The 100 million club: the bigger picture of mobile software

[Research Director Andreas Constantinou, discusses the latest update to VisionMobile’s 100 million club, and the bigger picture that emerges from our research, including de facto standards and software that’s truly mass-market]

100 million club logoWe ‘ve just released the updated version of our 100 million club: the watchlist of software companies whose products have been embedded on more than 100 million mobile handsets.

[update: the latest edition of the 100 million club is here]

In this H1 2008 update we ‘ve identified 25 software products from 23 companies which have shipped on more than 100 million handsets cumulatively as of June 2008. The watch list  provides the basis for three key observations (especially in comparison to our 2007 update):

– Firstly the 100 million club is a testament to the commercial and technological complexities inherent in the mobile industry; there are over 6 billion handsets having been shipped up to June 2008 and around 1.2 billion handsets estimated to be shipped in 2008. Yet our research shows that only 4 software products have reached the 1 billion deployment mark, 9 products have exceeded the 500 million mark and 25 products in total have shipped in more than 100 million handsets. Considering that there are 250-300 companies that license embedded software products – not to mention the circa 30,000 mobile software developers – this is clearly a tough market in which to achieve scale. Indeed, the revenues and developer mindshare are migrating from the pre-load to the post-sales phase of the handset lifecycle, as we ‘ve covered in an earlier article (mobile software is dead.. long live mobile software).

100 million club preview

(click for the download page)

– Secondly, the results of the research point to the de facto standards that are emerging with regards to software components. Adobe’s Flash Lite has been embedded on 723 million handsets as of June 2008. Adjusting for seasonal variations, Flash Lite is being deployed on over 500 million handsets per year in 2008 – phenomenal numbers and close to challenging the penetration of Java ME implementations which are generally estimated to around 80% of the global sales base. On the other hand, browser shipments are slowing down (see earlier article on Bye Bye Browser). The Openwave (now Purple Labs) browser was shipped on 180 million devices in H1 2008 and Opera Mobile shipped on just under 20M handsets in that same period. The de facto standards here are under the radar for the time being; WebKit (which should make it into the 100 million club in H2 2008 thanks to Nokia’s S60 and S40 pre-installs) and Opera Mini which saw over 95 million downloads in total as of August 2008. Nuance is also a company to watch, given that it tops our 100 million club with a clear margin to the second runner, and is expanding across multiple forms of text input technologies.

– Thirdly, the watch list points to some surprising observations on mass-market software. The industry talks too much about smartphone software – Symbian, S60, Windows Mobile and Android – yet these are overshadowed by the volume deployments of feature phone operating systems. Mentor Graphics’ Nucleus and ENEA’s OSE have been deployed on well over 1 billion handsets, in many cases as the single OS powering both the applications and the modem stack. Nokia’s S40 has been embedded on an estimated 730 million handsets, while Qualcomm’s BREW has been shipped on an estimated 469 million handsets in total. Both S40 and BREW expose a large part of the device capabilities to software developers and force into question the term ‘open OS’ which is typically associated with Symbian and Windows Mobile.

All in all, the 100 million club lists 25 products which have shipped on more that 100 million handsets as of June 2008, grouped into five product categories:
Application environments: Adobe Flash Lite, Aplix Jblend and Esmertec Jbed.
Browsers: ACCESS Netfront, Opera Mobile, Picsel File Viewer and the Purple Labs (ex Openwave) browser.
Middleware: Beatnik MobileBAE, BitFlash Mobile SVG, Ikivo SVG Player, Nuance VSuite, NXP Software’s LifeVibes MxMedia, PacketVideo CORE, Red Bend vCurrent, Scalado CAPS and TAT Kastor.
Operating systems: ENEA OSE, Mentor Graphics Nucleus, Nokia S60, Nokia S40, Open Kernel Labs OKL4, Qualcomm BREW and Symbian OS.
Input engines: Nuance T9 and Zi eZiText.

