In the App Store Market, Fortune Favors the Bold

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1 In the App Store Market, Fortune Favors the Bold Service Provider Success Hinges on Exposing Key Business and Network Enablers to Create Rewarding Experiences for both Consumers and Developers WHITE PAPER

2 CONTENTS THE EVOLUTION OF THE MOBILE APPLICATIONS MARKET... 3 Mobile Applications: A Slumbering Giant Awakens... 3 On-Portal and Off-Portal Business Models... 3 A New Business Model Spells Danger for Service Providers... 3 Understanding the Real Business Opportunity... 4 Service Providers have Unique Assets to Build the Killer Application Platform... 5 Keys to Success... 5 ENABLING THE DEVELOPER EXPERIENCE... 6 Community Features... 6 Access to Network and Business Enablers... 7 Targeting and Personalization... 8 Testing and Certification... 8 ENABLING THE CONSUMER EXPERIENCE... 9 Fostering Innovation with Network Services... 9 A Personalized Storefront and Digital Locker... 9 Service Provider Billing A Powerful Business Enabler ABOUT THE AMDOCS INTERACTIVE APP STORE SOLUTION SUMMARY... 11

3 THE EVOLUTION OF THE MOBILE APPLICATIONS MARKET Mobile Applications: A Slumbering Giant Awakens As recently as June 2008, mobile applications were a niche segment within the larger mobile content business. Service providers traditionally paid little attention to this segment, and most were perfectly content to let technology suppliers like Qualcomm (with its BREW platform) and device manufacturers, like Symbian and Nokia, support third party developers with device specific, or operating system specific, application environments. Yet the ecosystem was far from ideal, and posed significant challenges to developers, including: device platform fragmentation, poor device user experience, limitations of the wireless application protocol (WAP) interface, and high broadband access costs for end users. All of these challenges translated into tough choices and high costs of entry and ongoing operations for small, and even medium, sized businesses. For those who did decide to enter the game, effective distribution often meant the need to partner with mobile network operators, a prolonged and overly complicated process for your average, run-of-the-mill start-up operation. Then along came Apple. In the summer of 2008, Apple introduced its iphone 2.0 and App Store business model, injecting a shocking jolt of energy into the mobile applications market, and to the mobile developer community at large. Suddenly it became possible for third party developers to easily build mobile applications that deliver a great user experience. In Apple s model, developers can easily on board with a simple, straightforward revenue share contract and can rely on the availability of broadband over WiFi or the cellular network. They can access iphone application program interfaces (APIs) including an inapplication purchasing API. In simple terms, Apple has unlocked the revenue potential of the mobile application ecosystem, a move that has profited almost every link in the mobile value chain. Although mobile service providers have benefited from an increase in data usage as a result of mobile application stores such as Apple s and others, they have also experienced firsthand a loss of control over their traditional content and mobile business models. On-Portal and Off-Portal Business Models The recent history of mobile content sales has been largely driven by two business models commonly known as on-portal and offportal, both of which require service provider support. The on-portal business model requires the service provider to manage all aspects of content provisioning, marketing, consumer discovery, content delivery and consumer care. It also requires the service provider to maintain systems and resources to support each of these functions. The common off-portal business model requires the service provider to support a shortcode messaging service (SMS) and a payments service to businesses that market directly to consumers via media such as the web, TV, radio or magazines. The primary value added to the off-portal business by the service provider is the ability to collect payments from a consumer without extra data entry through the device, a significant benefit when working with mobile devices and impulse sales. To address off-portal business models, service providers either put in place the necessary systems and work directly with third parties or, more often, service providers work through aggregators (like OpenMarket in the U.S.) who carry most of the operational burden, and offer to third parties the extra benefit of consolidating access to multiple service providers within a given market. A New Business Model Spells Danger for Service Providers With the advent of the Apple App Store model and its emerging competitors, a new business model is taking shape: the non-portal model, where the service provider does not have a front stage role in the content or application sales transactions. In this scenario, the service provider is pushed to the back seat, relegated to the role of network access or broadband provider. This scenario represents a clear and present danger for mobile service providers. Although they benefit from an increase in mobile data usage, they are witnessing the control over more and more elements of the mobile purchasing experience being wrested from their hands in favor of the on-device 3

