Mobile industry probably has one of the most extensive ecosystems. Ecosystem is the set of players who come together to deliver the experience or product to consumer in any industry. The mobile industry has been expanding its scope and hence the number of ecosystem players. Typically, the key actors in the value chain are operators, handset vendors, content owners, developers, publishers, aggregators, content distributors, advertising platform owners, advertisers, mobile platform owners and regulators.
So far, the industry developed in a way that the control over the value chain was that of a mobile operator as in the past, the mobile operator took the onus of taking all the risks in delivering mobile services to the consumer. The other players in the ecosystem could not develop the direct relationship with the consumers as either they were risk averse or the nature of business was such that the direct relationship was not feasible. The situation in the adjacent computer industry is entirely different as the standards are open with unrestricted access to internet.
Open is probably the most abused and confused term in the glossary of mobile phones. Through this post, I am attempting to clearly explain what all is within the scope of open mobile ecosystem.
What is an Open Mobile Ecosystem?
An open mobile ecosystem allows a consumer to access any application and content on a device of its choice without binding them to any single network. The following are the necessary conditions for the open ecosystem:
- Open and interoperable Standards – This allows larger participation of the ecosystem players that eventually leads to economies of scale.
- Openness in network access – This means that the operators and other players should facilitate unrestricted access to internet and services. Operators sometimes block certain sites to increase the download from their portals. This is contrary to an open environment philosophy and it may ultimately hurt the operator itself as it may lead to lower access charges. All sites should enjoy similar access rights as that of operator’s portal
- Level playing field for all stake holders – this means that the IPR terms should be fair and reasonable for all the players. The main reason for the slow growth of CDMA in comparison to GSM was the unfair IPR related royalties levied by Qualcomm
- No preferential distribution mechanism – The distribution models should evolve from consumer needs rather than the need of the dominant player of the ecosystem
- Impartial regulatory environment that facilitates fair and sufficient competition
- No SIM Lock or network lock – Consumers should be able to use the device of their choice across operators. This means that even a Verizon customer in US should be able to own and use an iPhone
- Open network APIs – Carriers should share the network APIs with developers to facilitate application development including location based services
What are the drivers for an Open Mobile Ecosystem?
The communications industry is experiencing unprecedented change. The figure below from Cap Gemini TME lab shows that the initiatives that have been taken by various players suggest that the ecosystem is likely to undergo a huge transformation. The pace of these changes has been steadily increasing as more players embrace the philosophy of opening up networks and access.
The situation in the mobile ecosystem is fast changing due to following key drivers
- Changing Business Models – The mobile operating systems are getting open source led by Android and Symbian. The handset vendors like Nokia have the ambition of getting into internet services and actions of Apple and Google have strengthened the hands of developers. The fragmented value chain is getting strength through the services ambitions of handset vendors and internet players. The technological advancements mean that it is now possible to bypass the carriers and with micro-payments becoming a reality, there is absolutely no need for a carrier. All this means that the carriers now are not in a position to maintain closed ecosystem
- New services and applications – The lucrative new services like mobile commerce, ticketing, etc. are forcing the carriers to shift to open ecosystem as these services require open platforms and interoperability
- Increasing consumer demands – iPhone effect has led to consumers becoming far more discriminating about their services and devices, user experience trumps technology and price as the key driver behind purchase and adoption. Increasing device capability is certainly a key driver for open mobile ecosystem adoption
- Network investments to flatten as the IP backhaul cost per MB reduces when the industry moves from 2G/ 3G (TDM networks) to IP based LTE networks. The fig below (source: Analysys Mason) shows how the bandwidth availability increases without a proportionate increase in costs.
- Increasing data capacities of networks as the operators move to 3G and 4G have forced the operators to look at increasing internet access revenues. Lower bandwidth cost to consumers means no premium for mobile broadband over fixed broadband can be charged by the operators. Flat rates are being offered to lure consumers who would get excited only if there is unrestricted access to internet
- Operators shifting focus to other computing devices like Mobile Internet Device (MID), Ultra Mobile PC (UMPC), Netbook and tablet PC to increase the capacity utilization of data networks. These devices are closer to computers and hence the consumers of these products demand near PC experience.
It is a common perception that Open Mobile Ecosystem is not in operator’s favor and its adoption would result in revenue loss. But these fears are unfounded as in the long run, the operators would benefit from adoption of open mobile ecosystem. Cap Gemini estimates that a UK mobile operator with a 20 percent market share could see a net revenue uplift of 12 percent by 2001 by adopting the Open Platform strategy.
It is a long journey to full adoption of open mobile ecosystem and is likely to witness a lot of challenges but it is clear that the changing business environment would force the industry to move in this direction.
The Economics of a Mobile Application Store
Business Challenges in Mobile Application Development