Which apps make money?

[Which apps make money – and how? Andreas Pappas takes another look at the results of VisionMobile’s Developer Economics 2012 survey and comes up with interesting new insights on app monetisation: how does app revenue vary by app-category and by country? Is there a correlation between time spent developing an app and they money it makes?]

VisionMobile - which apps make money

In Developer Economics 2012 we discussed app revenues and how they vary across platforms. We found that overall, around half of all app developers that are interested in making money did not earn a sustaining income, i.e. they were below the “poverty line”, which we drew at $500 per month per app. Of course the real poverty line will vary widely across countries and regions: while $500 per month may not be enough for a San Francisco-based developer, it could be more than enough for a developer based in Bangalore where average living cost is less than a third, according to Numbeo. Continue reading Which apps make money?

Developer Economics 2011 – Why app stores are a one-way street

[Which are the top app distribution channels for developers? Which platforms offer the highest revenue potential? In this part 2 of our 3-part Developer Economics blog series, Marketing Manager Matos Kapetanakis looks at how app stores have effectively re-written the distribution landscape]

Developer Economics - Why app stores are a one-way street

App Store Boulevard

Since the launch of Apple’s App Store in 2008, developers found a market delivery channel that greatly reduced time-to-market and time-to-payment and provided a direct channel to consumers. The result: users started buying more and more smartphones, accessing app stores and downloading billions upon billions of apps.

Today, app stores have become the a one-way street for developers. Over 45% of the respondents in our Developer Economics 2011 report used an app store as their primary route to the market, climbing nearly 30% since last year. At the same time, we found that the use of other distribution channels (own portal/website, 3rd party aggregators, via customers, Telco portals) has greatly decreased since last year’s research.

Developer Economics 2011 - Top app distribution channels

The decline of traditional challenge comes as no big surprise; Telco portals, that once upon a time dominated content distribution in the US and Europe, have now lost their allure. “Downloads through operator portals are still less than one million per month on average per operator. Compare that to one billion per month downloads from the Apple App Store”, noted an executive at a mobile app development house who participated in our research.

But why do developers choose app stores over other distribution channels? Reach is by far the most important reason behind developers’ preference for app stores as a distribution channel. More than 50% of developers distributing through the Apple, Google, Nokia or BlackBerry app stores cite the ability to sell to more users as the primary reason for app store selection. (also, see individual app store ratings in the full report)

However, the use of app stores as a primary distribution platform varies greatly by platform. As we found in our research, the use of app stores is much more pronounced for platforms that have a native app store.

Developer Economics 2011 - top 2 app distribution channels vs platform

As some of you will be quick to point out, Windows Mobile/Phone developers use their own portal/site to an almost equal extent as their platform’s native app store.  We attribute that to three factors: First, as we discussed in the previous post, Microsoft has tapped into two developers segments (Xbox, Silverlight), which are new to mobile. Second, the Windows Phone Marketplace is rapidly growing, but still lagging behind in terms of app volumes. Third, distributing through the Windows Marketplace has only become mandatory with Windows Phone.

The app store duopoly

Despite the many opportunities in this accelerating app economy, not all app stores enjoy the same level of success. Out of the 70+ app stores currently out there, only a handful have managed to emerge as winners. Out of those, the Apple App and Android Market are in a league of their own.

Together, the Apple App Store and Android Market hold over 700 thousand apps, while their cumulative downloads are somewhere in the area of 20 billion. While other app stores have also enjoyed a level of success, this huge gap means we are in effect witnessing an app store duopoly.

Theoretically, the most reasonable approach for developers would be to distribute their apps via multiple app stores. However, in practice, the app store landscape is far more fragmented than one might think; each app store has its own developer sign-up process, app submission process, artwork and paperwork requirements, app certification and approval criteria, revenue model options, payment terms, taxation and settlement terms. This implies that the marginal cost of distributing an application through one more app store is significant, contrary to popular perception.

Plus, there are added entry costs to each platform, in the form of time and money spent. Some platforms have a steep learning curve (see full report for each platform’s learning curve), while others have expensive tools or poor documentation.

Looking at Android, we see that more and more independent app stores, like Andspot, AndAppStore, SlideME and Amazon, are competing with Android Market for user attention and developer app submission. The same also applies to operator and OEM app stores. There is simply too much app store fragmentation.

We believe that the app economy needs a single entry point for application submission (one per platform), along with a million distribution channels:

– one app submission process, i.e., a single website, single contract, single approval process, single billing & settlement and a single mix of business models per platform

– a million distribution channels, i.e., a million different channels through which to retail and sell apps to consumers with a variety of prices, promos, bundles, and regional access that help developers more effectively market their applications.

App revenues and monetisation

The single most important aspect of any business is monetisation. But, in this gold rush of apps, not everyone is making money.

Around 30% of our respondents make less than $1,000 USD per application in total, which means they’re actually losing money, considering it takes months to develop an app and that some platforms have expensive tools.

Which platforms have the largest revenue potential? Monetisation differs from platform to platform, with Symbian having the lowest revenue potential, as our research indicated. Taking Symbian as having a revenue index of 1, we can compare its revenue potential with other platforms. iOS topped the chart, making 3.3 times more money per app than Symbian developers followed by Java ME (2.7x) and BlackBerry (2.4x).

Developer Economics 2011 - Platform revenue index

Another interesting aspect is how the actual revenues compared to the expectations our respondents had. For example, while Java ME offers relatively high revenues per app, Java ME developers did not necessarily respond positively when we asked about their level of satisfaction with revenues (i.e. whether revenues were above or below their expectations).

Developer Economics 2011 - revenue expectations

The previous graph is quite telling. The good news? One in three developers see the level of revenues they expected. The bad news? On average, there are five times more developers who are dissatisfied with their mobile application revenues than there are satisfied developers.

To see the top revenue models, download the full report.

The big picture

What does it all mean? First and foremost, apps have irreversibly changed the way we discover, monetise and distribute content. Second, it’s not Android Market vs. the Apple App Store, but app stores as a whole that have become a one-way street for distributing apps, leaving Telcos, aggregators and OEMs in a diminished role as distribution channels. Third, monetisation may still be a pain point for a significant portion of the developer base, but at the same time 1,000s of companies are after commissioned iPhone or Android work and salaries are on the rise.

One last note: We have yet to see the potential of handsets as app retail outlets, but we believe that OEMs will soon be leveraging on their potential to bundle apps anywhere on the handset real estate and to any region. And, as we know, there’s a higher profit margin in real-estate than in the manufacturing business.

– Matos

For more Developer Economics updates, follow us on Twitter (@visionmobile).

…and for those of you who still haven’t done so, download a free copy of the Developer Economics report.

[Report] HTML5 and what it means for the mobile industry

[HTML5 has been tipped to be a game-changer, with some predictiving it will take over most mobile platforms. But what is its real impact to the mobile industry? VisionMobile Research Director Andreas Constantinou evaluates HTML5 vs apps and what it means for the mobile industry as part of our newly released report – free copy here]

VisionMobile- HTML5 and what it means for the mobile industry

Background: Web vs. apps

In today’s world of apps, the web seems to have taken a seat in the back row. But many industry observers are predicting a comeback with HTML5 advancements, the proliferation of smartphones and ubiquitous backing by both telcos and Internet players. Is the web as we know it about to change?

First things first: what is the web?

Firstly, the web is a language for creating interactive, navigable content, which consists of three main parts: HTML (the language used to define the static text and images), CSS (the language defining styling and presentational elements) and JavaScript (the language describing the interactions and animations).

Secondly, the web is a paradigm for open, unfettered access to content that is not controlled by any single entity. In the era where apps distribution is controlled by single vendors like Apple and Google, the web seems to challenge the status quo.

There are many ways in which web pages differ from mobile apps today, as shown in the next table.

Differences between apps and web

From web 1.0 to the mobile web

The web has gone through two major phases: Web 1.0 and Web 2.0.

Web 1.0 was the era of the dumb terminals and static web pages. The first generation of the web assumed all intelligence was in the network; the device had to issue a simple request to fetch a page and then present it on the screen.

Web 2.0 was is the era of smarter terminals and interactive pages. This second generation was designed around the ‘read-write web’ where the user is not just a consumer but also an editor, curator and producer of content. Web 2.0 helped create today’s phenomena of Wikipedia, Facebook, Twitter, blogs and nano-publishing.

