesn’t guarantee profitability! Apple is the innovator According to Harvard strategy professor Michael Porter, to gain a competitive advantage companies must create a unique value chain configuration. There is more than one recipe to achieve that. Apple has chosen to innovate across the chain: the Cupertino company owns its own platform (iOS), enhanced with content (e.g. apps, music, video) and services (e.g. iTunes, iCloud) and an outstanding product experience; it has a strong, tribal brand, while on the other hand its strong control over the supply chain makes it behave as a vertically integrated company, pushing costs down and appropriating profits across the supply chain. On the distribution side, Apple is the only major OEM to partially own the retail channel, i.e. Apple stores. Among followers, only Samsung has got a unique advantage As competition is based on ecosystems, beyond Apple only Android-carrying OEMs are still in the game. They are in a “race to the best device”, a race which cannot be won. Coming back to Porter, the only possible basis for profitability is a unique competitive advantage, i.e. a tailored value chain that is inaccessible for competitors and delivers value for consumers. The only handset maker apart from Apple who has built such a unique value chain today is Samsung. The electronics giant not only assembles handsets, but also makes a lot of the most expensive components, notably screens and chipsets. This allows the company to capture profits across the value chain, where its competitors can only capture the value of assembly. Samsung also has an excellent time-to-market and distribution network in emerging markets, as Javed Anwer explained in the Times of India recently. Where Samsung doesn’t own a value-adding element (e.g. the platform or the retail network), the company hedges its bets. That’s why Samsung has multiple platforms and excellent operator relationships. Samsung can then reinvest those gains in R&D (e.g. bada, handset components), marketing (the Galaxy brand) or acquisitions that strengthen the competitive advantage it already has, creating a virtuous cycle. Others left behind Samsung’s competitors either don’t have the cash to invest in a virtuous cycle (due to streaks of losses), or they have no unique value chain configuration to invest their cash in, making the spending ineffective. Nokia used to have a feature phone cash cow and strong financial backing by Microsoft, but it has divested several key value-adding elements, notable the platform, now produced by Microsoft. ZTE and Huawei are backed by a profitable network infrastructure business. For now, this money is proving ineffective at producing a highly profitable business. Money can buy high volumes and fast growth, but without a tailored value chain this growth is likely unsustainable. HTC perhaps came closest at a competitive advantage based on the HTC Sense UI and fast time to market, but this advantage is proving to be unsustainable.  In the third quarter of 2012, HTC’s net profit tumbled 79% YoY, making Q3 its least profitable quarter in six years. A duopoly emerges, or does it? The result of Apple and Samsung’s success in creating a tailored value chain, and the failure of others to do so, is that the two companies between them capture over 98% of all available profits in the handset market (smartphones and feature phones combined). In 2011, they were the top two smartphone manufacturers in volume, with a combined market share of 39% of units shipped. In the first half of this year, their combined share had risen already well above 50%. This, however, should not be mistaken for a “done deal” consolidation of the market. The smartphone market as we know it is less than five years old. While per-capita smartphone penetration in mature markets is approaching or has already surpassed the 50% point, there is still a lot of room for expansion in emerging markets, and therefore for new differentiated value propositions. We can see at least two opportunities left at the table. In mature markets, a company like Amazon could enter the smartphone market with a unique business model of subsidizing (self-branded) hardware to drive a content and retailing ecosystem. This is akin to operators subsidizing hardware to drive voice and data subscriptions, only here Amazon managed to have its own branded devices, which operators never managed to make a success. We discussed this “kindelization” opportunity extensively in volume 1 and volume 2 (year 1) of Mobile Insider. Secondly, the mobile user experience is not always tuned to emerging markets, which will be the main growth markets in the coming years. This creates opportunities for value chain differentiation, for example by tuning phones for payments (of digital goods, in shops or between people) without requiring credit cards. Next week, we’ll discuss one promising attempt to create a new profitable handset business. Chinese OEM entrant Xiaomi is putting itself in the spotlights with impressive first year sales and innovation across hardware, services, brand and business model. Stay tuned. Conclusion The launch of the iPhone fundamentally changed the basis of competition, eliminating players without a vibrant app ecosystem (i.e. iOS or Android). Android then commoditized the production of smartphones, reducing the importance of economies of scale that had made Nokia a leader in the past and sending market concentration in a plunge. To sustain profitability in the  commodity smartphone market, OEMs need to create a tailored value chain. Apple has done so by innovating at each point of the value chain. Among all other OEMs, only Samsung has created a unique value chain configuration by integrating across hardware production and capturing profit at multiple links of the value chain. It’s no wonder that together Apple and Samsung capture more than 98% of the profits in the handset market. Feel free to comment – we’d like to know what you think. And don’t forget to download the report! – Stijn (@stijnschuermans) #google #Apple #Android #mobileinsider #mobilehandset #samsung

We’ve released our latest workshop – the Telco Innovation Toolbox which introduces the new economic thinking necessary for successful innovation by telcos. This new strategy workshop is aimed at senior executives and combines executive training with interactive goup sessions and brainstorming. Attendees will understand the impact that the new basis of competition has on telcos and will be able to apply new economic thinking to building successful innovation strategies.

