- Introduction
For years mobile
technology has been earmarked as the next
big thing but until recently mobile service innovation has not met
expectations (Fling, 2009). Since the advent of the iOS and Android operating
systems and their respective developer frameworks the business model of the
mobile ecosystem has changed considerably. This essay charts the nature of this
development and how it has unlocked mobile`s potential.
Although mobile
is regarded as a profitable field for service development the market is of such
a nature that there are certain strategic questions that need to be addressed
when developing a mobile service business model or when thinking of investing
capital in such a venture. These critical success factors are also discussed.
2.
Barriers to Service Innovation
Seeing that
mobile has all the advantages of the media that have gone before it namely print,
recording, cinema, radio, television and internet mobile is regarded to be the
7th mass medium. Additionally, it also has several unique benefits.
It is personal, permanently on and carried, enables user generated content and
has a built-in pay channel (Ahonen, 2008). Recent technological advances have
also added location-based, augmented reality and social networking to this
powerful and ubiquitous medium.
Irrespective of
mobile`s potential mobile application developers could not unlock the
possibilities of the mobile medium mainly due to device fragmentation. To
develop an application for even one model of phone a developer had to know and
develop for the version of the phone`s application framework, screen
dimensions, processor power, graphic capabilities, number and orientation of
buttons. Mobile manufacturers also sold blank phones to operators that would
then put customized software, that fit their network`s needs, on the phone - in
addition to this the phones weren`t field refreshable. This meant that if there
was a problem with the phone`s software the operators would release a new
version with updated software and developers would have to reconfigure their
applications (Fling, 2009).
The level of
complexity that mobile application designers had to contend with made it almost
impossible to develop a product that worked on all mobile devices, across all
networks within a market and could be developed and tested for less than it
could be sold for (scalability) and within time (time to market) (Fling, 2009).
If a developer has successfully finished a project they also had to deal with
the service developer`s application portals. This was especially cumbersome for
the customer and the application developer. One developer states the following:
“It`s more complex to download a game through an operator portal than to open a
bank account” (VisionMobile, 2011).
Problems related to device
fragmentation and application distribution were unlikely to be addressed due to
the dominance of handset manufacturers and network operators. A company like Nokia bought a large number of components at a
cheaper price and manufactured for less and enjoyed higher demand for their
product (VisionMobile, 2011). The mobile operators always had the
advantage of owning the customer relationship. The mobile operators therefore
had the final say in terms of what services were offered to the consumer
(Agarwal & Glass, 2009). This supply-side economy
of scale made handset sales and contract sales the main priority over and above
accommodating service innovation in the sector.
3. Fundamental Shift in the Business Model of
the Mobile Ecosystem
With the
introduction of the iPhone and the proliferation of smartphones there has been
a dramatic change in the business model of the mobile ecosystem. With the
advent of especially the iOS and Android operating systems there was a shift
from supply side economies of scale to demand side economies of scale called
network effects. The value of a network is based on the potential to draw
individuals to use the network. More participants mean more capable application
developers develop services for that platform. More quality applications mean
more users are drawn towards it (VisionMobile, 2011).
The
market for voice subscriptions is getting all the more saturated and mobile
networks need to sell data instead of voice services to grow. The most
effective means of doing this is by putting services that use data at the
disposal of their subscribers (Agarwal & Glass,
2009).
The positive
feedback cycle of network effects within operating systems and the demand to
sell data has shifted the dynamics of the mobile ecosystem from the priorities
of handset manufacturers and network operators to that of the operating systems
and the development of services, in the form of smartphone applications.
4.Mobile
Service Development - Strategic Success Factors
The
abovementioned changes have made service development for smartphones a
lucrative industry. Canalys, a technology research company, has projected that
the revenue of app stores will be US$7.3 billion in 2011. The mobile
application market will grow annually by 50% and reach a value of US$36.7
billion by 2015 (Canalys, 2011). Technology-minded entrepreneurs and investors
would therefore be well advised to give this sector serious attention but there
are some critical success factors that need to be considered when devising a
business plan and strategy.
4.1 Choice of Operating System
“The user
experience with iPhone, Android, Blackberry, Windows Phone and tablets are
fundamentally different. ” So choosing the correct Operating System to develop
for is crucial. (Huntley, 2011). Research has shown that different platforms
offer major differences in revenue potential. An iOS developer will make 3.3
time more than a Symbian developer per application while a Blackberry developer
will make 2.4 times and an Android developer only 1.7 times (Yarrow, 2011).
iPhone users are also perceived to be early adopters and therefore most
companies prioritize iOS (VisionMobile, 2011).
This being said
in the second quarter of 2011 Android has overtaken iOS in terms of market
share with 44% of the market versus 31% for iOS (Yarrow, 2011). If this trend
continues especially given Google`s acquisition of Motorola`s patent catalogue
the choice of mobile development platform will be crucial. Android also only
requires 6 months to master (VisionMobile, 2011).
To successfully
reach 80% of users on the web one only needs to develop for three browsers. In
mobile developing for iOS, Android, Symbian and BlackBerry only assures you
access to 20% of sold devices (VisionMobile, 2011). That means knowing what
operating system your customers use to reach the right customer demographic is
of major importance in mobile strategy.
4.2 Customer Relations and
Education
To generate business
through mobile applications is still a relatively novel concept for most but
businesses are tentatively developing mobile strategies as they are discovering
the utility of mobile applications (VisionMobile, 2011). Matt Powers, the chief
technical officer from US mobile development firm Applico, states that at
present companies are only using mobile for one or two business processes but
more and more companies are approaching Applico to explore ways in which mobile
can change their whole business model (Huntley, 2011).
The trends of
consumerization, decentralization of IT, changes in enterprise software
architecture and software as a service will lead to the development of mobile
applications as a part of service company`s B2B and B2C business models
(Canalys, 2011). One example of this is Standard Chartered bank`s development
of in-house CRM and business intelligence applications (Flinders, 2010). This
has lead to the development of Standard Chartered Breeze and Mobile. These
applications allow clients to locate ATMs, get financial information and
valuate property (Standard Chartered, 2011).
The challenge
for mobile development companies is therefore to work closely with and educate
companies on how mobile can be used to add value throughout the value chain
(Huntley, 2011).
4.3 Acquiring Development
Skills
Mobile
application development is also in its infancy so one of the main challenges is
finding developing and engineering talent that understands the mobile medium
inside out and have the capabilities to educate clients on the possibilities of
mobile (Huntley, 2011). Within the desktop programming and web design
industries acquiring skills by means of outsourcing has become an industry
standard.
In the mobile
application development industry time to market considerations is of such
importance that companies prefer to go against the trend of outsourcing their
development needs and rather develop on an onshore basis. Improvements in
communication, decreased risk, neglible time zone differences, quality control
and disappointing offshore customer experiences dwarfs the extra cost of
onshore development (Huntley, 2011).
4.4 Anticipating Consumer
Needs
Not any
application will be successful so anticipating the correct consumer wants and
needs are crucial. Gartner has identified money transfer, location based
services, mobile health monitoring, near field communication services and
mobile music as some of the most important consumer mobile applications for
2012 (Gartner, 2011).
5. Conclusion
The eradication
of barriers to mobile service innovation by means of network effects and the
drive to sell data was discussed. Although innovation of mobile services were
never more scalable or quicker to market the choice of operating system,
customer relations and education, acquiring development skills and anticipating
consumer needs were identified as critical success factors.
__________________________
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