For a detailed discussion of the common traits of the companies listed in the 100 million club see our 2007 update of the watch list. Note that the 100 million club is based on an original article by Morten Grauballe.

We have excluded ARM, InnoPath and Sun from the watch list as they were unable to disclose exact shipment numbers for their products, and Teleca’s Obigo browser which has been discontinued since May 2007.

Warm congratulations to the vendors who have succeeded in crossing the 100 million handset mark!

– Andreas

The Mobile Application Store phenomenon

[Apple’s App Store, Android Market, RIM Application Center.. application stores are the latest fad of the mobile industry. Research Director, Andreas Constantinou, analyses the recipe of the mobile application store phenomenon and the movers and shakers of this virgin market]

shopping bagsThe success of Apple’s App Store has been well documented; more than 5,000 new applications, $30M revenues in the first 30 days of operation, 200 million downloads in the first 100 days.. the facts point to a rediscovered revenue source that the mobile industry is eager to capture. [Update: John Doerr at O’Reilly has shared some research that shows App Store applications growing by 170% each month between August and October 2008 and then plateau’ing to about 6000 apps in early November].

Many industry observers will point to the on-device storefront as the reason behind the success of Apple’s App Store. Others will point to Apple’s single OSX platform that allows developers to target more than 10 million devices globally with a single application build. But our research shows that it’s far more than that.

Mobile Application Stores (MAS) are a new solution market which promises the development of a new revenue stream for operators, handset OEMs and application developers. In the last few months here at VisionMobile we ‘ve analysed the key MAS solutions, namely Qualcomm’s BREW shop, Apple’s App Store and held briefings with Nokia, Handango and GetJar. In this article, we discuss the recipe of the mobile application store phenomenon and the movers and shakers of this virgin market.

The next figure compares five popular MAS solutions in terms of fundamentals, performance and features.

Mobile Application Stores

Mobile Applications Stores have been around long before the iPhone – in fact since 2001 with Qualcomm BREW offering not only an SDK for application developers, but also a complete developer-to-consumer channel for discovering, provisioning, distributing and billing applications on BREW handsets. On one hand Qualcomm’s BREW solution has been criticised for stringent application certification requirements and a cumbersome developer accreditation program. Yet it is by far the most successful MAS solution, with an average of 80 million application downloads per month in 2007 and over $1 billion shared with developers as of early 2007.

[Updated: The official BREW figures from QIS state “80M+ average monthly transactions during 2007”, so that number should include content downloads as well as application downloads. It’s also worth mentioning that BREW’s download system offers one of the most advanced range of billing models, including subscriptions and prepaid credits that can be used for purchasing  applications or content.]

Beyond the 10-11% of the sales base of BREW-capable handsets, there have been very few, usually unsuccessful efforts at building an ecosystem for application downloads.

Nokia Download!
Nokia’s Download! on-device storefront represents a half-baked MAS solution. Launched in June 2006, Nokia’s Content Discoverer was designed to replace Preminet, the supply-side marketplace for distributing applications. Nokia’s NCD, later renamed to Download!, has been widely deployed on S60 and S40 handsets but failed to get the MAS recipe right due to a number of reasons:
– an on-device storefront with very few applications, poor catalog management, inconsistent structure and operator-dependent availability.
– installing an application presents the user with multiple confirmation dialogs, making installation counter-intuitive.
– the process of submitting an application to be featured on Download! is far from transparent with no central portal and distribution agreements done on a case-by-case basis.
– billing relies primarily on premium SMS via specific operator deals and takes a large revenue cut away from the developer. To improve the rev share balance, developers have to implement their own credit card charging mechanisms in which case they have to lure the user to their website to make the payment – plus developers have to use their own IMEI-based licensing schemes.

Despite lacking an on-device storefront, GetJar is a successful Mobile Application Store reporting a respectable 17 million downloads per month. GetJar was started by Ilja Laurs in 2004, is profitable, and has recently received $6 million from Accel Partners.