Despite starting off as an outsider to the web, the mobile industry has been rapidly catching up since the early WAP days. WebKit, the Apple-born browser engine is now the common ‘circuitry’ behind more than 500 million devices shipped to Q1 2011, by all major smartphone vendors. Opera, the mobile browser vendor, counts over 100 million monthly active users on its Mobile and Mini browsers.

In the manufacturer camp, smartphones are expected to reach well into sub-$100 retail price points in 2011. In the operator camp, content delivery optimization solutions from the likes of ByteMobile, Openwave, and Ortiva Wireless are being deployed across tier-1 operators, facilitating efficient use of the network while browsing the web.

Mobile industry initiatives such as the Wholesale Applications Community (WAC) are pushing the envelope for web applications (also known as widgets) while EU-funded initiatives like webinos aim to use the web as a medium for deploying applications across mobile, PC, TV and automotive screens.

HTML5 as a technology change

The hype surrounding HTML5 has peaked in 2011. HTML5 promises to push the capabilities of web applications to the point of making web apps as engaging as Flash applications and as integrated with the device as mobile applications. HTML5 introduces several technology improvements in these domains by adding off-line storage, 2D graphics capabilities, video/audio streaming, geo-location, access to the phone’s camera and sensors, as well as user interface tools.

This next generation of web languages in the form of HTML5 is being standardized by the W3C and the WHAT working group who are driving forward web apps as equal citizens to mobile applications. The W3C consists of 51 member organizations, over 440 participants with strong backing from Google, Apple, Opera, IBM, Microsoft, and Mozilla. In parallel the WHAT working group is working closely with Mozilla, Opera and WebKit who are implementing and testing the latest browser features.

Yet HTML5 is still work in progress and even standards bodies show fragmented approaches to HTML5 completion. The W3C expects official completion of the HTML5 set of standards in 2014. In parallel, WHAT has taken a different approach to completion and is now working on ‘HTML’ as a continually evolving set of specifications.

Despite the adoption of the WebKit engine as a de-facto standard, HTML5 implementation on mobile devices is both fragmented and incomplete.

Independent studies by quirksmode.org and NetBiscuits have shown that every mobile WebKit implementation is slightly different. In addition, the leading smartphone platforms show inadequate HTML5 support; iOS, BlackBerry OS and Android devices show partial HTML5 support (at best 2 our of 3 HTML5 features supported), while Symbian and Windows Phone devices are lagging further behind.

Much like history has shown with the PC browser wars of the 1990’s and the Java ME fragmentation of the 2000’s, mobile browser fragmentation in 2010’s will be driven by the need to differentiate (’embrace and extend’), and the varying speeds among vendors in implementing the latest WebKit engine.

What about HTML5 app stores? Already a number of start-ups such as OpenAppMkt, Openspace and Zeewe have proposed app stores focused on web apps. The key advantages of HTML5 app stores are cross-device portability and a buy-once-use- everywhere application model.

Unfortunately, supply does not always imply demand; HTML5 app stores can’t deliver a business model change if demand is not there, for three reasons. Firstly, users care about availability of popular content (see Angry Birds, Skype and Facebook) most of which are not available as web apps often due to HTML technology limitations. Secondly, users care about choosing among hundreds of thousands of apps, which is currently a 2-horse race (Apple and Google) with the web lagging far behind in terms of number of apps. Thirdly, users are becoming loyal to their smartphone platform (Android, iOS or BlackBerry) where the native app store dominates.

How to compete in a software world

HTML5 introduces several technology innovations. However HTML5 remains a technology change that is not designed to solve discovery, distribution or monetisation problems – in other words it is not designed to change the business model.

What *will* be changing the business model of the web are the innovations introduced in the apps economy – where content is created with semantic tagging (description, category, user ratings, etc), discovered via web stores (much like app stores), distributed within walled gardens (much like Facebook), and monetised through micro-payments (much like apps). We call this web 3.0 – and we expand on its implications in the full research paper.

The question is: how can the mobile industry leverage on the web, and the native platforms that dominate the apps world?  The trick here is not to compete, but to leverage on the network effects of the Apple, Google and Microsoft platforms where handset OEMs or network operators can position themselves as a new generation of over-the-top players.

For example, operators can act as the matchmakers between developers and end-users by helping developers get the right apps in front of the right users through techniques such as featured placements, social- graph-based recommendations and segment targeting. Similarly, handset OEMs can act as on-device retailers, connecting the developers to the right audience, in the right region, through white space across the handset real-estate.

This is also where we believe WAC has the best chances of success but helping operators reposition as over-the-top players on top of the Android and Apple app stores – that is by helping developers reach out to users with ubiquitous billing, quality assurance, content curation, local content deals, privacy and security assurance, and help extend app stores away from the virtual and into the physical retail space.

In parallel, network operators and handset OEMs can help push the web into a viable alternative for native platforms in many ways. They can push the development of WebKit towards better bandwidth management, and closer integration with hardware multimedia acceleration. Moreover, the mobile industry can sponsor the development of better cross-platform developer tools that allow HTML and JavaScript developers to target multiple native platforms and mass-market browsers.

No matter how telecoms players decide to compete in the software world, they need to adopt ‘agile’ development methods and move at software speeds to catch-up the platform players in controlling the last mile to the consumer.

One thing is certain; the future of connected web and devices is going to surprise us – much like how applications turned telecoms economics upside down. Like Bill Gates once famously said “we always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten”.

Web is going to be a game changer, but not in the way we expect it.

Read our full report for more.

– Andreas
you should follow me on Twitter: @andreascon

Apps is the new Web: sowing the seeds for Web 3.0

[With the phenomenal success of mobile apps, the world of content is migrating from web 2.0 to apps as the new format for creating, packaging, discovering, paying and interacting with information. Andreas Constantinou analyses how apps are the evolution of Web 2.0 and where this phenomenon will lead us next]

VisionMobile - Apps is the new web

Billions of downloads. That’s how the success of software platforms is measured today. And while downloads is not a currency (it does not necessarily translate into revenues), it does create plenty of free buzz for software platforms. This is the world of apps.

But what is an app really? It’s not just a bunch of code and a fancy UI. Apps are the new channel for delivering services and experiences in mobile devices, taking over from the old world of web pages, texting, ringtones, wallpapers, MMS, Mobile TV – and some would argue voice, too. What’s interesting all these technologies were agreed over 1,000s of meetings and years of standardisation work taking place across (mostly) network operators in the 80s and 90s. In the case of apps, none of this had to be ‘standardised’, just adopted by a critical mass of software developers and in turn a critical mass of users. Today the billions of downloads are indeed that success metric of de-facto standards like iOS, Android, Blackberry, Symbian and Java – even if the vast majority of downloads take place on a small fraction (5%) of the devices sold.

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Despite the fragmented nature of the app economy, we ‘re reaching a milestone at the end of 2010: more than 500,000 mobile apps will become available for Apple, Android, BlackBerry, Java ME, BREW, Symbian and Windows Phone devices in total.

The number is only a fraction of the big picture; what apps have accomplished is an unprecedented speed of innovation and a diversity of use cases. Think about it; traditional mobile services cater mostly to communication needs. Apps cater to the entire spectrum of consumer needs: entertainment, travel, health, food, sports, finance, education.

Network operators have for years been trying to increase service ARPU, i.e. revenues stemming not from voice, texting or data traffic (which are consistently declining due to regulation and competition), but revenues stemming from additional services. Operators (aka carriers) have taken a technology centric-view which is that new revenue can come from the introduction of new technology – MMS, Mobile TV and 3G. Instead apps have taken the view that new revenue can come from addressing new consumer needs. And that’s how apps have allowed mobile to tap into a far more segments of the user spending pie.

Apps as the Web 3.0
Such is the allure of apps that every brand and every service provider is looking to create their own apps, whether as part of their brand identity, as a lead generator, a traffic driver or even a direct revenue source. Soon every enterprise will want their own set of apps, essentially creating a more intelligent mobile intranet, for example with apps for guiding you to your next meeting, for inventory tracking or on-the-spot videoconferencing. We can easily imagine a world where there will be an app for every brand, every service provider and every corporate intranet.