4 content and application stores. For example, Apple has been able to create an app store that does not even require the service provider for payment services. Apple has successfully provisioned credit card accounts independently with their customers, using a very successful PC application, itunes. Most existing application stores have also demonstrated the power of opening the operating system directly to developers. Camera, GPS and touch-screen capabilities enhance applications to the extent that customers get locked into using the device. As the device manufacturers gain mind-share, service providers lose it. Considering the rise of smart devices from 26% to 33% of global demand over the past six months (AdMob, March 2009), this threat is even more poignant. However, the on-device app store model is not perfect. A modern application store should provide developers with many of the critical services of the on-portal model, namely a way to distribute applications through an on-portal like storefront. But most of the device-centric application stores don t provide the same level of testing, care or marketing support for the applications that traditional on-portal models support. While not without fault, the new non-portal application store model is undoubtedly an attractive bid for both developers and consumers. A service provider s store can certainly be equally attractive. However, in order to compete and differentiate in this space, service providers must adjust their strategies and take quick action. Understanding the Real Business Opportunity Apple s iphone/itunes App Store provides real numbers for app sales and customer base growth. By April 2009, roughly 800 million apps were downloaded from the Apple App Store. Since launching its App Store, Apple has realized roughly $110 million in revenue; 30 percent of direct application sales, and created a $260 million market for developers. 1 However, application sales are not the end game for Apple. While the $110 million revenue from direct application sales is truly impressive, it represents a mere two percent of Apple s over $10 billion in revenues from iphone and ipod Touch device sales. 2 Clearly in the Apple model, the app store is not the main revenue driver, but a way to sell more devices and create loyalty to the iphone. The same logic applies to service providers. By opening their own app stores and investing in an open platform for developers, service providers will be able to offer the applications their customers want to enrich the user experience and create stickiness. A service provider app store is another means to help reclaim ownership over the customer experience and drive longterm customer loyalty. Many service providers have recognized this opportunity. Service providers like O2, Orange and the recently aligned Verizon Wireless, Vodafone, Softbank and China Mobile, have come to recognize they may be better served by opening their network intelligence and back-office software platforms to the application development community. In so doing, they are able to take advantage of long tail economics; they empower the developer community to deliver tailored applications to all niches within their vast customer base. Thus, they no longer must depend on one or two killer applications to drive revenue, but instead deliver a compelling application platform, enabling thousands of high quality applications to be produced, while at the same time, dramatically improving customer satisfaction. This paradigm shift has made service providers realize that what they need is not a killer application but a killer application platform. 3 1 Christian Zibreg, 2 Philip Elmer-DeWitt, CNN Fortune, 3 William Blair & Company, The Rise of Smartphones, Dec FIGURE 1 App Stores Launched Prior to and in the Wake of Apple s App StorE

