Recent announcements relating to Orange’s Application Shop highlight the contrasting priorities of the various different providers of application stores. Application stores run by mobile network operators have a natural competitive advantage, in that they can generate pull-through revenue. However, operators’ application stores must of necessity support multiple handset platforms, and so execution will be more challenging than for platform-based application stores.
Orange may be positioning itself to leverage the asymmetry in priorities between mobile operators’ and platform application stores
On 9 December 2009, Orange announced the launch of its Application Shop.
- One million Orange customers in the UK and France will be offered ‘one-click’ access to a range of services, information and entertainment.
- Initially, the Application Shop will be downloadable over-the-air, before being pre-loaded onto a range of devices from January onwards.
- The service will be a multi-platform one-stop-shop, including access to ‘Orange TV’, ‘Orange Games’, ‘Orange Maps’ and ringtones and wallpapers, with payment via a single Orange mobile bill.
This latest announcement by Orange serves as a reminder of the asymmetry in priorities between the alternative providers of application stores.
- Mobile operators’ application stores are characterised by operators’ need to differentiate in local markets, in competition with other mobile operators. True multinational groups often dominate local markets, but competition for the consumer still takes place at the local, in-market level.
- The other key aspect of mobile operators’ application stores is the concept of ‘pull-through’ revenue: every customer that a mobile operator wins (or retains) as a result of the content of their application store generates not only revenue for the application store, but also voice, SMS and other data revenue. These pull-through revenue streams are clearly important for mobile network operators, but so too is the increased scale that they bring.
- Conversely, platform and third-party application stores are motivated by maximising transaction-based revenue. To be clear, platform and third-party application stores are also concerned about maintaining customer relationships, but only insofar as generating the next application sale, whereas mobile operators benefit from a range of ongoing revenue streams.
In short, an application store customer is potentially much more valuable to a mobile operator than that same customer might be to a platform operator, or a third-party application store.
A consequence of this asymmetry is that mobile network operators’ application stores can typically be expected to outcompete platform and third-party application stores in the pursuit of top-quality content, applications and overall packaging of their offerings and in tailoring for local consumption. Mobile operators will be further aided in this endeavour by the fact that much of the most compelling content is local in nature.
However, it should be noted that, clearly, not all operators in any given local market can (successfully) compete head-on on the basis of content, and that those that choose not to are likely to pursue alternative opportunities, such as providing a ‘light touch’ tailored store front that accesses platform operators’ application stores.
Orange may have identified the opportunity, but history suggests that successful execution is harder than the theory
Because of their community approach, and cross-market scale, platform-based application stores in particular are likely have an ongoing role in generating new and innovative content, and this suggests that a number of other wider market developments might help mobile operators’ application stores to ‘seal the deal’ in terms of local dominance. These include:
- maximising the degree of network API standardisation across operators, to increase the portability of applications between operators
- the establishment of market intermediary functions, such as Symbian’s application wholesaling initiative to aid market liquidity
- the development of tools that can translate applications between different application environments, again to increase liquidity.
Clearly, in order to be successful, Orange’s new proposition must also overcome well-known and formidable challenges in terms of the range of devices and application environments that must be supported, and careful attention must be paid to the percentage of revenue outpaid to rights owners, but the prize is surely big enough for Orange to try to find a way through these challenges?
These dynamics were further discussed in a recent Total Telecom webinar in which Jim Morrish took part – click here to view the recording.