[The PC processor market is very different to the mobile processor market. While the former is dominated by Intel, the mobile market has a whole host of companies participating, and Intel is a minor participant there. To understand why, VisionMobile analyst Stijn Schuermans looks at the requirements for silicon products in each market.] Two silicon markets, two silicon champions In the processor market for PCs, competition is based on performance, i.e. processor speed. In the processor market for mobile devices, companies compete based on design flexibility: the ability to tune the processor to the device’s capabilities. As a result, the two markets are structured differently. This article is based on a Mobile Insider report we published in March  2012 – you can download the report here. To start understanding the silicon market, let’s look at the production process of silicon chips. It is made up of three important stages: The design of the logic, i.e. the functionality of the chip. The design of the electronic circuits, i.e. how the transistors are laid out and connected on the chip. The manufacturing process, with a focus on achieving the highest reliability possible with a given manufacturing technology. In the PC market, Intel combines these three stages in its business model. Intel chips are designed in-house and produced in its own factories. Intel dominates the market for semiconductor products for PCs, laptops and servers with about 80% market share. The company has only one competitor in that space: AMD. On the contrary, in the mobile market, ARM on the other hand focuses on the first stage of the production process. It’s business model is to license out intellectual property – logic building blocks that ‘fabless’ chip makers such as Qualcomm, Mediatek and many others can use to design the circuit itself. The chip is then manufactured by a third party. The market leader in manufacturing is TSMC. Today, as much as 95% of mobile phones contain ARM-based processors. As mobile device sales start to overshadow PC sales, Intel needs to enter the mobile market to survive. As such, Intel needs to start competing on flexibility. As a vertically integrated organization, Intel will struggle to adjust to the horizontal industry structure in mobile, currently championed by the ARM ecosystem. From performance to design flexibility For a long time, performance (measured by the speed of the processor) was the main driver in the PC market. The players that achieved the best performance are the ones that integrated the entire production process, from logic design over circuit design to manufacturing, which was exactly how market leader Intel became dominant. In mobile, raw performance was less of an issue as phones used to be simple devices relative to PCs. Therefore the basis for competition was different for PC and mobile processors. To create a wide range of successful mobile devices across diverse price points, you needed above all design flexibility. With flexibility as the main driver, a modular industry structure emerged. The market was split in three layers: suppliers of intellectual property like ARM, chip designers like Qualcomm and Mediatek, and manufacturing specialists like TSMC. ARM’s ecosystem play The horizontal structure of mobile silicon is possible because the market organized itself around a single architecture: today ARM technology is powering processors in the vast majority of mobile handsets. ARM emerged as the leader because the company managed to build an ecosystem of building block providers (the blocks use ARM bus technology to communicate with each other), chip manufacturers, OEMs, operating system providers, and even software providers. Even though ARM is roughly ten times smaller than Intel in terms of market capitalization, the Cambridge-based company manages to have similarly high margins. Its business model of intellectual property licensing creates a unique configuration of the value chain. The convergence on a single instruction set has created a winner-takes-all market in both Intel’s and ARM’s case, from which both companies derive their competitive power. Flying under Intel’s radar The ecosystem around the ARM architecture in the mobile market has reached critical mass in a protected environment, shielded from the attention of Intel. Its main selling point – performance – has been largely irrelevant in mobile. The silicon giant had an ARM-based family of chips in the past, called XScale. Even though Intel was well aware of the technology, it underestimated the future importance of the mobile market. In a classic move of an incumbent about to be disrupted, Intel made the perfectly rational decision to prioritize the higher-margin Pentium chips in its capacity-limited production lines, foregoing the opportunity to make XScale truly competitive in the market. In the end, Intel gave up on ARM-based chips and sold the XScale line in 2006 to the Marvell Technology Group. Exits from less-profitable segments that are none-the-less critically important for the future are a classic but fatal pattern of companies being disrupted. A disrupted future for Intel As the PC market is stagnating, the future of personal computing is based on mobile technology. Intel will find it extremely difficult to establish its place in the flexibility-driven mobile market, where margins are lower and there is firmly entrenched competition enabled by ARM technology. On top of that, the ARM ecosystem will start sucking customers out of Intel’s own market, as performance of PC and even server processors becomes good enough for end users. A perfect example of this is Microsoft’s decision to make Windows 8 available on ARM-based processors as well as Intel’s x86 architecture. Intel will likely be the manufacturer of choice for high-end PC and server processors for a long time to come, but the company’s overall growth will be curtailed by competitors coming from the mobile ecosystem. With Microsoft breaking the ranks and supporting ARM in Windows 8, Intel’s insistence on pushing x86 architecture in its mobile products makes less and less sense. Some may say that Intel can make better performing chips by tightly integrating its x86 architecture with Intel’s chip manufacturing process. While such integration is a strong advantage in PC market, tight integration between processor architecture and manufacturing process is of much lesser importance in mobile — the market where modularity and flexibility trump performance. Business model over technology Intel’s limited potential for growth in mobile is not due to low power technology, as ARM might have you believe. A focus on power consumption is a necessary but not sufficient condition for making chips in the future – one that Intel will be perfectly capable of achieving. It is rather the company DNA of Intel (the margins required and its vertically integrated structure) that is ill-suited to win in a fundamentally changed competitive space characterized by different basis of competition and an incompatible value-chain. The same scenario plays out in other areas of mobile The same disruption patterns are playing out among OEMs (where Android is the disruptor) and in the telco world today. Telcos and OEMs should heed these lessons and re-invent themselves to compete in a changed