1. TAMPERE UNIVERSITY OF TECHNOLOGY
Faculty of Business And Built Environment
SAAD JAMIL
UNDERSTANDING MARKETING AND OPEN INNOVATION: Case Apple
Apps
Seminar Report

2. ABSTRACT
Open innovation has transformed the way organizations are introducing new
products and services, by actively utilizing external ideas too. Especially in
software sector, there are plenty of developers innovating new software products,
most of which then are available online for customers. It is interesting to see how
marketing of such ‘open innovations’ is done and what the possible challenges are.
This paper gives an insight into understanding of marketing of open innovations in
mobile apps development domain. Mobile apps distribution companies like Apple,
Android and Ovi store are introducing numerous apps each day based on the
concept of open innovation. Proper marketing of these apps is quite a big challenge
which is being faced by all these companies as well as developers. All mobile
application distribution companies are facing a lot of problems in terms of
segmenting their apps properly. Because of the poor segmentation, customers are
generally lost while searching for their desired app. In order to improve the
customer experience, the mobile apps distribution companies should introduce
better segmentation techniques or otherwise the app stores will be split up into
smaller niche stores to target the customers in a better way.
The main outcome of paper is to analyze segmentation of apps in app stores and to
propose a potential teaching segment professional application for Apple app store.
B2B professional apps are not properly segmented in Apple app store because of
which professionals find it hard to locate the desired app. One such category was
highlighted in this report related to the teachers and editors in which commenting
and editing of text written by others is of primary concern. Lots of apps are already
available in Apple app store but lack of available features and proper segmentation
makes them unattractive for professionals. After analyzing some major apps, a
comprehensive app for teaching segment is proposed in this report which, with the
help of proper segmentation and target marketing, has potential to become a source
of increased revenue for developers as well as Apple app store.

3. PREFACE
Studying the basic concepts of marketing process, as a part of the course “Basics of
Industrial Management” of the International Master’s degree program in TUT
motivated me to select this seminar paper topic. My academic IT/Telecom
background as well as work experience in IT sector helped me to apply the
managerial concepts into the IT industry. This paper discusses the concepts of
marketing in open innovation domain, how marketing has evolved over the years
and the current marketing practices in the IT sector.
I would like to thank Dr. Jouni Lyly-Yrjänäinen for the knowledge sharing and
guidance throughout the process of my work. In addition, I would like to express
my gratitude to my friends, peers and colleagues whose contribution helped me to
write this paper in the best possible way.
Tampere, September 2012
Saad Jamil

4. TABLE OF CONTENTS
ABSTRACT ______________________________________________________ ii
PREFACE _______________________________________________________ iii
1 INTRODUCTION ____________________________________________ 1
1.1 Background __________________________________________________ 1
1.2 Objective of the Paper__________________________________________ 1
2 RESEARCH METHODOLOGY AND PROCESS__________________ 3
2.1 Research Methods _____________________________________________ 3
2.2 Research Process ______________________________________________ 3
3 UNSERSTANDING MARKETING AND OPEN INNOVATION _____ 5
3.1 Introduction to Marketing ______________________________________ 5
3.2 Marketing Process _____________________________________________ 6
3.3 Open Innovation and Communities _______________________________ 7
4 CASE STUDY: APPLE APPS _________________________________ 10
4.1 Comparison of App Stores and Professional Apps Segment __________ 10
4.2 Positioning of Teaching Segment Apps ___________________________ 12
4.3 Analysis: Marketing in App Store _______________________________ 14
5 CONCLUSIONS ____________________________________________ 16
REFERENCES __________________________________________________ 18

