The future of Mobile Application Storefronts The world in your pocket
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1 The future of Mobile Application Storefronts The world in your pocket Market Report by Anuj Khanna CEO, Wireless Expertise
2 Wireless Expertise Ltd, All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, including photocopying, recording or by any storage or retrieval system without prior written permission from Wireless Expertise Ltd. While care has been taken to ensure the accuracy of the information contained in this report, it is provided on the understanding that no responsibility is attached to Wireless Expertise Ltd or the author, and we shall not be liable for any consequential loss or damages which arise out of, or in connection to, information contained in this report. Neither Wireless Expertise Ltd nor any person engaged or employed by Wireless Expertise Ltd accepts any liability for any errors, omissions or other inaccuracies. Readers should independently verify any facts and figures as no liability can be accepted in this regard - readers assume full responsibility and risk accordingly for their use of such information and content. 2 2
3 Table of Contents Page No Executive Summary 4 Smartphone sales, growth projections 5 Mobile Applications forecast 6 Market overview 7 Apple s market disrupting strategy and setting benchmarks 10 The key players 13 Mobile Operator strategies 21 Opportunities vs. Challenges (Discussion) 25 Future of mobile applications (Applications vs. Browsers) 29 Recommended strategy from Wireless Expertise (5 steps) 31 About Wireless Expertise 37 About the Author 38 Contact information
4 Executive Summary Wireless Expertise forecasts the number of smartphones sold per annum will increase from around million in 2009, to million in 2013, with the total number of smartphone users approaching 1.6 billion. Wireless Expertise expects smartphone growth to have a positive impact on the number of application downloads in the short- to mid-term, with strong revenues expected to come from low-end mass market smartphones and mid-to high-end featurephones in the mid- to long-term as operators and handset manufacturers take app stores to the mass market. In 2009 Wireless Expertise forecasts that the global mobile app market including games will be worth $4.66 billion rising to $16.60 billion in Wireless Expertise believes mobile operators have to adopt a dual app store strategy, using the now widely-accepted app store model in conjunction with a browser-based widget store, to provide the greatest potential for a mass-market proposition. Operators releasing a mobile Internet API would address the issue of fragmentation, and help create a multichannel app services and content retail environment coupled with integrated billing and payment mechanisms. Based on the emergence of operator s multichannel app store strategies, Wireless Expertise expects Apple to face increasing competition from global service providers in the next months from alternative app store providers, each vying to become the global app-store leader 4 4
5 Smartphone sales, growth projections The potential of the app store marketplace has encouraged a slew of announcements from mobile players from around the world. The initial app store opportunity has been created by the rise of the smartphone over the last 12 months. In 2008, the number of global smartphone sales was 140 million, and Wireless Expertise forecasts that by 2013, the number of smartphones sold per year will be million, with the total number of smartphone users approaching 1.6 billion. This figure indicates smartphone penetration will be approaching approximately 28-30% of the total mobile market in Source: Wireless Expertise 5 5
6 Mobile Applications Forecast While the increase in smartphone penetration is generating the initial demand for mobile apps, Wireless Expertise expects this to have a positive impact on the number of downloads in the short- to mid-term, with strong revenues expected to come from low-end mass market smartphones and mid-to high-end featurephones in the mid- to long-term as operators and handset manufacturers take app stores to the mass market. In 2009 Wireless Expertise forecasts the global mobile app market including games to be worth $4.66 billion rising to $16.60 billion in Mobile Application Sales Revenues (USD $ billions) Source: Wireless Expertise 6 6
7 Mobile Applications, Market Overview With mobile phones outnumbering PCs around the world by 4:1, mobile applications represent a bigger opportunity for the mobile industry than the fixed-line perceived the Internet a decade ago. With over 4 billion mobile users around the world compared to approximately 1 billion PCs, mobile will become the idealistic channel for businesses to reach their consumers. The mobile industry has two cash cows: voice and messaging. But with both services becoming commoditised, usage is increasing while revenues are falling. It is not a scenario that has appeared unannounced to the mobile industry. It has long been expected, and explains why the mobile industry has spent the last decade searching for what will become the next Killer App. The popularity of ringtones between 2004 and 2006 provided the mobile industry with an insight into consumer demand for content on mobile and set the trend for the subsequent years. But this proved little more than a fad, and the popularity of ringtones, in developed markets especially, started to decline. And the mobile industry has been intent on replicating the success of ringtones ever since. 7 7
