Ecosystems and Digital Business Models

Ecosystems and Digital Business Models
Telenor Digital Winners © VisionMobile.com. October 2014

VisionMobile | the analysts of the developer economy
We#help#companies#understand#developers#and#create#winning#ecosystems#
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Andreas Constantinou
CEO Founder, VisionMobile
Adjunct Professor, Lund University
@andreascon
© 2014 VisionMobile
3

Digital Ecosystems and Co-creation Networks

Ecosystem business models are behind most startups
Top-10 companies most referenced by Angelist startups in their 1-line pitch.
These account for 46% of all startup references on Angelist (2013)

Apple GDP: The iOS ecosystem has grown to $180B
Apple captured most of this revenue in 2013
iOS platform
content owners
(music, books,
magazines, movies
content licensing
revenues
device sales
content revenue share
accessories revenue share
devices
App Store
content platform
direct revenues,
user engagement
premium
mobile computing
experience
access to market
revenues from
sales of premium
devices
accessory
manufacturers
accessories, revenue
share
6
how value is captured
mobile app
developers
Source: VisionMobile analysis
Figures for 2013
content
apps and games
App Store
$138B
iOS device
revenue
$27B
app revenue, ads
revenue and
contract sales
$9B
content license
revenue
$7B
accessory sales

Android GDP: an ecosystem valued at $260B
Enormous defensive value for Google’s core business, but little direct value capture
Handset OEMs
mobile app
developers
technology and services
user engagement apps
and direct revenues
Play Store compatibility
certification
Android platform
eyeballs
insights
technology
services, free content
governance
app store
7
how value is captured
handsets
mass-market
mobile computing
experience
eyeballs
$210B
handset sales
$6B
est. revenue from ads
on Android devices
$26B
app revenue, ads
revenue and
contract sales
Source: VisionMobile analysis
Figures for 2013

How did Apple, Google build ecosystem empires?
What can history teach us?
8 © 2014 VisionMobile

Apple, Google emerged out of the ashes of 20+ dead platforms.
Only the first-mover app ecosystems survived
= dead end
9
2000 2001 2002 app ecosystems software platforms
Android
iOS
Azingo
Access ALP
OpenWave MIDAS
A la Mobile
2007 2008 2009 2010 2011 2012 2013
Comneon Apoxi
Danger OS
e-SIM Intrinsyc OS
IXI Mobile Mizi Prizm
S40
Motorola L-J
Nokia GEOS
OpenMoko
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

10
Apple / Google built ecosystems, not just platforms
ecosystem platform technology=+people companies
OS

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

Ecosystem economics resulted in a duopoly
12

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
13
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
Three conditions to compete:
achieve the same outcomes
cheaper/faster/better
mobile platforms
14
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)

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

How do you compete
In a black ocean?

Leverage, don’t compete
how Facebook sees the world of mobile platforms
17

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
duopoly leverage ecosystems
18
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

Successful ecosystems lock demand to supply
To strengthen network effects
producers
e.g. developers
doctors
taxi drivers
landlords
consumers
e.g. users
patients
taxi riders
tenants
19
development distribution discovery

producers consumers
Successful ecosystems have 3 control points
Development, distribution and discovery
20
Development Distribution Discovery
Platform APIs
Tools
Performance
management
Marketplace connecting
producers to consumers
Monetization tools
Distribution
partnerships
Discovery, promotion,
placement, search,
recommendations
Curation
developers users
control points

Asymmetric Business Models

A business model describes the rationale of how an
organization creates, delivers, and captures value,...
Wikipedia
value
creation
value
capture
value
delivery
“
22

Digital changes how value is created, delivered and captured
23
traditional
business models
digital
business models
value
creation
create a product
within your industry
create value
in a new industry
value
delivery
deliver through
established
distributors
transfer value as
attention (FB),
intent (Google) or data
(Waze) to your core industry
value
capture
sell product
for money
Capture in your core industry
as money
Source: VisionMobile