5. Jamil, S.
1
1 INTRODUCTION
1.1 BACKGROUND
According to Lyly-Yrjanainen et al. (2010), selection of right marketing mix has
always been a very critical task for business people ensuring the success of their
products. However, lately the focus has been shifted from products to services.
Most of the services are based on software and available in Internet. During the last
two decades, an industrial revolution has taken place in the software industry,
which has completely transformed the way business is done. The concept of open
innovation (Chesbrough, 2006) has been adapted by many organizations and firms
now are using external ideas as well as internal ideas when developing new
products and services.
For example, each day thousands of mobile apps, developed by external developers
or development companies, are released by Apple, Android and Ovi store. These
three most popular app stores are competing with each other fiercely in order to
provide the best possible apps to their respective customers. However, these app
stores should develop ways to ensure that the customer can actually find the right
app in the jungle of all the possibilities offered today. Furthermore, there is no
proper professional B2B category in app stores, which makes it really hard for
different professionals to search for their desired app.
1.2 OBJECTIVE OF THE PAPER
The understanding of marketing in software industry is interesting because open
innovation has been truly adapted by software developers. At the same time, it
seems that software developers are not particularly proficient when it comes to
marketing of their products. Yet, at the same time, understanding of the marketing
process is crucial for long-term success. Since the number of applications is huge, a
classification (i.e. segmentation) of apps market is needed. Furthermore, it is also
interesting to analyze how app store manages the complexity resulting from
thousands of individuals submitting their apps to be distributed through app store,
i.e. how does the customer search for and eventually find the right application.
Hence, the objective of this paper is…
…to analyze marketing of open innovations by looking into development of
mobile phone apps and to propose a potential teaching segment professional
application.

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The paper is structured in five parts. Figure 1 shows the structure of the paper.
Figure 1. Structure of Paper.
First, the introduction outlines the background information to the paper and the
objective. This is followed by research methods and process. Third, the marketing
and open innovation process will be explained. The fourth chapter then presents
mobile apps development case with focus on teaching segment. Finally, the
conclusion will be based on the results and findings of this research to try and
provide a comprehensive overview of how marketing of open innovations is taking
place in mobile apps world and what are the areas for further research.
Introduction Research
methods
Marketing &
open
innovation
Case study:
Apple apps
Conclusion

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2 RESEARCH METHODOLOGY AND PROCESS
2.1 RESEARCH METHODS
According to Gummeson (1993), two methodologies exist in research process for
data generation: qualitative and the quantitative approach. First, quantitative
approach used data collection and analysis to determine a relationship between two
variables. Second, qualitative research methods focus on personal experience from
researcher and seek to explore the phenomena to understand it properly (Mack et
al., 2005). Gummeson (1993) has proposed five qualitative data generation
methods as illustrated in Table 1.
Table 1. Qualitative research methods (Gummeson 1993).
Research Methods
Existing Material
Questionnaires Surveys
Qualitative Interviews
Observation
Action Science
Data analysis can be either primary or secondary. Existing material mentioned in
Table 1 refers to all kinds of secondary data. In other words, it refers to the sources
containing data gathered by a third party for another purpose (Krishnaswami &
Satyaprasad, 2010).
In qualitative methods data collection and analysis occur at the same time
(Gummeson 1993). Therefore, this research is basically the interpretation of the
information gathered in the field through qualitative analysis.
2.2 RESEARCH PROCESS
This paper focuses on marketing of open innovations by looking into development
of mobile phone apps and to propose a potential teaching segment professional
application. The research approach was mostly qualitative and the data collection
was mostly based on existing materials. In this case, reviews were made on existing
literature that deals with marketing and open innovation. Apart from that some
reviews were made on the literature available on internet about the mobile apps and
marketing issues. This was also supported by the writer’s views based on his
knowledge of the topic based on the previous work on this report. This is
supplemented by the fact that in qualitative research, the individual researcher is

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4
also a part of scientific process (Gummeson, 1993). Details of the data collection is
explained in the below paragraphs.
First in order to highlight the potential professional apps segment, data was
collected on the professional B2B apps from Business insider website. This data
was about the price of top 10 most expensive professional apps. Based on this data
collection process the price range of professional apps was determined which
turned out to be in between 100 to 1000 USD. Second, different apps were
analyzed which focuses on annotation features. For the purpose of this study 4
major annotation apps (GoodReader, iAnnotate, iBooks & PDF Expert) were
analyzed for Apple app store only. So the major source of data collection and
analyses was Apple iTunes store which is an authentic database for all Apple apps.
Apps were analyzed based on two criteria’s which were functions and file types
they are supporting. For functions, criteria of analysis was set to text editing,
freehand and voice editing while for file types 3 most popular types (word, power
point and pdf) were analyzed. Data was also collected on the price of each app in
order to make comparisons. Figure 2 shows the timeline of research process.
Figure 2. Timeline of the Research Process.
As observed from the Figure, the research process initiated with the generation of a
topic between May and June, 2012 which was influenced by the author’s personal
motivation and the previous work during the previous courses. Following this was
the literature review of marketing issues in app store and focus was on teaching
segment apps in particular. Teaching segment apps were analyzed based on the
data collected from iTunes website. Data such as price and features was collected
from each app in iTunes and was used for positioning of teaching segment apps.
Similarly, various Internet blogs and communities were visited to find out more
about the problems related to marketing of these apps. The report writing process
elapsed between August and September, 2012. The final report was submitted for
assessment in September as well.
Topic and
General
Literature
Review
Review of
Different
Teaching
segment apps
Report
Writing and
Edition
Report
Submission
May-June,
2012
July, 2012 August, 2012 Sep, 2012

