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new device- and operating system (OS)-based platforms and related app store-based business models drastically change the value network of mobile services ...
Opportunities and Threats by Mobile Platforms: The (New) Role of Mobile Network Operators Katarina Stanoevska-Slabeva

Katarina Stanoevska-Slabeva, Thomas Wozniak

AJM University of Neuchâtel Neuchâtel, Switzerland [email protected]

Institute for Media and Communications Management University of St. Gallen St. Gallen, Switzerland {katarina.stanoevska, thomas.wozniak}@unisg.ch

Abstract—This paper analyzes how new mobile platforms change existing value networks in the mobile service industry and describes how mobile network operators (MNOs) can react to such changes to remain competitive. A state-of-the-art analysis takes stock of mobile platforms provided by, e.g., device manufacturers and Internet companies. The business model of and ecosystem around such platforms are examined. This includes application stores, which are often tied to a mobile platform and enable developers to distribute and monetize their applications. MNOs’ efforts to open up towards 3rd parties by exposing network capabilities through APIs are examined. MNOs’ joint efforts to decrease fragmentation of their platforms and application stores are analyzed. Based on the results of the analysis, several options for MNOs’ potential role in a mobile service industry dominated by mobile platforms are discussed. Mobile platform; platform-based business model; application store; mobile network operator

I.

INTRODUCTION AND MOTIVATION

Mobile network operators (MNOs) are faced with decreasing voice ARPU and thus become more dependent on revenues derived from data services [1]. As mobile data traffic doubles every year, data will become the dominant traffic type [2], [3]. Even though new mobile network technologies like Long Term Evolution (LTE) promise significant network cost reductions [3], MNOs would be wise to not solely depend on revenues generated through mobile data transmission. Mobile data access is likely to become a commodity and the “dumb pipe” threat may be looming over MNOs in not too distant future. These developments are reinforced by new players entering the mobile service domain and offering services that utilize mobile network infrastructure. In particular, the explosion of mobile platforms supports the proliferation of such services. On the one hand, such services can generate considerable revenues and profit; on the other, MNOs can benefit from them to only limited extent. Put differently, the new device- and operating system (OS)-based platforms and related app store-based business models drastically change the value network of mobile services [4]. New players take over lucrative parts of the mobile service value chain (or network [5]) and marginalize the role of the MNO as the previously dominant player in terms of profit share.

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Until recently, MNOs were able to create and keep a dominant position in the mobile service value network by sequential improvement and introduction of new generations of mobile networks and by applying the “walled garden” business model [6]. Faced with the growing competition from different sides, MNOs show increased attention for innovative approaches based on open platforms and business models. An increasing number of MNOs are opening previously closed network platforms to service developers and embrace the socalled Network as a Service (NaaS) business model (see [4] and [7] for an overview). However, these initiatives have not yet achieved a similar growth and success as device-based platforms. This paper analyzes how new mobile platforms change existing value networks in the mobile service industry and describes how MNOs can react to such changes to remain competitive. A state-of-the-art analysis takes stock of mobile platforms provided by, e.g., device manufacturers and Internet companies. The business model of and ecosystem around such platforms are examined. This includes application stores, which are often tied to a mobile platform and enable developers to distribute and monetize their applications. Furthermore, individual and joint efforts of MNOs to open up towards 3rd parties by exposing network capabilities through APIs are examined. Based on the results of the analysis, several options for MNOs’ potential role in a mobile service industry dominated by mobile platforms are discussed. The remainder of this paper is structured as follows. Section 2 defines platforms and provides an introduction to platform-based business models. Section 3 presents the results of the state-of-the-art analysis of existing and emerging mobile platforms. Section 4 describes options for potential platformbased business models for MNOs. Section 5 concludes the paper with a summary of results. II.

BASICS OF PLATFORM-BASED BUSINESS MODELS

Product platforms and platform-driven product development are not a new concept (see e.g. [8] for an overview). For many years, companies have considered platform-based product development in order to reduce complexity and increase product development speed. According to McGrath’s (1995) widely cited definition, a platform is “a set of subsystems and interfaces that form a

