Finding Services and Business Models for the Next-Generation Networks

Finding the right services and business models

As described in the previous sections, the telecommunications industry needs to reinvent itself at this point in time to find new ways of maintaining its pre-eminent position in the market.
Now that we have reviewed the technologies and the current state of R&D, it is time to propose a new model, which in the authors’ opinion, should be adopted and used by the industry in the years to come.
Application Stores have shown how the software market for wireless devices can be driven from outside the operators walls and gain a significant market share and the customers attention. Operators have shown little or no reaction to them, because they do not have the right tools to do so, and they have lost their position as the wireless software providers of preference for customers. Some of them have even abandoned the battle and assumed that they will be just data transportation media and make money from this traffic. Others have surrendered to the device manufacturers and integrated their Application Stores into their offers, and got a small portion of the revenues generated.

Fig. 4. Worldwide mobile device market share

Application Stores though, have a severe problem of fragmentation. As of March 2011 the new smartphones represented around 19% of the worldwide wireless devices market OnlineMarketing (2011). Growth is enormous and will continue in the coming years, but many factors point to the fact that smartphones will never take 100% the market. Sales figures point to around 200 million units being sold in 2011 (Celularis, 2011), (Moconews, 2011). But the wireless devices base is around the 5 billion mark. At this pace, it would take 25 years to achieve a full smartphone market. Therefore, and despite all the news coming from the industry, which talks about a smartphone world, the numbers show that this is not the case and there is still a huge market for non-smartphone devices that might shrink with time, but will never go away. Paraphrasing Geoffrey Moore in “Crossing the chasm” (Moore, 1991), the smartphone is a market of an Early Majority nowadays.
Additionally, many smartphone sales are being driven by huge subsidies from the operators, so that the numbers of smartphone sales and adoption are hugely distorted. We should not disregard the fact that although many customers do not really want to own a smartphone, they are not given an alternative. Therefore, what we are actually seeing is the birth of a new mobile consumer specie: the “dumb smartphone user”. This kind of user owns a smartphone but hardly uses any of its advanced features. Besides the basic voice and texting features, they will possibly use e-mail and might access their social networks. But most of them do not seem to be willing to pay for the applications, being entangled with device downloads and technical tweaks.
One of the keys to the huge success of the Application Stores is the third-party developers’ model. Developers have been given a clear model with development tools, certification process and access to an identified market. But again, some obstacles limit this model. First of all, competing against 350,000 applications is a severe problem. Reaching customers is not an obvious task, and a lot of money must be put in applications marketing and promotion, changing the initial low-cost model for a more costly one. Some applications have been a huge worldwide success, Angry Birds being the paradigm of this model as they have sold many millions of applications without any big promotional effort and their developers have become multi-millionaires. But the numbers show that this case is one in a million. The average application developers hardly make any money out of them. For a ten applications set, reports say that 1-2 are successful, 3-4 recover the investment or make some money, and 4-6 just do not make it.
As it can be seen from the figure below, developers wanting to create applications have an additional problem in the market fragmentation due to the presence of multiple operating systems.
Developers wanting to create a service have to choose to which operating system and therefore to which market share they are aiming. Developing multiple versions is an expensive exercise and raises the financial risk of the development. Multiple versions mean multiple developments to create and maintain, almost doubling development costs. Although some companies are creating development frameworks to develop applications that run on any operating system, experts in the field recognize the unfeasibility of the idea, both from a technical and a political point of view. There are some approaches, but the facts suggest that having a unique development that works in any device is just not possible, and will never be. Apple and Google, the main players in the domain will never get to an agreement of a common framework because their interests do not match. Apple especially believes in its own closed market and is not ready to communicate with others. But reaching broader markets is crucial to allow an easier monetisation of the applications.



Fig. 5. App development platforms
We have reached the crucial point of the chapter, which has been the object of the R&D work developed by Almira Labs with the collaboration of the UAM over the last four years. It is: “How do I create a service that I develop once and reaches all or most of customers in the world? How do I overcome the fragmentation problem? Why do I have to choose a closed and limited market? How can I create applications that are useful for anybody regardless of their technical skill, budget, geography, cultural status or personal abilities? How do I overcome the R&D lower budgets in Operators? How do I develop rapidly low- cost services to match Internet industry pace?”
All these points have been addressed and the solutions found are proposed in the next section.

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