Remapping the handset OEM landscape: squeezed in between a rock and a hard place

[In a race for profits, the mobile industry finds itself squeezed between vertically integrated players like Apple and horizontal players like Google. What is the fate of handset manufacturers? Guest author Vinay Kapoor takes a peek into the future landscape of the mobile industry]

The top 5 mobile OEM list was recently shaken and stirred by the entry of RIM into the list of top 5 OEMs and the subsequent exit of Motorola. Previously, the top-5 OEM leaderboard had been stable for half a decade and so the most excitement you could get would be a change in the relative position of the incumbents.

Looking today at the comparative handset sales of RIM, Apple and Motorola, it is clear that the exit of Motorola from this list of top 5 OEMs has been a long time coming. While Motorola’s decline in sales may be reversed, it is unclear if Android can help propel Motorola back into the top-5 list.

So what does the future hold? If we look at the top 5 OEMs, Nokia, Samsung and LG are fairly spaced out to not expect a major change in their relative positions, assuming an absence of disruptive events. Yet, Apple and Sony Ericsson are much closer, just 1.5 million units apart.

Sony Ericsson’s President, Bert Nordberg recently stated that Sony Ericsson is seeking to not be a volume player, but rather a value player and as such will focus on smart phones. Such high value products and the higher profit that they bring would clearly take preference over market share. This is not a bad thing at all; for example Apple and RIM command a meagre 3% of the mobile device volumes, but 55% of the profits according to a Deutsche Bank analysis. Left unchecked, an un-necessary race for volumes and growth can have disastrous consequences.

Quality and profits are certainly more important than a blind race for meaningless volumes. This is a reason why the top 5 OEM list, is only part of the big picture. The strategic positioning of the manufacturers on and off that list is equally important and can often signal a rapid change in fortunes.

What’ clear is that in early 2011 we should see Apple displace Sony Ericsson from 5th position, making the top-5 list the territory of a Finnish mass-producer, two South Korean workhorses and two North America challengers.

Learning from the industry’s mistakes

Taking inspiration from a certain eruption from a volcano in Iceland (whose name I cannot pronounce!), the industry is undergoing a change in landscape. Much like the results of a volcanic eruption, this landscape and the map we draw-off of it, will change for the foreseeable future. The two “eruptions” in our case have been the surge in emergence of new, vertically integrated product experiences, as a result of Apple and RIM’s success, and the open source phenomena, triggered by Google’s Android platform.


The Evolution

From the perspective of mobile software, we are in a new phase of evolution of this landscape.

Up until the beginning of the century, OEMs built devices around vertically integrated systems. This included in-house ownership of the complete solution from hardware all the way up to the applications. The applications themselves were little more than enablers of the underlying technology; in other words software-enabled hardware.

During 2002-2008, there was an emergence of several “horizontal” value players. A lot of the underlying technology was sourced from organizations who specialized in componentised software layers, selling middleware, browsers, application frameworks and operating systems. This has been especially prevalent in smartphones powered by the likes of windows mobile and Symbian.

Since around 2009, OEMs have been building systems around open source software and open interfaces. This is not only true for software (Android, Symbian, LiMo, MeeGo), but also the hardware pieces are becoming more off–the-shelf and commoditized

The success of Apple and RIM, both of which have vertically integrated offerings (to varying degrees) has polarized the industry; manufacturers are now stuck between a rock (vertically integrated offerings from Apple and RIM) and a hard place (open source software platforms).

So, on one end are the players who are embracing and driving open source and commoditizing suppliers (Nokia, Motorola, LG) while on the other end are the players who believe in control and in-house vertical integration (Apple, RIM). Samsung, with its Bada programming layer is clearly looking to replicate Apple and RIM’s vertically integrated model. Sony Ericsson is leaning to the Open end with Android and Symbian (5 of 8 products in the core portfolio)

So is the Apple and RIM vertical model a one-way street for everyone to embrace? Apple and RIM are essentially able to afford the luxury of a complete in-house solution because of the relative lack of variation required in their software, due to fairly narrow deviations in their products (it’s not just a case of affording.. they are also buying companies to effect this – e.g. chipset, ad networks in case of Apple, QNX and Dash in case of RIM).

This is obvious for the iPhone where Apple is essentially upgrading a single product year after year. Even in the case of RIM, with seemingly several different variations on the Blackberry hardware, they deal with one main Blackberry vanilla design. Note that in that sense both Apple and RIM are both playing a fairly risky game, akin to putting your eggs in one basket. This risk is manageable as both Apple and RIM still sport unique selling points; best-in-class product design, services and user interface in case of Apple and proprietary messaging solution in case of RIM.