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3 UNSERSTANDING MARKETING AND OPEN
INNOVATION
3.1 INTRODUCTION TO MARKETING
The term Marketing has been derived from the word ‘market’ which means
location where exchange between buyer and seller occur. Thus, the term marketing
developed from the idea of going to market to sell goods or services (Geetanjali,
2010). According to Sharma and Joshi (2008), marketing is a business discipline
that deals with developing programmes to attract and retain customers. Consumer
behavior has been changing rapidly and it is dependent on three factors:
globalization, technology innovation and deregulation. These trends provide
endless opportunities for companies to have better marketing deals by identifying
customer needs and ensuring profitability by meeting these needs (Kotler, 2001).
As illustrated in Figure 3, when different technologies are competing with each
other for any product or service not always the best technology wins. Marketing
makes the real difference.
Figure 3. Role of Marketing in different technologies.
There are various definitions for marketing stated by different authors, some of
which are illustrated in Table 2.
Table 2. Key Marketing Definitions.
Definition Author Type
Marketing is a societal process by which
individuals and groups obtain what they
need and want through creating, offering,
and freely exchanging products and services
of value with others.
Kotler (2001) Social
Definition
Marketing is the activity, set of institutions,
and processes for creating, communicating,
delivering, and exchanging offerings that
have value for customers, clients, partners,
and society at large
American
Marketing
Association
(2007)
Managerial
Definition
Time
Performance
Marketing makes
the difference
Different
technologies

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As illustrated in Table 2, first definition talks about the social side of marketing
while the second one focuses on the managerial perspective. The common thing in
these definitions is that they both focus on building a relationship between
organization and customer through mutual exchange of information. This
relationship forms the basis for the marketing process.
3.2 MARKETING PROCESS
Marketing process involves analyzing the market opportunities, target market
selection, developing the right market mix and in the end monitoring the all the
marketing efforts. The complete process revolves around the customers and the
main objective of marketing process is to build a solid and cost-effective
relationship with customers (Karunakaran, 2008). This complete marketing process
is depicted in Figure 4.
Figure 4. Marketing Process (Adapted from Meldrum & Mcdonald 2007).
When different technologies are competing with each other for new products or
services, success in marketing process makes on of the competing products to get
on top. While the others lags behind after a certain period of time. This is
illustrated in Figure 5.
Figure 5. Marketing process makes a product to come on top.
In terms of B2B marketing, finding the right offering to customers is generally
done through either technology push or market pull. According to Herstatt & Lettl
(2000), technology push is a process in which an evolving technology provides a
driving force for a new product or service in the market. So, basically innovation is
directed by the advances in technology (Nemet, 2009). Market pull however starts
from identifying the customer needs first and based on that new technology is
Analyze
market
opportunities
Target
Market
Selection
Developing
Marketing
Mix
Managing
current
Market
Feedback
Time
Performance
Product comes
on top becasue
of marketing

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introduced and product is offered to the customers (Chidamber, 1994). These two
processes are illustrated in Figure 6.
Figure 6. Basic concept of technology push and market pull.
To summarize, in order to market a certain product or service, it is important to
understand the customer need first. Once the customer need is clear, it becomes
easy to segment the product or service properly. That is the reason most of the
organizations are adapting market pull strategy when introducing new innovative
services in the market.
3.3 OPEN INNOVATION AND COMMUNITIES
In order to understand the paradigm shift to open innovation, it is necessary to
compare it with traditional close innovation model. According to Chesbrough
(2006), in the previous closed based innovation different projects can enter only
through R&D and there is only one way for them to exit to market in the end. Open
Innovation on the other hand is a paradigm that assumes that firms can and should
use external ideas as well as internal ideas, and external as well as internal paths to
markets, as they look to advance their technology (Chesbrough, 2006). This is
illustrated in Figure 7. Open Innovation business model utilizes internal as well as
external resources of an organization to create a value added product such as
insourcing and licensing. R&D is generally considered as an open system and any
important idea can come from inside or outside the organization and similarly it can
be marketed from inside or outside the company as well.
Figure 7. Open Innovation Model (Chesbrough, 2006).
Technology
Innovation
Product
offering
Market trials
Customer
need
Technology
innovation
Product
offering