common structure from which a stream of related products can be developed and produced efficiently” [8]. Recently, a new type of open platform known as Platform as a Service (PaaS) has been introduced in the information and communications technology (ICT) industry. Examples of successful open platforms are the Apple iPhone or the Google Android platform. Technically, in the ICT industry, a platform “may refer to a hardware configuration, an operating system, a software framework or any other common entity on which a number of associated components or services run” [9]. At the core of PaaS is one of these types of ICT platforms that is enriched by the platform owner with application programming interfaces (APIs) open to 3rd parties. 3rd parties (service developers and/or providers in the context of the mobile industry) can use such APIs to develop their own applications and services and offer them to their customers. The minimum support that PaaS providers offer to 3rd-party developers is standardized APIs, a software development kit (SDK), and a development and testing environment [4]. Some PaaS providers also offer support for deployment and hosting of the resulting services [10]. From the business perspective, in line with [7], “platforms and their providers mediate and coordinate between various stakeholder constituencies” [9]. Platforms “coordinate the demand of distinct groups of customers who need each other in some way” [7]. Depending on how many distinct groups of customers are involved, a platform can be two-, three, or multisided [7]. Business models in multi-sided platform markets focus on getting sufficient number of members of each stakeholder group on board, on balancing interests between these groups, and, opposed to lock-in of, openness towards customers [7], [9]. This is contrary to focus on profit maximization in single-sided markets [9]. Platforms are central to many industries and markets, e.g. payment systems, IT, media, Internet-based industries, and mobile telecommunications [7]. Referring to the economic function of platforms, [7] distinguish three categories of multisided platforms: market-makers, audience-makers, and demand coordinators. Market-makers enable transactions between members of distinct groups, which value the service more with increasing number of members of the other group [7]. “Audience-makers connect advertisers to audiences” [7]. The service is more valuable for advertisers when there is a larger audience reacting positively to their messages and more valuable for the audience when there are more useful messages [7]. Software platforms are an example for demandcoordinators, which create goods or services that generate indirect network effects across two or more groups [7]. The early examples of ICT platforms can be considered as two-sided markets, which on the one side try to attract a critical mass of developers and on the other a critical mass of service consumers [4]. Given this, PaaS offerings taken isolated provide a good basis for attracting service developers, but will not be sufficient to attract service consumers. Thus, PaaS platforms are typically combined either with a marketplace for services, which targets the second side (the service consumers), or with additional SaaS functionality. In the first case, the platform provider offers a distribution channel in form of a store for the resulting services. This is in addition to the

platform APIs and support for the development of services. In the second case, the platform provider offers facilities not only for developing services, but also for their deployment and hosting. In this case, the PaaS business model is combined with the SaaS business model [4]. Different types of players in the mobile service industry have launched platforms which change existing value networks. In this paper, such platforms are referred to as mobile platforms. Mobile platforms can be distinguished according to the type of player in the mobile service value network providing it. It can be distinguished between mobile platforms provided by device manufactures (e.g. Apple or RIM), by companies focusing on the development of OSs for mobile devices (e.g. Google or Microsoft), and by MNOs. The three types of platforms are in a different stage of maturity. While device- and OS-based platforms are already introduced on the market and have been very successful, MNO-based and intermediating platforms are just emerging. The state-of-the-art analysis presented in the next section covers all three types of platforms. The analysis is based on literature review and examination of existing real cases. III.

STATE-OF-THE-ART ANALYSIS

A. Mobile Platforms of Device Manufacturers and OS Developers 1) Overview of Different Mobile Platforms With the launch of its iOS platform for the iPhone in combination with the App Store, Apple pioneered the mobile platform and app store based business model, which is now pursued by many players in the mobile industry. The model was soon adopted by Google, launching Android Market for the Android platform in October 2008. Other device manufacturers and OS developers followed later. Table 1 summarizes the specific features of device manufacturers’ and OS developers’ mobile platforms and app stores. All of these platforms share a similar business model comprising the following common features: •

PaaS offering and access to the app store as distribution channel. Developers are provided with SDK and potentially further tools and resources for app development;

•

In return, developers pay one-off or recurring fee to participate in the developer program for the respective platform;

•

Apps can be free of charge or paid; app revenues derived through an app store are shared between app store provider and developer.

Only in the case of the Apple’s iOS, the associated app store is the exclusive distribution channel for apps developed for the mobile platform. Apps for other mobile platforms can also be distributed via other channels, e.g. download from a website. Charging and billing take place via payment systems tied to the app stores (iTunes and Google Checkout), via 3rd-party payment systems like PayPal, directly via credit card, or via the MNO.

TABLE I.

