Mobile Megatrends 2014

Copyright VisionMobile 2014
Updated: 26 June 2014

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© VisionMobile 2012. Some rights reserved.VisionMobile.com/Strategy
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Developer Economics 2014 6th ed.

Knowledge. Passion. Innovation.
Stijn Schuermans
@stijnSchuermans
Andreas Constantinou
@andreascon
Michael Vakulenko
@MVakulenko
Updated 10/4/2014
© 2014 VisionMobile. This work is licensed under a
Creative Commons Attribution-NonCommercial-NoDerivatives 4.0
International License.

4
Mobile Megatrends 2014
Apps:
The Tip of the Iceberg
Mobile ecosystems:
Don’t come late to
the game
Google: stripping
Android Naked
Handset business : Hardware
is the new distribution
The future of HTML5:
Beyond the Browser
Messaging Apps Are
the New Platforms

APPS: the tip of the iceberg

6
1,000,000 apps ARE just the tip of the iceberg
fundamental business model shifts
are taking shape

There is a Fundamental shift in how value is created
value is now in all aspects of user needs
Source: Eurostat household spending for 2011, VisionMobile
mobile telephony 2000s
mobile creates value for communication needs
3% of user spending
mobile computing 2010s
mobile creates value for all needs
and near 100% of user spending
Housing, water,
electricity, gas
and other fuels
23%
Transport
13%
Food and non-
alcoholic
beverages
12%
Miscellaneous
goods and
services
11%
Recreation and
culture
9%
Restaurants and
hotels
8%
Furnishings,
household
equipment
maintenance
6%
Clothing and
footwear
6%
Alcoholic
beverages,
tobacco and
narcotics
3%
Health
3%
Communications
3% Education
3%
3%
Communications
7
household
spending
EU27
household
spending
EU27

Fundamental shift in how value is delivered and captured
challenges the fundamentals of the traditional telecom-centric business model
…but, apps are just
the
tip of the iceberg
Source: VisionMobile
mobile telephony
telcos are the gatekeepers and
those who profit from mobile
mobile computing
ecosystems are the gatekeepers
and those who profit from mobile
Housing,
water,
electricity,
gas and
other fuels
23%
Transport
13%
Food and
non-
alcoholic
beverages
12%
Miscellaneo
us goods
and services
11%
Recreation
and culture
9%
Restaurants
and hotels
8%
Furnishings
, household
equipment
maintenanc
e
6%
Clothing
and
footwear
6%
Alcoholic
beverages,
tobacco and
narcotics
3%
Health
3%
Communica
tions
3% Education
3%
3%
Communications
8

Fundamental shift in how competition is defined
challenges the assumptions of competitive positioning
competition between
products
defined by product features
what product the customer will buy?
(inside-out thinking)
9
competition between
industries
defined by product benefits
what customer is trying to get done?
(outside-in thinking)
vs. vs.
“buying a newspaper” “killing 10 minutes of time”
“buying phone service” “keep in touch with friends”
vs. vs.

10
Fundamental value chain overlaps
players across industries compete for control across the value chain, but not for profits
Content
Distribution
Connectivity
Screen
User
Apps
Services
App Stores /
Portals
Billing
Telephony
Network access
Software platform
Devices
Discovery /
retailing
Customer insights
devices
Ads
software
licensing
e-commerce
Ads
denotes vendor s core business
networks

11
Apps are just the tip of the iceberg
Mobile is changing
- How value is created, delivered, captured
- how competition is defined
- Value chain overlaps
- cross-industry subsidies

MOBILE ECOSYSTEMS: DON’T COME LATE TO THE GAME

It’s a green and blue APPS world
For developers, iOS and Android dominate every developer market
Source: Developer Economics Q1 2014
Platform priority by country, for app developers

iOS dominates developer revenues
Median revenue per app, per month (n=2,425)*

15
Below the iceberg..
The Apple and Google ecosystems Are
100+ billion dollar empires

The Apple GDP: The iOS ecosystem has grown to $163B
Apple captures most of this revenue
iOS platform
devices
App Store
content platform
device sales
content revenue share
accessories revenue share
content licensing
revenues
direct revenues,
user engagement
premium
mobile computing
experience
revenues from
sales of premium
devices
accessory
manufacturers
accessories, revenue
share
access to market
16
how value is captured
mobile app
developers
Source: VisionMobile analysis
Figures for 2012
content owners
(music, books,
magazines, movies
content
apps and games
App Store
$129B
iOS device
revenue
$22B
app revenue, ads
revenue and
contract sales
$6B
content license
revenue
$7B
accessory sales