8 Mobile Applications, Market Overview Video and mobile TV were among some of the services previously hailed as the next killer app since 2006, but the content and service market has been in a state of steady decline until the industry was reinvigorated by the arrival of the App Store in the summer of The App Store was simple to navigate based on the exemplary iphone user interface and presented content in a clear and orderly manner that immediately highlighted the fundamental flaws and lack of retail understanding previously demonstrated by operator portals in particular. User reviews and ratings, trials and the visualisation of available content provides users with the finest purchasing experience on mobile. There are now 20 content categories available on the App Store, ranging from games, entertainment, music and social networking commonly associated with the mobile space, otherwise deemed as legacy content by Wireless Expertise, but also more mundane content and services less associated with mobile, like productivity, reference and lifestyle. The cost of apps ranges from free, with the opportunity for adfunded, to a premium in excess of 10. Above all else, Wireless Expertise believes that the App Store has delivered new hope to the developer community, providing an opportunity beyond the established content producers and publishers, and opening the door for garage developers. This is spurring new levels of innovation and having a very positive impact on the rest of the mobile industry. 8 8
9 Mobile Applications, Market Overview It s not that mobile apps have not always been around, they have. A mobile app is software, such as a game, designed specifically for a mobile device. One of the earliest success stories regarding apps was Java. The beauty of Java was its ability for developers with the freely available Java Developer Kit (JDK) and Java Wireless Toolkit to create and distribute Java-based mobile applications. This was followed by BREW, which created a similar platform across multiple devices using native code based on handset APIs for developers applying the BREW Software Development Kit. The reason these platforms failed to ignite the passion of the mobile consumer, is that they both operate in the business-to-business space. Apple going direct-to-consumer has provided the much-needed stimulus other players needed to follow suit. These other players include the likes of Palm, Symbian and Windows Mobile, not to mention the arrival of Google Android, all of which Wireless Expertise predicts will play a major role in the development of mobile apps. Each of these companies control an operating system (OS) providing the platform to launch an app store. 9 9
10 Apple s market disrupting strategy & setting benchmarks Apple have made the last two years in wireless anything but boring. Since the launch of the iphone in the summer of 2007, it has shown the mobile industry how a user interface can stimulate usage among consumers delivering a simple and enjoyable experience. While over the last 12 months, Apple has not only invigorated what was rapidly becoming a stagnant mobile content and services market, its App Store has paved the way for professional content developers and publishers to stand side-by-side with the new breed of garage developers introducing innovative, exciting and also functional apps into the world of mobile applications. The App Store was launched on 10th July 2008, to coincide with the introduction of the iphone 3G, by Apple allowing iphone and ipod Touch (itouch) users with an iphone OS application to browse and download free and paid-for applications over-the-air from a mall-like environment though the applications can also be downloaded via itunes. However, it was not until 11th July 2008 when Apple released its iphone 2.0 software update allowing iphone and itouch users to download applications from the App Store