GetJar started as a community site, connecting developers with beta testers, where users can download and test applications. It has since evolved into a distribution channel for application developers including brand-name applications like Opera Mini and Google Maps. GetJar reports 26,000 registered developers and 10,000 hosted applications.

GetJar features mostly free and ad-supported applications. Developers can upload applications to GetJar for free, and get downloads for free. Developers monetise through four revenue models:

1. Free applications with no advertising
2. Ad-supported applications, where the developer monetises through GetJar’s in-house ad-injection (CPM) system, or other ad systems (e.g. Greystripe, Smaato) for interstitial ads.
3. Trial applications, where the activation or upgrade takes place via the developer’s own website.
4. By the end of 2008 GetJar plans to add a centralised billing facility via credit card to support paid-for applications, according to Bill Scott, GetJar’s SVP.

GetJar allows developers to promote their apps on GetJar website for a fee of circa $4,000 per month per application. According to Scott, Google Maps downloads jumped from 20,000 downloads/week to 90,000 downloads/week thanks to GetJar promotional banners.

GetJar is also offering hosted application store solutions for operators. The company allows operators to build own-brand or co-branded mobile application stores in what seems like a no-brainer deal: GetJar offers the hosted solution to the operator for free and is also willing to share part of the ad revenue. GetJar operates custom portals for 11 operators and OEMs, including Three, MAXIS Malaysia and Optimus Portugal.

One downside of GetJar is that it does not offer an on-device storefront, where we may see the company partner with on-device portal providers.

Handango is one of the first application retailers and bills itself as the largest cross-platform smartphone application distributor with over 140,000 applications (including variants) in its online stores and over 100 million applications downloaded to date.

Handango offers application developers three channels of distribution:
– Direct, via
– Via channel partners such as Verizon Wireless, AT&T, T-Mobile, Alltel, Nokia, RIM, Sony Ericsson, Samsung and AOL. Handango has recently expanded with distribution through physical retail stores, namely BestBuy and Carphone Warehouse.
– Via Handango’s commerce engine web-shopping infrastructure used by over 1,000 content providers.

Handango offers InHand, an on-device storefront which features ratings, recommended and best seller apps. InHand can be freely downloaded from the Handango site and in some cases comes pre-loaded on handsets – in the order of ‘low millions’ of handsets according to Handango’s Alex Bloom, VP Content and International.

Another provider who has entered the MAS scene is US-based mPortal, best known for having powered Disney Mobile’s on-device portal. The company has now turned to offering a client and server infrastructure for application stores. mPortal offers a white label client-server product that combines an on-device storefront, application provisioning, aggregation of 3rd party application catalogs and integration with operator billing – in other words key elements for helping operators take a Mobile Application Store to market. mPortal already powers the branded application store of a tier-1 operator and reports being deployed on 50 device models (SKUs) as of the end of 2008.

Naturally, there are a number of other vendors offering partial MAS solutions, namely Cellmania, Motricity, Jamba, Buongiorno and Handmark.

The recipe behind Mobile Application Stores
At the end of 2008 we are clearly seeing a turn towards complete Mobile Application store offerings in the footsteps of Apple’s App Store. There’s been plenty of blogoshere coverage on Google’s Android Market, RIM’s Application Center, Microsoft’s SkyMarket and Adobe’s Appzone.

This new wave of MAS solutions encompass the complete recipe for a developer-to-consumer channel, contrary to the previous half-baked efforts. The next figure lists the five key ingredients of Mobile Application Store solutions; single marketplace, centralised billing, global distribution, provisioning and on-device discovery. The ingredients of the recipe are far from simple to put together – requiring not only the right ingredients, but also the right cook – which is why Apple and Qualcomm are the only two successful, complete Mobile Application Stores as of the end of 2008.

Mobile Applications Stores - features list

New market = new opportunities
We are already seeing a number of software vendors, OEMs and operators planning to offer Mobile Application Stores, many of them still in stealth mode as of the end of 2008.