Apps have grown out of the roots of the web; in a sense an evolution of Web 2.0, adding not only new forms of interaction, but also new forms of discovery, monetisation and deeper user context, as summarised in the next table.

Apps Web
Discovery app store text results or URL
User context location, contacts explicit info only
Access mode online/offline online
Monetisation micropayments ads
UI design focus tailored experience compatibility
Interaction model touch, sensors, keys mouse, keys
Usability focus get things done explore
Economy download economy attention economy

Some aspects are worth highlighting:

Discovery is critical to the take-up of mobile apps. Webpages are discovered through Google search or a memorable address. The results you get back from Google take a lot of second-guessing as there is no information semantics describing a webpage or its relationship to other pages. On the contrary apps are published with semantic information as part of the submission process; genre, description, price and screenshots, while downloads, ratings and recommendations are added in-life. This makes discovering apps much more straightforward and intuitive.

User context. Apps have access to location and contacts (subject to certification/approval in some cases) whereas web pages only have access to explicitly provided user info.

Monetisation should also not be underestimated. The freemium business model and the ubiquity of freely available news on the internet arose from the lack of effective micro-payment mechanisms; it is too cumbersome to take out a credit card and pay 10 cents for reading a newspaper online and no payment provider has managed to simplify this (although Paypal and Google Checkout are trying). On the contrary, many app stores have included micro-payments (pay per download) from day one.

Apps are now going beyond mobile. Not only to tablets (see iPad and the tablets coming with Android 3.0) but also to the web (Chrome Web Store), the desktop (Mac App Store) and the billions of connected devices out there from TVs to cars.

Apps are also changing the rules of the game for Google. The search giant rose due to three factors: the open (crawlable) web, the lack of information semantics (necessitating a pagerank-type taxonomy) and the lack of a micro-payments (thereby increasing the demand for ads).

Now the world of apps is coming to threaten the foundations of Google’s success: the web is becoming segregated into walled information gardens (exemplified by Facebook and Apple’s App Store), apps carry information semantics (thereby greatly reducing the search space), and micro-payments are the primary revenue model for apps (thereby decreasing the need for ads as a monetisation medium).

Google is of course preparing for the world where apps become a mainstream means of accessing the world’s information by launching is own walled gardens (Orkut and Buzz), its own app store (Android Market and Chrome Web Store) and now integrating a payments technology (NFC) within Android handsets.

So where are we going next?

The web as the new app
Not to be left behind, web technologies (HTML, JavaScript and CSS) are being driven forward by the world’s web benefactors. Google actively invests in ‘web development’ with the aim to advance the state and adoption of web technologies so that it can supplant the otherwise proprietary technologies (Apple, Microsoft, Nokia, RIM and its own Android) which today power the world of apps. This is part of Google’s strategy to level the playing field where it doesn’t compete directly and Chrome is a big part of Google’s web development efforts, incl. WebKit and v8.

HTML5 standardisation (and initiatives like Webinos) are trying to make the web a primary app platform with offline access plus access into contacts and other user information. In parallel the WebKit engine is being consistently adopted in mobile handsets by just about every manufacturer with over 350M deployments up to the end of June 2010.

More than anything, web technologies are being adopted by mobile platform vendors looking to renew their platform and developer strategy. In order to be competitive, a platform today needs to have three elements:
– mature technology and tools
– hype/buzz
– an active developer community

While you can buy technology, buzz and developer communities are very expensive to build. Like a deus ex machina, web technologies come out of the box hype-ready and with an established developer community. As a result, Nokia, Palm (now HP) and RIM all chose web technologies in WRT, WebOS and WebWorks respectively, as the technology basis of their platform. I believe players who need to refresh their platforms (like Qualcomm’s BREW MP, Samsung and LG) would opt for web technologies.

Web technologies also allow mobile platform providers to tap into new developer segments (designers, scripters, back-end developers, CMS developers and more). More importantly, web technologies reduce the development costs for cross-domain development across mobile, tablets, desktop, car, and consumer electronics from toys to TVs.

Once web technologies are consistently adopted in 3-5 years we should see web move from today’s lowest common denominator to powering the next-generation of apps across connected devices, from toys to TVs and from web pages to apps – and the browsing (exploratory, lowest-common-denominator) experience moving to resemble an app (getting things done, immersive) experience. Perhaps this is the Web 3.0 we ‘ve all be waiting for.

The question is: are apps a ‘blip’ on the radar before the web takes over again? No – apps represent the evolution of creating, packaging, discovering, paying and interacting with information – and while today’s apps are based on mostly proprietary technologies (Apple, Android, BlackBerry, BREW, Symbian, Windows Phone) tomorrow’s apps will be mostly based on web technologies. As to the open web vs closed web silos debate (analysed eloquently by Wired magazine) history teaches us that closed silos are faster at innovating that the open web – and that the web governance will oscillate between the yin and yang for the years to come.

– Andreas
You should follow me on Twitter @andreascon

[Infographic] The Mobile Developer Journey

The Mobile Developer Journey

A few months ago, VisionMobile published Developer Economics 2010 and Beyond, a research report that tracked the entire mobile developer journey, from app design and platform selection to market delivery and monetization. Now, we’re proud to present the entire Mobile Developer Journey on a single infographic.

The Mobile Developer Journey

Developer Economics 2010 and Beyond was created by VisionMobile and sponsored by Telefonica Developer Communities.

Did you miss the chance to participate in our research and have your say on app development? Well, you can express your views in our upcoming developer research, Developer Economics 2011, which is just a few months away. Pre-subscribe here

Feel free to copy the infographic and embed it in your website.

600 pixels wide version

760 pixels wide version

1000 pixels wide version

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The Flash vs. HTML5 Endgame

[In the debate of Flash vs HTML5, has the death of Flash been over exaggerated? Guest author Guilhem Ensuque peeks through thick layers of hype and facts to predict what the future holds for the mobile web].

The Flash vs. HTML5 Endgame

The last year has seen a flurry of announcements and debate around the rise of HTML5 and the fall of Flash. Some have even gone as far as declaring a “war” between the two, and predicting the “death” of Flash as the outcome. However, as Mark Twain once famously said: “The rumor of my death is an exaggeration”. As we’ll see, the jury is still out as far as the fate of Flash and Adobe are concerned.

A brief (abridged) history of the web
“HTML5” is the new high-tech industry darling, and not just in the mobile space. It has become a catch-all phrase with little meaning when taken out of context. Before we dig into the debate, it’s worth looking at what is HTML5 and where has it come from.

“HTML5” when used as a shorthand, covers of family of web technologies currently being standardised by the W3C and at various implementation stages by browser vendors. The “5” comes from the version increment in the W3C spec number: currently most of the content you read on the web conforms to the HTML specification version 4.01.

To understand what has driven the creation of this new version of web standards, we need to look at the evolution of the web in past years.

historyofwebIn the 1990s the World-Wide-Web emerged from academia to become the ubiquitous medium to share digital documents over Internet Protocol networks. The HTML4 spec was matured in that era, and has been very much geared towards read-only, document-oriented description and hyper-linking. HTML4 mixes typographical tags with document structure description, within the bounds of static pages and has limited support for script-driven page logic and forms (does anyone remember CGI?). In that era of the web, support for multimedia content was notably absent from the web specification; leading to heterogeneous plug-ins striving to provide video delivery in web pages (remember Real Networks? or having to choose the speed of your modem?).

In the 2000s, the web evolved towards more interactivity with the advent of the “Web 2.0” (yet another buzzword) and user-generated content, especially videos uploaded and then streamed over faster ADSL connections. However, the HTML spec did not fundamentally change (apart from an attempt by the W3C to migrate to the stricter XHTML syntax which has seen mixed results in terms of adoption). To cope with HTML4‘s inefficiencies in allowing designers and developers to create interactive “experiences” (i.e. not just documents, but bi-directional “applications” living in your web browser) a number of innovations were introduced :

  • JavaScript, Dynamic HTML and XML HTTP requests (a.k.a. AJAX) as a way to have thick-client app functionality in the browser, enabling users to interact with the web in a read-write fashion (not just read-only)
  • clear separation of page structure in HTML (through heavy use of <div> tags) as well as typoraphy and style in CSS (through an arcane and verbose syntax), leading to more pleasant user experience and richer page contents
  • PHP-scripted and database-powered back-end logic bolted on top web server systems. This e.g. allowed template-driven content management systems like WordPress and Joomla to rise to prominence, fueling the blog revolution.

