1. © 2010 Alcatel-Lucent. All rights reserved. CMO7995090907 (03)
Article
Generating revenue for the application explosion:
What’s the right business model?
Article was published in March 2010 TM Forum’s “Monetizing New Business Models” report
As network service providers continue to explore ways to monetize new value from their networks, systems and
marketing assets, two key points have emerged: First, network service providers can add value to new applications
and services by securely exposing their network capabilities through Application Programming Interfaces (APIs);
second, understanding which network capabilities hold the most value is critical when evaluating new business
models for increased revenue.
There is no single business model that will work for everyone. The right approach will vary based on the network
service provider’s business goals, compensation policies and competitive environment, among other factors. The
right approach may also include taking advantage of multiple business models to more effectively address different
market segments.
New business models emerging today range from network provider-operated application (app) stores and developer
programs to trusted partner relationships to more indirect relationships that are sourced and managed by a third
party. The November 2009 TM Forum report, “Evolving Service Delivery Platforms: Essential Plumbing for Smart
Pipes”, highlighted initiatives, including Vodafone’s 360™, Verizon Wireless’ V CAST and Telefonica’s mstore,
that demonstrate a wide variety of implementation choices spanning:
 Network service provider types: Wireless, wireline and multiple system operator (MSO)
 Go-to-market strategies: Retail and wholesale
 End-user targets: Consumers and enterprises
 Relationship frameworks: One-off partnerships and standard partnerships
We also see a wide spectrum of marketing and promotional activities in developer and app store initiatives. For
example:
 O2’s Litmus program involves a significant investment in developer recruitment and training.
 Telstra’s plans to open an application store within the Microsoft®
Windows®
Marketplace for Mobile involves
tapping into existing developer communities.
 Orange’s Application Shop involves creating an application store, while other initiatives involve working with
partners to offer a customer storefront.
With the number and variety of business model options, it is important for network service providers to carefully
examine how they will engage with application developers and content providers.
Narrowing your options
One way network service providers can narrow the number of business model options is by answering key
questions, including:
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2. © 2010 Alcatel-Lucent. All rights reserved. CMO7995090907 (03)
Article
 What is the primary source of revenue — the end user or another party?
 Who will own the relationship with the end customer?
 How many developers will be supported?
 How will developers be supported — with a common approach for all or with individual approaches?
 Will the network service provider have direct interaction with developers?
 How involved will the network service provider be in areas such as capability enablement, partner ecosystems
and customer care?
As illustrated in the two examples below, different answers to these questions lead to the selection of different
business models.
The SK Telecom T-Store (Korea)
The SK Telecom T-Store initiative is a mass-market app store where anyone can launch mobile applications. The
T-Store differs from the traditional network provider content business model in three main ways:
 SK Telecom does not select the applications that are listed on the store. It focuses only on testing that the
application does not harm the network or the consumer’s device.
 SK Telecom has adopted an open, hands-off model. Developers can choose their own branding and price point,
and play a larger role in marketing their product.
 SK Telecom is taking a lower share (30 percent) of application sales through the store but charges developers an
annual membership fee for access to the platform.
Network provider “3” and Skype (UK)
This partnership is a good example of a network service provider forming a close relationship with, and exposing
network capabilities to, a trusted application developer. The partner-ship involves development of custom “Skype
phones”, which provide free Skype-to-Skype calls over 3’s 3G network. There has been significant investment from
both parties in marketing and launching this initiative, which was the first instance of a mobile provider willingly
opening its network to facilitate use of Skype.
It’s one thing to decide to engage with application developers and content providers as part of a new business model;
it’s another to attract and persuade them to collaborate.
Strengthening your appeal to third parties
Application developers and content providers have long been critical of the arduous and lengthy barriers of entry to
engage with network service providers. And, while traditional network provider “pay-per-dip” business models
work well for larger publishers, they leave smaller players facing limited profitability and greater financial risk. To
improve innovation, network service providers must look at reducing costs, simplifying and accelerating processes
and trading off a portion of control. This may include:
 Requiring only minimal upfront investments.
 Sharing revenue in a 70:30 split in favor of developers.
 Offering transparent approval processes.
 Providing a fast and predictable route to market.
 Allowing developers to choose the branding, pricing and method of engagement with customers.
Network service providers are also looking to the lessons of the Web, where scale is the key to many successful
models. Innovative developers will be attracted by access to a large user base. At the same time, network service
provider customer numbers will increase as more people are attracted by compelling new services. To kick-start this
virtuous circle, network service providers are examining the market for early industry lessons. For example, some
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are looking to provide online self-help facilities and use social networking tools for community building and
support; others are exploring how to tap into existing Web developer communities.
While the number and variety of considerations can seem daunting, network service providers are not on this
journey alone.
Benefiting from industry support
There are a number of industry initiatives underway to support network service providers as they evaluate and adopt
the optimal business model for their market situation. For example, efforts such as GSMA OneAPI and Rich
Communication Suite (RCS), which foster interoperability and development of key standard APIs, will help network
service providers more effectively collaborate with application and content providers for increased revenue
opportunities. The TM Forum Content Encounter Catalyst Program is also a good venue to look at best practices and
API exposure governance.
In addition to these industry initiatives, Alcatel-Lucent is also supporting network service providers through three
recently announced initiatives designed to foster the creation of new business models between network service
providers, application developers and content providers. These initiatives include:
 The Alcatel-Lucent Application Exposure Suite allows network service providers to make their network assets
available to developers through a secure “exposure layer”. Network service providers can monetize their
capabilities by enabling developers to easily “grab” key functionality, such as billing, location or connection
optimization, to add to their applications.
 The Alcatel-Lucent Open API Service provides managed and controlled access to aggregated network
capabilities through a Web portal (http://developer.openapiservice.com). Developers gain access to enablers
from multiple network service providers in one place, eliminating the need to establish individual relationships
and providing the cross-carrier advantage of reaching a larger potential customer base.
 A comprehensive portfolio of professional services, including business model consulting, integration of
multivendor systems and management of complex networks and service-layer operations, support network
service providers as they transform to open business models and “onboard” third-party developers, applications
and content.
Part of a larger strategic focus on application enablement, these Alcatel-Lucent initiatives help network service
providers create new value by exposing their network capabilities, in a managed and controlled way, to facilitate
new business models and improve return on investment. For more information, please visit www.alcatel-
lucent.com/application_enablement.