reality. Handset OEMs The battle between Intel and its ARM-enabled mobile silicon competitors follows the same classic disruption patterns we currently see in mobile platforms. The arrival of iOS and Android caused a fundamental shift in the value chain. Where before consumers would select a phone based on technical specs and feature set, i.e. “performance”, the advent of app ecosystems has commoditized handsets. All smartphones are now pretty much the same; mostly a big touch screen. Consumers in most cases no longer choose an OEM brand, but an operating system, based on the flexibility (the apps) that this platform promises. Android takes the role of ARM: a freely licensable piece of intellectual property that underpins the majority of mobile devices. Stay tuned for next weeks’ blog post, in which we’ll investigate the shifts in the handset industry in much more detail. Telcos Mobile platforms affected handsets, but also carriers. Like Intel, the power of operators used to be based on performance (of the network, in this case). And like Intel, operators are now threatened in their core by horizontal players who appear from outside the traditional telco value network, with business models that are completely foreign to the telco world, based on strong ecosystems that cater to a wide range of use cases. Since the basis of competition has moved from network performance to flexibility and diversity, telcos need to learn the lessons of disruption and re-invent the telco business: modularize the business by unbundling, or be pushed out by competitors who do. VisionMobile’s Mobile Innovation Economics workshop offers a deeper analysis on how telcos need to “unbundle” to innovate. Also – download the full Mobile Insider report – and let us know what you think! – Stijn (@stijnschuermans) #chipsetvendors #chipsets #ARM #qualcomm #mobileinsider

[Which apps make money – and how? Andreas Pappas takes another look at the results of VisionMobile’s Developer Economics 2012 survey and comes up with interesting new insights on app monetisation: how does app revenue vary by app-category and by country? Is there a correlation between time spent developing an app and they money it makes?] In Developer Economics 2012 we discussed app revenues and how they vary across platforms. We found that overall, around half of all app developers that are interested in making money did not earn a sustaining income, i.e. they were below the “poverty line”, which we drew at $500 per month per app. Of course the real poverty line will vary widely across countries and regions: while $500 per month may not be enough for a San Francisco-based developer, it could be more than enough for a developer based in Bangalore where average living cost is less than a third, according to Numbeo. But what are those factors that determine how much money an app will make? In Developer Economics 2012 we looked into revenue breakdown by platform and revenue model and identified those platforms and revenue models that generate the highest average revenue per app per month. We are now revisiting our analysis to go a bit further and see what other factors matter when it comes to generating revenue. Throughout this analysis we have excluded statistical outliers, in this case the top 5% of revenue earners. Solo developers earn a lot less than those working for clients There are significant differences between developers that work on their own projects and those that work for clients, either as direct employees or contractors. Developers working on their own projects reported average app-month revenues of just 30% of revenues reported by commissioned or employed developers. The caveat here is that developers working for clients may not have visibility of their clients’ app revenues so it may be the case that they reported estimated figures or that they, instead, reported their own revenue, which may be coming as a salary, irrespective of app revenue. Looking into individual client industries and excluding those developers that work just on their own projects, we see a large variance between different industries and sectors. IT services & games have an average app-month revenue around $1,500, less than half of the average app-month revenue generated in banking/finance or real-estate, which is over $5,000. In the games and software/IT industries, revenues are, to a large extent, generated by app sales which is a core business activity. In other verticals, such as banking & real-estate, apps are just complements to the business, so developers’ revenues are not directly tied to app revenues. It is worth highlighting that average revenues are significantly inflated by top revenue earners, i.e. they are not representative of typical revenues. However, they work well for comparisons between different industries. Communication & Social networking apps lead the revenue table We also looked at revenues across different types of apps. Again we removed outliers, i.e. the top 5% in each category. The clear winners here are comms & social networking apps such as Skype or WhatsApp for example, generating – on average – 20% more app-month revenue than the next best category, medical and fitness apps. This can be attributed to the added value that comms and social services provide as the user base increases, i.e. the strong network effects specific to this app category. Utilities, on the other hand, exhibit very weak network effects as their utility is dependent upon user base, which seems to be quite fragmented, i.e. utilities mainly address the long-tail, niche user needs. Spending more time developing apps can be very rewarding Next we looked to see how revenues per app-month are affected by the time it takes to develop an app. More development time could indicate rigorous testing and better app quality so, not surprisingly, the more time developers spend on their apps, the better the revenue potential. Apps that take 7-12 man-months make on average 11 times more money than apps developed in less than 30 man-days. All the above graphs do not take into account platform effects, i.e. they are based on data across all platforms. This means that there may be variations by platform not shown here. For example, looking at development time vs. revenue for iOS and Android, we observe that there are quite a few differences in the relative values. To some extent, the particular distribution could be the result of our statistical sample, but it indicates that there are variations among platforms. In the iOS vs. Android comparison, for example, we observe that once iOS developers overcome the 1-month limit, their revenue increases 6-fold while on Android the increase is about half, just a 3x increase. This may have to do with the revenue potential of each platform, which is clearly higher on iOS. However, if we look at the 1 to 6 man-month period, we observe that there is no increase in iOS revenue but a huge increase for Android. This effect could be related to the fragmentation of the Android API and hardware, requiring more effort and development time in order to reach a larger user base. Revenues vary significantly by country There are significant differences in revenue potential between countries. Developers in the US generate 40% more revenue per app-month than developers in the UK and almost 5 times