These innovations brought the ability to present vast amounts of data in pretty-looking dynamic web pages which mash-in RSS feeds, emails, blogs, Facebook updates, and tweets, and bringing web pages a step closer to applications.

In that era, Flash (or rather the Flash Player) rose to become a ubiquitous browser plug-in for animated graphics and video. At the same time, Flash evolved to provide an out-of-browser Rich Internet Application platform with the AIR runtime and the Flex framework, albeit at a much lower penetration level than the in-browser Flash Player.

We are now at the dawn of the 2010s, and the overhaul of the HTML4 spec is long overdue. HTML5 aims to bring back into the core spec of the web the “side” developments of the previous era and improve on them with a heavy focus on web applications. It also aims to lay the foundations enabling the delivery of web content through a new medium: mobile devices, and ultimately the “Internet of Things”. That history is yet to be written, but we can now ponder about its beginnings and the future.

So, What is HTML5 Really ?
In the context of this new era, the “HTML5” shorthand refers to a family of web standards and browser technologies that span a range of topics:

  • A modernized web markup language: the true-and-only HTMLv5 specification and matching evolution in web browser capabilities. The new syntax includes the <canvas> tag allowing bitmap manipulation through JavaScript drawing APIs, better support for vector graphics authored in SVG, the <video> tag allowing streamed media playback as simply as embedding images and the streamlining of tag usage.
  • A richer styling language: the Cascaded Style Sheets v3 specifications. CSS3 is now famous for its ability to create rounded corners, but more importantly includes so-called “transforms” allowing graphical effects like moves, rotations, gradients, etc. as well as 3D graphical objects manipulations. Much effort as been put by browser vendor to support hardware acceleration for CSS3 rendering. However, the standard is not yet mature and today requires using prefixes specific to each browser.
  • Application-oriented advancements in the browser, as well as matching JavaScript APIs: the Web Workers offering background and concurrent execution capabilities; a Web Storage allowing simple local data storage and manipulation in XML; and a Web SQL Database  providing the capability to perform SQL queries on large amounts of data stored locally and replicated from a server.
  • Mobile-oriented advancements (not yet finalised in the specs) including JavaScript APIs for Geolocation, Device and File APIs
  • Miscellaneous additions catering for the Semantic Web (microdata), security (cross-domain HTTP requests), and more.

To the above set of technologies standardised by the W3C we should add a domain that has sprung out of both proprietary or open-source efforts: high-performance JavaScript runtimes within browsers and JavaScript Application Frameworks. The latter extend the capabilities of the web, turning it into a full-blown client-side application platform much in the same way that UI and application frameworks like Qt or Gtk extend the “bare” Linux OS framebuffer. Such application frameworks include complementary JavaScript APIs, and rely on CSS3 to provide extensive sets of UI controls. Some mobile-specific frameworks (like Phonegap or BONDI, an offspring of the mobile operator community) go as far as providing additional device APIs for smartphone features like messaging or camera, while others provide a rich set of UI controls mimicking the native platform look & feel (more on this later).

Why the clash with Flash ?
There’s no denying that the capabilities brought forward by the emergence of the HTML5 “family” bring browser runtimes on a par with core capabilities of the Flash Player, which if adopted widely could make Flash redundant.

In the eyes of most mobile industry observers, the delays in bringing out a fully-featured Flash Player with acceptable performance on smartphones have played in favour of HTML5. Remember that, as of today, Flash Player v10.1 is only available for high-end smartphones that run the Android version 2.2 operating system. I would estimate that these represent only 1% of the overall smartphone shipments in Q2. This is a far shot from Adobe’s self proclaimed goal of having Flash shipping on 50% of smartphones by 2012 (see my previous article on this topic).
smartphoneos_share_q2_2010

Figure: Smartphone Operating Systems – Q2 2010 Shipments share (source: Gartner, Google)

Company Browser / OS HTML5 compliance
Nokia Symbian S60 5th Ed. 7%
RIM Blackberry v5 0%
RIM Blackberry v6 (Torch)* 69%
Google Android v2.1* 50%
Google Android v2.2* 59%
Apple Safari for iPhone (iOS 4.0)* 62%
Microsoft IE Mobile (Winmob 6.5) 0%
Opera Opera Mini (on iPhone) 9%

Figure: HTML5 compliance of mobile browsers
[some notes on the methodology: HTML5 compliance was carried out using html5test.com. (*) denotes a WebKit-based browser. The Nokia Symbian S60 browser, albeit based on an old version of WebKit, scores poorly in HTML5 compliance tests. I could not test Mozilla Fennec, Palm’s WebOS browser, nor Opera Mobile.Opera Mini is a special case due to server-side rendering.]

Making things worse, Apple has stayed firm on its policy to not allow the Flash Player browser plugin on its iOS devices (iPhone, iPad and iPod Touch), preferring to rely on its in-house video streaming capabilities developed within its HTML5-capable WebKit browser core and QuickTime player. And to make things even more complicated, Steve Jobs’ “Thoughts on Flash” have played a key role in fanning the flames of the “Flash is dead, long live HTML5” fire.

Moreover, Google’s Android, Palm’s WebOS and, more recently, RIM’s Blackberry also embed web browsers based on WebKit that score very high in terms of HTML5 compliance, as can be seen in the table above.

Thanks to WebKit, half of the smartphones being shipped are poised to have the Flash-like capabilities brought by “HTML5” built into their browsers. However, let’s not rush in declaring Flash “dead” and Adobe a company in decline as a result.

Does HTML5 matter to Adobe ?
HTML5 is actually good for Adobe’s business. Indeed most of Adobe’s revenues do not come from Flash as can be seen by breaking down the Flash product portfolio::

  • The Flash Professional tool, is the authoring software for creating Flash content. It ships standalone or within the Creative Suite bundle. This is where Adobe makes its money as can be seen from the “Creative Solutions” BU share of the chart on the side (courtesy of Business Insider’s “Chart of the Day” series). Creative Suite also includes the massively popular Dreamweaver web design tool, and Illustrator, a vector graphics design tool, both of which which are now starting to incorporate HTML5/CSS3 design capabilities. Adobe has also hinted that Dreamweaver will be able to convert Flash timeline animations to Javascript/CSS3 code to render those animations in “HTML5” compliant browsers. This means that “HTML5” will not be a threat to Adobe’s main source of revenue. On the contrary, since there are few good commercial web design tools, the rise of “HTML5” will spur demand for Adobe products.
  • The Flash Player: the plug-in is free and is therefore represents  an R&D cost for Adobe. No impact there. One might argue that, if HTML5 were to totally eliminate the need for the Flash Player, it would the positively impact Adobe’s bottom line in the unlikely event the company were to lay off the entire Flash Player team 🙂
  • The Flash “Platform”: “auxiliary” products that rely on the Flash Player include the Flash Media Server and Flash Access product ranges, licensed to organisations that use Flash to deliver streamed video content (e.g. Hulu, Influxis, Brightcove). The “Platform” also includes the commercial Flash Builder IDE allowing the development of Rich Internet Applications (and the associated free and open-source Flex framework). As can be seen in the chart, these represent a minute proportion of Adobe’s revenue. As we will see further down, these products are not going to disappear overnight due to the emergence of HTML5.

However, HTML5 does put competitive pressure on the product management and engineering teams responsible for the Flash Player to out-innovate the evolutions in browser technology. Adobe points out that this is “business as usual for them” as –they say- it was never their intention to fully replace the browser altogether, but rather complement its capabilities with innovative features, and harmonise areas in which standards have been implemented in an inconsistent fashion across browser runtimes.

As an engineering-driven company, Adobe aims for Flash to stay one step ahead of HTML5 technology implementations, as it already is today in numerous areas. Indeed, an agile R&D division within a single corporate entity will always be faster than a “snail driven by a committee” as the W3C HTML5 spec bodies have been dubbed by some.

Some areas where Adobe is pushing the envelope for the Flash Player include 3D rendering with hardware acceleration, concurrency support, IP TVs and peer-to-peer media delivery. The latter is an interesting transposition of the file-sharing P2P concept; imagine tens of millions of users watching the same live video coverage of the opening ceremony of the 2012 Olympics in London. No server farm or CDN today is capable of sustaining such a peak demand. By allowing instances of the Flash Player across millions of peers to share chunks of the video stream at the edge of the network could be the answer to the problem.