5 EVOLUTION... (Cont d) Service Providers have Unique Assets to Build the Killer Application Platform Table 1 demonstrates the differentiating factors in today s application store competitive arena. Service providers can bring several valuable assets to create a killer application platform that would be attractive to the developer and content partner community: > Connectivity and Access: Community and social tools, like instant messaging (IM) and project sharing, allowing developers to interact, would transform a transactional and static environment into a sticky, dynamic, growing community. The developer-minded application store must be a hub of collaborative testing and development, rather than a mere distribution channel. > Personalization: Using network enablers (location, presence), customer information (purchase history, usage history, etc.), user identity support, and behavior analytics. > Purchase Convenience: Through pre-existing billing and payment enablement, buyer authentication and payment authorization (namely, access to operator billing systems). The ability to complete a sale with the fewest number of clicks cannot be overstated. > Distribution and Reach: Access to a large mobile customer base across multiple devices. On-portal storefront placement, catalog control, secure delivery and digital content locker support. > Multi-platform Support: Remove developers need to make platform decisions by supporting multiple device platforms. > Operational Support: Extending robust operational systems and processes as services to the developer community, e.g., CRM-as-aservice, testing services, etc. Keys to Success As the mobile app store space becomes a major growth area in 2009, it becomes more evident that no single application store will prevail. To win in this space, mobile application stores must provide a uniquely differentiated experience for both mobile users as well as application developers. Developer and consumer needs feed off each other. For developers, the explosion of application stores, and therefore developer platforms, is not necessarily a good thing. For one, it increases the already painful market fragmentation. Developers are aware that their initial platform choice may limit and define the future of their business. When developers like the platform and are happy with the business enablers, they create innovative software which appeals to consumers. When consumers can easily discover, purchase and use a variety of innovative applications, they are likely to buy more. This in turn draws developer interest. An effective application store serves as a catalyst, expediting app innovation. As will be explored in this paper, service providers have unique assets that can be exposed in a controlled way to address both the consumer and developer needs, creating a differentiated app experience. TABLE 1 Comparison of Various App Store Models Operating System (OS) Specific or On-Device Application Store (e.g. Android, Apple, RIM) OS-specific (e.g. memory, data management, media playback, address book, GPS, camera) > Web > On-device store > Mobile portals > Enterprise program White-Label Application Store (e.g. Handango) Service Provider Application Store Third Party access to APIs OS-specific Service provider-specific (e.g. location, presence, CRM data, call management, address book) > Web > Mobile portals (via on-device Download icon) Distribution Channels > Web > Partner on-device stores > Partner mobile portals > Direct sales Consumer Billing Options Third party (e.g. PayPal, CheckOut, itunes, credit card, etc.) > Direct application sales > Advertising > In-app content sales Third party (e.g. PayPal, CheckOut, itunes, credit card, etc.) Direct application sales Service provider billing Developer Business Models Supported Direct application sales Developer Support > Online resources > Conferences and events > Business development > Marketing > Sales > IT Personalization Support In some cases (e.g. Nokia) No No > Online resources > Conferences and events 5

6 ENABLING THE DEVELOPER EXPERIENCE As mentioned, no single mobile application platform will dominate. The most successful platform will offer developers the best combination of core capabilities such as device software development kits (SDKs) and network APIs, along with customer reach and monetization options. Providing such a compelling and consistent developer experience hinges on both business and technology factors. On the business side, a successful service provider application platform provides: > A simple on-boarding and submission process, including published and transparent guidelines > An incentivized community that provides feedback and testing assistance > Robust monetization engines, including marketing features like user ranking and personalization built into the storefront > A simple and attractive revenue share model, including incentives to moderate data consumption and support costs > Marketing support From a technology standpoint, service provider success in the app store game depends on their ability to: > Expose network services (e.g. location, contacts, call management) that can differentiate applications > Provide powerful yet easy to use development tools > Make it easy for developers to find, implement and test the APIs they need > Simplify support for multiple platforms > Enforce policies without compromising the developer experience > Address privacy, access control and network abuse Community Features The variance in potential partners drives business models and services needs. Potential partners engaging in application development may vary in scale from a single, freelance developer to a large-scale, public software company. Also, partners goals in application development may differ greatly. Some may be directly selling applications as a revenue stream, others may be using applications as a content marketing channel (e.g. Kindle). A third breed of developers may want to enable and market a non-digital business via its applications. Partner collaboration and the exchange of ideas and capabilities is an essential success factor for the service provider s application store. Community features are required for partners to share problems and solutions, discover, discuss and recommend products. An easy-tonavigate, easy-to-customize community portal should accommodate all variant partner types. Other than the obvious on-boarding and registration that should be made simple and straightforward, the portal should also connect developers to a personal home page or a personal zone. The home page should be accessible to other developers per privileges (like Facebook pages) and should support: > Profile details (mainly name, picture, description, app description/ promotion) > App submission tracking > Sales and settlement data and reports > Account details > Alerts and notifications > Community interaction (invite others, submit/answer questions, share ideas via forum and wiki) The following section provides a detailed description of the ideal developer experience regarding some of the key aspects of the killer application development platform. 6

