New App Biz Models Promise Carriers Path to ROI in 4G Era

Noam Raffaelli, VP, product management, QualcommThe contours of new business models emerging out of the 3G-to-4G transitional fog may offer carriers who are ready to adapt to the realities a better chance for monetizing user experiences than many observers expect.

While, according to Gartner, 21 billion downloads of mobile apps worldwide will generate $23 billion in revenues this year, with another $6 billion anticipated from apps-related ads, the long-term trajectory for app-based revenues and their impact on mobile operators' bottom lines is anything but certain in light of the diminishing role of operators' portals in consumer behavior. Citing data from the Yankee Group and other sources, Mike Lurye, director of product marketing at Amdocs Interactive, says mobile Internet usage is growing worldwide at greater than 70 percent CAGR (compounded annual growth rate) with the number of mobile Web sites up by 500 percent over the past year.

For content providers and app developers this may be an exciting place to be, Lurye says, but "operators' share of eyeballs is declining. The percentage of people who are spending most of their time on mobile operators' portals is way down. People are going to social networking sites, Google, etc."

Indeed, as reported by mobile analytics firm Ground Truth, Inc., social networking has become the dominant category in mobile Internet usage, accounting for 60 percent of the time the average mobile user spends on the Internet. Mobile portals account for just 14 percent of that time.

"Basically there's a revolution happening in mobile," says Noam Raffaelli, vice president of product management at Qualcomm. "For the past eight years this industry had this lucrative game – mobile plus value-added services. Now the game is changing."

Not only has the acceleration in access speeds combined with downloadable apps tied to Web-base services reshaped consumer behavior; the broadband mobile experience now in play with the onset of 3 1/2 G and 4G is even blurring the distinctions that led to the emergence of a mobile Internet. "Now we need to ask, is there mobile data, or is it just data?" Raffaelli says. "Maybe it's not about the mobile Internet. Maybe it's just the Internet."

But these developments don't necessarily spell disaster for service providers, say Raffaelli, Lurye and other proponents of new approaches to the business. Lurye, for example, points to the success Hong Kong operator CSL, Ltd. has had with deployment of Amdocs' suite of digital commerce, portal and personalization solutions to create a "base camp" approach to facilitating users experience. The carrier is hosting three pre-defined paths for users, including an app store, easy access to customer service and a smart bar with federated search supported by Yahoo!

The Amdocs ChangingWorld platform also supports personalization of content such as news feed and sports scores, site recommendations based on user interests and social sharing of content links via automated SMS messaging to friends. In this new business model the carrier recognizes end users are going to spend a lot, if not most of their time in other places, Lurye says. But the appeal of a portal like CSL's MyNet is such that it becomes the place where most users want to start the journey.

"Carriers have the opportunity to leverage information about subscribers and what they do on mobile," he notes. "They're the only ones who have this resource, which allows them to create actionable intelligence that results in personalization and a shaping of experience based on end users' interests. If you can provide relevant content to your customers, you open many revenue opportunities."

These include targeted advertising aimed at specific users as they come to the carrier's portal and revenue-generating partnerships with content and applications partners in conjunction with giving their assets priority on the portal. "But the most important opportunity comes with the convenience, personalization, the things people don't expect from mobile," Lurye says. "It's the impact on sign-ups that makes this type of differentiation the number one revenue driver."

Another opportunity for mobile service providers lies with what Deepak Swamy, associate vice president at Infosys Technology, Ltd. calls "the democratization of mobile applications." Noting that "walled gardens are losing ground," Swamy says operators must look beyond the operations system (OS) -specific apps business now buttressing their revenues to means by which they can support distribution of appealing apps across multiple OSs.

"There are hundreds of devices running on a dozen or more OSs," he says. "Carriers have an important role to play in influencing how mobile applications evolve."

Infosys is facilitating that influence through its Flypp mobile applications platform, which it launched in November. The strategy allows carriers to offer self-branded portfolios of "genre" applications with universal appeal that leverage the interfaces built into Flypp to reach all devices in a carrier's domain.

"We have a view that operators don't need to just copy app stores that exist out there now," he says. "Our vision is that operators end up with concentric circles of apps from various sources starting with the on-deck set of their branded apps at the center. This is the set of experiential apps that fuse consumer brands, ad-sponsored content and the ability to do commerce, make payments and leverage social networking." Infosys, an India-based firm, now has contracts for use of Flypp with Indian operators reaching 32 million subscribers, Swamy says.

As previously reported (April, p. 25), the opportunity for carriers to pursue branded multi-OS application business models should improve in the years ahead through the complementary efforts of the Open Mobile Terminal Platforms and Wholesale Applications Community forums. OMTP seeks to create applications program interfaces that allow apps to be connected across multiple platforms, while WAC provides a wholesale environment where apps can be picked up by member carriers.

But it will take awhile for these ecosystems to mature – in the case of OMTP's BONDI platform, perhaps as long as five years, according to Tim Haysom, the organization's CMO. Meanwhile, along with vendor-specific opportunities fostered by the likes of Amdocs and Infosys, mobile operators have ample opportunity to maintain a revenue stream from apps native to specific devices in the walled garden model even as Internet-based destinations dominate, says Qualcomm's Raffaelli.

"We're in a very complex time," he notes. "We all need to understand it's not about choosing between going the Web route or going native. It's about doing it all in the right doses. There are a lot of experiences where native apps integrated with our logic on devices are very helpful."

Premium consumer apps like games and high-end widgets are naturals for native approaches. So, too, are the business-specific vertical apps that are sure to proliferate as 4G connectivity extends wireless communications in all directions. "Enterprises will need to have logic and libraries embedded on devices," Raffaelli says. "There's going to be a lot of this."