The Android GDP: AN ecosystem valued at $149B
Enormous defensive value for Google’s core business, but little direct value capture
Android platform
technology
services, free content
governance
app store
eyeballs
insights
apps
user engagement
and direct revenues
17
Handset OEMs
handsets
technology and services
mass-market
mobile computing
experience
eyeballs
mobile app
developers
Play Store
compatibility
certification
$117B
handset sales
$3B
est. revenue from ads
on Android devices
$19B
app revenue, ads
revenue and
contract sales
Source: VisionMobile analysis
Figures for 2012

18
How did Apple, Google built ecosystem empires?
What can history teach us?

19
2000 2001 2002
appecosystemssoftwareplatforms
Android
iOS
2007 2008 2009 2010 2011 2012 2013
= dead end
Apple, Google emerged out of the ashes of 20+ dead platforms.
Only the first-mover app ecosystems survived
A la Mobile
Access ALP
Azingo
Comneon Apoxi
Danger OS
e-SIM Intrinsyc OS
IXI Mobile Mizi Prizm
S40
Motorola L-J
Nokia GEOS
OpenMoko
OpenWave MIDAS
Palm 5/6
Sasken Aria
SavaJe OS
SKY-MAP
TTPCom Ajar
MeeGo
Tizen
Firefox OS
Windows
Phone
Blackberry
Maemo
Bada
Jolla
first two platforms
with an app store
Ubuntu
bubble size = apps available
Only the first-mover,
app ecosystems survived

iOS, Android built app ecosystems with superior economics
app ecosystems have very different economics to platforms before them
software
platform
communications
platform
app
ecosystem*
examples Linux
participants handset makers users users and developers
wins by
sharing costs and risks of
software development
connecting large
number of users
connecting users with
developers
economics
economies
of scale
same-side
network effects
same- and cross-side
network effects with winner-
takes-all dynamics
growth
potential
linear quadratic exponential
*also referred to as a computing platform

App ecosystems won by superior growth potential
21
scale (users or devices)
valuetoeachuser
App ecosystem
value grows
exponentially due to
increased number
of interconnections
Software platform
value grows linearly due to
cost saving and decreasing price
moreusers>…

ecosystem economics resulted in a duopoly
22

23
..Actually four duopolies
network effects have created duopolies and huge barriers to entry for late comers
Source: Developer Economics; VisionMobile estimates
Figures for Q3 2013

24
What’s the secret Sauce?
Can Apple’s and google’s success be replicated?

Apple, Android deliver benefits to all sides
exponential growth comes from cross-side network effects across all five sides
mobile platforms
app developers
handset makers
operators
25
brands
advertisers
reach eyeballs
increase ad value with insights
engage audience
reduce costs
be able to compete in
smartphone market
find choice & novelty (apps)
be sure of quality
convenience
support identity
increase ARPU
lock-in users
achieve personal fulfilment
have commercial success
belong to a community

To compete, Challengers have to achieve the impossible
three conditions necessary to compete with Apple / Android
mobile platforms
26
2 activate all sides of the network
simultaneously for same-rate
growth
1
3
Incur additional opportunity
cost for participants due to
limited resources
(e.g. to adopt WP you have to abandon
Android)
achieve the same outcomes
cheaper/faster/better
Three conditions to compete:

Predictably,
Many have tried, none have succeeded.
27

28
Mobile App ecosystems Create black oceans
Inspired by “Blue Ocean Strategy” (2005) by W. Chan Kim and Renée Mauborgne (INSEAD)
Blue ocean
uncontested markets
no competition
e.g. luxury home appliances
Black ocean
ecosystem-driven markets
impossible competition
e.g. app ecosystems
Red ocean
existing markets
fierce competition
e.g. mobile handsets
no name

29
How do you compete
IN a black ocean?

leveragE, don’t compete
How Facebook seems the world of mobile platforms
30

FB and Amazon Leverage & attack weak points OF ecosystems
Operating systems are a commodity, no longer the basis of competition
operating
system
runtime APIs
tool chain
app
platform
monetization
distribution
retailing
app
ecosystem
developers
users
compete head-on
attack weak points &
leverage ecosystems
duopoly
31
tools
ecosystem
analytics
monetisation
discovery
*rumored $2.6B in OEM incentives for 2014.
Amazon adds:
+better discovery
+active paying customers
+integrated device
*
FB adds:
+better discovery
+ad monetisation
+deep app links
+free SDK bundle

In the future, ecosystems will compete by experience roaming
ecosystems will compete not by size, but how well the experience roams across screens
Mac computers iPhone iPad Apple TV
Chrome browser Android Android tablets
Google TV,
Chromecast
Windows, Office Windows 8Windows Phone Xbox
PC smartphone tablet living room
32
Online store Kindle FireSoon to come? Fire TV
dashboard
CarPlay
Open Automotive
Alliance
Windows in the Car
?