Beyond innovation, another aspect to factor in is that HTML5 is still in its early stages of implementation across browsers, with Microsoft’s uber-popular Internet Explorer browser today lacking any form of HTML5 support whilst representing close to 60% of the web user base (see chart below). Even with the IE9 beta improving HTML5 support and other browsers consistently gaining market share it will still take some years before HTML5-capable desktop browsers dominate the installed base. This will justify the existence of Flash in the desktop browser space for years to come and give some leeway to Adobe’s engineering teams in designing more innovative capabilities.

Desktop browser market share

Company Browser HTML5 compliance
Microsoft Internet Explorer 9 beta 32%
Microsoft Internet Explorer 8 9%
Microsoft Internet Explorer 7 4%
Microsoft Internet Explorer 6 0%
Mozilla Firefox 4 beta 5 68%
Mozilla Firefox 3.6 46%
Mozilla Firefox 3.5 42%
Google Chrome v6 72%
Apple Safari v5 69%
Opera Opera browser v10 53%

Figure: Desktop web browsers users share and level of HTML5 compliance
(sources: wikipedia and test conducted with https://www.html5test.com)

Reality check: comparing Flash and HTML5 in key areas
So how is Flash vs HTML5 faring today? For review purposes we can single-out a few key areas of Flash and HTML5 competition, specifically display advertising, video delivery, games and application development.

Display Advertising: a slight advantage for Flash
One of the main use cases for Flash (and big source of annoyance to web users) is display advertising. “Display” adverts are animated banners that appear at the top, side or overlaid in front of the web content you. As annoying as they may be, display ads are a necessary evil for the online world since they represent 40% of the revenues that the digital content and e-commerce ecosystems live on. Even Google uses Flash in its DoubleClick Studio rich advert SDK for advertisers.

Some have said that because HTML5 will kill Flash, those annoying ads will disappear. I would rather think that they may be replaced by equivalents designed in HTML5/CSS3, with the caveat that they may look crappier in most of today’s browsers than their Flash counterparts, as can be seen from these examples.

Indeed a point often overlooked is that today’s HTML5 graphical rendering capabilities are at the level of what Flash capabilities were some years ago and CSS3 transforms allowing to design good “eye-candy” are inconsistently supported across browsers. Therefore I would argue that advertisers will hold back from using “HTML5” for display ad creation in the medium term. The lack of proper HTML5/CSS design tools will also delay this technology adoption by design agencies and creative professionals especially within  industry circles where Flash is deeply entrenched.

On mobile devices, the situation will be no different. The blue legos now seen on iPad and iPhones may soon be replaced by HTML5 counterparts; or even by iAds. However, as of today, Apple is the only company creating iAds (in the process levying a hefty ad tax) and is reported to be struggling with the demands of advertisers with its in-house HTML5-based ad creation tools and technologies.

Video Delivery: advantage for Flash
Another area in which “HTML5” has been touted a “Flash killer” is online video delivery. Let’s have a look. As far as basic video playback is concerned, Flash and HTML5’s <video> tag provide the same capabilities, so why not ditch Flash and avoid to end users the (relatively minimal) hassle of installing a plugin?

The situation is not as simple as it sounds as the various browser vendors do not yet all support the same video codecs. On one side, Apple and Microsoft are proponents of H.264; Google is pushing its opensource WebM codec (formerly the proprietary VP8 codec that it inherited through the acquisition of On2/Sorenson); and Mozilla and Opera by default supporting the free and opensource Ogg Theora.

This poses a challenge to online video publishers like YouTube since they then have to re-encode their content multiple times to support each codec.

To end users, this means that videos may not be available in the format supported by their browser. Flash on the other hand, even though it requires videos to be packaged in the FLV container format (not to be confused with encodings like H.264), is available across all desktop browsers and is used as a reliable fallback by “HTML5” web developers i.e. for the 50% or so of IE end-users whose browser can’t render the <video> tag.

Furthermore, the Flash Player supports advanced capabilities required by online publishers such as DRM protection (crucial for pay-per-view business models) and picture-in-picture overlay of multiple video sources with alpha-blending (e.g. for e-learning or overlay of contextual adverts). These capabilities may not be offered for years with the <video> tag in HTML5 browsers.

Casual Games and Visualizations
Flash is the technology that powers some massively popular “casual games” (such as Zynga‘s Farmville or Mafia Wars) played by millions of Facebook users worldwide. It also powers numerous other Facebook applications. There was earlier this year a rumor that Zynga was converting its titles to HTML5 to be able to run on the iPhone and iPad. This turned out not to be true, as it announced at Apple’s WWDC that it had ported Farmville to the iPhone as a native app; which may be interpreted as a sign that “HTML5” was not up to the task.

farmville.320x480-75 Another area in which today Flash is massively popular is that of visualizations and generative art. There is a large and enthusiastic community that has turned Flash animation into a true art form. Artists like Erik Natzke or Yugo Nakamura (of the Tha agency) are prominent examples of this community. To date, I have not seen any such artistic usage of “HTML5” technologies.

Other “HTML5” demos that have received a lot of media attention are Google’s “bubbles” doodle earlier this month, its experiment with Arcade Fire or a port of Quake to JavaScript using GWT. However, I do not yet see casual games developers or visualization artists migrating “en masse” away from Flash. This may be explained by the fact that those experiments in “HTML5” remain CPU-intensive and RAM-hungry (more than Flash in most cases), while designer-grade tools are lacking, and the fragmentation between browsers makes Flash a lot more dependable.

Applications Development: a draw
Web app development is another technology domain where the HTML5 family of technologies has been contending with Flash.

We have seen earlier that “HTML5” provides most core capabilities needed to run local applications, including code execution, storage and access to the screen. These core capabilities are now complemented by a flurry of web application frameworks that rely on JavaScript / CSS: DoJo, JQuery, MooTools and Sproutcore, to name a few. Google’s Web Toolkit (GWT) represents a particular case since it is a framework + tools package that allows to code a web application in Java and convert it to JavaScript for execution in the browsers (note how Gmail, Buzzz and other Google apps are built with GWT).

More recently, these frameworks have been forked into mobile variants: JQuery Mobile, Sproutcore Touch and Sencha Touch. Sendra is actually a case in point: the developer company raised $14 million in venture capital, a testament to the significant size of the business opportunity, and has jokingly proclaimed “The End Of Native” (see photo).

This abundance of JavaScript frameworks may be encouraging, but also represents a dizzying array of choices for the developer. This diversity limits the degree of industry-wide code reusability and fragments the pool of Javascript app developers into vertical niches.

This diversity further plays in favour of Adobe’s own web applications platform AIR (a sibling to the Flash Player) and the associated Flex framework, which uses the Actionscript programming language and allows XML-driven UI design through its MXML language.

In my own experience, seasoned developers find ActionScript and MXML a much better programming paradigm than Javascript frameworks in most developer aspects; code reuse, team productivity, tools support, debugging and ease of UI design.

In conclusion, the momentum behind web applications thanks to “HTML5”’s core capabilities and associated frameworks may seem unstopable, especially as it is driven by technology behemoths like Google and a large enthusiastic community. However this optimism is mitigated by the lack of developer productivity and the rising popularity of Adobe’s application development technologies.

What of the Future ?
Based on the earlier analysis, Flash is far from dead today. There are many cases in which Flash will continue to offer a better alternative (worst case a very useful fallback) to “HTML5” technologies due to the fragmentation in new web standards browser support.

To the question : “will HTML5 kill Flash?” there is no single answer. It all depends on which use case is considered and in what timescale.

On the desktop front, it is the lack of HTML5 capabilities in IE8/9 and their immaturity in all other browsers, that will secure the future of Flash in the medium term. At the same time, Adobe is under pressure from Microsoft, Google and Apple who are betting huge R&D budgets in the development of HTML5-capable browsers and who should be able to out-innovate Adobe in the longer term.