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8
According to Chesbrough (2006), open innovation has generally been confused
with open source software practice, which is not true. Both have some similarities
such as the use of external resources to create value but open innovation business
model uses as a source of both value creation and value capture while open source
software focus only on the value creation part.
According to Seppänen et al. (2007), software developers are relying on the user
communities in order to target their customers better. In fact software development
in itself has become global community in which the users and the developers are a
part of one family that collaborates with each other, share ideas and feedback to
develop the applications better. This is the primary reason why open source
practice has taken over the traditional propriety model as the customer value
created in the open source model is for the whole network as compared to a
specific individual or a company. There are numerous actors involved in the
community and sharing the application within the community members allows the
members to update and modify it as per their core competencies (Seppänen et al.
2007). So the responsibility of the actual product is not in the hands of one firm
only, but in the hands of numerous contributors that have an interest in that
particular software.
Communities are basically run through number of web pages, blogs, online videos
and social media. It is the responsibility of the project administrators to provide
such a platform where users can provide feedback on the design of the product,
reviews and further development ideas in terms of value added features and, apart
from that, there should be no entry barriers to join a particular community (Dixon,
2007). With the help of community involvement in the earlier part of software
development life cycle, the time to market and errors or bugs can be removed
before the final product is even available for release to market.
There are some drawbacks for the active involvement of communities in the
software development. Conflict of objectives among the firm and the community is
one of the major disadvantages as the firms focus on getting revenue while, for
most of the developers in the community, money is not a big motivating factor.
Similarly customer segmentation is not considered important in the open source
community model as compared to the proprietary model (Seppänen et al. 2007).
Role of customer is vague as generally all software developers are considered as
customers because they create products based on their own understanding as
compared to the actual customer needs.
Apple has used open innovation model successfully (Pontiskoski & Asakawa,
2009). The first thing Apple did was to allow anyone to create and market
applications instead of limiting it to only big software development firms which
have huge development charges (https://developer.apple.com/). In return Apple

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offers incentive in terms of money to the developers for creating, developing and
marketing the apps in an open environment through App store. This process is
illustrated in Figure 8.
Figure 8. Apple App development process (https://developer.apple.com/).
The concept of open innovation has been adapted by many other mobile application
distribution companies as well. The use of open innovation by these companies
enables them to know about customer desires better by connecting them with the
preferred content created both within and outside the organization.
Development
team
Create a
project
Develop an
App
Publish app
in App store

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4 CASE STUDY: APPLE APPS
4.1 COMPARISON OF APP STORES AND PROFESSIONAL APPS SEGMENT
There are plenty of mobile app stores currently available to the users. Apple’s iOS,
Google’s android, Microsoft Windows, Nokia’s symbian, RIM’s blackberry are
few of the examples. However, iOS and Android are the two most popular app
stores at the moment (Goadrich & Rogers 2011). With the overwhelming increase
of apps in each app store, customers are facing huge difficulties to find the right
app. Because of this, customers are looking for either better segmentation in app
stores or stores focusing on particular types of apps. This leads to two possible
scenarios for mobile app stores, illustrated in Figure 9 and Figure 10.
Figure 9. Current and expected growth of app stores.
Figure 10. Mobile app stores converting into niche stores.
First, currently the entire mobile app stores are somewhere in the early stages in the
product life cycle and are competing with each other to move towards the growth
stage. In order for one particular store to become the leader, it should improve the
segmentation and findability of apps (Figure 9). If that does not happen, there is the
risk that the current mobile app stores will be overrun by number of small stores
each focusing on apps for a particular niche market (Figure 10). In fact the number
of niche stores (Gair and Miginis, 2011) is increasing as the market of app stores is
shifting towards more target-oriented store. Apple app store has a clear advantage
to be the leader because of quick access of apps, security, high quality standard for
content, direct billing and working with a single device type (Ghezzi et al. 2011),
though findability still presents a problem, especially for specialty apps.