11 Apple s market disrupting strategy & setting benchmarks The applications have been developed using the iphone software development kit (SDK) and within days of its launch, there were 500 third-party applications available on the App Store, of which 125 apps were free. Within 12 months, there were 65,000 applications and 100,000 developers initiated in the iphone Developer Programme (idp). This suggests that a minimum of 35,000 members of the idp are yet to release their app onto the marketplace, potentially swelling the App Store contents well above the 100,000 mark. Developers are drawn to the idp because of Apple s revenue share model, whereby developers receive 70% of all transactions for paid-for apps, and Apple taking the remaining 30%. However, developers are required to pay an annual fee to use the iphone SDK (US $99-299) and upload apps to the App Store. All developers have to submit their apps to Apple, who then review the app, and if it meets the company s strict rules and guidelines, will be approved and receive a signed certificate granting permission and access to the App Store. In a little over 12 months, iphone and itouch users have generated over 1.5 billion downloads. Following the first weekend when 10 million apps were downloaded, it took Apple almost six months to generate its first 500 million downloads, just over three months to take the total passed the 1 billion mark, and a further 81 days to go passed 1.5 billion
12 Apple s market disrupting strategy & setting benchmarks While Wireless Expertise believes that Apple has fundamentally changed the business model within the mobile market, it has been afforded this opportunity by some of the incumbent handset manufacturers becoming complacent. Nokia has always been excellent at designing handsets and OS over the years, but Apple has changed the dynamics of this marketplace. This is not to single out Nokia, but innovation from the handset industry has been in short supply in recent years from most vendors. Apple has shown the mobile industry how it is done. This is in much the same way that i-mode and BREW proved successful models in Japan and North America, respectively. Similarly, Apple has become successful because it is a proprietary solution that ensures its time-to-market is not obstructed by multiple input points from other companies. And consequently, the consumers become accustomed to using the OS and interface and this provides the platform for the content and services to go mainstream
13 Key players in the mobile applications market Apple has undoubtedly become the agenda setter in the mobile community. The fact that the iphone provides a simple billing mechanism linked to itunes from the PC world, makes a simple and compelling user case for consumers. Nokia Nokia launched Ovi in May 2009 to a potential audience of 50 million Nokia devices and expects to have over 300 million users by Ovi represents Nokia s third attempt at direct-to-consumer content strategy, following Club Nokia and Nokia Entertainment Services. It really will be a case of third-time lucky for Nokia. Ovi offers a mix of content including games, video, podcasts, productivity tools (like and VoIP), web, and location-based services. There were an estimated 20,000 applications on sale at the launch, and Wireless Expertise expects this figure to experience exponential growth because it has stated that will not block any apps that compete with its own. Of these apps, it expects productivity and location-based services to be the biggest sellers in Ovi, and plans to make it easy to discover those services by engaging the consumer through a feature named Social Location. Nokia s biggest advantage over Apple is its ability to offer Ovi on a wide range of handsets, ranging from the high-end to the mainstream. And the fact that Nokia is pushing its app store to a mass market is very encouraging. In September, Nokia announced plans to expand its application ecosystem by making it easier for web publishers and developers to create applications with integrated services with Ovi APIs and Ovi SDK Beta. On the back of this news, Noka is confident of introducing a new breed of applications for the web and smartphone platforms
14 Key players in the mobile applications market Clearly, Nokia is focusing on the near-term on capitalizing on the increasing demand for location- and navigational-based services on mobile. The progressive rollout of web and mobile APIs will start with Ovi Maps Player API and the Ovi Navigation Player API for location solutions on its smartphones. To date, Nokia has been working with brands such as Lonely Planet, Deutsche Bahn, Associated Press, Qype, National Geographic and Deutsche Telekom Medien to create example applications using the Ovi SDK Beta and Ovi APIs. Nokia continues to invite developers to join the Ovi for Developers beta program on the Forum Nokia Developer Community site ( and will make the Ovi SDK Beta and Ovi APIs available to them. Applications created with Ovi SDK and Ovi APIs are expected to be distributed through the Ovi Store in Nokia is stepping up it s marketing efforts and will offer tough competition to other app stores and handset vendors in the mid to long term
15 Key players in the mobile applications market Research in Motion (RIM) In a mobile world now obsessing over the eternal quest to find the Killer App, RIM has it, in . is without doubt Blackberry s killer app. Nevertheless, it has not stopped the company launching BlackBerry App World in April 2009 initially in the UK, US and Canada, and accessed via the handset s web browser, which means the content viewed is specific to each device model. By August, BlackBerry App World 1.1 had been rolled out into 14 countries. A major boon for RIM is that its service is available to download in five languages (English, French, Italian, German, and Spanish). As you would expect with RIM, the store offers a mix of personal and business applications, and like Apple, RIM s users can access BlackBerry App World over both Wi-Fi and cellular networks