In case of Apple, the iPhone’s hardware and software is designed to wow the user. A combination of Apple’s brand value, shrewd marketing and design-centred approach has resulted in a desirable product that goes to the extent to sacrificing seemingly important features to keep things simple for the user. However, the iPhone would not be this ‘desirable’ were it not for the massive amount of applications, both good and bad, available to the user. That much content means that users tend to not get bored with the limitations of the few built in applications on the device.

Blackberry on the other hand has taken the approach of creating a messaging solution that is extremely simple to use and needs no complicated “setup”. The device is of course valuable to enterprises with it’s built in security mechanisms and fully integrated enterprise solutions. Once again, superior consumer experience and focus on the core group (enterprise users) has been achieved through vertical integration of the complete value chain.

For the incumbent handset OEMs who need to reduce the total cost of ownership for software, going back to the days of 100% in-house software, does not sound appealing at all. The sheer amount of work required to adapt software to 10s of hardware SKUs is not very appetizing. For these OEMs open source is a real blessing that helps tap into innovation while at the same time cutting costs on the core software R&D. This is one reason, why Samsung’s Bada move is very bold indeed. It will be interesting to see how Samsung manages to competitively maintain Bada, without the R&D cost of managing that platform having an impact on the Korean manufacturer’s bottomline.

So, it seems that a polarized universe is the only way forward with some players betting on open source and commoditized hardware, and others on vertical systems.

The struggle for differentiation

Once Sony Ericsson and Samsung have finally placed their bets with Bada and Android the ecosystem will settle down into this polarized state.

The vertically integrated players will have the privilege of keeping a high barrier to entry for any new entrant. This assumed new entrant will have to replicate what Apple did with the iPhone, which is not something you see very often.

The players in the open ecosystem will, however, have to guard against the king of cost Shanzai (fake phone) brands that have the possibility to challenge established OEMs. The assumption here is that a drive to open systems will lower the barrier to entry. When any tom-dick-and-harry can slap one of several open source software stacks on top of one of several chipsets readily support such software stacks, the need to differentiate will extend beyond hardware and software design. It is too risky to assume that the consumer will remain committed to a brand solely on the basis of these easy-to-replicate characteristics.

So what is it that the OEMs can use to differentiate their offerings? One must remember that a consumers experience of product and a brand is an amalgamation of several points of contact with the brand and the product. The look and feel of the hardware, and the usability of the device are just two such contact points. A consumer interacts with both the device and the brand in many other ways, like using a cloud service provided with the device, or calling a call-centre for support. A differentiated offering will evolve, based on not just user interface but complete user experience (hardware, software, UI, cloud services, customer service). These will be necessary defences and barriers, which the incumbents will need, in order to protect against being reduced to commodities fighting on price. We may see OEMs positioning their products based on this complete package rather than simply advertising stunning hardware and user interface design.

Those that build a robust defence (the Gorillas) will command the landscape through their sheer size and position. The super efficient king-of-cost players will present a challenge with their sheer agility and cunning (the foxes). Rest assured, anyone stuck in the middle (the jungle) will be stuck in a constant struggle for survival. What a great ending to the fairy tale!

– Vinay

[Vinay Kapoor is a Business development director at Tieto where he helps build new revenue streams and helps shape Tieto’s mobile devices strategy. Vinay has been a mobile industry insider for over a decade and has an avid interest in the events that shape this ever changing industry. You can follow him on Twitter (www.twitter.com/vinaykap) or on his blog (http://wirelessmantra.blogspot.com)]

Developer Economics 2010: The Role of Networks in a Developer World

[In the final part of our series on our latest research – Mobile Developer Economics 2010 and Beyond – Telefonica’s James Parton discusses the challenges facing mobile network operators in their quest to stay relevant to mobile application developers. Full research report available for free download or see part 1, part 2 and part 3 of the blog series on mobile developer economics]
The article is also available in Chinese.

"The Role of Network Operators in a Developer World"

Historically, operators have been one of the few options available to developers when bringing new applications and services to market. Typically this has been in the form of placing applications in the operator mobile web portal or via a handset preload agreement within the operator variant software build.

However operator go-to-market channels have suffered from a lack of transparency, lengthy bureaucratic processes and the inevitable arrogance of a dominant gatekeeper.  The rapid rise of app stores has completely rewritten the rule book, and now provides independent developers with a more open and democratic way to get their product in front of potential consumers.

The Developer Economics 2010 report graphically highlights this trend, with less than 5% of the 400 developer respondents persevering with the operator channel. Clearly app stores have delivered real economic benefits to developers, with time to shelf being reduced by two thirds, and time to payment being reduced by 22 days (see part 2 of our blog series) when compared to the Operator channel.

There are some notable exceptions to the trend. Andrew Fisher, CEO of Shazam, frequently highlights the Operator channel as one of the reasons for Shazam’s wide spread success, and recommends companies to invest in developing operator partnerships. Christopher Kassulke, CEO at HandyGames confirms that major games developers also prefer to invest in selling games via operators, due to the higher per-download price points and the sustainable, predictable revenues that the operator channel offers.

