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Will App Stores castrate the Mobile Operators?

March 19th, 2009 |  Published in Wireless Connectivity  |  1 Comment

Apple’s App Store is the flavour of the month in the mobile world.  Everyone in mobile wants to have their own.  At the Mobile World Congress operators and manufacturers were all jumping on the bandwagon and announcing their individual flavour of App Store, coming soon to a phone near you.

What wasn’t mentioned is how the App Store is redefining the relationships between the customer, the handset manufacturer and the network operator.  I believe that it has the potential to drastically change the balance, with the network operator being emasculated and facing a future of becoming the dreaded “dumb pipe”.  There may be a way out for them, but it will involve their thinking along very different and radical lines.

The fundamental thing to realise about an App Store is that to be compelling it needs to be tied to a specific device.  Whether the iPhone will dominate the handset market in a decade, or whether it will be as transitory as the 8-track cassette remains to be seen.  Whatever its future, it deserves a place in history as the first phone that was persuasive as a device for running other applications.  One of the reasons that the iPhone App Store has been so successful is the fact that the applications within it make the most of the iPhone’s interface.  They feel right because they extend the user interface.  In contrast to that experience, everything else that went before (and a fair deal of what’s still appearing) feels like teaching a dog to dance.  For the general user, applications need to reflect and complement the device.

Therein lays the problem that faces every proposed App Store.  Applications will need to fit the phone’s interface, otherwise they’re not going to be compelling.  The obvious corollary is that the companies best placed to develop App Stores are the handset manufacturers, as they build their handsets on a relatively small number of platforms. It probably means that they will need to standardise the user interface even more than they’ve done in the past, or else accept that the App Store is only going to be work for one or two segments of their range.

In contrast, the mobile operator is in an impossible position.  If they want an App Store they need to support a wide range of manufacturer’s handsets.  The task for them to stock an App Store is not tenable.  At best they will end up with a set of second best applications that are generic, instantly playing second fiddle to the compulsion of a handset oriented application from the phone vendor.
What that means is the handset brand will wax as the mobile operator’s begin to wane.  It’s the start of the handset vendor taking control of the user relationship.  That signals an even more worrying development for the operator, which is that as they lose control of the applications that users download, they also lose control of the bandwidth that those applications require. 

That leaves operators in the invidious position of having to either limit or prioritise access, or invest in additional infrastructure that brings them no additional revenue. If operators controlled applications they could prohibit bandwidth hungry apps.   If handset vendors control them, then the operators can’t.  The operator might earn a few more dollars from heavy use data plans, but at the risk of crashing their entire network and losing all of their revenue.
What operators really need are applications that provide recurring revenue from low bandwidth applications.  They have one of those today, which is called SMS.  They need more, but handing over the App Store is not going to be the way they get it.

If you accept the implication that the App Store will lose the networks the relationship with the customer, you could still argue that this might be balanced by customer loyalty.  It’s probably a fallacious argument, but it goes along the lines of “if a user has invested a large amount of money in apps, when they reach the end of the contract they’ll want to move them to a new phone”.  We don’t know whether users will want to do that and we probably won’t for another twelve months.  With more expensive applications, subscriptions can already be moved, but it’s tedious.  This is where the networks can step in and offer an application transfer facility which automatically tracks all of your application subscriptions and transfers them to you new handset.  Hence, so the argument goes, an App Store can improve customer loyalty.  Which slyly takes us back to that old favourite of the operators – a walled garden, where they attempt to control their own destiny by signing and owning the applications, i.e. their own App Store. 

I don’t see it working.  The handset vendors should always have the edge of compelling applications and that’s where the users will go.  They also have a vested interest in having users upgrade to another one of their handsets, rather than migrating to a competitor, so they’ll offer the same service.  All that leaves for the operator is the prospect of becoming a dumb pipe.  And if that’s all they are, the only future they have is to compete on coverage, network reliability and price.

Unless they look past the handset.

Today the handset is the endpoint of every network service.  We talk to it, we send texts from it and it’s the delivery mechanism for all of the new, cool applications.  But it doesn’t need to be.  We’re entering the point where the phone itself can be turned into a dumb pipe to pass data from an internet application down to a personal connected device.  That could be a pedometer, a set of weighing scales, running shoes, medication monitors or sports equipment.  This will get start to happen in the next twelve months as the next generation of the Bluetooth standard appears, which enables cheap connectivity from a wide range of personal device, through mobile phones and back to an internet application.  It gives network operators an interesting new approach.

These devices have something in common with SMS – they send small amounts of data.  If developers can come up with persuasive products and compelling applications it lets a network operator that’s thinking laterally start to brand a whole range of consumer products and sell them with services that have recurring fees.  It’s a lot cheaper to bring a smart golf club to market, compared to a mobile phone.  Whether the application is sports related, remote healthcare, social monitoring or even home automation it’s back to the model of low data usage and recurring revenue.

It’s a big step from where operators are thinking today.  But it may save them from a rapid descent into becoming a dumb pipe.  It even gives them the satisfaction of bestowing that honour on the handset.

 This is a pipe

1 comment so far ↓

#1 Jag on 03.20.09 at 9:46 am

Interesting thoughst Nick, I think your point about being able to offer some value in the relationship between the handset and the applications has some mileage. At a very simplistic level, the SIM (and it’s inherent binding with the network does this), and so extending this through some form of “personalisation” service in the “cloud” (tracked apps, contacts, media storage etc.) seems like a natural place for operators to be playing. I’m not sure how this implies a walled-garden endgame though; although I do agree that the Apple store and it’s relationship to iTunes and the device (PC, Mac, iPhone etc) is probably the best example of a walled garden that there is!
Your thoughts about the handset as a gateway to other lifestyle elements is fascinating and leaves a lot to think about …

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About Creative Connectivity

Creative Connectivity is Nick Hunn's blog on aspects and applications of wireless connectivity. Having worked with wireless for over twenty years I've seen the best and worst of it and despair at how little of its potential is exploited.

I hope that's about to change, as the demands of healthcare, energy and transport apply pressure to use wireless more intelligently for consumer health devices, smart metering and telematics. These are my views on the subject - please let me know yours.

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