16 Key players in the mobile applications market Paid applications can be purchased using the built-in payment process from PayPal. Customers can also review and recommend apps to friends and manage the apps on their device using the My World function. Applications on offer include games, maps/navigation, music and video, news and weather, finance and banking, e-books, social networking, and sports and recreation. RIM has mimicked Apple by listing the most downloaded applications, but has added a recommend feature allowing users to let their friends know about particular applications. All applications bought are stored in a centralised folder, so users can install and uninstall as required. Google Android The Internet search engine company is making its play for the mobile application store market through the Android platform for handsets. All handset vendors involved in the Open Handset Alliance (OHA) have committed to launching an Android device, but so far only HTC has released handsets - the G1 and Magic. The ODM was the first to launch a touch-screen device after the first generation iphone went on sale, and the collaboration with Google suits the vendor well, because it has helped raise its profile in the global handset market, and allows the firm to focus on device hardware and design rather than applications development and distribution. Google appears content with the number of device vendors committed to Android, and so is now mostly focussed on growing the number of application developers on its books. That commitment is highlighted by a Developer Challenge, in which a total of 5 million was offered in prize money. Google s strategy was to choose to focus on the applications first, rather than come up with a platform and try to force applications to fit that
17 Key players in the mobile applications market Symbian In July 2009 the Symbian Foundation announced plans to launch its applicationpublishing program, Symbian Horizon, in October 2009, claiming a goal of reducing barriers to success, while increasing the profitability of creating and delivering Symbian applications. The Foundation claims that Symbian Horizon, will assist developers in building applications for Symbian devices as well as placing those applications in the many global stores that reach Symbian customers. Furthermore, the developers will receive promotional assistance for bringing those apps to end users. Companies and developers participating in Symbian Horizon will gain access to a variety of services that support the development, distribution, and marketing of mobile applications. This will range from application certification and instore presence, to language translation services and marketing programs. The Foundation claims that Symbian Horizon will work with developers to create a single point of management and distribution to the largest group of mobile consumers worldwide
18 Key players in the mobile applications market Microsoft Microsoft will launch Windows Marketplace for Mobile by the end of 2009, promising the ability to download applications straight to the phone or via PC, a 70% revenue share for developers, and operator customisable content. Users will be offered a 24hour returns policy that grants them a full refund if they return an paid-for application, and it will all run on handsets powered by Windows Mobile 6.5 the latest version of Microsoft s mobile phone OS. What s more, developers are free to set their own prices for applications, and can design applications using tools contained in Microsoft s Windows Mobile 6 SDK, and.net Compact Framework v3.5. Other compatible tools include Win32, Active Template Library and Microsoft Foundation Classes (Visual C++), Visual C#, Visual Basic.NET, ASP.NET and asynchronous JavaScript and XML (AJAX). Samsung The South Korean vendor launched a beta version of the Samsung Applications Store in January for S60 and Windows Mobile developers, and quickly followed that by adding Java compatibility in February at a Chinese developer forum in March When the store opened in the UK it was offering around 1,100 applications developed by members of Samsung s Mobile Innovator program, which offers free access to testing, business development tools, and technical support. The Samsung Applications Store is part of the company s broad apps-based initiative. It has also committed to launching Android handsets in 2009, and continues to push its own web browser Dolphin which has been used to offer access to a customisable widget screen on the firm s newest smartphone, the Jet