We expect the most successful MAS solutions to come from handset OEMs, particularly the top-10. OEMs can manage the distribution, provisioning and on-device discovery elements of the recipe, while partnering with billing and retailing vendors to complete the picture. Operators will find it harder to put together successful MAS propositions, as they control a much smaller percentage of the recipe.

The few players who have developed vertical ecosystems are also in a very strong position – specifically Google, Microsoft, Adobe, Qualcomm, Nokia, Intel and RIM (see earlier article on the 7 centres of gravity in mobile). It will also be interesting to see if Qualcomm is willing to export its very successful MAS solution outside the narrow realm of BREW-capable handsets.

We expect handset OEMs and network operators have gone for shopping early this Christmas, as they try to piece together the key ingredients of a MAS solution. Supply of these ingredients is in abundance: billing (Tanla, Bango, Qpass), distribution and retailing (July Systems, Motricity, Jamba, Handmark), on-device storefronts (mPortal, SurfKitchen and the dozen or so ODP vendors) and provisioning (InnoPath, Red Bend as well as many software services outfits).

Comments welcome as always.

– Andreas

Electronics Weekly Blog Awards

Electronics Weekly

Updated: We ‘ve been voted as the best blog in the Mobile Comms category by  Electronics Weekly Magazine and we ‘re thrilled!. We managed to rise to top spot despite competing with very popular blogs such as Disruptive Wireless, Engadget Mobile and Mob Happy.

Thanks to all those who voted for us and to the 1500+ regular readers of our blog. Here’s to an even more exciting year in 2009 with lots of smart moves in the industry chess board. We ‘ll be watching, analysing and, as always, distilling market noise into market sense.

Thanks for your support!

– Andreas

Mobile software is dead. Long live.. mobile software

[Mobile software has always been a tough business and is getting tougher. Research Director, Andreas Constantinou, explores how the value is migrating from embedded to downloadable software].

OK, I ‘m exaggerating. Mobile software isn’t dead, and it will never be. You need software to turn an expensive brick into a walking talking phone. Mobile software is critical to the function of both the handset itself and the mobile industry as a whole. But the revenue potential of mobile software is changing in a very symmetrical way: it’s migrating from embedded pre-load software, to downloadable, post-sales software.

The business of software
The business of embedded mobile software is a very tough one and it’s getting tougher. There are 100s of vendors that have emerged in the last 10 years offering embedded software like multimedia & graphics engines, operating systems, browsers, middleware and core applications, application environments, on-device portals and active idle screen solutions (see our Mobile Industry Atlas for who’s who). These vendors have based their business on a built-it-and-it-will-scale model. The assumption here is that by shipping your software on millions of handsets the business model of per-unit royalties will easily scale, as in the simple equation.

Revenues $$$ = high-per-unit-royalties * many millions of devices

However, revenue scalability is far harder to come by for two reasons.

1. Embedded software has been commoditising – meaning that handset OEMs are willing to pay less, even though they recognise software as indispensable; much like the FM radio feature in your car. This is the case for operating systems – see Android which is available to license for a price tag of $0 and the effect it had on Nokia’s acquisition of Symbian. Same applies to application environments (Flash Lite will now come with a zero royalty under the OSP project). Web browser royalties have dropped from an estimated $0.75-$1 per unit in 2005 to $0.05 to $0.25 per unit in 2008 in large volumes. WebKit and the tough browser economics have signaled dire consequences for Teleca’s Obigo and Openwave’s browser.

On-device portal vendors are suffering from a similar fate; ODP pure-play software should be selling for $0.10 or less per unit today. A handful of pure-play ODP vendors have survived to late 2008: Cibenix, Communology, Crisp Wireless, INSPRIT IntroMobile, Streamezzo, SurfKitchen and weComm. Most ODP software is offered as a loss-leader, acquired or developed into OEM channels (Nokia Download!), media brand channels (Yahoo! Go), tools companies (Adobe FlashCast), social networking services (Xumii, Reporo), content publishing channels (Cellmania, Handmark, ROK, OnMobile),  Service Delivery Platforms (NewBay, Qualcomm uiOne) and software services providers (MobUI). Numerous ODP products have been very quiet, namely Airmedia, Comverse ODP, EveryPoint, Infusio, Tricastmedia and U-Turn.

