2. VisionMobile | the ecosystem analysts
Developer Economics
Mobile Business Models
Trends watch
The biggest, most global developer
research platform
Thought-leading research for managing
disruption and reinventing your
business
Tracking under-the-radar industry
trends
Tier-1 clients
Digital ecosystem experts
Media coverage
trusted by the top brand names in
mobile
Thought leaders in the economics of
ecosystems and telecoms in the
software era
Global media reach
Copyright VisionMobile 2013
3. apps, devices
shifting basis of competition
asymmetric business models
cross-industry competitive arenas
3
Apps are just the tip of the iceberg
Copyright VisionMobile 2013
4. 2000s: Mobile and computing are separate islands
Telecom island
private, vertically integrated, intelligent network
Computing island
public, horizontally integrated, dumb network
Dumb & closed
Intelligent & open
Intelligence = software
4
Copyright VisionMobile 2013
5. Today: Mobile computing brought the two together
Convergence led to clash of business models and emergence of new leaders
Intelligent & open
Intelligence = software
5
Copyright VisionMobile 2013
6. Fundamental shift in how value is created
value is created on top of digital ecosystems in all aspects of user needs
mobile telephony
mobile computing
telco are the gatekeepers of the communication needs
(less than 5% of spending)
ecosystems are the gatekeepers for the rest 95% of needs
Communications
Health
3%
Communications
3%
Alcoholic beverages,
tobacco and narcotics
3%
3%
Housing, water,
electricity, gas and
other fuels
23%
Clothing and footwear
6%
household
spending
EU27
Furnishings,
household equipment
maintenance
6%
Education
3%
household
spending
EU27
Transport
13%
Restaurants and hotels
8%
Recreation and culture
9%
Miscellaneous goods
and services
11%
6
Source: Eurostat household spending for 2011, VisionMobile
Food and nonalcoholic beverages
12%
Copyright VisionMobile 2013
7. Fundamental shift in how value is captured and delivered
asymmetry challenges the very fundamentals of traditional business models
Communications
3%
mobile telephony
telco is at the center of the value distribution
Alcoholic
beverages,
tobacco and
narcotics
3%
Clothing and
footwear
6%
Health
3%
Communicatio
ns
3%
Education
3%
Housing,
water,
electricity, gas
and other fuels
23%
Furnishings,
household
equipment
maintenance
6%
Transport
13%
Restaurants
and hotels
8%
Recreation and
culture
9%
Miscellaneous
goods and
services
11%
Food and nonalcoholic
beverages
12%
mobile computing
multi-polar value distribution
…but, apps are just
the
tip of the iceberg
7
Source: VisionMobile
Copyright VisionMobile 2013
8. Fundamental shift in how competition is defined
challenges business models of incumbents
competition between
products
competition between
industries
inside-out thinking
outside-in thinking
defined by product features
what product the customer will buy?
defined by product benefits
what customer is trying to get done?
vs.
vs.
“selling a newspaper”
“killing 10 minutes of time”
vs.
vs.
“selling a phone service”
8
“keep in touch with friends”
Source: VisionMobile
Copyright VisionMobile 2013
9. Fundamental shift in the basis of competition in mobile
companies need new capabilities to compete in this new market environment
mobile telephony
mobile computing
4 apps
1M apps
(voice, text, contacts, camera)
(encompassing all user needs)
value
creation
value
distribution
value
capture
telco and
their suppliers
ecosystem owners
and participants
business
models
9
telco
proven & predictable
new & unpredictable
Source: VisionMobile
digital ecosystems
(iOS, Android, Amazon, FB, …)