7 ENABLING The Developer EXPERIENCE (Cont d) Access to Network and Business Enablers Service providers assets can be exposed as three types of enablers: service, business and third party enablers (see Table 2). Each of these enablers and their combinations create differentiation over and above that which is offered by popular application ecosystems in the market today. Allowing third party developers to embed service provider network and business services into their applications, makes them customerspecific and uniquely differentiated (see Figure 2 for example). Network and business services exposure also presents new opportunities for monetization, as developers will increasingly be willing to pay for those services, as their added value becomes more apparent. An integral part of the service provider s application development ecosystem is a Service Marketplace, where developers can subscribe to the APIs of their choice, fee-of-charge or by paying according to various charging models. The Service Marketplace should also support the following: > The discovery of services based on category, type, name, description provider and published date > A view of pricing, service level agreement and other details for each service > A rating system for services which enables top services to be featured > Service subscriptions (i.e. a developer can subscribe to a service at a certain price level based on mutually agreed upon service level agreements) > SDK creation for a specific language platform for each service > SDK downloads and the ability to plug into an integrated development environment (IDE) TABLE 2 Service Provider App Store Enablers ENABLER TYPE DESCRIPTION EXAMPLES Service Enablers Business Enablers Third Party Enablers Capabilities derived from network elements, application servers or billing and support systems, which can be exposed as services and used by developers to build new, enhanced applications. Services that allow developers to reduce friction (costs, time to market, etc.) involved in different aspects of application development, distribution, revenue and operational lifecycles. Community and third party-driven services that are exposed and managed by the platform similar to the business and service enablers. These services vastly increase the functional scope and appeal of the developer opportunity. SMS, WAP push, call control, location, presence, and basic customer data Testing services, cloud computing, storage, customer business intelligence (BI), marketing, multi-device rendering, and developer tools Social utilities, storefronts, media services and external business services FIGURE 2 The Service Provider s Assets in Play: CallManager (A Vodafone Betavine Application) SERVICE PROVIDER S BUSINESS SERVICES EASY ON-BOARDING SERVICE PROVIDER S WEB SERVICES CALL MANAGEMENT DEVELOPMENT AND TESTING, DISTRIBUTION, UPDATES, MONITORING, SUPPORT AND MONETIZATION CONTACTS ACCESS TO DEVICE SDKs AND BROWSER WIDGETS MESSAGING CallManager uses the service provider s contact and call management APIs to set different actions for groups of callers and locations defined by the user. Actions include: Reject Send busy tone Send a personalized SMS Mute the ringer 7

8 ENABLING The Developer EXPERIENCE (Cont d) Targeting and Personalization One of the most important factors that will determine the success of any given application environment is the developers ability to monetize their apps. In other words, developers revenue will be a deal breaker in the future battle of the app store. The application store game is predominantly about the long tail. Personalization, fed by intelligent subscriber profiles, representing affinities to the various content categories, facilitates discovery and solves the relevancy issue, which is key to effective application marketing and monetization. In a fully personalized storefront, discovery is based on users preferences, so developers access to niche market segments is maximized. For example, a pedometer application will reach wider audiences if it is promoted to all users who have also downloaded a calorie-counter application or read about weight loss and fitness. Testing and Certification Testing and certification is not only about ensuring apps will work on any particular handset, but also about screening for viruses, pornography and copyrighted material. Service providers should aim to keep the approval process to less than two weeks. Developers should be able to build an application against network services and easily test them in their integrated development environment. Community testing should also be enabled by the ecosystem. The testing functionality of the app store should allow developers to certify the application running against an integration sandbox environment using real network services. Developers should have full visibility into their application certification process. A seamless business flow should exist between an application s certification and its push to the storefront, under a What s New section. In addition, developers should be able to target their apps to specific customer segments by age, gender, behavior, etc. This, in turn, should feed into a powerful personalization engine. The result is an automated marketing tool which is built into the application storefront and exposed to the application developers during the submission process. 8