On mobile, the Flash Player is still in its infancy, while WebKit-based browsers are sharply rising towards ubiquity (250 million and counting as of end 2009). This gives the “HTML5 camp” an edge today, especially in the area of basic video playback and mobile web applications for which numerous JavaScript/CSS3 mobile frameworks are available. Looking forward however, Flash may still better HTML5 on mobile for use cases like casual games and animated graphics given its greater dependability and its widespread usage today in those communities.

Where would you place *your* bet?

– Guilhem

[Guilhem Ensuque is Director of Product Marketing at OpenPlug. He has more than twelve years of experience in the areas of mobile software and mobile telecoms. Guilhem was a speaker at last year’s Adobe MAX conference. His favorite pastimes (beyond mobile software strategy!) include making his baby daughter smile and sailing his Hobie Cat with his girlfriend. You should follow Guilhem on twitter @gensuque_op]

The recipe for a successful mobile strategy for your brand

[Most major companies have tried engaging their customers through their mobile phones, but not everyone has succeeded. Guest author Guillaume Arth talks mobile brand experience and identifies the steps towards developing a successful mobile strategy]

Creating the right mobile strategy for your brand

‘Get into their pockets and you’ll get into their minds’ could be the slogan soon underpinning any new marketing manifesto. Indeed, mobile commerce has become core to the strategy of mainstream brands as it empowers new forms of customer engagement.

Mega brands like eBay have taken strides in mobile as an extension of their online presence through mobile websites and applications. eBay’s  iPhone app has already been downloaded 11 million times. The online auction giant expects to make $1.5 billion from mobile this year compared to $600 million in 2009. Retailer brands like Best Buy use apps to offer specific promotions or gifts in the process learning a lot more about customers.

Interestingly, traditional media have been quicker to adopt a mobile strategy as many advertising budgets are moving online. Since this summer, the Wall Street Journal, The Times, and Wired magazine (to name a few) have all launched iPad apps signaling a shift in premium print media. Similarly, TV channels like MTV are also embracing interactive, social apps, either designed as companion apps or offline versions of TV content. As reported by Advertising Age recently, brands like MTV  “focus on two approaches to its iOS apps: first, co-viewing apps that capture the social-media chatter around TV and awards shows and second, apps for video on the go”.

Moreover, borrowing lessons from Foursquare and Gowalla new types of apps allow you to ‘check in’ to TV shows and movies. A good example of that is the TV chatter app, which enables users to do their own programming and interact with Twitter live streams and post their own.

However promising these developments might be we will have to wait another 12 to 18 months to see whether print and broadcast media can truly leverage on mobile.

Getting your brand experience right

Through their scale and prolonged web presence EBay and Best Buy have successfully faced the challenge of multi-channel integration as well as getting visibility and ‘placement’ of their mobile commerce apps on stores.  For these reasons they still remain exceptions. As a mobile gaming exec put it to me recently, ‘you have to be at least in the top 100 apps on iTunes if you want to make any kind of money. You have to market yourself in a way that can create actual retention, not just hype at the back of a free app’.

Indeed, some free apps may enjoy good download stats but those don’t necessarily translate into good reviews and recurring users as the Gucci app recently showed.

Some brand strategists argue that it is still ‘early days’ and that a ‘wait-n-see approach’ is more sensible; after all market penetration of higher-end devices like the iPhone and Android-based handsets is still only around 5% of devices sold worldwide in H1 2010. However this figure hides that we are in fact talking about high value, high ARPU customers with the biggest propensity to actually try out a branded mobile app. Additionally with more 150 million smartphones sold we have passed the point of only talking about early adopters. This is now a mass-market phenomenon, which has opened up new and more direct routes to consumers for brands.

So how should a brand go about developing a mobile strategy?

Before enlisting a highly paid musician to create a DJ-like app experience or hiring a top-notch programmer to start churning out software code, it is important to consider what factors make some apps successful and other mediocre:

Firstly, understanding users. A successful app will capture the imagination by being relevant, useful and delightful. Indeed users are prone to quickly veer off to something else in disappointment so understanding what makes them tick is important. After all your brand is trying to take a piece of someone’s busy schedule. Hence pilot first and then scale appropriately. One can draw lessons from successful games that offer a basic, yet addictive experience which is then enhanced with a bigger feature set at a 2nd stage. Then it becomes easier to convince existing users to come back and possibly pay a small premium (a good example of that is ‘Hungry Shark’ part 1 and 2 by Future games of London.)

Secondly, a deep understanding of mobile as a medium is essential. No matter how amazing your ideas may be, it is worth keeping in mind that mobile is a tactile, impulsive and intimate medium that doesn’t tolerate too much ‘fuzzing’:  basically users need ‘to get it’ in a matter of seconds and… it needs to work! Taking the brand’s website content and ‘over-specifying’ an app is likely to fail. One can think of the 2010 Roland Garros app whose flawed design, and overly complex feature set probably didn’t achieve much for the tennis brand. Here is a prime example of how a flawed approach to an app can possibly damage a great brand especially when competitors or peers (the other Grand Slam tournaments in this case) have done a much better job.

Based on good design guidelines, a mobile app should aim at creating a brand narrative that will work in the mobile context rather than throwing ill-conceived ‘marketing junk’ as one can often read in app reviews. App marketing can be a double-edged sword and because of its immediacy and interactivity, brands must have their ears on the ground, learn and react quickly ensuring negative feedback doesn’t spiral out of control.

Thirdly, having a longer-term app roadmap where the mobile brand extension evolves and engages with its customers. The mobile app roadmap should grow gradually and elegantly, adding features and customer engagement opportunities on the way. Brands can build more loyalty by letting their essence shine through the simplicity of its mobile incarnation.

Last but not least: pricing. One million free downloads equals to zero direct revenue and too many apps are free making it difficult to solicit direct revenues through branded apps. But revenue shouldn’t be the only goal of a brand-extension strategy; the main goal should be engagement. After all, who would be willing pay for ‘walking into a shop’? One shouldn’t repeat the same mistake as mobile operators portals have done with charging users for just browsing. Providing a ‘free-entry’ experience is an important consideration which can then be followed by a premium (paid-for) experience.

Sowing the seeds for deeper customer engagements

With mobile, brands can equip themselves with a powerful and interactive marketing platform that forms a key pillar of a ‘multi-touch’, digital media presence. The entry of brands into the mobile domain is being encouraged by four recent developments:

1. A new breed of mobile natives who have greater access, understanding and trust in the mobile medium as a more personal and less ‘mediated’ experience for shopping or entertainment

2. Devices evolve at a very fast pace.  Thanks to the widespread support of XHML/HTML, Java script and CSS, (More than 250m devices now feature the open-source WebKit browser engine, as seen in the 100 Million Club) and greater set of APIs, devices offer richer media experiences: audio, picture, video, social, messaging, location…and the list goes on.

3. The greater availability and affordability of cloud-based technology open source APIs, as well as packaging and rendering solutions for mobile websites, allow new entrants – like brands – in the market (‘BK Render’, a mobile rendering solution from french start-up Backelite is a good example there)

4. The accelerated development of mobile transactions from operator billing to bar coding, I-Tunes, Google checkout, PayPal, NFC and others.

‘Convergence marketing’ is the new frontier

At the core of the ‘new mobile economics’ brands and service providers are increasingly empowered to create new experiences and new business models. With the caveat that there is no current “write once, run anywhere”, I argue that brands are better positioned than ever to work around consumer and platform fragmentation through ‘convergent positioning and marketing’. Essentially rather than feeling daunted by technology, it is about looking at what the brand is trying to communicate and push a consistent message across to all users whatever digital medium they are using.

Users. Where are they? They are everywhere and ‘ubiquity’ is their destination.  The user journey starts with a phone in each pocket, device connectivity and grows to digital ecosystems spanning across tablet computers, laptops desktops, TVs and many more places tomorrow. This creates a connected environment of opportunities for brands to express and market themselves in new ways, with social apps and blogging leading the way. Costs and barriers to entry to digital are lowering and marketing and retailing of digital goods is becoming mainstream.

Further down this new crowded high street, Apple, Google, Samsung and to an extent LG and Sony are embroiled in the battle to conquer our living rooms with internet TV services, through VOD, apps and widgets.  At present, joint communications and Internet TV services are mostly ‘beta’ services on trial with operators including Verizon (US), Sonaecom (Portugal) or KT(South Korea). Orange recently signed a partnership with LG, where Orange provides billing and customer care while LG provides IPTV services.