Copyright VisionMobile 2013
10. The success formula of ecosystem business models
based on case studies of Apple, Google, Amazon, Facebook, KakaoTalk, and others
1redefine the market in terms of what customer is trying to get done
3
2 identify complements to your product
boost demand for complements and ensure supply
4 bundle your product with the flow of value
10
Copyright VisionMobile 2013
11. The 101 of economics of complements
widely used by Internet players in competitive strategies
Core product
Complement
A product consumed
with the main product
Product demand increases
as complement price decrease
11
Copyright VisionMobile 2013
13. Apple media business – a $8.5B empire? (fiscal 2012 )
but the real story is bigger than that
apps, games
magazines,
newspapers
Bigger than
13
music, movies
ebooks
combined
Copyright VisionMobile 2013
14. Why Apple is in the media and apps business?
iPhone
Lion share of Apple revenues are coming from sale of iPhone, iPad and Mac devices
iPad
Mac
We run the App Store just a little over breakeven
iTunes
Peter Oppenheimer,
Apple CFO
14
Source – TechCrunch, Company reports
Copyright VisionMobile 2013
15. The mechanics of Apple iOS ecosystem
ecosystem around iOS platform is designed to drive hardware sales
telcos reduce friction
for the iPhone business
contributes App Store
to offer $$$ and
user engagement
content, apps
and services
users and data plans
access to market
complements, revenue
share
subsidies
operators
developers
sw publishers
content retailers
content owners
internet players
brands
verticals
iOS platform
premium
product experience
accessory
manufacturers
premium $$$
contribution
how value is captured
15
Copyright VisionMobile 2013
16. Apple iOS ecosystem recipe
ecosystem recipe
redefine
the market
complements
apps and content
boost demand
make it easy for users to discover
and obtain apps
bundle
with demand
16
communicate, play , work and
relax on the go
(computing on the go)
Apple devices
Copyright VisionMobile 2013
18. Why Google is in the mobile business?
Lion share of Google revenues is coming from online advertising
18
Copyright VisionMobile 2013
19. Google strategy pillars: 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. Android and Chrome strategies are examples.
Expand the footprint of ad inventory
Across user journey by introducing new services like Gmail, Google Maps,
YouTube, Google TV.
Mine information on every user
Helps Google to better micro-target users directly increasing the value of its
inventory. Mobile payments will provide even more customer intelligence.
19
Copyright VisionMobile 2013
20. The mechanics of Google Android ecosystem
drives eyeballs, consumer insights and commoditization of mobile
Google
app developers
media publishers
telcos reduce friction
for Android distribution
eyeballs,
insights
contributes
mobile
platform
monetisation
& user reach
content, apps
and services
data plans,
app sales rev. share
handset subsidies
operators
technology and design
handsets
Android platform
mass-market
product experience
Handset OEMs
eyeballs
contribution
how value is captured
20
Copyright VisionMobile 2013
21. Google Android ecosystem recipe
ecosystem recipe
redefine
the market
computing on
the go
affordable mobile
internet
complements
apps and content
handsets, networks
and apps
boost demand
make it easy for users
to discover and obtain
apps
commoditise
handsets, networks
and apps
bundle
your products
21
Apple devices
Google services
Play, Search, Maps,
YouTube, Plus, Gmail, Drive
Copyright VisionMobile 2013
23. Amazon: From books to dominant e-commerce platform
transformed itself expanding onto new areas and business models
Kindle devices
(“mobile storefront”)
platform for
3rd party sellers
(2M sellers)
E&GM
books and
media
23
Copyright VisionMobile 2013
24. Amazon: A $60B e-commerce empire
but running on a single-digit profit margins
Amazon 2012 revenues: $61.1B
Other services
AWS, credit cards,
other seller sites, …
Electronics &
General
Merchandise
Electronics
Computers
Home, Garden &
Tools
Grocery
Health & Beauty
Toys, Kids & Baby
Clothing, Shoes
Jewelry
Sports & Outdoors
Automotive &
Industrial
24
$2.5B
4%
$19.9B
33%
$38.6B
63%
Media
Books
Music
Movies
Games
Software
Copyright VisionMobile 2013
25. What business is Amazon in?
“Amazon is in the business of taking
the right decisions for customers”
Amazon VP of Design, Brian Kralyevich at SXSW
25
Copyright VisionMobile 2013
26. Amazon expertise: Convert engagement into sales
The retailing business depends on ‘foot traffic’ to Amazon and depth of consumer insights
Recommendations
Traffic to Amazon
20%-30% of sales come from recommendations **
Only 16% of people go to Amazon with
explicit intent to buy something **
(** Andreas Weingend, ex Chief Scientist at Amazon)
26
Copyright VisionMobile 2013
27. For Amazon, Kindle is an alternative to Google
’foot traffic’ can be acquired by ads, affiliates, developing apps or subsidizing devices
$$$ - Search ads
Online ads
Traffic to Amazon
$$$ - Referrals
Affiliates
Traffic to Amazon
$$$ - Amazon apps
Smartphone apps
Traffic to Amazon
$$$ - Device subsidies
Subsidized devices
Traffic to Amazon
$$$ - Revenue share
Telco/OEM as affiliates
Traffic to Amazon
Source: VisionMobile
Copyright VisionMobile 2013
28. “Our business approach is to sell premium hardware at
roughly breakeven prices. We want to make money when
people use our devices – not when people buy our devices.”