OVERVIEW OF DEVICE MANUFACTURERS’ AND OS DEVELOPERS’ PLATFORMS AND APP STORES (ADAPTED FROM [18], [19])

Player Type of player Platform (OS) App store

Apple

Google/Open Handset Alliance OS developer

Device manufacurer iOS

Android

Research In Motion (RIM) Device manufacurer Blackberry

Microsoft

Nokia

OS developer

Palm

Device manufacurer Ovi (Symbian)

Device manufacurer WebOS

Noka Ovi Store

Palm App Catalog

No

No

Exclusive

Yes

No

No

Windows Mobile/Phone Windows Marketplace Mobile No

Billing system Developer share Developer fee

iTunes

Google Checkout

PayPal

Credit Card, MNO

Credit Card, MNO

Credit Card

70%

70%

80%

70%

70%

70%

$99 one-off

$25 one-off

$200 one-off

$99 annually

€50 one-off

App listings

Unlimited

Unlimited

10 for every $200

5, then $99 per app

Unlimited

$99 annually (none for open source app developers) $50 per app

iPhone App Store

Android Market

Blackberry AppWorld

The developer share in most app stores is 70%. The developer fee is typically a one-off one, Microsoft and Palm being exceptions. For most platforms, developers can list their apps in the respective app store for free. 2) Apple’s iOS Platform and Skyhook Wireless Because Apple’s iOS platform can be regarded as the pioneering and most successful mobile platform yet, the business model of and ecosystem around it are examined in more detail. This serves as a detailed example of a mobile platform provided by a non-MNO. Relevant entities in the iOS ecosystem are Apple as platform provider and device manufacturer, developer, MNO, end-user, advertiser, and Skyhook Wireless as an enabling service provider. The entity ‘developer’ represents both individual developers as well as service providers whose services can be consumed via apps for the iOS platform. Skyhook is an example for a provider of enabling basic services that can be reused in components of a mobile platform. Such services are typically complementary to the features of the core platform.

Enabler Mobile Network Operator

Skyhook Wireless

Developer/ Service Provider

Apple Core Platform

End-user

Advertiser (or ad agency) Service (and information) flow Financial flow

Figure 1. Ecosystem around Apple iOS platform illustrated as value network

for

The relationships between the entities in the iOS ecosystem are illustrated as a value network in Figure 1. Apple supplies the MNO with iPhone devices, which run iOS. The nature of this relationship changed over time. Originally, it is assumed that Apple received a specific percentage of the iPhone price plus 10% of the iPhone users’ mobile service revenues from the MNO [21]. Starting with the introduction of the iPhone 3G, MNOs now pay the full iPhone price, but do not share mobile service revenues anymore [21]. Mobile service revenue sharing was (or still would be) reasonable because iPhone users are more active and incur more traffic than average mobile subscribers (see e.g. [22]). The new model relies on high volume sales of the device [21]. The relationship between MNO and end-user is rather simple. The MNO provides the device and network access, and is typically compensated through the end-user’s monthly subscription plan and a one-off payment for the device. The relationship between Apple and developer has been covered in the previous section. However, the 70/30-revenue split does not only apply to revenues derived from app purchases, but also to in-app purchases (i.e. the enduser buys something from within an app). Apple recently launched its advertising platform iAd for in-app advertising. Developers receive a share of 60% of advertising revenues derived from advertising placed in their apps [23]. The role of Skyhook as an enabling service provider deserves closer attention. From early 2008 on, Skyhook provides WiFi positioning for Apple’s map application on iPhone and iPod touch [25]. Skyhook’s WiFi positioning also feeds the Core Location software framework of the iOS SDK, which allows 3rd-party iOS apps to benefit from it (see also [27]). In exchange, Skyhook collects a commission from Apple for each device sold [26]. Beginning with iOS version 3.2 released in April 2010, Apple stopped using databases maintained by Skyhook and uses its own databases instead; previous iOS version still rely on Skyhook’s service [28]. The example of Skyhook well demonstrates how complementary capabilities can build a successful mobile platform. However, it also shows that originally complementary capabilities by one partner may be replicated and even replaced by the other. Skyhook is also used in Android and Nokia Ovi platforms. In these cases, Skyhook has a partnership with the respective app