as much as developers in China. These differences have a lot to do with smartphone penetration per country, but also with regional socio-economic factors, familiarity with smartphones and consumption habits. However, developers based in a given country do not only target that country’s population. For example, 40% of developers in South America see high demand for their apps coming from North America. So there are other factors that come into play here, such as app pricing: developers in countries with lower per capita income may price their apps more competitively than developers in richer countries with higher living costs. Apart from the factors presented here, there are multiple other variables that could affect app revenue, such as target markets, development experience and marketing channels used. We’ll continue digging into these factors and report our latest findings in the next report in the Developer Economics series and through our blog. The next report will be out in late January – so stay tuned! We’d also like to hear your views on this. What do you think really matters when it comes to generating app revenue and what do you think we should look into next time? Andreas (@PappasAndreas) #appeconomy #mobileapplications #mobileapps #revenues

[Did you ever think that your mobile can be your remote control for shopping? It’s getting there. Guest author Zabetta Camilleri reviews how mobile apps are changing Fashion Retailing with brands such as Burberry, Forever21, Shopkick, Shopstyle, SalesGossip, Chanel,Tommy Hilfiger & Clotheshorse leading the way in mobile app innovation.] There’s no doubt ‘Fashion Tech’ has become the latest buzzword in retail. The innovation we’ve seen in the Mobile apps space has already disrupted the age-old industry of fashion retail. Now we are witnessing some important trends that will continue to change the way we shop for fashion online as well as on the high street. Apps entering the fashion industry Mobile App innovations will have a huge impact on retail over the next few years. From launching basic websites that have been rendered to fit most smartphones to developing more sophisticated native apps, designed to leverage each functionality of the specific operating systems – the trend continues. The total number of UK subscribers buying via mobile phone grew by nearly 5 million in the last two quarters – a rise of almost 33% (According to mobileSQUARED). A recent survey conducted by the Luxury Institute confirmed the importance of apps in the luxury world by showing that 80% of wealthy smartphone users had downloaded an app and two-thirds have shopped on their smartphone. The survey even showed that luxury shoppers were most interested in using apps to gain access to discounts, whilst early access to sales was the second highest incentive to shop this way. If the high-end retailers were worried about losing their brand value, the key seems to be to translate the same aura of exclusivity to the digital world by giving mobile customers greater access than the average shopper. Shoppers are using their mobile devices to support the whole customer-shopping journey, from discovery of new products and brands through to purchase. Shoppers can research and explore new product features, compare prices, read reviews, find store locations, take pictures of products, scan barcodes, download digital coupons, actually buy something and then, in the long term, expect the customer support needed to establish a long-term relationship. Whatever it is – there’s an app for it, and shoppers are using them more and more.  In addition, as shoppers become addicted to any kind of fashion sales, they are becoming increasingly responsive to any promotions pushed through their phone. In short, Fashion Tech is helping the consumer become much savvier and more demanding than ever before. Opportunities for developers The window of opportunity is now wide open, developers can still get an early mover advantage if they come up with simple ways they can help retailers add value. We see a few market leaders. High street brands, such as Forever 21 and Jigsaw, through to luxury labels like Chanel are driving this forward with the creation of highly engaging mobile websites and apps. What we’ve seen up until now has been pretty basic but is constantly evolving with features that include locating stores, checking if a product is in stock and QR code scanning to capture product information as well as discounts. Companies such as ASOS and ShopStyle have developed apps that are some of the smartest shopping portals in the digital world, and they are certainly generating sales. Neiman Marcus, another high-end retailer, on the other hand are leveraging simple app technology to enhance your shop experience by through the NM Service; an app that lets customers know which of their favourite sales girls are on the floor. A number of new entrants have also muscled their way into increased effectiveness and have snatched a piece of the pie whilst it’s still hot. For example, New York’s Shopkick has come to epitomize the potential of location-based technology. Its participating stores are outfitted with a microphone that emits a high-pitched tone which the smartphone picks up to automatically give you rewards for simply walking into a store. Shopkick reported 700 million product views in its first year and boasts 2.3 million active users. One size doesn’t fit all One issue that keeps popping up as a major barrier to shopping for clothes and shoes online is the question of size and fit. The fact that sizes are not standard across all brands contributes to a high percentage of returns – an extremely expensive issue for all online retailers. To address this problem Tommy Hilfiger has started using the “augmented reality” concept to launch its own augmented reality fitting room, allowing users to superimpose images of clothing onto themselves using the phone’s camera.  These types of “virtual fitting-rooms” are certainly proving to be a popular phenomenon especially when new technology is implemented to make size and fit recommendations. Clotheshorse uses an algorithm based on questions about the user’s body measurements and previous purchases to recommend the best size possible for the shopper, whilst UPcload is a “virtual tailor” that scans your body via your webcam, then uploads a 3-D template of your body and cross-references it against a database of 100,000 people to make a recommendation for clothing that will fit your size and shape. The Future of Fashion is in Tech One thing is clear: Mobile Retail is here to stay. As technologies improve, it will continue to have a greater impact on the traditional shopping journey. Changes are already starting to show – Take Fancy, for example is a social media site that essentially crowd sources interest in a product and allows merchants to sell them in real-time. It puts demand at the heart of the business model, not supply. It is now up to retailers to stay on top of changing customer behaviour and evolving technologies to increase sales both online and in their brick-and-mortar stores. #fashiontech #mobileapps

Product Manager Stijn Schuermans is presenting at the 5th Tablet & App Summit 2012 in Frankfurt, Germany on Tuesday 30 October. If you want to meet up, get in touch with him here.