Only vendors with unique intellectual property (IP) have been able to resist commoditisation – ranging from input technology to graphics acceleration and multimedia software companies. As a result embedded software vendors are now settling for uncapped pre-licensed royalty bundles and NREs (non-recurring engineeering aka professional services fees) in place of running royalties. The smarter vendors are repackaging their assets into a service delivery model where they can charge for the more popular per-active-user model.

2. Deployment challenges: As ironic as it may sound, in a market of 1 billion devices sold per year, it is very difficult for any single software vendor to become embedded on more than 1 million mobile devices. Our 100 million club charts just over 20 companies (out of an estimated 250-300 companies in the inner circle of the mobile industry) which have had any single product embedded on more than 100 million cellular handsets.

Deployment challenges arise as handset OEMs are reluctant to ship 3rd party software on a platform-wide basis, but are rather trying to accomodate specific channel requirements for a relatively small volume of handsets. Moreover, tier-1 operators who in theory can mandate (read: request) that certain software is embedded on the handset have been challenged with time-to-market delays for customised handsets and so are  acutely aware of the opportunity cost of deep handset customisation.

Overall, both per-unit-royalties and deployment volumes have been reducing, signalling the down-spiralling revenues of the embedded software business. So what options do embedded software vendors have? Some are favouring professional services fees for software integration, customisation, certification and indemnification (WindRiver is a good example here). Others are repackaging their assets in the form of vertical service delivery platforms, where the embedded software is the loss-leader (see list of ODP vendors earlier).

Pre pre-load to post-sales monetisation
What is most interesting is that as the embedded software market is spiraling downwards, a new mobile software market is being re-ignited, that of downloadable software. In essence, the revenue opportunity is moving from the pre-load phase of the handset lifecycle to the post-sales phase (see our report on Mobile Software Management for definitions and a perspective on the handset lifecycle).

Mobile handset lifecycle

Open OS platforms and application stores have existed at least since Qualcomm’s BREW platform and Shop launched in 2001. Handango reports 140,000 applications on its stores and BREW has generated more than $1B for developers as of March 2007, averaging 80 million downloads per month in 2007. Yet applications sales haven’t really picked due to the *commercial* challenges in connecting developers directly to end users. Outside the BREW ecosystem (accounting for 11-12% of the global device sales), very few application developers have been making money, at least until the advent of Apple’s App Store.

The App Store has near-perfected the five key elements of a direct developer-to-consumer channel: a single marketplace for application submission and testing; centralised billing; global distribution; application provisioning; and on-device storefront. Apple’s App Store has broken down most commercial barriers (save for the stringent application selection criteria) – the success speaks for itself:  100 million application downloads in the first 2 months of launch and $30 million in revenues in the first month.

Google, RIM and Microsoft are launching their own Appstores, while a number additional of Appstore initiatives are under development in stealth mode. We ‘ll compare and contrast Apple’s App Store with Nokia’s Download, Qualcomm’s BREW, GetJar and Handango in a next article.

Update: To clarify, the core argument of this post is that the revenue opportunity (future market size) of the embedded software market is shrinking while the revenue opportunity of the post-sales market is growing – in this sense market value is migrating from pre-load to post-sales. We estimate there are 250-300 software companies active in the pre-load phase of the lifecycle, and about 30,000 developers in the post-sales phase. Naturally, the average 3rd party developer revenue is going to be tiny in the post-sales phase. We should also see increasing importance in the promotional and marketing channels for 3rd party developers and consolidation of such providers.

Comments welcome as always.

– Andreas