Friday, February 20, 2009

Mobile application stores and Telcos

Today's WSJ carries an article about online software application stores being the latest "me-too" business being promoted by mobile device manufacturers, telecom companies, and even independent companies. The first notable app-store came from Apple last year, for its iPhone and iPod Touch platform. Apparently IBM has already created a generic platform to create such app-stores, making it easy for any company to start its own app-store.

Third party mobile applications have been around for for a long time - ever since there were APIs and development platforms for mobile devices. I remember developing applications for a Palm III device using the Code Warrior IDE back in 2001. Microsoft also promoted Windows CE/PocketPC/Mobile development via Visual Studio and .NET from early on. In response the developer community created tons of mobile device applications that have been sold or given away for free on the Internet. So what has changed with the advent of the app-store? And why all this sudden interest? These are some of the obvious reasons for app-stores to exist:
  1. The host company gets a cut of the revenue. For example Nokia will get a 30% cut on each sale in its Ovi software store. The developer gets to keep the balance. In addition, by providing this portal facility to developers host companies can attract developers who create cool applications, spurring the popularity of their devices.
  2. The developer gets a suitable hosting platform for her applications. This includes a payment system, and users may be more willing to trust big names (Apple, Nokia) instead of a small unknown development company when they give out their credit card information.
  3. The user gets a one-stop application shopping solution where she can compare applications and buy with confidence since hosting companies are most likely to certify applications for compatibility, quality, security, and legal compliance before selling them.
One of the challenges for telecom companies is going to be the consequent loss of control over the application mix on mobile devices and over mobile device hardware. Why? Because by creating an alternative revenue stream for device manufacturers, app-stores will force them to consider application developers' wishes while designing devices. Until now device manufacturers have largely depended on telecom-operated retail outlets to generate the bulk of device sales, making device manufacturers very pliable for telcos. Now device manufacturers can also lean on software developers, who create cool applications for their devices, to drive device sales and to generate revenue. The days when telcos could dictate device capability and decide which software got installed on mobiles are numbered.

Its not all red for telecom companies though. Smart phones and new applications are driving up data plan usage in a big way. There are some unknowns here, for example, users may start using flat-rate data plans for voice (through VOIP) and SMS (through IM and email) substitution. But will the cannibalization hurt telcos or will data plans compensate for the loss of voice and messaging revenue?

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