[With only one week left till the end of our Developer Economics 2013 survey, Andreas Pappas offers a sneak preview into some preliminary results.] With less than a week to go and over 2,000 developers responding so far, this has been one of our most successful developer surveys to date. It is also our largest project so far, involving the whole team at VisionMobile, 6 sponsors and 26 media and regional partners worldwide. But we don’t want to stop here; we want to push the limits even further and with your help we can achieve this. So, if you’re a developer, take the survey – if not, please help us spread the word far and wide! Developer Economics reports reach over 35,000 industry members and help developers, platform vendors and other players understand trends and challenges in the app economy and make important decisions about platforms, tools, developer outreach activities and strategy. If you haven’t taken the survey yet, now is the chance to have your say and shape the things to come. As a bonus, we’ve got some cool gadgets to give away to a few lucky respondents. Also, all respondents are eligible for a free three-month subscription to Bugsense bug-tracking and crash reporting service. The Developer Economics survey shows some interesting trends so far. We won’t spoil the surprise, so we’re keeping the numbers for later on, after the survey ends and our analysis is completed. What we can reveal though are snippets from a first look into our data: – Advertising services are the most popular developer tools Ad services (including ad networks and mediation engines, e.g. AdMob) are the most popular tools, used by about a third of developers in our survey. The least popular services so far are Cross-Promotion networks and Voice services, the latter remaining a niche, used by less than 10% of all developers. If you’re a developer using these services we’d be really interested to hear from you. – Android developers are picking up their tablets Our results so far indicate a substantial increase in the number of Android developers that target tablets. This is not surprising following the release of the Nexus tablet, but it could be an indicator that Android is finally making inroads into the tablet market. Nevertheless, iOS remains the king of tablets, with an even larger number of iOS developers developing for iPads. – Advertising is now a more popular revenue model than pay-per downloads Last year the most popular revenue model was pay-per-download, used on average by 34% of developers, followed closely by advertising. The situation has now been reversed, with advertising taking the top spot among revenue models, in terms of popularity but not revenue. – And the best platform is … We asked developer to rate platforms they have already used or are planning to use against a set of attributes such as development cost, learning curve, app discoverability etc. When it comes to the best development environment the jury is split with Android and iOS fighting a very close battle. What’s your take on this? – How do developers decide what app to develop? Do developers sit around and wait for inspiration or do they pay for market research? Well, some of them do both. Others ask their users what apps they would like, while some develop me-too apps. But the majority of developers just develop the apps they want to use themselves! That’s all we can say for now but stay tuned for the full results. We’re planning to release really interesting data on: – platform mindshare – revenues by platform – revenue models that work best – most popular developer tools by platform & app category – developer tool ratings and selection criteria – and much, much more! Here’s a list of the tools included in our survey:Ad NetworksAdColony AdMarvel AdMob AdWhirl AirpushApple (iAd) Burstly Fiksu Flurry InMobiInneractive JumpTap Lead Bolt MillenialMedia mOcean MobileMobClix Nexage mopub Smaato warp.lyBack-End as a ServiceACS Applicasa Apstrata Buddy CloudMineCloudyRec Deployd FeedHenry iKnode Kinveykumulos mobDB Parse ScottyApp sencha.ioStackMob Usergrid (Apigee) Trestle (Flurry) QuickBloxBug TrackingAirbreak ApphanceBugSense CrashlyticsCrittercism Hockey AppTestFlight UsermetrixCross-Platform ToolsAdobe AIR Appcelerator AppMobi BrightcoveCorona Marmalade MonoMoSync PhoneGap QtRunRev Sencha UnityCross-Promo NetworksadDash AdDuplex AppCircle (Flurry) Applifier AppFlood (Papaya)Chartboost clashmedia Fiksu G6PayGreatPlay Network Jampp maudau RevMobSponsorPay Tapjoy W3i Wavex (6waves)User AnalyticsApsalar Bango DistimoFlurry Google LocalyticsMobClix mopappTestflight Live (Burstly) UserMetrixVoice ServicesAT&T Deutsche Telecom FonYou GetVocal HarQenHoiio Ifbyphone IOVOX Jaduka MicrosoftOneAPI Sendflow Skype Telefonica TelekuTringMe Tropo Twilio Verizon Vivox If you haven’t completed the survey yet there’s still some time to do so. We’d really like to hear about your developer experience, either via the survey or directly. Also, don’t forget to spread the word! – Andreas You should follow me on Twitter (@pappasandreas) #ios #mobiledeveloper #Android #appdevelopment #Blackberry

Presenting our latest infographic – The Mobile Industry in Numbers – the H1 2012 edition of the 100 Million Club, the watchlist of the top mobile platforms and handset manufacturers. This infographic will give you some insights into the mobile market and help put things into perspective. Here are some of the insights from the infographic: – Smartphone sales penetration continues to accelerate, growing from nearly 30% in Q3 2011 to nearly 40% in Q2 2012 – Nearly 2 out of every 3 smartphones shipped in H1 2012 were Android devices – Despite low device sales, the Windows platform already has over 100K available apps in Windows Marketplace – Although Symbian is obsolete, it still has a sizable installed base – larger than bada and Windows Phone combined – In the handset market, Apple and Samsung account for 63% of revenues and over 98% of the profits, depriving other vendors of oxygen and therefore the ability to invest in handset differentiation and marketing – In the smartphone market, Apple and Samsung claim more than half of total shipments. Nokia is shipping more Symbian handsets than WP handsets and their smartphone share has fallen to 7%, down from 16% in H2 2011 #ios #markettrends #100millionclub #Android #windowsphone #Blackberry #handsetmanufacturers #mobileappmarket