Opportunity lost?
A key question for operators is “Has the app distribution opportunity been irreversibly lost?” An interesting insight from the Developer Economics report is that the app store phenomenon is perhaps not as widespread as portrayed. Beyond the iPhone and Android ecosystems dominated by native app stores, there is a significant gap in the market for operators to assist in the distribution of apps and services. This is especially significant in the growing mobile web app sector.

Of course it goes without saying; unless operators fix the legacy issues with their lengthy bureaucratic processes and ‘ivory tower’ attitude then the distribution opportunity will remain untapped. One of the interesting friction points will be the open market model vs. selective editorial cherry picking of apps favoured by many Operators.

Open market vs Cherry picking
In an open market model, there is no editorial body deciding the catalogue of applications presented to consumers. A complaint often heard from developers is “Who do they think they are, deciding if my app is good enough?” The customer is presented with unfiltered choice made available by any and all developers. The downside of this approach is the “lost in the noise” issue increasingly voiced by developers, the reduction in quality or increase in copyright-infringing apps and the over reliance on your app appearing in the “recommended” or top 10 listing of the relevant content categories to drive downloads.

Operators favouring the editorial selection model (‘cherry picking’) will argue less is more. Based on an understanding of their user base, operator content managers will work with developers to select the most appealing and appropriate apps. This directly addresses the “lost in the noise” issue as the catalogue will be much smaller vs. an open model app store. This approach should also deliver higher conversion rates if the apps are effectively matched to the needs of the audience. Cynics will argue that the operator content managers are not qualified to make the right selections, and this method heavily favours established brands like Facebook which are “safe” vs. lesser known independent developer offerings, thus stifling innovation.

Now developers need to figure out how to make their apps stand out from the crowd. Giving your app away for free just won’t cut it in the long run, as there is no emotional or financial bond between your app and the user. Pinch Media research shows that the average shelf life of a free iPhone app is less than 30 days, with only 20% of users returning to the app after the first day of installation. You don’t want to be the app equivalent of the shortlived May Fly ?

Key to ensuring your app will appeal to consumers is working directly with your intended audience at an early stage. Why waste time and effort if you don’t have an understanding of the following critical questions:

  • Which features will make a difference to people?
  • What is your addressable market?
  • How much are people prepared to pay you for your trouble, if anything?

This marketing insight gap was highlighted in “Developer Economics 2010”, showing that perhaps the app sector is not as mature as previously presumed. Worryingly the vast majority of developers do not invest in any formal market research or even user testing, outside of friends and colleagues.

Recognising that many development companies may not have specialised marketing people or the resources to conduct formal research, the operator can help fill this gap by opening up access to their customer base to encourage co-creation and testing with real end users, free of charge.

This model of match making developers with end users was championed in the UK in early 2009 when we launched O2 Litmus. This fresh approach quickly gained recognition for its innovative model. To date over 7,600 O2 UK customers have volunteered to participate in the development and testing of applications with developers. Typically engagement levels run at around 10% of the tester base actively working with developers at any one time. Approaching 100 individual apps have benefitted from customer co-creation in O2 Litmus, generating over 2,500 test installations to date.

Programming the network
I have previously written about the potential for Operator delivered network enablers (API’s). Developer Economics 2010 highlights the challenge that faces the operator community in effectively evangelising this message. Only 5% of respondents felt that it was the role of the Operator to expose network API’s.

The pace of technological innovation is not being matched by business model innovation. Increasingly developers feel constrained by the business models on offer. Pay per download dominates (two thirds of respondents), with subscription and advertising following.

This signals another significant opportunity for Operators, and an important angle to the exposure of operator network enablers. It is easy to limit the conversation around enablers to the technical feature set of each enabler. The untapped opportunity for both developers and operators alike is wrapping the exposure of enablers with new innovative business models, such as revenue share on the transactional traffic generated

If developers can plug in additional revenue streams from the usage of operator enablers, this will address both the lack of commercial monetisation options available to developers, whilst introducing richer functionality to their app experience.  If executed correctly I believe this can effectively address the developer perception issues highlighted in the report.

I will close the post with a developer quote from Developer Economics 2010 that perfectly sums up both the opportunity and challenge facing mobile Operators today:

“The first mobile company to TRULY reach out to web developers will have an edge over the competition, but right now I don’t see any candidates, except for Google. If Google became an operator our problems would be solved”

– James
Head of Telefonica Developer Communities
You should follow James on twitter at @jamesparton

[James is a Chartered Marketer specialised in Mobile. With an award winning track record of product delivery including twenty five major launches, featuring twenty first to market achievements, including MMS, mobile video, mobile music downloads, the UK DVB-H Broadcast TV trial in 2005, and the ticketing and interactive services supporting The O2 Arena in London. Recognised by Revolution Magazine as one of the “Future 50”, James is a regular industry speaker, panellist, judge, blogger, and has lectured in Marketing and New Product Development at The University of Oxford Faculty of Continuing Education and Reading University.]