Jeff Bezos, Amazon
http://www.sec.gov/Archives/edgar/data/1018724/000119312513151836/d511111dex991.htm
28
Copyright VisionMobile 2013
29. The mechanics of Amazon Kindle ecosystem
drives foot traffic to its retail properties making most of Amazon users
app developers
media publishers
monetisation
& user reach
applications
and services
content and E&GM
retailing
traffic
contribute devices
nothing
Amazon
Fire platform
Personalized content
and shopping
experience
proven software stack
open–source OS
traffic
contribution
how value is captured
29
Copyright VisionMobile 2013
30. Amazon is playing in winner-takes-all market
reinvests the profits to become the only winner
invested $13.9 in fulfillment infrastructure including 50 new facilities since 2010
source: Ben Evans
30
Copyright VisionMobile 2013
31. Amazon ‘Fire’ ecosystem recipe
all play in devices, but for very different reasons and with different business models
ecosystem recipe
redefine
the market
affordable mobile
internet
convenient leanback shopping
complements
apps and content
handsets,
networks and apps
tablets
boost demand
make it easy for
users to discover
and obtain apps
commoditise
handsets,
networks and apps
sell tablets at cost
bundle
your products
31
computing on
the go
Apple devices
Google services
Play, Search, Maps,
YouTube, Plus, Gmail, Drive
Kindle as a mobile
storefront’
Copyright VisionMobile 2013
33. Telecom was disrupted by asymmetric competition
that forced value migration from telecom to adjacent industries
contribute content,
killing telco content
business
market
telco and OEM
thought they own
device sales
33
Copyright VisionMobile 2013
34. Telecom was disrupted by asymmetric competition
that forced value migration from telecom to adjacent industries
eyeballs and consumer
intelligence
contribute content,
killing telco content
business
contribute mobile platform,
killing traditional OEM business
market
telco and OEM
thought they own
device sales
34
Copyright VisionMobile 2013
35. Telecom was disrupted by asymmetric competition
that forced value migration from telecom to adjacent industries
eyeballs and consumer
intelligence
contribute content,
killing telco content
business
device sales
35
contribute mobile platform,
killing traditional OEM business
market
telco and OEM
thought they own
contribute devices
turning distribution
on its head
e-commerce traffic
Copyright VisionMobile 2013
36. Telecom was disrupted by asymmetric competition
that forced value migration from telecom to adjacent industries
eyeballs and consumer
intelligence
contribute content,
killing telco content
business
market
telco and OEM
thought they own
device sales
contribute services,
bleeding core telco business
36
contribute mobile platform,
killing traditional OEM business
contribute devices
turning distribution
on its head
e-commerce traffic
user engagement
Copyright VisionMobile 2013
37. The 3rd wave of disruption in the handset market
hardware becomes distribution vehicle for digital services and e-commerce
traditional model
hardware = profits
emerging model
hardware = distribution
take most
profits
“demolition derby”
break-even or
lose money
No Name
37
Source: VisionMobile
?
?
Copyright VisionMobile 2013
38. Taking it to extreme: Handsets as a distribution channel
high-end
specs
promotes
a politician
38
Copyright VisionMobile 2013
39. The success formula of ecosystem business models
Use the formula to greatly increase your market opportunity
redefine the market
identify complements
boost demand
bundle with the flow
If you don't, someone else will
39
Copyright VisionMobile 2013
40. Knowledge. Passion. Innovation.
Let’s talk!
michael@visionmobile.com
Michael Vakulenko | Strategy Director | +44 2033 844166
Updated: 12 November 2010
Copyright VisionMobile 2013
Copyright VisionMobile 2011