providers [29], [30]. The usual payment model for service providers is either a license per unit or advertising revenue sharing [31]. Besides these business-to-business arrangements, Skyhooks also target end-user directly. It enables WiFi positioning for any Nokia maps or location app when it is being purchased as MapsBooster app from the Nokia Ovi app store [32]. In summary, Skyhook Wireless pursues different ways to generate revenue. As opposed to many MNOs, Skyhook does not charge on a per-lookup basis. B. Telco 2.0, MNOs’ Platforms and the Wholesale Applications Community 1) MNOs’ platforms and OneAPI MNOs just recently started to respond to competition of device-based platforms and app stores with their own networkbased platforms and app stores. MNO platforms are based on the MNOs’ unique network capabilities, the broad user base and billing and payment facilities, which are being opened and exposed to external developers [7]. Exposing network capabilities through a set of APIs to a broad community of 3rdparty developers is also referred to as Network as a Service (NaaS) [4], [7]. Exposed network capabilities can include, but are not limited to, call control, messaging, location, payment, network presence, profile, and management of service level agreements (SLA) [13]. NaaS APIs can be used by 3rd-party developers for developing mobile services or for mashing them up with other Web or mobile APIs [7]. With the NaaS model, MNOs treat their key network assets as marketable resources that can be offered to third parties on a commercial basis [4]. Commercially offering NaaS, i.e. beyond trials, is a change of the MNOs’ existing business model. The resulting business model is also referred to as Telco 2.0 (e.g. [7]), which indicates an evolutionary step of the MNOs’ business model. Moving in the direction of Telco 2.0, MNOs are transforming their business model from a one-sided market to a two-sided platform market with 3rd-party developers on the one side and mobile subscribers on the other [12], [7]. A strong developer community is crucial for the adoption of a platform because more developers write more applications, making the platform more attractive for end-users [10]. One important motivating factor for building a developer community is a channel enabling developers to monetize their applications [14]. Compared to device- and OS-based platforms, NaaS platforms have several advantages and disadvantages. The network functionalities and APIs are unique competences of MNOs and cannot be copied by other players. At the same time, they are important components of many mobile services and necessary for developing sophisticated services. This indicates growing demand for NaaS platforms. The disadvantage of NaaS platforms is the regional orientation of MNOs. MNOs focus their operation on specific geographical regions, typically a country. Thus, MNOs are not able to build NaaS platforms with a global reach. Due to the limited reach of MNOs, currently, there is a lot of fragmentation in the NaaS market, a limited number of

capabilities, and a lack of common standards and crossoperator interoperability [7]. MNOs try to overcome this shortcoming with joint efforts in two directions: development of common standards and development of joint NaaS platforms. The joint standardization efforts are coordinated by the GSMA and resulted in the OneAPI initiative. The OneAPI initiative aims to standardize the exposition of network capabilities by MNOs [33]. OneAPI proposes standardized NaaS APIs that are based on existing Web standards and principles and can be implemented by any MNO or service provider [33]. A commercial pilot of OneAPI (version 1.0) currently running in Canada allows developers to access location, payments, and messaging across the three MNOs via one OneAPI gateway [33]. OneAPI version 2.0 aims to include features like lookup of the network name and bearer, click-tocall from a Web page, Web-controlled conferencing, Quality of Service for video streaming, and “wake up” of device applications with SMS and other technologies [33]. 2) The Wholesale Applications Community While joint standardization efforts help to improve the interoperability among MNO-specific NaaS platforms, integrated NaaS platforms jointly driven and launched by several MNOs aim to increase the reach of MNO specific NaaS. Most of the common platform initiatives are in an early stage of development. In this context, the Wholesale Applications Community (WAC) is one of the most mature concepts. WAC is an alliance formed by 24 MNOs and supported by the GSM Association (GSMA) and the three device manufacturers LG Electronics, Samsung, and Sony Ericsson [15]. The WAC aims to provide developers with a single point of contact for the distribution of mobile apps to any device in the network of any MNO that is member of the WAC [16]. It encourages the use of open standards for developing mobile apps and aims to provide developers with the necessary tools and support [16]. The WAC’s goal is to establish a ‘write once, deploy everywhere’ model for developers, i.e. developers write an app once, submit it to the WAC, and so make it available to the app stores of the WAC members [16]. Direct relationships between developers and MNOs’ app stores would not be required because the WAC acts as an intermediary. The WAC was announced in February 2010 and is planned to be opened for business in February 2011 [17]. First WAC-compatible devices are expected to be available in May 2011 [17]. Figure 3 illustrates the app distribution via the WAC as a value network. The revenue sharing ratio between developers and MNOs is set by the individual operators; the WAC does not influence it [17]. The end-user obtains an app from a MNO app store and can be billed by the MNO itself or a 3rd-party payment provider [17]. Payment can incur a fee. Because the WAC is a non-profit organization, it only collects a small transaction fee for covering costs [17]. While the app distribution business model is planned to be fully implemented by February 2011, future WAC releases will also offer in-app purchases, in-app advertising, and “in-app telco enabler monetisation” [17].