Full report is available for free download, thanks to the kind sponsorship of Telefonica Developer Communities. You can follow Telefonica Developer Communities through their blog.

Are you a mobile app developer? Want to be part of VisionMobile’s next developer research and voice your own opinions? Take a moment to fill out the registration form.

Mobile Developer Economics: The Building Blocks of Mobile Applications

[In part 3 of the 4-part series on our latest research РMobile Developer Economics 2010 and Beyond Рguest author Tor Bj̦rn Minde takes a critical look at the developer sentiments on code development, debugging and support. Full research report available for free download or see part 1 and part 2 of the blog series on mobile developer economics].
The article is also available in Chinese.

Do iOS and Android enjoy a large market penetration? VisionMobile’s research suggests that developers think so even if it is not case for iOS and Android per se; iOS and Android are available in a fraction of devices compared to Symbian and Java ME. Most probably, developers view addressable market in terms of ability to reach a large audience of ‘application consumers’ rather than just a large installed base of handsets.

Developers also consider “quick to code and prototype” as a favourite platform aspect, second only in importance to making money on the platform. This reveals that the ‘fun’ aspect of mobile development co-exists with the realism of money-making in developers’ minds.

The new report Mobile Developer Economics 2010 and Beyond, contains many new insights into mobile development. In this article, I ‘ll  comment on and highlight key take-aways from chapter 3 of the report titled “the building blocks of mobile applications”.

Perceived market penetration should be interpreted as real app usage penetration
There seems to be a contradiction in terms regarding the platform aspect considered ‘best’ by developers. Developers flock onto iOS and Android due to a “perceived” large market share but still there’s a discrepancy between the installed base of the platforms and the number of available apps for each platform. The platforms that have greatest installed base (j2ME, Symbian) have the fewest applications and vice versa.

So, is there (only) a perceived market penetration by the different platforms or are there facts that support the choice?

Looking at some related data points from an Ovum report,  iPhone has 69% of all downloads while Symbian has 9% of all downloads. The report further says that 57% of all downloads in 2009 originated from North America, indicating a high usage pattern among  iOS/Android device users. Users of iPhones and Android devices are more likely to download applications.

Piecing together some more data points on  iOS and Android, specifically app stores’ ease of use, application discovery and the multi-touch experience, reveals an important point; for application developers the addressable market that matters is not just the installed base. While iOS and Android have limited deployments compared to the incumbent platforms, they are indeed ahead of the curve in terms of download share, usage share and ease of use – which explains the developer perception of large market share for iOS and Android. Hence, perceived market penetration should be interpreted as app usage and download share penetration.

It is still fun to code, but money-making rules
Looking at technical reasons that mobile developers consider important when selecting a platform, what sticks out as the favourite reason is “quick to code and prototype”. Moreover, Android, Mobile Web and Flash Lite seem to have the shortest learning curve while Android enjoys the shortest development time.

Developers still consider fun and coding speed as important even if developer mindshare is turning towards the appeal of monetization and reaching a large audience. The technical reasons for selecting a platform seem to be gradually becoming a less important selection criterion. However, developer responses are blurred by ‘soft values’ which affect the answers to the question “What is important”.

A study we did at Ericsson Labs argues that developers, these pioneers of mobile application development, can roughly be grouped into four categories. The answers to the question “What is most important” will be very different between these groups. One developer group has very strong opinions about open-source, another group are mainly focused on a good return on investment, a third group are attracted by the lowest possible barriers to entry and the last group try to keep one hand in every cookie jar.

Future building blocks of mobile applications
In general, mobile web development within an HTML5 browser or web runtime is promising when it comes to market penetration, ease-of-use and cross platform support. At the same time, the VisionMobile study shows several pain-points with mobile web technologies compared to native applications, namely issues with development environments, device API support and UI creation.

We will probably see both environments (native and web) used by developers in the future, both served by app stores and other discovery mechanisms. One could assume that the web runtime will fare better than previous cross-platform initiatives (J2ME, Flash Lite) since there is a large community developing to the web runtime (as opposed to single companies).

Untapped opportunities in developer support
VisionMobile’s study hints at the market gaps in developer support offerings. Developers are most willing to pay for access to hidden APIs – clearly a monetisation opportunity for platform vendors. Premium access to APIs can be delivered by device vendors as a point of differentiation, but it will run counter to cross-device application support of the platform. To achieve both depth of API reach and breadth of cross-device support, we need standards – which interestingly enough are not so important for developers, as VisionMobile’s study reveals.

