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Asymmetry abound: the new rules of the app economy

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Presentation given by Andreas Constantinou - VisionMobile Managing Director - at Mobicamp (

Presentation given by Andreas Constantinou - VisionMobile Managing Director - at Mobicamp (

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    Asymmetry abound: the new rules of the app economy Asymmetry abound: the new rules of the app economy Presentation Transcript

    • Asymmetry abound the new rules of the app economy Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • distilling market noise into market sense MobiCamp 2012 Bern, November 2012 Asymmetry abound Andreas Constantinou Michael Vakulenko Managing Director Strategy Director VisionMobile VisionMobile2 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • VisionMobileDistilling market noise into market sense Developer Economics Telco Economics Trends watch the de-facto research hub for the app New economic thinking for managing Tracking app and developer trends economy disruption and reinventing the Telco Mobile Market Sonar Innovation a quarterly service Developer Economics using big data to research workshop predict app economy reports: how Internet trends measuring business models developer are impacting sentiment on telecoms platforms, regions, revenues and developer tools Mobile Insider Mobile Mobile Insider is Megatrends a monthly workshop Developer publication that Public workshops outreach & examines the on the stage of the segmentation: most important mobile ecosystem understand, trends in mobile segment and effectively reach developers Top-100 analyst blog 4,000+ subscribers 20,000+ monthly uniques App ecosystems: Research and analysis on the state of the app economy Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Trusted by industry brands Clients selected VisionMobile clients 2009-20124 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Are you tweeting? @visionmobile5 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • asymmetry #1: apps are the tip of the iceberg6 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • What is the nature of disruption in mobile?Is it just about apps and over-the-top players? Apps Over-the-top players Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • The industry structure in mobile changedfrom integrated to modular value chain 2000’s today closed open terminalsdistribution telcos ecosystems discovery on deck app store or bundled on device innovation 100s 100,00s pool of system integrators of developers value chain integrated modular services integrated with networks services independent of networks Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • The basis of competition in mobile changed and with it has brought asymmetric business models 2000’s today user needs addressed 4 apps 650,000+ apps (voice, text, contacts, camera) (app store and web browser) telco services differentiated commodity (voice, text, access, VAS) (compete on performance) (compete on price) basis of reliability & scale choice & flexibility competition business buy-sell asymmetric core vs complement models (standard merchand model)9 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Asymmetry #2: Competition is not for profits10 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Are these players competing? B2B sales model productivity software on-line ads product transaction model subscription on-line retail devices OS devices telecom services B2C11 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • They not competing in terms of profitsPlayers old and new are battling for control of end-to-end value chain Apps Content Services Ads Ads App Stores / Portals Distribution Billing Telephony Connectivity Access Network access software Software platform licensing Screen Devices Devices retailing Discovery / retailing User Customer insights denotes vendor s core business noted. Copyright VisionMobile 2012 Source: VisionMobile, unless otherwise
    • CC Attribution: Maschinenraum Asymmetry #3: Profit haves vs have nots13 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Smartphones reached 40% sales share in Q2 2012483M units shipped worldwideSmartphone shipments as a % of total handset shipments Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • An ecosystem-led phone industry15 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Apple and Samsung grab profits and revenues in the smartphone business16 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Depriving the handset industry of oxygenand changing the rules of profitability 100%# Commodity modular 90%# market 80%# LG# 70%# Sony#Ericsson# RIM# 60%# Motorola# 50%# Integrated HTC# from metal Nokia# 40%# to cloud Apple# 30%# Samsung# 20%# Integrated across 10%# handset BoM 0%# 2007# 2008# 2009# 2010# 2011# 2012# Share of profits across top-8 handset vendors. Source: Asymco Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • #Asymmetry 4: PC disruption destroyed mobile18 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • “What’s happened over the last five years shows not that Apple disrupted the phone handset industry, but rather that Apple destroyed the handset industry by disrupting the computer industry.” John Gruber (@gruber)19 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Android cracked the old OEM structureand offered a ticket to the smartphone market for agile and PC players Brought in new players And challenged fast-moving challengers the old guard OEMs Efficient cost structure plus ability to differentiate Cost structure requiring high-margins. in software, hardware or both Commoditising effect of Android makes high- margins unattainable for OEM without own ecosystem or meaningful differentiation low cost assemblers Cost structure optimised for razor-thin margins Android is a long-term opportunity for global reach No Name source: VisionMobile Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Only agile incumbents were able to competeby investing in hardware integration and turning around feature to smartphone projects Estimates 2 players dominate smartphone shipments 10 OEMs with more than 2% market share Source: Asymco Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • The redefined handset industry shape Polarisation of the have’s and have not’s. Consolidation at the top-end, fragmentation at the low-end22 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Asymmetry #5: Core vs complement models23 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • The economics of complements widely used by Internet players in competitive strategies Core product Complement A product consumed with the main product Product demand increases as