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Why App Store Ecosystems are Strategic Assets


Mobile networking service providers are good at providing basic connectivity, but they typically fail to deliver value-added services (VAS) that their own subscribers need or want. According to the latest market study by Informa Telecoms & Media, mobile network operators will see their share of mobile content and commerce-related revenue drop from 44 percent in 2011 to 31 percent in 2016 globally.

The telecom service provider market share will shrink in areas such as mobile music, mobile games, mobile TV or video, mobile messaging, location-based services and chat or social networking over the next five years. These new services will increasingly be provided over the top (OTT) by third parties that specialize in these creative offerings.

According to Informa's assessment, this fall in market share would be more precipitous if it wasn't for the growing role that operators will play in mobile app payments.

The app stores have unseated the operators from their former dominance in the mobile content space, but carrier billing -- app-download and in-app payments charged to mobile phone bills -- will allow savvy operators to claim an increasing share of revenues over the coming years.

Although most operators have been excluded from the creative mobile apps ecosystem, all the other players that have jumped on the mobile apps bandwagon -- including Google, Microsoft, Nokia, RIM and Samsung -- need carrier billing to get paid for downloads from their app stores.

Only Apple benefited from the precedent, through iTunes, of having a direct billing relationship with millions of digital media users. It was able to convince network operators that they had no choice, and should look elsewhere for profit. Apple is masterful at manipulating inept "partners" into accepting their terms and conditions.

The Apparent Mobile Service Provider Dilemma

So, what's the market outlook, and where's the upside potential?

"Operators could miss out on the opportunity afforded by carrier billing if they don’t make it more affordable and accessible to app-store owners and developers, and if they do not introduce more efficient and flexible systems than the clunky and unreliable PSMS," says Guillermo Escofet, senior analyst at Informa Telecoms & Media.

According to Informa, more compelling alternatives are already appearing in countries such as Russia, where instant-payment terminals in streets allow users to turn cash into e-money to spend on digital goods.

The slice of app revenues going to operators will grow from 10 percent in 2011 to 17 percent in 2016. Not because operators will increasingly act as a direct retail channel for apps, but due to the fact that they will increasingly act as enablers of paid-app downloads on third-party stores.

The need for carrier billing is becoming all the more pressing as app stores push further into emerging markets, where bank accounts and plastic money are rare, and premium SMS is for most the only means of paying for digital goods on phones.

Emerging markets make up the majority of mobile subscribers globally, and that proportion is constantly growing. The app stores that that have embraced carrier billing are the most relevant to emerging markets, such as Nokia Store, Google Play (formerly Android Market) and BlackBerry App World.

Informa predicts mobile content revenues (total data revenues minus Internet access and P2P messaging) to grow from $40.7 billion in 2011 to $131 billion in 2016. Informa's forecasts only take into account direct end-user revenues -- i.e., money paid by users for content and services -- and do not include indirect revenue sources, such as advertising.

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