GOOGLE: STRIPPING ANDROID NAKED

34
Android: NOT Google’s gift to the world

Android IS the most closed open source project
Open to developers, closed to handset makers
35
Source: VisionMobile, Open Governance Index, 2011
Open Governance Index
VisionMobile, 2011
free
download

Android IS closed to handset makers on 3 control points
36
App store, billing relationship
Access to 1 million apps, media content on
Google Play Store only available to OEM licensees
Killer services
Gmail, Calendar, Now, Maps, YouTube, Drive,
Hangouts, … only available to OEM licensees
Trademark & brand
Only Google licensees can claim
to sell an “Android handset”

Handset makers inevitably reacted
Google control points were systematically attacked and eroded
37
One Platform Foundation
OnePF provides single app packaging format
and in-app billing for all stores
Amazon, Yandex successfully provided own stores
Killer services
Samsung replaced many of
Google’s apps with its own
Trademark & brand
Vendors and operators promote
their own brand over Android

Google strikes back with a 4th control point: APIs
38
Access to 1 million apps, media content on
Google Play Store only available to OEM licensees
Killer services
Gmail, Calendar, Now, Maps, YouTube, Drive,
Hangouts, … only available to OEM licensees
Trademark & brand
Only Google licensees can claim
to sell an “Android handset”
Google Play APIs and Services

Google stripped Android naked
Google moved critical APIs out of open source OS, into proprietary service
39
Google Services
(APIs)
Google AppsAndroid OS
Google Maps API
Location APIs
Games APIs
In-App Billing
Google Wallet Instant Buy
Could-to-Device messaging
Account Authentication
Account syncing
Google+ Sign-in
Google+ Sharing APIs
Google+ Photo Syncing
Photosphere support
Google Mobile Ads
Remote Location
Remote Wipe
Google Settings App
Malware scanner
Cast API
Search/Now
Calendar
Keyboard
Chrome
Maps
Gmail
Hangouts
Google+
Drive
Play Books
Play Music
Play Movies
Play Magazines
Play Games
Voice
Keep
YouTube
Wallet
Phone app
Settings
Lock Screen
System UI
(button bar, notification panel)
App Framework & APIs
Linux Kernel & Drivers
Hardware support
differentiated APIs and appsbaseline
migration
of APIs and
apps that are
most valuable
to developers
& OEMs

Immediate advantage: fragmentation relief
Google Play Services is automatically updated on 99% of Android handsets
40
share of devices
that support
Google Play Services
v2.2
v2.3
v4.0
v4.1
v4.2
v4.3
share of devices
running a given
version of the
Android platform
Source: Google
November 2013

Long term impact: control over app ecosystem
Developers are now forced to adjust app for each Android fork
41
Development Distribution Discovery
Platform APIs
Developer tool-chain
Backend services
Active developer
community
Marketplace connecting
developers to users
Monetization tools
Partnerships
Discovery, promotion,
placement, search,
recommendations
Solution quality
gatekeeping
developers users
control points
before
control points
after

Android FITS INTO Google’s strategy: Flatten, expand, mine
Android flattens, Google Play Services and apps help to expand and mine
42
Flatten Expand Mine
Flatten anything
standing between
eyeballs and ad
inventory
Uses the economics of
complements to increase
the value of Google’s core
product
Expand the footprint of
ad inventory
… across the user journey,
by introducing new (free)
services like Gmail, Google
Maps, YouTube, Google TV,
Chromecast
Mine information on
every user
Helps Google to better
micro-target users, directly
increasing the value of its
inventory
goals
control points
in mobile
other
examples

OTT SQUARED: MESSAGING APPS ARE THE NEW PLATFORMS

44
The dust of the platform wars has settled
Time for a new form of ecosystem wars

Messaging apps are the 2nd wave of mobile ecosystems
Gaining momentum among users and recognition among investors
45
Acquired by Facebook for $19B
Valued at up to $70B by Nomura
Rumored to prepare for $28B IPO
Acquired by Rakuten for $900M
Received $280M Series D investment
Investors include Alibaba
Preparing for $2B IPO
MAU source: vendor reports, (*) Business Insider estimate
?
*

46
Messaging ecosystems:
- mobile-first
- twice over-the-top
telcos
platforms
messaging

The New ecosystems TURN ENGAGEMENT INTO in e-commerce
contrary to Google/Facebook who monetise engagement through ads
47 source: http://wattsjones.org.uk/post/61010619439/messagingappmonetisation