Finally, VisionMobile suggests that developers use non-vendor sites and developer communities most often for tech support – examples being  Slashdot, Stackoverflow, Daniweb, anddev.org and the Chinese dev site csdn.net. At the same time, our study at Ericsson Labs also found that the main tool developers use for tech support is still regular search engines across tech support or developer communities.

Concluding remarks
All in all, the new VisionMobile report analyses most areas of interest for those who need to understand the developer experience. The knowledge of the developer experience using these ‘first wave’ platforms (what the report refers to as “the Renaissance period”) for mobile application development and marketing is crucial in order to guide the development of future platforms.

–  Tor Björn
follow me at @ericssonlabs.

Full report is available for free download, thanks to the kind sponsorship of Telefonica Developer Communities. You can follow Telefonica Developer Communities through their blog.

Are you a mobile app developer? Want to participate in the next mobile developer research and voice your own opinions on mobile development? Fill out the registration form & we’ll be in touch.

[Tor Björn is head of Ericsson Labs with 25 years experience in mobile multimedia & applications]

Mobile Developer Economics: Taking Applications to Market

[In part 2 of the 4-part series on our latest research – Mobile Developer Economics 2010 and Beyond – Andreas Constantinou looks at how effectively have app stores have reduced the time-to-market for applications and the five key challenges for mobile developers today in taking apps to market. Full research report available for free download or see part 1 of the blog series on the migration of developer mindshare].
The article is also available in Chinese.


If there’s a single reason for the mass-entrance of developers into the mobile market, it is app stores. We view app stores as direct developer-to-consumer channels, i.e. commercial conduits that streamline the submission, pricing, distribution and retailing of applications to consumers. For a breakdown of key ingredients in the app store recipe, see our Mobile Megatrends 2010 report. App stores have streamlined the route to market for mobile applications, a route that was previously laden with obstacles, such as lack of information, complex submission and certification processes, low revenue shares and regional fragmentation.

Despite the hype, there is sporadic use of app stores outside the Apple and Android platforms. Our survey of 400+ mobile developers found that only four percent of Java respondents used App Stores as their primary channel to market. Windows Phone and mobile web developers find app stores little more relevant, with fewer than 10 percent of such respondents using one as a primary channel for taking applications to market.

This contrasts completely with platforms that have ‘native’ app stores. Over 95 percent of iPhone respondents use the Apple App Store as their primary channel, while the percentage of Android respondents using Android Market is just below 90.

In terms of the incumbent mobile platforms, around 75 percent of Symbian respondents that use app stores, use the Nokia Ovi Store. The significant number (20-25 percent) of Symbian developers who also use iPhone and Android app stores reveals the brain-drain that is taking place towards these newer platforms. This is a particularly critical migration of developer mindshare, considering that the Symbian platform is the hardest to master. Thus, the size of developer investments on Symbian being written off is substantial.

Besides the growth of apps, app stores are the cornerstone of another major transformation that has taken place in the mobile industry: the mass-market use of mobile as the next marketing channel beyond the Internet. We would argue that it was app stores that triggered the influx of apps – not the open source nature of Android, or the consumer sex appeal of the iPhone.

App stores triggered the sheer growth in app numbers and diversity that led to the cliché, “there’s an app for that”. Another cliché, “the screen is the app,” tells the other half of the story. Combined, the app store and touchscreen were the two essential ingredients behind mobile apps as the next mass-market channel beyond the Internet. These two ingredients inspired just about every media and service company to commission companion or revenue-driven apps as extensions to their traditional online channels. In effect, this phenomenon fueled the app economy, even beyond what app store numbers alone suggest.

Speeding up time to market
App stores have revolutionised time to market for applications. To research exactly how radically the time to market for applications has changed since the introduction of app stores, we analysed two parameters:
– the time to shelf, i.e. how long it takes from submitting an application to that application being available for purchase
– the time to payment, i.e. the length of time between an application being sold and the proceeds reaching the developer’s bank account

Our findings show that app stores have reduced the average time-to-shelf by two thirds: from 68 days across traditional channels, to 22 days via an app store. These traditional channels have been suffering from long, proprietary and fragmented processes of application certification, approval, targeting and pricing, all of which need to be established via one-to-one commercial agreements. Moreover, app stores have reduced the time-to-payment by more than half; from 82 days on average in the case of traditional channels, to 36 days on average with app stores.

The bigger picture that emerges is that the developer’s choice of platform impacts the time-to-market for applications, i.e. the length of time from completing an application to getting the first revenues in. The iOS platform is fastest to go to market with, particularly thanks to Apple’s streamlined App Store process, while Java ME and Symbian are the slowest, due to the sluggishness of the traditional routes to market used by these developers (in particular via commissioned apps and own- website downloads).