Developer provides app to WAC and specifies app price and target stores

Developer/ Service Provider

WAC provides tested and certified app to MNO, which need to agree on revenue share with developer

WAC Platform

WAC pays developer (minus red transaction fee)

MNO app store delivers app to end-user

MNOs' app stores

MNO pays WAC (minus revenue share)

End-user

End-user billed via MNO or other 3rd-party billing mechanism

Figure 2. WAC app distribution process illustrated as value network

The two former features are known from, e.g., the Apple App Store. The latter leverages MNOs’ network capabilities (e.g. location) for enhancing applications [17]. OneAPI will reportedly play a core role in providing developers with access to network and back-end enablers exposed by the MNOs [16]. C. Summary and Implications The results of the state-of-the-art analysis have revealed that mobile platforms and related app store based business models have proven successful on the market. Even though compared to the incumbent MNOs, both Apple and Google are rather new in the mobile service industry, iOS and Android have been relatively successful, measured by the number of available apps and downloads of apps for these platforms. For example, as of June 2010, more than 225,000 apps were available and more than five billion apps were downloaded for the Apple’s iOS platform [20]. This is also a strong indicator that the trend towards open platforms in the mobile service industry is irreversible. Open platform-based business models are completely changing the mobile value network. The pioneering device and OS-based platforms, which can be considered as a first generation of platforms, started as two-sided platforms involving service developers and service consumers. The new developments towards, e.g., iAd indicate an evolution towards three-sided platforms involving advertisers as a third market in addition to developers and consumers. Another potential evolutionary path of the device- and OSbased platforms is the extension of the core platforms with additional complementary functionalities offered by 3rd-party platforms. An example of the inclusion of 3rd-party independent value adding services is the described cooperation between Apple and Skyhook Wireless. Similar to the online trend towards cloud federation, it can be expected that mobile platforms might extend their capabilities by partnering with other online platforms or independent services provided via APIs. MNOs are profiting from the success of the device- and OS-based platforms to only limited extent. These platforms have certainly boosted the adoption of mobile data services and mobile Internet, which has resulted in a fast growth of mobile data traffic. However, in the new ecosystem created by the new players, the role of MNOs is clearly marginalized to “dumb

pipes”, and the lucrative parts of the value network are taken over by the platform owners. NaaS offerings of the MNOs are an attempt to compete with the device- and OS-based platforms. However, platforms by MNOs are rather fragmented and have not yet attracted significant numbers of developers or end-users. Due to the regional orientation of the MNOs’ business, such platforms have furthermore a limited reach. The joint efforts of MNOs for standardization are a step in the right direction to overcome heterogeneity and to improve the reach of each platform. However, such initiatives are rather slow and will have difficulties to keep up with the dynamics of the device- and OS-based platforms. IV.

FUTURE VISIONS FOR MNO’S PLATFORM-BASED BUSINESS MODELS

What might be potential future development options for MNOs in order to stay competitive and avoid the “dumb pipe” trap? The opening of MNOs towards 3rd parties via NaaS offerings is an important step in the right direction. NaaS platforms provide a necessary basis for further developments and for cooperation and the involvement of MNOs in the new world of open platforms. NaaS platforms are based on the unique communication capabilities of MNOs, which makes them an interesting candidate for partnerships with other Internet and mobile platforms. Based on partnerships with online and mobile platforms, NaaS APIs can be mashed up to sophisticated services [7]. As communication is part of any platform or cloud offering, NaaS platforms have many potential partners. Given this, one option for individual NaaS platforms might be to strengthen the plug-in and partnering capabilities. A second option for NaaS platform could be to tap into other markets than those addressed by the device- and OSbased platforms. For example, according to [7], in addition to the services accessed by “traditional” means such as via mobile handsets or web browsers, there is a huge potential for services based on machine-to-machine (M2M) communication. According to [7], “recent forecasts suggest that there will be up to 50 billion mobile connected “machines” over the coming years, including appliances, smart meters, security systems, healthcare services and many others - all of which can benefit from network capabilities”.

To summarize, the main future options for MNOs might be to strengthen and further develop existing NaaS platforms, to continue with the joint standardization and platform initiatives, to improve interoperability with complementary platforms, and to tap into markets that have not been taped by existing mobile platforms. V.

CONCLUSION

This paper has started with analyzing how new mobile platforms change existing value networks in the mobile service industry. A state-of-the-art analysis took stock of mobile platforms provided by, e.g., device manufacturers and Internet companies. The business model of and ecosystem around such platforms have been examined, and implications for MNOs have been discussed. The ability of MNOs to counter the new competition has been assessed by evaluating the MNOs’ efforts to open up towards 3rd parties by exposing network capabilities through APIs. Based on the results of the analysis, several options for MNOs’ potential role in a mobile service industry dominated by mobile platforms were discussed. ACKNOWLEDGMENT The research presented in this paper was carried out in the C-CAST project, which is supported by the European Commission under the grant no. ICT-2007-216462. REFERENCES [1]

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