9 ENABLING THE CONSUMER EXPERIENCE According to Informa Telecoms & Media (March, 2009) smartphones will account for just fewer than 20 percent of the global mobile market by the end of That would leave 80 percent or 3.2 billion mobile users without access to an app store-like experience. The first and perhaps greatest challenge for service providers is therefore, to ensure that this experience is accessible to all. Platforms designed for widgets and web applications, such as the Joint Innovation Lab (JIL), and Orange widget editor partially address this problem. Mobile widgets provide a similar user experience across a variety of smartphones as well as mid- and low-cost handsets on multiple operating systems. In addition to the quality of the user experience achieved through the device, other factors impact the volume of purchases and overall customer loyalty to a service provider s application store: > A variety of innovative, functional and personalized apps that provide real value > An attractive storefront > Discoverability of apps (search, personalization, featured apps) > Easy download and sideload (pc-to-device) of apps > Seamless payment through the service provider s billing > A digital locker for saving apps accessible from the mobile deck Following are some examples of how the ideal consumer app experience may be achieved within a service provider app store. Fostering Innovation with Network Services SMS, WAP push, call control, location, presence, and basic customer data can all be used to infuse real user value into applications and create loyalty and brand recognition. Applications that enable users to access and interact with information stored on their calendar, contacts, messaging, photo and profiles, provide more than just entertainment. They become an extension of the phone s functionality and an integral part of the user s digital lifestyle. Figure 2 above provides an example for such an application. Moreover, innovation enabled through network APIs is not limited to the mobile screen. Network APIs can enhance the functionality of web applications as well as mobile. Exposing network APIs to the millions-strong web development community enables the next phase of connectivity. This will position service providers at the center of the new value chain and as purveyors of the connected lifestyle. Users will be able to access and communicate their network-based content and information across any screen. For example, incoming SMS would display on users screens, regardless of whether they are playing a game console, using the PC or watching TV. Web applications that implement network APIs can also be mash-ups of network and third-party web services. For example, an application can be set to track certain stock price changes and alert users to changes in real time, via SMS. A Personalized Storefront and Digital Locker The storefront experience is key to the success of the application store. Apps discoverability is not only an issue for developers but also for consumers. It goes without saying that users should be able to type an app s name into a search box and find it. Furthermore, app placement should reflect popularity and relevance and be geared entirely toward consumer needs. Customer data and artificial intelligence should be applied to create personalization of the storefront. This would eliminate click distance and ensure users are exposed to the applications that are most relevant to them. A network-based digital locker would ensure that the users favorite apps are saved, even if their device is lost, damaged or stolen. A digital locker would also help strengthen the service provider s relationship with the consumer because it would hold content which users view as their private assets and would therefore form an attachment. In addition, at a time of crisis, the service provider would own and be responsible for effortlessly restoring the positive user experience and saving the day. This in turn would enhance users positive perception and mind-share. 9

10 ENABLING The CONSUMER EXPERIENCE (Cont d) Service Provider Billing A Powerful Business Enabler As most service providers who have already launched application stores realize, users ability to pay seamlessly, without submitting any personal information, is a key factor in their readiness to download applications. Consumers simply cannot be expected to make the effort to purchase something if it takes more than a few clicks to complete. Out of the three possible payment mechanisms credit cards, third party accounts and service provider billing the latter is the most user-friendly. While entering credit card account numbers usually poses a trust barrier to some users, most device-centered app stores utilize a third party billing system, which already stores the user s credit details (e.g., itunes). However, as research suggests 4, it is not always safe to assume that users have a computer and credit card. PC and broadband penetration in some European countries is relatively low. In Japan, young consumers are actually less likely to own a computer and instead rely almost entirely on advanced mobile phones. Done well, service provider billing offers seamless, one-click simplicity. However, service providers are still challenged by the need to have the right systems in place for allowing micro payments to a myriad of developers and third party affiliates. Premium SMS services and pre-paid cards offer a roundabout way of tackling the problem; more importantly, they offer reduced usability to the consumer compared to direct billing. Service providers should invest in the right platform that would empower them to utilize their billing relationship with the customer, improve the consumer experience and drive revenues from their application store. 4 Deutsche Bank, Digits 14, App Store Mania, April