[Telephony is up for a big shake-up, as Internet telephony companies like Skype and voice application platforms like Twilio are challenging century-old assumptions about how people speak with each other remotely. VisionMobile analyst Stijn Schuermans sheds light on this new wave of voice innovation and why telcos need to unbundle voice from their network if they want to be able to compete with their OTT counterparts.] Back in February, we published a blog post Paul Golding, heralding the end of the golden era for telcos due to the increasing competition from OTT voice solutions. At around the same time, we published a Mobile Insider paper, “The Future of Voice”, in which we added to Paul’s “notes from the field”, as he called them, with systematic economic analysis. Voice innovation and the disruption of telcos is indeed as relevant now as it was then. Voice could become as important to ecosystem differentiation as location is. Two classes of voice companies The basic concepts of telephony haven’t changed in 200 years, despite technological advances like software routing, mobile phones and digitization. But now that telecom has entered the Internet age, Skype and Twilio represent two classes of companies that are pushing voice to a big shake-up. Skype remains the leader in Internet Telephony, i.e. voice over public data networks. The well-known VoIP company claims over 200M monthly connected users, which would put it among the top 10 mobile operators worldwide. In 2011, Skype served an estimated 145 billion international minutes, just under a quarter of all international phone traffic.  Roughly half of all Skype-to-Skype minutes cross national borders. Skype was bought in October 2011 by Microsoft for $8.5B to integrate into its enterprise offering. Twilio heads the pack in the Voice Application Platform market, providing software components and cloud-based services for building novel voice applications such as voice messaging, click-to-call, person-to-multiperson, voice search and more. The company generated significant developer attention in 2011, growing its customer base by 400% to 75,000 developers. This put it in the same order of magnitude as platforms like Windows Phone 7 in terms of developer reach. Twilio’s voice API is as popular as the Facebook API in the mashup marketplace programmableweb.com. In 2011, the San Francisco based company expanded to the UK and in December it raised a $17M series C funding round to expand to 20 more countries. At the Appsworld conference last week, Twilio had the brightest and largest stand on the floor. How voice is being disrupted In our view, telephony has overshot customer needs. It can no longer be improved in a way that is meaningful to customers, i.e. they are not willing to pay for improvements. Non-optimized data networks like the Internet are still considered unsuitable for mainstream telephony, but the success of VoIP companies like Skype indicates that performance has become good enough for a growing number of customers. This sets the stage for a classic market disruption. In this environment, the basis of competition will shift from voice quality (sound quality, call drop rate) to flexibility of communication (multitude of use cases beyond telephony). This opens up two opportunities for disruption: low-cost alternatives and creation of new voice markets. Internet telephony is low-end disruption to the telco business model. Less demanding customers accept lower quality (as traditionally understood) for a lower price, often free. The mindshare and market share leader here is Skype. The reconstruction of voice enables new markets. With telephony becoming a commodity, old assumptions about voice such as initiating device (telephone), synchronicity (continuous call versus one-off voice message), termination (phone number), scope (one-to-one versus one-to-many) and calling parties (persons versus machines) will be decomposed and reconstructed into new applications that are no longer recognizable as phone calls. Customers will evaluate applications based on flexibility, i.e. the breadth of use cases available, not on traditional quality metrics. Companies like Twilio target new markets (non-consumption), mostly on voice-second connected devices like tablets or PCs. In addition, voice will become the new “killer API”, targeting primarily developers (B2B) rather than consumers (B2C). Eventually the likes of Twilio will usurp the existing market as well: telephony will become “just another app”. Such innovation will grow voice usage (but not telephony) tremendously beyond its current level. The success of Skype, Twilio and many others is strong evidence that this disruption is taking place now, and not in some theoretical future. Telcos’ best shot: unbundling voice Telcos will struggle to compete. The disruptees are the traditional telephone operators. Their business model is no longer sustainable, for multiple reasons. First, they can’t achieve the cost structure of the modular VOIP over data networks with a proprietary, integrated network. Second, their company DNA (in particular their budget prioritization processes) will not allow them to innovate at the same pace nor in the same direction as the voice API innovators, for fear of cannibalizing their existing business. Twilio on the other hand has an explicit disruptive DNA, is set up for flexibility and openness to external innovation (with a developer-centric platform). Twilio even pushes such innovation explicitly with an investment fund for their developer-customers. Unbundling of voice is inevitable. This post-disruption value system requires that the voice service needs to be unbundled from the network on which it travels, e.g. get your connection from a telco and voice through Skype (with a SkypeIn number). This major industry structure overhaul is inevitable for four reasons. 1. In a world where the basis of competition is flexibility and choice, the modular system of unbundled voice serves customers much better than an integrated telephony network, and therefore will win the market. 2. For telcos to survive in the new situation, they need to break radically with their existing company DNA. This can only be done in spin-offs, which requires unbundling voice from their other operations. Voice innovation cannot survive when embedded in the old telco paradigms. 3.Unbundled voice (made feasible by the use of APIs) unlocks external investments. The money invested in unbundled voice will be much bigger than what telcos can invest on their own, making it impossible for “bundled” telcos to compete. 