Many Messaging ecosystems use asymmetric business models
adding value in one value chain and capturing value in another
48
business model
type symmetric asymmetric
value created
designing and
manufacturing
handsets
connecting users and
developers
connecting users,
OEM and developers
helping users
communicate
value delivered telcos App Store Google Play
messaging
network
value captured selling handsets selling devices
selling
on-line ads
e-commerce
2000’s 2010’s

WeChat’s asymmetric business model
displace traditional telco business triggering deflationary economics
49
Stickers, games,
sponsored content, ads
e-commerce, APIs
mobile operators
$$$
SMSbetter
messaging
and free calls
engagement
kills legacy SMS
business model
user reach$$$
commoditization

How wechat captures value through e-commerce
messaging apps are e-commerce platforms
50
WeChat sells movie tickets
when you are near a cinema
Xiaomi sold 150,000
flagship devices in
under 10 minutes on WeChat
WeChat sold taxi rides
through the Didi Dache app
WeChat offers health
insurance services
source: http://www.techinasia.com/
WeChat offers air-ticket
service throutgh LY.com
Pay for bottled drinks
through WeChat

E-commerce is taking over app business models
revenue model popularity and median revenue per app per month (n=5,715)

HANDSET BUSINESS REBOOT: HARDWARE IS THE NEW DISTRIBUTION

The platform duopoly is here to stay
How has the handset business been affected?
53

handset profits Are owned by Apple & Samsung. Why?
The duopoly of profit share in the handset industry
54

In 2007/8 iPhone and Android created two disruptions
55

56
As a result, today’s handset leaders are vertically integrated
Modular handset makers struggle to avoid the commoditization trap
Horizontal player structure Vertical player structure
no name
Integrated across
Bill of Materials
Integrated
metal-to-cloud
Acquired by platform owner
Following Samsung’s recipe
Producing own OS and processors
Now enterprise services company
Unbundling BBM and cloud services
Modular
handsets
component vendors
capture profits,
handset assemblers do not
Samsung and Apple capture
all profits in handset market
“Competition to the best” Profitable growth
Now enterprise services
Unbundling BBM & cloud services

What’s next for the handset business?
57

58
the handset market now faces a third disruption
New players no longer use handsets as as profit center; but as distribution medium
Handset
integrated
with services
“Competition to the best” Profitable growth
Horizontal player structure Vertical player structure
Profits are driven
by services,
hardware is a
commodity with
handsets offered
at break-even

The emerging model: Hardware as distribution channel
not the source of profits
59
emerging model
hardware = distribution
traditional model
hardware = profits
No Name
take most
profits
“demolition derby”
break-even or
lose money

THE FUTURE OF HTML5: BEYOND THE BROWSER

The future of HTML5 mobile is bright
61
HTML5 is
open
HTML5 can
compete with
native platforms
*source: VisionMobile Developer Economics Q1 2014 & Q3 2013
✔ ✔
HTML5 is
cross-platform
✔
HTML5 is popular
at 52% mindshare*
✔

Is the future of HTML5 bright?
62

Is the future of HTML5 bright?
It is, but NOT for the reasons you would expect
63

HTML5 is a technology, IT won’t replace mobile platforms
lacks key ingredients to compete with leading mobile platforms
64
Key ingredients
Software
foundations
Developer
ecosystem
Monetisation Distribution Retailing
✔" = ✖" ✖" ✖"HTML5
fragmented platform
always a step behind native
complex tool-chain
islands of developers
using common language,
but different API sets
needs a leader
not consensus
Facebook? Google? Mozilla? Other ?

openness is not within primary audience needs
The open nature of HTML5 doesn’t intrinsically help anybody do their job better
65
mobile platforms
app developers
Handset OEMsoperators
brands
advertisers
reach eyeballs
increase ad value with insights
engage audience
reduce costs
be able to compete in
the smartphone market
find choice & novelty (apps)
ensure quality
convenience
adjust to my identify
increase ARPU
lower churn
achieve personal fulfilment
have commercial success
belong to a community

Key
ingredients
Google & Facebook are creating new web walled gardens
adding missing ingredients on top of HTML5 enabling technology
66
Software
foundations
Developer
ecosystem
Monetisation Distribution Retailing
application
runtime, developer
tool-chain, &
platform APIs
Developers
building and
publishing apps
around the
software
foundation
micropayments,
ad networks
and settlement
app distribution
to end users
through SaaS or
devices
app discovery,
promotion,
placement, search
&
recommendations
HTML5 with
Chrome API
web developers Google Wallet
PC, Mac, Android,
iOS, Chrome OS
Chrome
Web Store
HTML5 with
Facebook APIs
web, Flash and
mobile developers
Facebook Credits
1B+ Facebook
users
Facebook app
recommendations
HTML5 browsers
(fragmentation)
web developers ? ? ?
HTML5 may end up a yet another walled garden
despite the promise of openness