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Mobile apps can be classified as either B2B or B2C apps. According to Ghezzi et
al. (2011), B2B apps are professional apps which deal with firm’s internal business
process while B2C apps fulfill individual consumer needs. Apple has generally
covered all the categories, but when it comes to professional apps which includes,
for example, security persons, teachers, medical staff & lawyers (as illustrated in
Appendix 1) there is no clear category defined. Professional apps according to
Frommer (2009), in business insider are generally in the price range of USD 100 &
1000 as shown in the Figure 11. As, these professional apps are not very well
segmented in the app store, users generally do not know about them. Furthermore,
they are difficult to find in the App Store.
Figure 11. Some Professional Apps Price Range on Apple App Store.
There are lots of professional categories which are not being targeted properly by
the Apple app store and the professionals are finding dissiculties while searching a
desired app. One such segment which has been identified as a part of this report is
teaching segment in which reading and commenting other people’s text forms key
element of the work. At the moment the most sophisticated tool for it is Word’s
‘track-and-trace’ function, not very elegant and requires a real computer. However,
touch screen provides a very interesting platform for an application in which one
can simply click the text, write short comment or even record a voice message
connected to that part of the text. Figure 12 shows this concept.
Figure 12. Concept of editing in teaching segment apps (taken from itunes).

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So, based on the above mentioned need, the idea in this report was to analyze the
different teaching segment apps. The criteria for analyzing the teaching segment
apps was based on the how much functions and file types they are supporting as
illustrated in Figure 13.
There are already some apps available for this purpose on Apple app store. Each
one of them has different characteristics and satisfies certain criterias. So, for this
report some of the best apps were selected and mapped on the positioning chart to
analyze if there is any requirement for a new professional app for teaching
segment. These details will be explained in the next section.
4.2 POSITIONING OF TEACHING SEGMENT APPS
The first problem is that teaching segment is not properly defined and most of the
apps are directed towards extensive readers only. So, it is quite tough for a normal
teaching professional to search for this app in the first attempt as the teacher will
have to browse through many categories before finding the desired app. Secondly,
all the existing apps are not compatible with all the file types for editing and they
do not support all the features. Positioning of some of the most important apps for
this purpose are shown in Figure 14.
Figure 14. Positioning map of teaching applications.
pdf Word Power Point
TextFreeHand
Voice
editing
File Types
Functions
Figure 13. Criteria for teaching segement apps.

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As shown in the positioning map, there are 4 apps that are competing with each
other for the editing and annotation features. In terms of file type support,
GoodReader supports three most important file types used by editors and teachers
but it lacks in the voice editing funtion. However, iAnnotate app has all the
functions including voice editing function but it does not support any other file type
apart from pdf. The price comparison for all these apps is shown in Figure 15. As it
can be seen in the chart, these apps are basically categorized in the B2C app section
and not in the professional apps price category.
Figure 15. Price comparison of editing apps.
As shown by the positioning analysis, there could be a need for one comrehensive
application designed specifically towards teaching segment. It should combine all
the features and should be compatible with all the file types commonly used by
researchers and teachers. Such an app can be priced high on app store based on the
number of features and the professional target segment and can be a source of
potential increased revenues if marketed properly. The problem is that many
innovators or apps developers are not aware of these simple marketing procedures
as they are mostly developers with strong have technical background yet not so
focused on the customer needs. However, if the developers did practice these
simple principles, they could be able to increase their sales and exposure.
Different mobile application distribution companies have divided their apps
according to categories. Thus, for many developers the segmentation starts at a
point of time when the app is ready and is about to be published in one of the
categories available in the relevant app store. Thus, according to Julian (2010),
many developers think that segmenting is the last step of their marketing plan. But
to do that successfully, the developers must understand the demographic
perspectives relevant to their apps (Steven, 2010). However successful developers
always try to push even one step further to find about more about customer reviews
which tells about what features are missing in the app, emerging from the fact that
some target users might still be ignored and segmentation hence needs to be
redefined, resembling market pull approach.

