Who Keeps Shop at the Mobile Application Store?

Mobile operators and device vendors alike are leveraging tight integration of applications with devices, and their own widget platforms and software stores, as they seek to optimize and control the mobile Web experience. Nokia, Microsoft and Samsung have opened mobile app stores, following Palm and Research In Motion, which in turn followed Apple's trailblazing App Store, while Android Market admitted paid-for apps. This hasn't always been a welcome development, with Orange in particular being publicly critical of Nokia's move, stating that this put the vendor into direct competition with its operator customers.

However, with no set rules for this new frontier, vendors and operators both see an opportunity to add value (i.e., revenue) to their current products and services. The debate regarding which players are best-placed to become shop keeper at these application stores has heated up.

Despite facing potential conflicts of interest, in the bid to become the dominant Web brands, some mobile operators and phone makers are forming uneasy alliances. For instance, UK operator 3 and Sony Ericsson partnered to provide an optimized Facebook phone, whilst T-Mobile unveiled its own widgets environment, similar to Vodafone's recent moves but with the added ability to coexist on certain phones with Nokia's Ovi services and app store. Such moves may serve to prevent the 'open' Internet players, like Google, from making their own products and business models too dominant in the value chain.

To date, operator app store launches have been limited outside the U.S., but this is changing, with O2 confirming storefront plans, Orange planning to extend its existing app store to support more operating systems, and China Mobile announcing plans to launch its own app store in two phases in 2009.

Behind these new storefronts comes the 'backroom staff' of app store enablers, including operations and business support systems companies such as Amdocs, Comverse and the like, as well as specialists, including on-device portal player SurfKitchen. These companies are hoping to help mobile operators gain footing in this crowded market, but given the host of options already available, the question is whether operators should even want in. Whilst operators are no strangers to launching applications on their own, putting them in a unified, self-managed storefront is a leap into the unknown.

It is obvious why operators are prepared to make this leap. With voice revenues declining rapidly, they need a value proposition in the new Internet world to avoid relegation to 'dumb pipe' status. Apple has demonstrated how lucrative app stores can be on the iPhone, reporting that nearly 20% of users who installed apps on their devices in 2008 spent between $100 and $400, a significant per-user 'value-add' by anyone's reckoning, especially considering that most apps cost only a few dollars. Other benefits include increased data traffic and even potentially shared revenue from ad-funded free apps.

But despite the potential return on investment, are app stores a risky bet? For most operators, running their own competitive app store might be a bad idea because of the complexity in creating and supporting a whole ecosystem, and developing and provisioning applications both online and at the device level. Operators such as Orange that have already established developer forums could probably handle this, though it is a resource-intensive exercise, but few other operators are likely to achieve the scale necessary to make it work.

So are there better options available?

The on-device portal, a popular concept from many years ago that was deployed by a handful of operators as a closed garden of proprietary applications, never reached culmination before giving way to Web browsing, but may actually be resurrected by the rise of the app store as a variation on the model. When you look more closely, for a lot of operators, the application store concept is window dressing; the store is in fact an evolution of their old mobile portals. For example, T-Mobile’s web2go essentially is T-Zones revamped with an application store element, as one aspect of a wider package that includes search from Yahoo! and Media Systems. Operators want a service that is independent of a consumer’s device — hence Orange's beef with Nokia's Ovi — so they can focus on driving value for the overall lifetime of that consumer, making applications just one of many content options.

This kind of refresh makes sense, because the challenge of starting entirely from scratch likely will outweigh the benefits for operators. In that respect, making an application store into a kind of overlay onto an operator’s existing portal could actually make the most sense, more a matter of repositioning than recreation. If operators don't want the complexity of the task themselves, but don't necessarily want to see device vendors driving store development, this leaves uncertainty regarding who should own the store, who should stock it, and who should operate it; that is, who should be the primary interface with the consumer.

Just like the real retail world, there is not always an alignment between the brand of the store and the brands of the goods sold within them. Amongst operators, device vendors and application providers and enablers, the jostling for brand supremacy has begun . . . but in a complex value-chain it is not clear who could — or should — hold the keys to the mobile applications store.

Richard Webb
Directing Analyst, WiMAX, Microwave, and Mobile Devices
Infonetics Research
richard@infonetics.com

Infonetics Research analyst Richard Webb is a widely recognized analyst, author and speaker who has been covering telecom markets for 13 years, including WiMAX since shortly after its inception in 2001, making him one of the industry’s foremost WiMAX experts. Richard authors numerous Infonetics market share and forecast reports, service provider surveys, and Continuous Research Service (CRS) opinion pieces on WiMAX, LTE, 4G, mobile broadband, FMC, microwave, mobile backhaul, phones and devices (mobile, FMC, WiFi, smartphones). As a consultant to service providers, equipment manufacturers, and the investment community, Richard identifies new market opportunities and advises on positioning, product development, business plans, and M&A activity. Bio: http://www.infonetics.com/bios.asp?id=rw