Challenges with taking applications to market
Application distribution may be going through a renaissance period that began in 2008, with the direct-to-consumer model pioneered by Apple’s App Store. However, taking applications to market is still plagued with numerous teething problems, as is typical with nascent technology. There are four recurring issues reported by developers: app exposure, app submission (and certification), low revenue share and the challenges with app localisation. A fifth challenge (and untapped opportunity) is the efficient, crowd-sourced testing of mobile apps by real users.

Challenge 1. Application exposure
Our survey found the number one issue for mobile developers to be the lack of effective marketing channels to increase application exposure, discovery and therefore customer acquisition. This was an issue mostly for Flash and iPhone developers, followed by Symbian, Android and Java ME developers. Developers reported persistent challenges with getting traffic, customer visibility or in short “being seen”. One developer put it succinctly: “It’s like going to a record store with 200,000 CDs. You’ll only look at the top-10.”

The exposure bottleneck is new in mobile, but an age-old problem in fast moving consumer goods (FMCG). With such large volumes of applications in stock, app stores are taking on the role of huge supermarkets or record stores. As in any FMCG market, app developers have to invest in promoting their products above the noise, because supermarkets won’t.

Our research shows that in 2010, developers are relatively unsophisticated in marketing their applications. More than half of developers surveyed use free demos and a variety of social media, i.e. the ‘de facto’ techniques for application promotion. Other techniques cited were magazines and influencing analysts or journalists, while promotion through tradeshows was also deemed popular among a fifth of respondents. Less than 30 percent of respondents invest in traditional marketing media such as online advertising or professional PR services.

When asked about what type of marketing support they would be willing to pay for, our survey found half of respondents willing to pay for premium app store placement. This willingness varies greatly by platform, however; developers whose platform features a ‘native’ app store (iPhone, Android and to a lesser extent Symbian) are almost twice as likely to pay for premium app store placement, compared with developers whose platforms do not (Java and mobile web) as well as Windows Phone. This finding indicates that direct-to- consumer distribution channels are necessarily crowded and therefore developers will be willing to pay a premium to be able to stand out from the crowd – much like how FMCG brands pay for premium shelf space in supermarkets.

Yet with free applications being the norm, developers have to become more creative with promotion and advertising; free applications make up more than half of the Android Market catalogue and 25 percent of the Apple App Store catalogue, according to different reports by Distimo and AndroLib.

There are two types of solutions emerging to cover the market gap of application promotional services. Firstly, there are app discovery and recommendation startups (e.g. Apppopular, Appolicious, Appsfire, Apprupt, Chorus, Mplayit and Yappler), which help users discover applications based on their past preferences or on explicit recommendations from the user’s social circle. Secondly, there are white label app store providers like Ericsson that are moving to app mall (shop-in-shop) infrastructure. App malls will allow the creation of 1,000s of application mini-stores, each targeted to niche sub-segments, much like Amazon mini-stores.

However, the gap in application marketing services is widening in 2010 due to the rapid growth in application volume, which is outpacing the appearance of app discovery and recommendation solutions. We believe that application marketing and retailing services remain the biggest opportunity in mobile applications today.

Challenge 2. Application submission and certification.
Application submission and certification are two of the top four challenges for mobile developers, according to our survey. Overall, the most important issue related to certification that was raised by nearly 40 percent of respondents is its cost. In some cases, developers report that the certification cost rises to a few hundred dollars per app certification (not per app). Such economics do not work for low-cost apps, but only for mega-application productions. Java developers, for example, report that Java Signed is impractical; developers have to purchase separate certificates based on the certificate authority installed on the handset – and certificates are expensive.

Challenge 3. Dubious long-tail economics
The mobile app economy is nothing short of hyped from the successes that have come into the limelight – the $1m per month brought in by the Tap Tap Revenge social app, or the $125K in monthly ad revenues reported by BackFlip Studios on their Paper Toss app. Yet the economics for long-tail developers – i.e. the per-capita profit for the average developer – remain dubious at best.

At least 25 percent of Symbian, Flash, Windows Phone and Java ME respondents reported low revenue share as one of the key go-to-market challenges. Most app stores are still playing catch-up to Apple in terms of the revenue share they are paying out to the developer. As one developer put it, “There has been a bastardisation of the 70/30 rule which has been mis-marketed by app stores; for example with Ovi Store, where operators often get 50 percent of the retail price, so developers gets 70 percent [of the remainder]”. Unsurprisingly, the revenue share was not a major challenge for iPhone or BlackBerry respondents.

Moreover, less than 25 percent of respondents stated that revenue potential was one of the best factors of their platform; on average revenue potential ranked last among “best aspects” of each platform, showing how mobile software development is still plagued by poor monetisation in 2010.