19 Key players in the mobile applications market Sony Ericsson Its mainstream mobile store is the PlayNow arena, an evolution of its original webbased Arena store that launched in The key difference between the basic PlayNow store and PlayNow arena is the content on offer, as well as the latter being web-based content. Applications are now being added to the store, which already offers music, ringtones, games, themes, wallpapers, and movies. An application developer site opened its doors on July , and the firm plans to put applications on sale in 13 countries via 38 compatible handset models. Developers can use the site for free, and it will initially run Java Mobile Edition (ME) and Symbian applications, though Sony Ericsson says more platforms will be added later this year. Sony Ericsson, believes app stores need to be simple and attractive for developers to reach consumers, which will be achieved by establishing clear channels to push content out. Sony Ericsson has collaborated with content aggregator and distributor GetJar to provide one-click access from PlayNow arena to GetJar s mobile site. GetJar GetJar has been operating since 2005, and has become the world s largest independent app store operating in over 200 markets. The company believes that apps offer the flexibility and functionality to take full advantage of new handset features, especially as handsets have such a quick development lifecycle
20 Key players in the mobile applications market There will always be some things that users want to do on their mobile that are not possible or as attractive via the mobile web; however mobile site shortcuts are also increasingly popular downloads from our service and demonstrating the complimentary importance of both technologies. Over time GetJar expects apps will continue to offer a richer and richer experience for users, too, especially as the current network infrastructure does not permit reliable, always-on mobile web connections across the country. The company believes that users will always opt for the method that most suits them, and it s important that apps and the mobile web both continue to exist, much as software and web applications complement each other on the PC. It s inconceivable that mobile apps will be phased out as they are not hindered by the speed or performance of the network. Users can download an app and run it regardless of being online or not, while the mobile web will be used for different scenarios. GetJar is now generating 1 million downloads per day, and stresses that unlike Apple, it does not include updates within that figure. Leading app on the site, ebuddy which lets users combine their Yahoo!, MSN, Facebook Chat, AIM, ICQ and Google Talk friends in one single buddylist on their mobile, allowing users to stay in touch with all their social networking contacts via one simple app, hit a record 1.2 million downloads per week, by the end of July
21 Mobile Operator Strategy Wireless Expertise believes that the mobile market has been dominated by the operators, whom have had a very influential role on the handset manufacturers. But the emergence of the App Store has upset the applecart to such an extent that the influence operators have over handset manufacturers is subsiding. As both operators and OEMs are now looking to capitalise on the app store opportunity, operators are being forced to pursue a number of channels in order to compete with Apple and ward off the threat from the handset manufacturers. Operator app stores are more than just upgraded WAP portals, with numerous app store announcements to date looking to incorporate web applications and widgets also as a means to addressing a mass audience, rather than just smartphone users, as is the case with the majority of app store access presently
22 Mobile Operator Strategy These stores are the carrier s front-line defence to consolidate their close relationship with the end-user from an onslaught of stores from phone makers. Operators are turning to widgets, multiple OS strategies, and tighter control of handset specifications in a bid to maintain that control, while addressing the additional challenge of not excluding the vendor s shops. Vodafone, Verizon & Telefonica Three of the key operators pursuing an app store-based strategy are Verizon Wireless, Telefonica and Vodafone. It is the latter that has made significant bounds regarding its customers mobile Internet experience, by allowing developers (and its content partners) to create a range of apps and services using a single set of APIs. The operator claims that developers will only need to create Internet applications once in order to reach millions of Vodafone customers on any device and will be able to charge for it directly through Vodafone s billing system. Where Vodafone truly comes to the fore is in its reach, with the promise of 289 million subscribers rising to over 1 billion mobile users when including operator partners such as China Mobile and also Verizon Wireless. This is an incredibly strong riposte to the rise of Apple, and a compelling community for the developer community. Following the introduction of a management technology-layer based on Service Oriented Architecture, the APIs will provide a link between the applications and the Vodafone network capabilities, enabling developers to build capabilities such as direct billing and location awareness into their services