Browsers don’t deliver on cross-platform capabilities
Only 37% of Android apps can be developed for a mobile browser
na#ve&JavaScript&API,&
98%&
Web7to7na#ve&
converter,&63%&
Web&wrapper,&49%&
Mobile&browser,&37%&
Percentage of apps in Google
Play US store that can be
implemented with each
HTML5 route to market, i.e
that utilise APIs available
through that HTML5 route to
market alone.

Browsers are heavily fragmented across platforms
HTML5 features and APIs vary widely across browsers
68
Source: html5test.com, April 2014.
0" 100" 200" 300" 400" 500" 600"
BlackBerry 10.2
Chrome 33
Opera Mobile 16
Firefox Mobile 27
Jolla Sailfish
Android 4.4
Nokia X »
iOS 7.0
Windows Phone 8.1
Sony Playstation 4
Google TV (Chrome 11)
Amazon Kindle
HTML5 test score

69
API iOS Safari
Android
Browser
Windows
Phone IE
Blackberry
Browser
Opera Mobile Chrome Firefox
Audio settings - - - - - - -
Battery - - - - - - Since v.11.0+
Bluetooth - - - - - - -
Calendar - - - - - - -
Camera - - - 10.0+ 11.5+ - Since v.15.0+
Compass 4.2+ 3.0+ - 10.0+ 12.0+ Yes 6.0+
Contacts - - - - - - -
Filesystem 6.0+ 3.0+ 8.0+ 10.0+ 11.10+ 18.0+ 10.0+
Geolocation 3.0+ 2.1+ - 6.0+ 10.60+ Yes 4.0+
Mic - - - 10.0+ 11.5+ - 15.0+
Motion 4.2+ 3.0+ - 10.0+ 12.0+ Yes 6.0+
Network Yes 2.2+ - Yes Yes Yes 12.0+
NFC - - - - - - -
Notifications - - - 10.0+ - Yes Yes
Power management - - - - - - -
SMS - - - - - - -
Telephony - - - - - - -
Vibration - - - - - - 11.0+
WiFi - - - - - - -
Web app APIS are heavily fragmented across platforms
HTML5 API implementation varies widely across browsers

For now,
HTML5 apps offer a trade-off to native apps
70

Web vs native trade-Offs for app development
native smartphone apps hybrid apps web apps
Ease of discovery
through native app
stores
through native app
stores
search or referrals
(Facebook, twitter,
other)
Reach
fragmented across
multiple platforms
fragmented across
multiple platforms
works on almost all
devices
Depth of experience
full access to platform
resources
access to native APIs at
the expense of a less
capable UI
limited by browser
sandbox
Customer ownership
and terms
Apple App Store
enforces onerous terms
Apple App Store
enforces onerous terms
complete ownership of
customer
Engagement and
recurring use
notifications and home
screen icon
notifications and home
screen icon
no notifications, difficult
to get user to save the
link
Monetisation
potential
high on iOS, lower on
Android
high on iOS, lower on
Android
no accepted method of
payment
Ease of cross platform
development
developed separately for
each platform, with some
code reuse using CPTs
significant reuse of UI
components for some
apps
significant fragmentation
for advanced apps
71

But the future of HTML5
Is beyond the browser
72

HTML5 Is the 3rd choice AMONG MOBILE DEVELOPERS

39% of HTML5 Mobile devs are going beyond the browser
Overall five HTML5 technology routes to market to choose from
*source: Developer Economics Q3 2013

Architectural
frameworks
CSS
UI frameworks
JavaScript
UI frameworks
Web wrappers
Web-to-Native
Converters
Native
Javascript APIs
2D
Gaming Engines
3D
Gaming Engines
A flurry of tools to support off-browser web apps
Hundreds of tools to make that possible

Knowledge. Passion. Innovation.
Andreas Constantinou
CEO & Principal Analyst
andreas@visionmobile.com
+44 20 8123 1738
Track developer trends Learn DIGITAL Business Models
Master the
success patterns
of ecosystem
leaders and
design effective
digital business
models
Developer Economics 2014 6th ed.
Talk
to us
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With us
If you could
speak to
10,000 app
developers,
what would
you ask them?

Mobile Megatrends 2014

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Mobile Megatrends 2014