The dubious long-tail economics are reinforced by our findings on developer revenue expectations. Only five percent of the respondents reported very good revenues, above their expectations, while 24 percent said their revenues were poor. Note that we didn’t poll for absolute revenues, because of the discrepancies across regions, different revenue models and distance of developers from revenue reporting. At the same time, there is a general consensus of optimism; 27 percent of respondents said that their revenues were as projected, while another 36 percent said they should be reaching their revenue targets.

There are two effects at play that make for poor long-tail economics. Firstly, the number of ‘garage developers’ who are creating apps for fun or peer recognition but not money; and secondly, the noise created by the ‘app crowd’ which prompts developers to drop prices in order to rise to the top of their pack.

There are also platform-specific effects: the unpredictability of revenues, in the case of the Apple’s pick-and-choose culture for featured apps; and, the limitations of paid app support for Android, where paid applications are only available to users in 13 countries out of 46 countries where Android Market is available, as of June 2010. Android has also been jokingly called a “download, buy, and return business”, referring to how you can get a refund for any paid Android application without stating a reason within 24 hours of purchase – a policy that allows many users to exploit the system. In addition, the applications that are published on Android market are not curated by Google, resulting in 100s of applications that are low quality or are infringing copyright, thereby making it harder for quality, paid apps to make money. Even in economically healthier ecosystems like Apple’s App Store, a standalone developer can hope to sell in total an average of 1,000-2,000 copies of an application at an average price of $1.99, which is barely justifying the many man- months of effort that it takes to develop a mobile application by today’s standards.

We maintain that the monetisation potential for the long tail of apps won’t be realised until effective policies are put in place to curtail the adoption of free apps – for example by enforcing a minimum $0.01 app price. Psychology experiments have proven time and time again how our perception of value is distorted when the price drops to zero. It is time for app store owners to borrow from cognitive psychology to help boost the long-tail developer economy, rather than compete on number of downloads.

Challenge 4. Localisation.
Another issue highlighted was the lack of localised apps. One developer said characteristically, “There is a big problem for developers in markets with low penetration of English as a second language. Since the platforms are poorly adjusted to localisation, the costs of development grow and thus profitability and attractiveness [drop]. It would be great to see platforms that take action towards easing the challenge of localisation.” The lack of localised apps for non-English markets is exacerbated for Android. A search on AndroLib reveals that out of the approximately 60,000 apps on Android Market, there are only about 1,400 apps localised in Spanish and only 1,800 localised in French, as of early June 2010.

The lack of localised apps on Android presents the number one opportunity for alternative app stores like SlideMe, AndAppStore and Mobihand, i.e. to attract communities of regional app developers, or to facilitate localisation of apps to different languages – in other words, to reach where Android Market doesn’t reach.

Challenge 5: Application planning and testing
Application planning and testing is a core part of taking an application to market. Our research confirms that planning techniques are near-ubiquitous for application developers. Yet, small development firms have limited means today to beta test and peer review their applications with a cross- section of representative users. Given the hundreds of thousands of mobile apps, we believe that efficient (crowd-sourced) testing of apps in a global market of users is considerably under-utilized. This presents an opportunity for the few solution providers in this segment – Mob4Hire and uTest.com, for example – but also for network operators, who can generate a channel for testing applications with end users, and provide an open feedback support system back to developers. Overall though, the need of mobile developers to have their apps tested cost-effectively by real users around the world is very much under-served.

Looking forward to your comments. Later this week, we’ll look at the next chapter in our research on the building blocks of mobile applications. Stay tuned or, better yet, subscribe to the blog.

Full report is available for free download, thanks to the kind sponsorship of Telefonica Developer Communities. You can follow Telefonica Developer Communities through their blog.

Are you a mobile app developer? Want to participate in the next mobile developer research and voice your own opinions on mobile development? Fill out the registration form & we’ll be in touch.

– Andreas
you should follow me on twitter: @andreascon

Mobile Developer Economics 2010: The migration of developer mindshare

[In part 1 of the 4-part series on our latest research – Mobile Developer Economics 2010 and Beyond – Andreas Constantinou looks at the migration of developer mindshare that is taking place in mobile software and the drivers behind that. Full research report available for free download]
The article is also available in Chinese.


Software has played a critical role in transforming the mobile industry since the beginning of the century. Since 2008, mobile software and applications have moved from the sphere of cryptic engineering lingo to part of the essential marketing playbook for mobile industry vendors.

In stock market terms, developer mindshare is one of the hottest “commodities” in the mobile business, one whose “stock price” has ballooned in the last two years. Platform vendors, handset OEMs, network operators, hardware vendors, and infrastructure providers all want to contribute to mobile apps innovation. Mobile players, from hardware vendors and handset OEMs to networks, are now vying to win software developer mindshare, in order to add value on top of their devices and networks. But how is the landscape of mobile developer mindshare looking today?

