The app store battle

Mobile operators all over the world have been facing declining average revenues per user; commoditisation of voice services; and congestion of their network due to intensive data usage, and thus have been propounding a self-defeating tirade against net neutrality proponents such as Internet content providers on the need to prioritise and restrict mobile data through their networks. Even in bandwidth-deprived India, public Wi-Fi hot spots are coming up, such as the recent initiatives to connect Bangalore city, as alternatives to the 3Gs and 4Gs of the telcos. However, for the first time, in the recently concluded Mobile World Congress held in Barcelona, there is a semblance of hope from the mobile operators on how they plan to attack the Internet giants.

While Google and Apple have been highly successfully in monetising the value of broadband connectivity through their innovative applications, the operators so far have been unsuccessful in getting true value for the network they deployed. One of the reasons for this is their inability to go beyond being a simple bandwidth provider to providing value enhancing applications and content, which is the characteristic of the two-sided broadband market (2SM).

In a typical 2SM, there are two sets of users who complement each other's usage, thereby increasing the network effect for enhanced value for both. In the smartphone and broadband market, the users of the mobile device on one side and the application developers on the other side create strong cross-side network effects to complement each other. One cannot exist without the other. The platforms that provide the glue for these two sets of users to interact are particularly important in this context. Success of the platform depends on the number of users on each side and the usage across them.

Google and Apple understood the above paradigm very well and exploited the cross side network effect that binds the users and app developers to garner victory. Despite repeated attempts by mobile operators to replicate this using their version of the app market, no breakthroughs have been made thus far.

However, in recent times, the GSM Association (GSMA - the largest professional body supported by the mobile operators worldwide) has started several initiatives, of which the GSM OneAPI (http://www.gsma.com/oneapi/) deserves a special mention. The OneAPI initiative is aimed at providing a standardised platform with APIs (i.e., Application Program Interfaces through which applications can be glued in) on which the rich data that exists with the operators such as location, subscriber plan and network status can be made available to applications. It provides a new avenue for applications developers to develop a set of rich applications that use these data and operator network capabilities and intelligence to provide enhanced user experience. Moreover, since this is an industry-wide initiative, as more operators embrace OneAPI, interoperability increases and hence provides an opportunity for the developer community to build innovative applications that are seamless across networks, geographies, and operators. Operators such as AT&T, Deutsche Telekom, Orange, Telefonica and Vodafone have been actively deploying and promoting OneAPI apart from participating in the OneAPI's Exchange solution for federating network APIs, which introduces a flexible solution for both operators and developers to integrate applications into their networks.

So what's the catch? The catch as usual is that the OneAPI platform is being implemented on the operator's network, thus giving the last-mile power back to the operator. The operator, as is expected, would want a share of the mobile app usage charges in return for making available their network internals. The OneAPI also vertically integrates to some extent applications to the operators' network, thus providing control to the operator regarding its usage.

As we have seen in the 2G era, in India and other countries (with the exceptions of Japan and Korea), operators had tight control over their revenue-sharing model and hence squeezed the Value Added Service (VAS) and content providers, much to their chagrin. When broadband arrived, thanks to Internet-based app stores and the liberal revenue-sharing model of Internet companies, the developer community flocked to build millions of applications, thus bringing in a revolution of sorts in the smartphone and broadband market place.

Internet companies also developed varied pricing models based on usage of the app/API created by the developers. The more the app is used, the more revenue is collected and distributed. However, threshold pricing should be carefully determined so that it generates enough margin for all stakeholders, but not high enough to ward off users.

This time around, having learnt their lessons, one hopes operators will not frighten the developer community, and nurture them instead of squeezing them in the OneAPI initiative implementation. In a recent interview, Apple's CEO divulged that it had paid $8 billion to developers so far. Though data shows that in India the operators earned about Rs 8,000 crore through caller tone services in the past three years, how much of it has gone to content developers and aggregators is a mystery.

There is money to be made and distributed by telcos, provided that they understand the new model of content and app pricing. Only then will there be incentives for the developer community to actively look at the OneAPI platform for their work, compared to their positioning in existing app stores.

In India, we have seen that operators' proprietary application platforms had only limited success. It is time that Indian operators also actively adopt the OneAPI initiative and provide a much-needed push to India's developer ecosystem.

The writers are at Sasken Communication Technologies