There are also handset apps that act as a remote control – Free.fr in France for example (Free.fr app) – signaling that mobile might take over as the ultimate ‘EPG’ (electronic Programming guide). Currently 10-20% of IPTVs are connected to a broadband going up to 50% with higher broadband penetration. Samsung expects to sell 35 million TVs globally in 2010. In comparison, it took Microsoft 3 years to sell as many Xbox units. As TV remains the most popular consumer electronics device in the home this presents significant opportunities for any IP-based service or a brand looking to market itself through digital. With an installed base of millions it is only a matter of time before mobile app stores users are migrated to the big screen.

Apps and mobile services are good place to start for any brand but as we have discussed it is only the beginning. For instance, Nokia recently argued that ‘context devices, rather the apps, will be where the money is’.

With the digital switch over completed in most developed markets by 2012, ‘Convergent marketing campaigns’ will soon become a reality. Of course being successful will require adjustments and some juggling with technology but I believe that within 18 months, brands, service providers and advertisers will be at the intersection of a bigger phenomenon than the app stores as digital grows exponentially.

Now is the time for any brand to plan and leverage on those exciting developments and – through deeper customer engagement – turn new experiences into new revenue streams.

Guillaume.

[Guillaume Arth is a mobile media consultant based in London, UK. With more than 10 years of experience in this space, he currently specialises in service strategy, sales and marketing advising large and small organizations. You can contact Guillaume at: g /at/ cozmopolitanmedia.com or you can follow him on Twitter @cozmedia]

Is Android Evil?

[Is Android really open? Research Director Andreas Constantinou uncovers the many control points behind Android and explains why Android might be the most closed system in the history of open source].
The article is also available in Chinese and
Greek.

You thought Android was open? The Android governance model consists of an elaborate set of control points that allows Google to bundle its own services and control the exact software and hardware make-up on every handset. All this while touting the openness rhetoric that is founded on the Apache permissive license used in the Android SDK.

[updated in response to reader comments]: Whereas Android is completely open for the software developer ecosystem, it’s completely closed for the handset OEM (pre-load) ecosystem. There is no other platform which is so asymmetrical in terms of its governance structures.

Indeed, Google’s mobile platform is the smartest implementation of open source designed for driving commercial agendas. But before we dig into why, it’s worth discussing why Android’s success has very little to do with open source.

What makes Android tick
Despite early skepticism, Google’s Android operating system has been unequivocally supported by the mobile industry, including more network operators and handset manufacturers than one can count – with the stubborn exception of Nokia. Android managed to ramp from 1 handset model in 2008 to 50+ models announced for 2010 launch, leaving most industry observers in awe.

The Android success has nothing to do with open source; it’s owed to three key factors:

Apple. As strange as it might seem, Android owes much of its success to one of its arch-rivals. Let me explain. With the unprecedented success of the iPhone and the take-it-or-leave-it terms dictated by Apple to network operators, the carriers have been eagerly looking for cheaper alternatives; as such the tier-1 operators have been embarking on Android projects to produce iPhones for people who can’t afford the iPhone and more importantly, without forking out the 300EUR+ subsidy needed to remain competitive in an iPhone market.

Network operators/carriers around the world are eager to differentiate. Android provides the allure of a unified software platform supporting operator differentiation at a low cost (3 months instead of 12+ months offered by SavaJe, which was also aimed at the MNO customisation market). For larger operators with a software strategy, Android also presents a safe investment, as the mainstream option for bringing down the cost of smartphones. That’s why most Android handset projects are backed by a commercial bipoles of operator + OEM deals, with purchase commitments and NRE fees coming from the operator.

Qualcomm. The $10B chipset vendor has been paramount to Android’s ramp up; manufacturers can take Qualcomm’s hardware reference design which is pre-integrated with Android and can go to market within an estimated 9-12 months (down from 16 months for the Motorola Cliq handset and 24+ months for the HTC G1). Besides Qualcomm we should also mention TI’s OMAP3 platform (on which Moto Droid is based) and ST Ericsson and Broadcom who are ramping up to offer chipsets with out-of-the-box support for Android.

In other words, in an Android handset, most of the OEM budget goes into differentiation; compare that to Symbian where most of the OEM budget goes into baseporting (radio and functional integration of hardware) due to historical choices made by Symbian in 2001. All-in-all, Android allows OEMs to reduce their R&D budgets and invest in differentiation, which is mana from heaven to manufacturers.

We should also not forget the ‘free factor’ (technically zero per-unit royalties for the public SDK) which stirred the emotional hype around Android handsets.

All in all, the ‘open source’ marketing moniker has been very successful at triggering major industry disruption – incl. Nokia ‘s acquisition of Symbian and the derailment of Windows Mobile. Perhaps more importantly, the openness rhetoric and the Google aura has attracted thousands of developers on the platform, at a time when the money equation is sub-par; consider that – compared to the Apple devices – Android handsets are around 9x less in volume and paid-for apps are available in 6x fewer countries.

Behind the Open Source facade
What’s even more fascinating is how closed Android is, despite Google’s old do-no-evil don’t be evil mantra and the permissive Apache 2 license which Android SDK source code is under. Paraphrasing a famous line from Henry Ford’s book on the Model-T, anyone can have Android in their own colour as long as it’s black. Android is the best example of how a company can use open source to build up interest and community participation, while running a very tight commercial model. [updated in response to reader comments:] Again I ‘ll emphasize that the closed aspects of Android apply to the handset OEM (pre-load) ecosystem, not the software developer (post-load) ecosystem (see the comments section for a deep dive into pre-load vs post-load].

How does Google control what services, software and hardware ships in Android handsets? The search giant has built an elaborate system of control points around Android handsets.

To dig deeper we spent two months talking to industry sources close to Android commercials – and the reality has been startling. From a high level, Google uses 8 control points to manage the make-up of Android handsets:

1. Private branches. There are multiple, private codelines available to selected partners (typically the OEM working on an Android project) on a need-to-know basis only. The private codelines are an estimated 6+ months ahead of the public SDK and therefore essential for an OEM to stay competitive. The main motivation for the public SDK and source code is to introduce the latest features (those stemming from private branches) into third party apps.

2.  Closed review process. All code reviewers work for Google, meaning that Google is the only authority that can accept or reject a code submission from the community. There is also a rampant NIH (not invented here) culture inside Google that assumes code written by Googlers is second to none. Ask anyone who’s tried to contribute a patch to Android and you hear the same story: very few contributions get in and often no reason is offered on rejection.

3. Speed of evolution. Google innovates the Android platform at a speed that’s unprecedented for the mobile industry, releasing 4 major updates (1.6  to 2.1) in 18 months. OEMs wanting to build on Android have no choice but to stay close to Google so as not to lose on new features/bug fixes released. The Nexus One, Motorola Droid, HTC G1 and other Experience handsets serve the purpose of innovation testbeds for Google.

4. Incomplete software. The public SDK source code is by no means sufficient to build a handset. Key building blocks missing are radio integration, international language packs, operator packs – and of course Google’s closed source apps like Market, Gmail and GTalk. There are a few custom ROM builders with a full Android stack like the Cyanogen distribution, but these use binaries that are not licensed for distribution in commercial handsets.

5. Gated developer community. Android Market is the exclusive distribution and discovery channel for the 40,000+ apps created by developers; and is available to phone manufacturers on separate agreement. This is one of the strongest control points as no OEM would dare produce a handset that doesn’t tap into the Android Market (perhaps with the exception of DECT phones, picture frames, in-car terminals or other exotic uses of Android). However, one should acknowledge that Android’s acceptance process for Market apps is liberal as it gets – and the complete antithesis of the Apple vetting process for apps.

6. Anti-fragmentation agreement. Little is known about the anti-fragmentation agreement signed by OHA members but we understand it’s a commitment to not release handsets which are not CTS compliant (more on CTS later).

7. Private roadmap. The visibility offered into Android’s roadmap is pathetic. At the time of writing, the roadmap published publicly is a year out of date (Q1 2009). To get a sneak peak into the private roadmap you need Google’s blessing.

8. Android trademark. Google holds the trademark to the Android name; as a manufacturer you can only leverage on the Android branding with approval from Google, much like how you need Sun’s approval to claim your handset is Java-powered.