4. Voice is a social construct. The experience from other social networks like Facebook shows that social connections are not bounded by regional boundaries. In a border-less world, voice innovation must be global and therefore over the top, unbounded by the regional limits of today’s carrier networks. Conclusion As we speak, the voice market is being disrupted in a classic case of Christensen’s Innovator’s Dilemma. The basis of competition is changing, allowing new entrants like Skype and Twilio (flexibility) to win over old-school telcos (quality). Novel voice applications like voice-based appointment reminders and voice search are opening up new markets beyond telephony. This will grow the total pie tremendously. As a result of this disruption, it is inevitable that voice will become unbundled from the networks on which it travels. Those who choose to lock voice within their networks will become challenged. AT&T recently partnered with Twilio to offer the Advanced Communications Suite (ACS), a suite of cloud-based voice and SMS-enabled apps aimed at enterprise customers. Even the oldest and largest of operators have understood that voice innovation is imperative for future success. How about your operator? – Stijn (@stijnschuermans) #telcos #ott #skype #mobileoperators #twilio #mobileinsider

[Did you ever wish that your handset understood you better and you didn’t have to tap, type & scroll to tell it what you want it to do? Well, that moment may not be too far away. VisionMobile Senior Analyst Andreas Pappas discusses the future of ambient intelligence and the way handset evolution has brought us closer to that vision.] “PlaceMe” is not an app; not in the traditional sense. You don’t really interact with it and you don’t tell it what to do. It will sit there quietly, in the background, observing you, learning about your daily routine and keeping a record of everywhere you’ve been. “Highlight” is another app that will sit quietly in the background. It will scan people around you and check their profiles. If it finds interesting people such as someone that you share common friends with it will let you know everything it knows about them. PlaceMe and Highlight belong to a new breed of mobile apps that are better described as ambient sensing services. These services require minimal or no user input; they are constantly aware of your environment by monitoring mobile sensors on your phone and combining it with cloud-based information sources to fill in any missing information and augment your perception of the world. Heavyweights such as Google and Qualcomm are also investing in this type of services: – Google Now is a service currently available on Android Jellybean that uses past history searches to predict and display or read-out information that it thinks will be useful to you, such local weather or flight info. – Gimbal, Qualcomm’s context awareness platform aims to empower context aware applications through an SDK that includes geofencing (location-based selection), interest sensing and image recognition among other features. Alohar Mobile, the makers of PlaceMe also provide an SDK and APIs that developers can use to integrate location and motion-based features into their apps. These services are currently at an early stage. They are designed to maximise ambient context sensing (where you are, where you’re going, what the weather, your mood, health or the traffic conditions are like) and minimise your input so that the services disappear into the background and only interrupt you when they have something interesting to say. Mobile devices at the centre stage Ambient intelligence, has been a hot-topic in academic circles and research labs for almost two decades: smart walls, screens, fridges and homes, sensors and sensor networks have featured excessively in research papers. These devices would understand and automate people’s interaction with their environment. And while some progress has been made, there has been a profound lack of real-world use-cases and commercial traction. One of the reasons behind their failure is that such services and devices were disconnected from the user most of time, i.e. their utility has been confined within a very limited use-case. The one component that was necessary to link all these smart components to the user was missing until recently: the sensor-packed smartphone. The sensor-packed smartphone is a vital and key component of the ambient intelligence environment: a device that is with you most of the time, if not always, and has the capacity to monitor, understand, communicate and react to most of your actions and interactions. The number and quality of sensors on smartphones has been increasing rapidly in recent years (gyros, humidity, temperature) and this trend will certainly continue: in the future we might as well see medical sensors integrated within handsets. However, there are several ingredients necessary to empower an ambient intelligence service, apart from sensors: – Cloud-based data stores: Online data sources that turn sensor readings into information that can be understood by humans. E.g. A Wi-Fi transceiver will only work as a location sensor if the address of the Wi-Fi hotspot is mapped in a cloud database. – Cheap & ubiquitous data: The utility of ambient services increases with always-on, ubiquitous and real-time data connectivity to cloud-based resources. – Cheap cloud processing power and inference engines: These cloud-based components do the number crunching and data processing required to combine sensor input with all sorts of data (environmental, geographic, economic etc.) in order to infer intentions and determine appropriate actions. – Mobile processing power: With Quad-core processors running at 1.5GHz, mobile devices now have comparable capabilities to notebooks and are able to do much of the processing required locally. – Apps: Apps act as the front-end and interface to the user and fulfil and extend the use-cases available. Most of the above elements have only recently reached the performance or price level required to enable mobile-based ambient intelligent services. Context-awareness SDKs such as those provided by Qualcomm and Alohar Mobile empower developers with the tools required to optimise their apps with context information of the user and their environment. By doing so they provide a more streamlined experience and a more intuitive user-app interaction than traditional apps. For example, by knowing the user’s location, daily routine and current traffic information, a personal assistant service will be able to infer and inform the user that it is time to leave work to pick the kids from school and his best option is to take the long route there since traffic there’s a traffic jam on their usual route. And this process should not require any user input. These services will learn the user’s habits and schedule just by monitoring their everyday