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4.3 ANALYSIS: MARKETING IN APP STORE
Most of the marketing that is taking place in apps business is through online
advertising. Selling apps is one of the hottest businesses in the online community
today (Ven, 2011). Marketing and advertising of these apps to the right segment is
quiet a huge challenge for the developers. According to Hughes (2009), marketing
tools have generally been upgraded in the recent years (like social media) but the
basic concepts in marketing are still the same whether it is innovative apps
development or making any other software product. So if the innovators want to
make money with their apps, first of all they have to follow the basic marketing
principles and, hence, segmentation after an app is pushed to an app store basically
fails. This is illustrated in first part of Figure 11. One of the most important
questions to answer while making an app is what problem is it solving and who the
target users are (Hughes, 2009). After that innovators can send a strong marketing
signal to the customers with the help of constant upgrades using open innovation
platform. This is illustrated in second part of Figure 16.
Figure 16. Marketing scenarios of mobile apps.
According to Ghezzi et al. (2011), the basic idea behind the app store is to give
third parties access and inexpensive tools to create and publish apps in app store
through which they receive a certain share of revenues. Apple app store provides
much more value added as compared to other app stores because of its strong
reputation, single device and iTunes platform as illustrated in Figure 17. Through
these subscriber is offered a single interface to connect to the Apple app store and
mobile business proposition of app store is linked with iTunes distribution and
billing mechanism.
Figure 17. App store value added is more.
Time
Performance
Apple value added
is more
Technology
innovation
Product
offering
Market trials
Customer
need
Technology
innovation
Product
offering

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As seen in the Figure, the technology evolves through periods of incremental
change followed by discontinuities (Anderson & Tushman, 1990). App stores are
also following the same pattern. Currently all the app stores are in the incremental
phase of development as mentioned in previous section as well. With the passage
of time some app stores will discontinue while Apple with its high value added
according to the reasons mentioned is expected to be the leader. Currently infinite
numbers of mobile apps are threatening a large base of users so some substantial
steps are required in marketing of these apps, which would encourage developers to
create high quality apps.

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5 CONCLUSIONS
Open innovation has been adapted by various organizations as a means for product
development. In open innovation paradigm firms utilize internal as well as external
resources to create innovative products or services. Open innovation framework has
successfully been adapted to the development of mobile apps. Numerous apps are
being created each day and distributed though companies like Apple, Android and
Ovi store. However, in the overload of apps, finding the right app is becoming a
challenge for the customers.
Objective of this paper was to analyze marketing of open innovations by looking
into development and distribution of mobile phone apps. The paper first introduced
theoretical concepts of marketing, open innovation and communities. After that
some insights into how software development has evolved into open source model
were given. Last chapter discussed about open innovation and how marketing of
open innovations is taking place in mobile apps development.
The important findings from this paper were that, first, it is important for
developers to understand the basic concepts of marketing when dealing with
marketing of their apps. Distributor companies provide platforms for developers to
promote their apps but it seems that it is the responsibility of developers to segment
and position their apps in the best possible way. Second, with the number of apps
increasing, it is becoming increasingly challenging to find the right app. As there is
a huge number of apps being produced and uploaded on each app store every day,
the important question is how to target the right market segment efficiently so that
they have no problem in finding the desired apps and the procedure is convenient
for them as well.
One such possible category was highlighted in the report which relates to the
teaching segment. As illustrated in Figure 18, the apps currently available support
either certain file types or have certain features available. So, for a potential
segment like editors and teachers who works will all the file types and want to use
functionalities like voice editing there is a need for an app which covers all
possible file types and have all necessary functions.

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Figure 18. Positioning map with the desired new app.
At the moment, all the mobile app distribution companies are competing with each
other in the introductory stage of product life cycle. In order for any particular
company to move forward, better segmentation and findability of apps should be
emphasized. If not done successfully, all app stores may be overrun by small niche
stores where each app store will be for a desired set of target customers. Because of
the overwhelming number of apps, consumers are getting lost while searching for
their desired app so, with the help of niche stores, customer satisfaction as well as
purchasing behavior especially for B2B market can improve dramatically. One
such possibility for making the niche stores might be that mobile app distribution
firms allow different telecom operators to promote their apps to specific target
customers. In this way, telecom operators will act as a distribution channel for the
apps. But it remains to be seen and further research needs to be carried out if the
app stores move towards niche stores with the telecom companies in future.
Desired App

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