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Welcome to the application ecosystem

2013-08-13

By Sean Ng, Solution Marketing Director, South Pacific Region, Huawei

Apps are changing the world, but they represent just the tip of the iceberg of a software revolution unfolding in telco, and those who wish to come out on top of it need to consider the software/application ecosystem in all its aspects, not just the ones that regularly make the news.

The impact of apps and software ecosystems in the mobile industry has been nothing short of astonishing. Apps have turned the handset manufacturer business upside down in the last two years, as players with strong software ecosystems such as Apple and Google have replaced the weakest of the old guard on the leaderboard of top-five handset vendors by unit sales.

However, the total market share captured by the top-five handset OEM leaderboard has shrunk from 80% to under 60% in less than two years, as Apple stormed the high-end smartphone market and modular platforms from Google and MediaTek made it possible for dozens of low-margin assemblers to occupy roughly 30% of global handset sales.

Software has also disrupted the network operator world in many ways. Today, software innovation outpaces network innovation by at least a factor of five. Application developers often reach the market in only three to six months, while operators take 18 to 24 months to launch a new service. In other words, it has become impossible to innovate outside of software.

Any such innovation will be outrun and marginalized by more agile, more nimble, software-led players, the giants of which have benefited at the expense of the very network operators who funded their entry into mobile; the vast majority of Android handset models have been sponsored by operators looking to attract new subscribers, while the majority of iPhones have been subsidized as part of a 12-to-24 month contract. It is these same software-led players that are now competing with operator services and challenging their established control points, including location lookups, billing, service discovery, and authentication.

As telcos are dragged into the software era, network operators and handset OEMs need to become platforms (enablers) for developer innovation. Telcos also need to rebuild their strategies along the rules of software economics.

Software economics

The single greatest surprise that software has brought to the mobile industry has been the change of economics – from supply-side to demand-side economies of scale.

The mobile industry has been built from the ground up on supply-side economies of scale; billion-dollar investments by handset vendors have created production powerhouses where the few are able to decrease supply and manufacturing costs dramatically. Supply-side economies of scale are common sense – the larger the company, the lower the costs; the lower the prices, the larger the sales.

What software introduced was demand-side economies of scale. Also known as network effects, these economies are driven by demand (the number of users or developers of a software platform). A classic case of network effects is a telephone network, where the utility of a network increases with its size. As users increase, so does the value of the network to them.

The platform race

The platform race in smartphones hasn’t been this fast since the early days. In the space of two years, iOS and Android have captivated users, industry brands, and mobile developers alike.

The mobile web is continually advancing in terms of developer attention and media hype. However, HTML apps cannot compete with native platforms in terms of user experience or depth of API reach, while Java, with its broken promise of “write-once-run-everywhere,” is fast being eclipsed out of the smartphone-centric (and definitely not feature phone-centric, despite its advantages there) mobile developer agenda.

All in all, the platform race has both intensified and accelerated. Yet, amidst all the industry hype, there is no accurate metric of how mobile platforms are falling in or out of favor with developers.

Try not to stereotype

Telcos, handset OEMs, and consumer brands often use the word “developer” as a label for anyone developing mobile applications, whether a hobbyist or a programmer within a Fortune 500 company. However, in today’s world, where developers are the foremost mobile innovators, we need to become more savvy in understanding who exactly these developers are.

Developers can be categorized by geography, platform used, and criteria for its selection, as well as level of experience, application category, or industry vertical catered to. In other words, developer segmentation is as sophisticated as consumer segmentation.

But whatever the metric or measure used, one must acknowledge that there are several types of developers out there, from hobbyists and students to startups, self-financed professionals, commissioned developers, digital agencies, system integrators, and those working within established businesses developing B2B or B2C apps; all have different incentives, aspirations, priorities, needs and wants.

App categories matter

Developers focus on different app categories based on their primary platform. Business apps are particularly popular among Windows Phone developers, but equally unpopular among Android developers, with entertainment apps popular among iOS and Qt developers. Games are popular among Qt and Java developers, but rare among mobile web and Windows Phone developers.

This diversity implies that platform vendors need to cover their soft spots, in terms of app categories that developers are less active in. Operators, meanwhile, need to tap into the right developers to address their service portfolio, while developers can distinguish themselves in presently underserved niche markets.

The developer journey

The app development lifecycle is a complex one. It’s not just a two-step, idea-to-app process. In today’s global application market, there are dozens of steps involved in taking an idea to market, including planning, developing, debugging, support forum creation, test framework development, packaging, pricing, publishing, billing, marketing, sales tracking, user support, and application updates, to name a few.

Understanding this journey is crucial if platform vendors are to map the competitive landscape of supply and demand, and understand how to differentiate. The developer journey consists of six elements, making for a comprehensive model that covers every possible touch point, so most developers will selectively touch on some but not all.

Application planning – Where a developer takes a concept through the initial stages of feature design, prototyping, selecting the right platform, and designing for the right users.

Development & debugging – Where the hard work of coding the application, designing the UI, testing, and porting take place. This stage is where the vast majority of developer programs are focused today.

Market readiness – An often underhyped part of the developer journey where the application is readied for publishing; includes localization, packaging, variant management, certification, and submission.

Distribution & monetization – The stage addressed by app stores; involves publishing, establishment of billing and distribution agreements, and making money from application sales, advertising, or other means.

Retail & discovery – Where an application needs to be promoted through as many channels as possible to grab user attention. Retailing is the stage facing the most challenges today, due to a glut of applications and a bottleneck in discovery.

In-life use – Where developers need to track sales and usage analytics, support users, and manage ratings, as well as update the application with bug fixes and features.

Friends are a must

Software usurped hardware as the cash cow of the tech industry quite some time ago, but telcos have been slow to catch on. To compete in a more dynamic and competitive world, they must move out of their comfort zones and innovate by opening up their network capabilities to not only developers, but partners and users as well. Of equal importance is that telcos extend their basic capabilities to service provision, enterprise, industry, and OTT service, to improve product innovation, time to market, and infrastructure utilization. CPs and SPs who bring together channels, customers, and content will prove key here; those that can leverage all three will come out on top.

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