behaviour. Samsung has integrated some of these concepts in the Galaxy S3: the phone will understand that you want to call someone when you lift the handset to your ear while texting them. It will also keep the screen lit as long as you keep looking at it. These emerging features in both handsets and services signal a trend towards ambient intelligence, which will spark a wave of innovation in this space opening up an even wider range of use-cases. New use-cases are being unlocked Apart from a range of personal assistant services that are only valuable to individuals, the scope for ambient intelligent services is much larger than the personal level. Harvesting and processing sensor data from thousands and millions of users via services such as PlaceMe can reveal social behaviour and environmental data on an unprecedented scale. The opportunities are immense: – Commercial: user shopping patterns such as the route a customer took inside a supermarket and how long they spent in each corridor may be useful information for physical retailers. Smart mobile services must offer direct value to users even if their primary purpose is commercial. Otherwise it will be difficult to achieve user traction and overcome users’ privacy barriers. For example, by knowing an individual’s shopping basket, the shortest route and best deals can be highlighted in large supermarket. – Public safety: traffic patterns in cities and concentration of large masses of people in specific areas can be highlighted by using the collective intelligence enabled by sensor data. Safety alerts can be triggered when a variation from normal patterns is observed. – Planning, forecasting and research: the data sets generated by constant observation of location and environmental variables present a unique resource that planners and researchers can tap into in order to better understand changing social or environmental patterns are respond to these. – Health monitoring: medical sensors integrated into mobile phones can alert individuals or medical professionals of an emergency and recommend a course of action. While such sensors are currently provided as add-ons, it may be possible that some may become integrated into phones in the future. The advent of context aware SDKs together with increasing levels of handset sensor integration is bound to open-up a lot more new use cases that developers will address. Beyond the “freaky line” of privacy As prominent Silicon Valley influencer Robert Scoble puts it, the services described here are way over the “freaky line”, implying a very high level of privacy concerns. Placeme and Highlight are examples of apps/services that cross the freaky line, and go far beyond Facebook in the amount of private data they collect. While PlaceMe currently encrypts this data, most commercial use cases can only be unlocked if users relinquish some control of their personal information. Sam Liang, founder of PlaceMe, suggests that these services will become so pervasive that, once we start using them, people will not want to be without them. If this is true, it will signify a fundamental shift in the way users perceive their privacy: the utility they receive will be large enough to overcome their concerns about the way their data is used. Facebook has led the way here, pushing the “freaky line” to higher levels: it has opened up people’s lives, where they’ve been, who they were with and what they did to a wide social circle. And all this is usually exposed voluntarily by the user. Despite privacy concerns there is no sign that users are abandoning Facebook, indicating that its utility is worth the privacy trade-offs for most users. PlaceMe and Highlight will push this line even further by collecting data automatically and continuously. Naturally, sensitivity to privacy will vary by age: teenagers are already less sensitive to privacy loss already giving away much control of personal data to social networks. People’s attitudes towards privacy have been evolving with more and more users relinquishing control. However, a large number of sensitive users still exist and when using personal data, marketers should start thinking about segmenting consumers by their sensitivity to privacy on top of price sensitivity. Where is the opportunity? In the emerging ambient intelligence world there are several stakeholders and opportunities exist all along the mobile value chain: Device and component manufacturers can benefit from a shorter handset replacement cycle fuelled by integration of more and diverse sensors, particularly ones that open-up new use cases such as medical and environmental sensors. As today’s expensive components become good enough and cheaper (screens, CPUs, memory) it is likely that value will shift from these components to integrated sensors in the near future. Platform providers, cloud services and context-aware API/SDK providers link mobile sensor data to cloud resources and to developers. They will likely act as aggregators and distributors of sensor information and processed data adding significant resale value to the raw sensor data. Operators may be able to capture some value if they manage to leverage their role as communication aggregators: from location data to communication patterns and personal data, operators have access to fine grained user information. Presently, there may be regulatory barriers preventing operators from exploiting such data, but changing user attitudes towards privacy could also push regulators to adopt a lighter-touch approach towards operators. Developers have demonstrated the capacity to innovate by extending and creating new use-cases that leverage the newest hardware or software capabilities. Developers will provide the front-end that brings ambient intelligence to the user, empowered by these capabilities and driving a new growth cycle for the app economy. Let us know your thoughts about the future of ambient intelligence services. – Andreas (@PappasAndreas) #ambientintelligence #apps

Our latest Developer Economics online survey has launched. This time we’re benchmarking the building blocks of the app economy, from analytic tools to voice APIs. Join us in Developer Economics 2013, take our online survey, have your say on your favourite tools and win prizes, including an iPhone 5 and a Samsung Galaxy SIII. The survey will soon be available in Chinese, Russian, German, French, Spanish, Korean. Also, our respondents receive a free, 3-month subscription to a crash reporting tool for their apps, courtesy of our friends at Bugsense! Developer Economics 2013 is sponsored by AT&T, Mozilla, Nokia, BrightCove, BlackBerry and Telefonica.