23 Mobile Operator Strategy But while Vodafone s strategy is firmly in place, in the US, the same cannot be said of Verizon Wireless. In July 2009, Verizon started to provide more insight into its app store launched expected by end of The operator unveiled that it will only preload its own app store on smartphones, blocking the likes of RIM and Microsoft, as a strategic move designed to attract developers from rival platforms such as Windows and Android. This seems a somewhat aggressive move from the operator and could potentially create a walled garden-like experience that operators are trying to escape. Interestingly, the operator is looking to integrate its mobile strategy with the fixed line. Verizon is investing in technology that allows users to access mobile content on their home phone. The portal upgrade is called the Mobile Web Games and Applications Store, and aims to simplify the process of finding existing content by offering onetouch access for any customer with a WAP or HTML-compatible device. Like Apple, Verizon will share 70% of revenues with developers. Developers using the V CAST Apps store will also gain access to Verizon s APIs including user location, the operator s billing platform, and also marketing via the web site. Elsewhere, Telefonica is adopting a different strategy to the likes of Vodafone and Verizon. The Spain-based operator a multi-platform strategy centred on the iphone and Android devices. It became the first carrier in Spain to offer an Android handset when it launched HTC s Dream in February 2009, and is now selling the iphone in 16 countries globally, including Argentina, Brazil, Colombia, Czech Republic and the UK and Ireland
24 Mobile Operator Strategy The firm already has close ties with Google, launching Google Maps just under a year ago. The HTC Dream also includes access to YouTube and Gmail, with s on the service automatically pushed to users phones. Telefonica s strategy seems to centre on fun and frolics. Its users can already access the mobile version of Facebook, following a new global agreement between the firms signed last year, though that service is tailored more for Windows Mobile and BlackBerry devices
25 Opportunities vs. challenges Apple has set the benchmark for the mobile industry. It is Wireless Expertise s belief that the mobile industry is most likely to follow the Apple model rather than look to develop its own concept and accompanying business model. The only real decision that companies will have to make is whether to follow the App Store model or adopt a browser-based model. Ideally, companies and operators in particular should adopt a dual app store and browser-based model. Presently, app stores are very much a smartphone phenomenon, as we highlight later in this report. Yet smartphone penetration is low at approximately 8% which means that these top-end devices remain niche. And for app stores to truly become mass market, it is imperative that the broadest potential audience can be reached and that means also utilising a browser-based model. In doing so the provider overcomes the device fragmentation that continues to blight the mobile industry. It is then the responsibility of the developer to ensure that their content can be used across the broadest number of devices possible
26 Opportunities vs. challenges Dual App & Browser strategy And that is why Wireless Expertise believes Vodafone s dual app store strategy provides the greatest potential for a mass market proposition and is the ideal model for mobile operators, providing app store-based content, including widgets to all of its user base. Operators need to have a multichannel app services and content retail environment. But of equal importance is the need to create a developer s ecosystem, with or without the operator involved with the API development. Wireless Expertise believes operators need to come up with a mobile Internet API, which would address the issue of fragmentation. The app store market is not a market that they can give up, just because they are late to enter it and should draw inspiration from the search engine providers. Search is dominated by Google and Yahoo, but Google isn t sharing the revenues with the operators. So letting Google becoming the gatekeeper has not been good for the mobile operators, and nor will letting Apple build on its advantage without creating a rival offering. Like Vodafone, Nokia too has the potential to deliver content to a mass market. At its launch Ovi could be accessed by over 50 million Nokia users. Wireless Expertise believes that this direct-to-consumer model requires substantial marketing support and budget commitment from both vendors and operators. One of the primary reason operator portals have failed in the past is that they did not receive the marketing support required to drive traffic to the site
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