Asymmetric Business Models: transfer value across industries
handsets media retail advertising
devices
Kindle
Fire
value creation value capture
Amazon
app store
e-commerce
sales
App Store
Google
Wallet
value destruction value transfer
24
devices
travel
Google
Play
ad
sales
Google
Android Flights
handsets

ABM = A business model
that crosses industries,
by forcing profits to migrate
from one industry into another.
25

Asymmetric Business Models are based on economics of complements
Core product Complement
A product consumed
with the main product
A product where a business
generates profits
commoditise
Google core business mobile is a complement
commoditise
on-line advertising
(90+ % of profits)
Closed “Open”
mobile networks handsets
net neutrality Android
26
commoditisation of mobile increases demand for Google products

vs. vs.
ABMs cause disappearance of industry boundaries
competition between
products
inside-out thinking
defined by product features
what product the customer will buy?
27 Source: VisionMobile
competition between
industries
outside-in thinking
defined by product benefits
what customer is trying to get done?
vs. vs.
“selling a newspaper” “killing 10 minutes of time”
“selling a phone service” “keep in touch with friends”

ABMs are often disguised as feature or price competition –
Understand it before it’s too late
Telcos saw Android and iOS as a competing ‘ringtone’ business.
They set up WAC to compete with iOS and Android for apps revenues.
28
2010
2012

Google is asymmetrically disrupting industry after industry
29
ads
Search, AdWords
enterprise software
Google Apps
mobile
Android
PC
Chromebook
TV
Chromecast, YouTube
home appliances
Nest
travel
Google Maps, Google Flights
wearables
Android Wear
automotive
Android Auto

The Digital Business Model Recipe

The Digital Innovation Dilemma
Corporate innovation now has two options: diversify or grow asymmetrically
31
=revenues
new market new market
profits
core
business
profits Diversify Grow
asymmetrically
Direction !
Profit
from core biz to
migration
new market
from new market
to core biz
Strategy acquire growth
companies in
new markets
create
complements in
new markets
Integrate marketing bundle core biz
Act like private equity Google
KPIs new revenues core business
growth
diversify
grow
asymmetrically

The 3-step recipe of digital business models
32
Identify complements to your product in a new market
Boost demand for complements (subsidise, use ecosystems)
Bundle complements with your core business
1
2
3

Example: Apple iOS ecosystem
core business – consumer electronics
step how Apple implements it
identify complements in
new market mobile apps
boost demand for
complements create developer ecosystem and app store
bundle with core business iOS apps only available on iDevices
33

Example: Google Android ecosystem
core business – online advertising
34
step how Google implements it
new market mobile operating system
boost demand for
complements
commoditise smartphones,
create developer ecosystem and app store
bundle with core business Android OEMs must preload Google services

Example: Amazon Fire tablets and phones
core business - ecommerce
35
step how Amazon implements it
new market tablets, smartphones
boost demand for
complements sell devices at cost to acquire users
bundle with core business Bundle devices with immersive shopping
experience

Example: WeChat messaging app
core business - ecommerce
36
step how WeChat implements it
new market
Messaging apps
Taxi services
boost demand for
complements
Free messaging, 3rd party ecosystem,
incentives
bundle with core business Messaging is bundled with Tencent
ecommerce services

And now fast forward into the future..

Audience question
Which industry is most likely to be
disrupted next by digital business models?
- Automotive
- Travel
- Healthcare
- Energy
- Logistics
- Fashion
- Construction
38

If you could speak to 10,000 developers
What would you ask them?

Knowledge. Passion. Innovation.
Andreas Constantinou
CEO Principal Analyst
andreas@visionmobile.com
+44 20 8123 1738
Track developer trends
Talk
to us
Work
With us
If you could
speak to
10,000 app
developers,
what would
you ask them?

Ecosystems and Digital Business Models

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