In short, it’s either the Google way or the highway. If you want to branch off Android you ‘re completely on your own and you need resources of the size of China Mobile (see their OMS effort) to make it viable (hint: China Mobile is the biggest network operator bar none).

The Open Handset Alliance is another myth; since Google managed to attract sufficient industry interest in 2008, the OHA is simply a set of signatures with membership serving only as a VIP Club badge.

Another big chapter in the Android saga is the CTS (compatibility test suite) which is the formal testing process by which a handset passes Google requirements. According to our sources, CTS extends significantly beyond API compliance, and into performance testing, hardware features, device design, UI specs and bundled services. CTS is based on the principle of ensuring baseline compliance, so it’s ok to add features, but it’s not ok to detract; compare this with Apple’s no-Flash policy. Note that beyond CTS compliance, there are additional commercial licensing agreements that OEMs have to sign for Google services and private line access.

CTS hampers Android’s progress as well, as it precludes OEMs from creating stripped-down versions of Android that would fit on mass-market phones – those shipping in the 10s of millions. CTS – and forward compatibility to the pool of 40,000+ apps – is Google’s main challenge for hitting a 2-digit market share in the smartphone market. These restrictions – and frienemy relationship between Google and its OEM partners – have stirred up discussions of an ‘Android foundation‘ within OEM circles

The Google Endgame
With Android, Google aims to deliver a consistent platform to its own revenue-generating services. For now, this is the ad business. But in the future, Google is aiming at voice (reaching the billions who don’t have a data connection) and Checkout (i.e. becoming the Visa of mobile).

Yet whatever the endgame, it’s worth realising that [from the manufacturer perspective] Android is no more open – and no less closed – than [licensable operating systems like] Windows Mobile, Apple OSX or PalmOS, Symbian and BREW; it’s the smartest implementation of open source aimed at driving commercial agendas. Android is much less about the do-no-evil rhetoric that the PR spinners in Mountain View would like us to think.

[Updated in response to readers’ comments:] so, is Android evil? No, it isn’t. It has done no harm – quite the contrary, Android has boosted the level of innovation on mobile software. The point of the article is not to vilify Google or concoct visions of Darth Vader; but to balance the level of openness hysteria with a reality check on the commercial dynamics of mobile open source.

– Andreas
you should follow me on twitter: @andreascon

[we are running on-site business workshops for companies who want to understand the commercials behind Android and OHA. Contact us if you ‘re interested. Or, if you are a mobile developer, voice out your views on Android and other mobile platforms in the biggest mobile developer survey to date. Join in at visionmobile.com/developers]

Why Mobile Operators have a crucial role to play in the second wave of “smart” apps

[Just how smart can mobile apps get? Guest author James Parton explains why most apps today are pretty much dumb, just scratching the surface of what could be possible and describes how mobile operators can help power the next-generation of smarter, context aware applications]

The noise level around Apps and App Stores has reached saturation point. Every day a new launch, a new report, or a new statistic hits the newswires.

We have passed the point where there are now more people accessing the internet via a mobile device than via a PC, overall revenue from mobile apps (including ads, payments, and in-app transactions) is expected to grow to $17.5 billion in 2012 from $4.1 billion today, the iTunes store has delivered more than 3 billion downloads, 22 apps are downloaded per second from Nokia’s Ovi store, there are more than 30,000 Apps available in the Android store… you get the idea…

There can be no doubt that the explosion of interest around the App ecosystem brought home just how important mobile will be as a future content delivery channel, typified by the increasing number of Apps being produced by leading brands. No digital marketer worth their salt would now neglect having an app story in their digital marketing plan, even if in all honesty some are not quite sure why!

However, make no mistake that we are still firmly in the realms of a version 1.0 ecosystem. The App retail delivery platforms are still very basic; in fact they have not yet significantly evolved in terms of features and capabilities from the content delivery platforms that were offering mobile games, wallpapers and ringtones at the beginning of the decade.

The Apps themselves are clearly “dumb”. What do I mean by “dumb?” The vast majority of today’s App’s sit on the customer’s handset and have no understanding, or appreciation of its context or the person using it. Yes, increasing numbers of Apps are using location to introduce geographic context, but that is hardly pushing the boundaries of the art of the possible.

To take the App ecosystem to version 2.0, Apps have to become “smart”. I believe this is where Mobile Operators finally have a key role to play in the progression of the App ecosystem.

Of course this role is not a divine right. The Mobile Operators need to go through considerable change in order to be able to contribute effectively. That change is both technological: opening up “smart enablers” to allow developers to easily consume these capabilities, and secondly: culturally – to embrace the independent developer community and relax their traditional command and control philosophy for mutual gain.

So what does a “smart app” look like?
Well consider today’s customer experience. You run an app and it is a one size fits all experience i.e. the app behaves exactly the same way for every one of its users, regardless of who they are, and how they are using it. Imagine a “smart” app that could customise the user experience based on intelligent, real time, information delivered from the Mobile Operator.

Examples of Mobile Operator unique enhancements to the customer experience could include:

  • On the fly customisation of the App UI based on a detailed understanding of the device currently being used. Remember that increasing numbers of customers are SIM swapping. How do you know that a customer using your service on a Monday via an iPhone is now using your service on a Tuesday using the same SIM in a 3G dongle connected to a Netbook?
  • On the fly customisation of content richness based on knowledge of the users  current connection speed (e.g. 2.5g, 3G, WiFi). For example trying to force rich video content to a customer on a slower 2.5G data connection will probably deliver such a poor customer experience they will never use your app again. If you know in real time their connection speed, you can deliver the most appropriate experience.
  • Personalisation of content and configuration of your App UI based on user demographics (gender, age, location, social economic profile, etc)
  • Targeting & profiling of the audience based on segmentation information e.g. travel profile (stationary, commuter, jet-setter), spend segment (>€100 per month, €50-100 per month, €30-50, etc).
  • Micro billing to the customer’s mobile bill or debits from their pre pay balance at VISA like transactions rates.
  • In-App interactivity via messaging or calling
  • Up -selling the customer from a basic service to a premium guaranteed service (for example low ping rate for multiplayer gaming apps).
  • Then for the owner of the App, post usage analytics providing data like who, where, how long their users are consuming their services, and other customers of the Mobile Operator that match their current users profile, who could be targeted by a marketing campaign.

Examples of the enablers that Mobile Operators could deploy include; quality of service, billing, handset information, customer analytics, network traffic analytics, messaging, call management, location, age verification, tariff information. The list can go on and on, and in fact in our own planning sessions we have identified over 50 potential enablers.

This is a more intelligent way of developing not only the App, but also the business opportunity. Via the Network Operators turning their network infrastructure and assets into a plug and play platform, Mobile Operators become vital in the creation process of the second wave of ‘intelligent’ apps that can deliver far richer experiences for users which will drive adoption, longevity, and profitability.

Evangelisation and education on the benefits of creating “smart” Apps is crucial – this won’t just happen by itself. We are at the start of the process, and many companies are only now trying to get to grips with their App 1.0 strategy.

To ensure Mobile Operators both identify and capitalise on the opportunity to become relevant in the App ecosystem, it is vital they adopt an open and transparent approach. Therefore there cannot be enough effort to bring together the various players in the App ecosystem to share thinking, create strategy and influence product roadmaps, and marketing plans.

A great example of this is the Mobile Entertainment Forums Smart Enabler Initiative. I’d strongly recommend you check it out and get involved.

Critically the experiences and enablers I have described here are not commercial reality today. Talking and listening to developers will be essential to ensure that the Mobile Operators invest in the right technology enablers and introduce compelling business models to encourage their adoption.

Of course enablers are just one piece of a complex App ecosystem. There are many other challenges that hinder unlocking the full commercial value of the market place, not least the fragmentation and choices available to developers at the handset Operating System level. However, our approach is the same: dialogue and insight.

That is exactly why O2 Litmus has partnered with VisionMobile to undertake the largest developer research to date. We’re encouraging all mobile developers to participate, and we look forward to sharing the results with you all.

Have your say at visionmobile.com/developers.

I’d welcome your thoughts on both this piece and some key questions it poses:

  • Have you used a Mobile Operator enabler? What was the experience like?
  • What enablers do you need to make your App “smart”?
  • How can we effectively spread this message?

James Parton
Head of O2 Litmus
You should follow me 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.]