Our new report Mobile Developer Economics 2010 and Beyond, offers many new insights into mobile developer mindshare, and analysis into every touch point of the developer journey, from platform selection to monetisation. The research is based on a set of benchmarks and a survey across 400+ developers globally, segmented into 8 major platforms: iOS (iPhone), Android, Symbian, BlackBerry, Java ME, Windows Phone, Flash Lite, and mobile web.

In terms of developer mindshare, our research shows that Symbian and Java ME, which dominated the developer mindshare pool until 2008, have been superceded by the Android and iPhone platforms. Despite Symbian remaining in the pole position in terms of smartphone market penetration, ‘out-shipping’ iPhone 4 to 1 and Android many-times to 1, the signs of dissatisfaction with the way the Symbian platform has evolved have long been evident.

Indeed Android stands out as the top platform according to developer experience, with close to 60 percent of developers having recently developed on Android, assuming an equal number of developers with experience on each of eight major platforms. iOS (iPhone) follows closely as the next most popular platform, outranking both Symbian and Java ME, which until 2008 were in pole position.

In the last two years, a mindshare migration has taken place for mobile developers away from the incumbent platforms Symbian, Java ME and Windows Phone, while a substantial number of PC software developers have flocked to iPhone and Android. The large minority (20-25 percent) of Symbian respondents who sell their apps via iPhone and Android app stores reveals the brain-drain that is taking place towards these newer platforms. The vast majority of Java ME respondents have lost faith in the write-once-run-anywhere vision. Moreover, anecdotal developer testimonials suggest that half of Windows Phone MVP developers (valued for their commitment to the platform) carry an iPhone and would think twice before re-investing in Windows Phone. We should also point out the exodus of some influential developers from the Symbian camp, as is the case with the closing of Symbian-Guru.com, one of the leading community sites related to the platform, whose founder moved to adopt Android.

The disparity between devices and applications

One of the most telling clues about the speed of evolution of the new vs old platforms is the great disparity between the device installed base and the number of available apps for each platform. While Windows Phone, Symbian, Java and Flash have many times the market penetration of Android, iPhone and BlackBerry, the number of apps available tells a very different story.

The two platforms that best illustrate the above point are Java ME and iOS (iPhone). Java ME boasts an installed base of a staggering 3 billion, while the actual number of apps is very low by comparison. The iOS platform on the other hand is available in just over 60 million devices (not including iPods/iPads) but its app store contains more than 250K apps at this time, a number that will climb even higher in the foreseeable future.

The disparity is also pronounced in cross-platform runtimes i.e. Java ME and Flash Lite. This flies in the face the traditional common sense, i.e. that cross-platform runtimes are the way forward, when the number of apps available for those platforms are tiny in comparison. The recent Apple vs Adobe rift and the subsequent banning of Flash from all iProducts has only weakened Adobe’s position. In parallel Sun has launched half-hearted attempts at reducing fragmentation, the number one Java ME pain point, while the Oracle take over is only worsening the problem.

Choosing a mobile platform – facts and perceptions

Most developers work on multiple platforms, on average 2.8 platforms per developer, based on our sample of 400 respondents (although note that 60% of respondents had more than 3 years of experience). Moreover, one in five iPhone and Android respondents release apps in both the Apple App Store and Android Market.

The question is: in a market crowded with software platforms, how do developers choose between iOS, Android, Symbian, Java ME, BlackBerry, Flash, Windows Phone, mobile web, WebOS or Samsung Bada? For today’s mobile developer, market penetration and revenue potential are hands down the two most important reasons for selecting a platform.

Large market penetration was chosen by 75 percent of respondents across each of the eight major platforms we surveyed. Revenue potential was the second most important reason, chosen by over half of respondents. In fact, market penetration and revenue potential were more important than any single technical reason for selecting a platform, revealing how mobile developers today are savvy about the economic implications of mobile development.

The preference of marketing over technical reasons signifies a turn in the developer mindset. Developers no longer see programming fun as a sufficient reward in itself, but consider monetisation opportunities as a primary priority. It seems that, mobile developers now have a sense of commercial pragmatism. As commented by one of our developer respondents, “Technical considerations are irrelevant. The choice of platform is always marketing-driven”.

Looking forward to your comments. Next week, we’ll look at the next chapter in our research on taking apps to market. Stay tuned or ,better yet, subscribe to the blog.

Full report is available for free download, thanks to the kind sponsorship of Telefonica Developer Communities. You can follow Telefonica Developer Communities through their blog.

Are you a mobile app developer? Want to participate in the next mobile developer research and voice your own opinions on mobile development? Fill out the registration form & we’ll be in touch.

– Andreas
you should follow me on twitter: @andreascon