11 ABOUT THE AMDOCS INTERACTIVE APP STORE SOLUTION As a leading player in enabling service providers to create personalized and profitable online digital experiences, Amdocs Interactive understands the challenges facing service providers and what it will take for them to succeed in the app store game. To address this market need, we have launched the Amdocs Interactive App Store Solution. This solution allows developer communities to create and sell innovative applications that make the most of service providers unique assets while providing a more optimal customer experience. It enables service providers to expose and monetize network and business resources easily and securely, through partnerships with the developer community. With the Amdocs Interactive App Store Solution, service providers can create a collaborative developer ecosystem, allowing developer partners to easily create, test, target, distribute and monetize new and mashed-up applications. SUMMARY Service providers role in the hugely profitable mobile app value chain is rapidly eroding, as device manufacturers and operating system vendors currently dominate this space. Realizing their loss of mindshare and user loyalty, many service providers have already initiated mobile application strategies. At the center of any such strategy is a development platform, catering to a community of developers who are operating in a largely segmented device market and must carefully choose their partner before investing any resources. Putting in place the right infrastructure for the service provider s application store is, indeed, not for the faint-hearted. Careful thought should be put into accommodating the whole ecosystem to address both the consumer and developer needs. Exposing the right business and network capabilities will ensure a rewarding experience for the consumer, and a revenue-generating one for developers and service providers alike. 11

12 ABOUT AMDOCS Interactive Amdocs Interactive App Store solution is part of the Amdocs Interactive set of offerings designed specifically to address the challenges of delivering the optimal online customer experience. Part of the larger Amdocs Customer Experience Systems (CES) portfolio, Amdocs Interactive offerings span commerce, partner collaboration, self-service and personalized portal solutions. To learn more about Amdocs Interactive solutions and services visit us online at ABOUT AMDOCS Amdocs is the market leader in customer experience systems innovation, enabling world-leading service providers to deliver an integrated, innovative and intentional customer experience TM at every point of service. Amdocs provides solutions that deliver customer experience excellence, combining the software, services and expertise to help its customers execute their strategies and achieve service, operational and financial excellence. A global company with revenue of $3.16 billion in fiscal 2008, Amdocs serves customers in more than 50 countries around the world. For more information, visit Amdocs at Amdocs has offices, development and support centers worldwide. To see the most current contact information for all Amdocs offices worldwide, please refer to our website at For more information regarding this whitepaper, please contact: Shanie Weissman Product Marketing Manager THE AMERICAS: ASIA PACIFIC EUROPE, MIDDLE EAST & AFRICA: BRAZIL AUSTRALIA CYPRUS IRELAND SOUTH AFRICA CANADA CHINA CZECH REPUBLIC ISRAEL SPAIN MEXICO INDIA FRANCE ITALY SWEDEN UNITED STATES JAPAN GERMANY NETHERLANDS TURKEY THAILAND HUNGARY POLAND UNITED KINGDOM RUSSIA Copyright Amdocs All Rights Reserved. Reproduction or distribution other than for intended purposes is prohibited, without the prior written consent of Amdocs. Amdocs reserves the right to revise this document and to make changes in the content from time to time without notice. Amdocs may make improvements and/or changes to the product(s) and/or programs described in this document any time. The trademarks and service marks of Amdocs, including the Amdocs mark and logo, Ensemble, Enabler, Clarify, Return on Relationship, Intelecable, Collabrent, Intentional Customer Experience, CES, Cramer, Qpass, SigValue, DST Innovis, JacobsRimell, and ChangingWorlds are the exclusive property of Amdocs, and may not be used without permission. All other marks are the property of their respective owners. AI 2-09.

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