complement prices decrease24 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • How Google uses economics of complements to drive its core business of online advertising Google Core Business Google Complements On-line advertising mobile networks handsets browsers (95% of profits) Commoditisation of mobile increases demand for Google products Closed net Android Chrome, ad network neutrality WebKit Closed Open25 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • OTT competition with telcos is asymmetric OTTs drive access revenues, but long term weaken telcos by taking over user ownership Core product Complement asymmetry A product where a business A product consumed generates profits with the main product OTT products Complement asymmetry Consumer electronics, high-speed mobile Internet on-line advertising, e-commerce… access mobile broadband is the fuel for the OTT businesses26 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Google’s three strategy directives Flatten Flatten everything that stands between eyeballs and Google’s ad inventory. Uses the economics of complements to increase the value of Google’s core product. Android and Chrome strategies are examples. Expand Expand the footprint of Google inventory (i.e. ads) across user journey by introducing new services like Gmail, Google Maps, YouTube, Google TV. Mine Mine the information available on every user of that inventory. Helps Google to better micro-target users directly increasing the value of its inventory. Mobile payments will provide even more customer intelligence.27 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Apple and Amazon: asymmetric biz modelsTargeting different use cases and segments core business! complement! primary use case! retailing iPad! device! digital lifestyle device! content! retailing Kindle Fire! device! content consumption! content! Asymmetric business models Apple uses content to sell devices Amazon uses devices to sell content Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Amazon expertise: Convert engagement into sales The retailing business depends on ‘foot traffic’ to Amazon properties Recommendations Traffic to Amazon29 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • For Amazon, Kindle is an alternative to Google ’foot traffic’ can be acquired by ads, affiliates, developing apps or subsidizing devices $$$ - Search ads Online ads Traffic to Amazon $$$ - Referrals Affiliates Traffic to Amazon $$$ - Amazon apps Smartphone apps Traffic to Amazon $$$ - Device subsidies Subsidized devices Traffic to Amazon $$$ - Revenue share OEM as affiliates? Source: VisionMobile Traffic to Amazon30 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • “Openness” is the façade of a complements strategy Platforms are closed around core business and open around complements core business consumer on-line ads on-line ads e-commerce electronics apps, telecom, complements apps, telecom, apps, telecom, content, apps, content, content, platforms, handsets, telecom accessories browsers browsers Facebook platform iOS Android Platform Kindle31 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Asymmetry #6: Platform vs products32 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Apple is not in the business of apps derives most of the revenues from sales of iPhone, iPad and Mac Apple revenue by segment Q1 2012 ($ billions). Source – Company reports, RRW.33 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • The mechanics of Apple iOS ecosystemecosystem around iOS platform is designed to drive hardware sales developers sw publishers content retailers internet players brands $$$ and applications user engagement and services verticals telcos reduce friction for the iPhone business users and data plans access to market subsidies complements, revenue accessory share manufacturers operators iOS platform premium premium $$$ product experience Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Network effects drive external investment 2011 figuresThe ecosystem expansion is financed by developers investing into the platform developers & brands $8B brands investment developers iOS platform $900M operators Apple app store cost $90B iOS device sales Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • The mechanics of Google Android ecosystemdrives commoditization of mobile industry $$$ app developers verticals media publishers Ad network monetisation & user reach telcos reduce friction $$$ applicationsfor Android distribution and services users, data plans, ticket to smartphone market 25% rev. share on app sales subsidies devices operators Android platform Handset OEMs End-to-end Eyeballs Product Experience Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Asymmetry #7: Winner takes all game37 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Blue vs Red vs Black oceans Black oceans are markets where newcomers find it near-impossible to compete Blue ocean Red ocean Black ocean no competition fierce competition impossible competition e.g. Mobile Health e.g. wireless connectivity e.g. app platforms38 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Exceptional competitive advantage due to network effectdrive exponential growth and lock-in of users and developers users are locked by habits iOS platform Developers are locked represented by apps by skills and experience App Store locks developers to users Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Networks effects stronger than economies of scale user value Platform business value grows exponentially due to increased number of interconnections Conventional business value grows linearly due to cost saving and decreasing price scale40 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Winner takes all game – devices and apps41 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Winner takes all game – device profits Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Winner takes all game – platform mindshare43 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Winner takes all game – platform intentshare44 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Winner takes all game – platform abandonment45 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • want more? “Mobile Innovation Economics” strategy workshop on the clash oftelco and Internet business modelshttp://visionmobile.com/product/mobile-innovation-economics/ Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012
    • Thanks for listening Knowledge. Passion. Innovation. Questions / comments? @andreascon Want to have this presented in person? andreas@visionmobile.com Want to learn more about VisionMobile? www.visionmobile.com Updated: 12 November 2010 Source: VisionMobile, unless otherwise noted. Copyright VisionMobile 2012 Copyright VisionMobile 2011