Winning with apps

With demand for mobile apps booming, operators are keen to get their foot in the door
The popularity of Apple?s iPad has cemented the position of Apple App store, adding to the 5.6bn apps downloaded by iPhones in 2010. (CARL COURT/AFP/G
The popularity of Apple?s iPad has cemented the position of Apple App store, adding to the 5.6bn apps downloaded by iPhones in 2010. (CARL COURT/AFP/G


Mobile applications have grown in prominence in the past couple of years and are now widely viewed as an important part of the mobile ecosystem. And while the rapid development of downloadable mobile applications, from games to navigational and communication tool, caught some parts of the sector off-guard, other players, such as Apple, Google and the apps developers themselves, are already beginning to enjoy the fruits of the nascent sector.

Indeed, according to a recent report from ABI Research, Apple’s iPhone interface had notched up more than 5.6 billion accumulated downloads by the end of 2010, compared to nearly 7.9 billion total downloads from all stores during that year.

The figure made Apple the leader, although ABI Research added that the company is set to face “more intensive competition” in 2011. The research firm said that with the iTunes App Store only targeting iOS users, there remains plenty of room for other platform application stores to develop.

Furthermore, Fei Feng Seet, a research associate at ABI Research, says that quarterly shipments of smartphones that use Google’s Android operating system now exceed Apple’s.

“There is still a long way to go, but accumulated downloads from both Android Market and third-party platforms surpassed 1.9 billion by the end of 2010. Android Market currently features more than 130,000 apps in 48 countries, nearly half of iTunes App Store’s catalog,” Seet adds.

Canadian smartphone producer, RIM, has also been increasing its footprint in the mobile apps market, as seen by its recent aggressive expansion to over 100 markets, and developer conferences it has held in the US and Indonesia, according to Seet, and ABI Research estimates that accumulated BlackBerry app downloads totalled more than 1 billion as of December 2010.

The trend looks set to gain further momentum after Microsoft and Nokia agreed a strategic partnership in February. Under the deal, Nokia agreed to put Microsoft’s Windows Phone OS at the core of its smartphone strategy and the two firms will work closely together to develop new mobile devices and services.

Neil Strother, mobile marketing practice director, ABI Research, adds that other mobile network operators are also considering entry into the mobile application market. He points out that India’s Idea Cellular recently launched its Online Application Store in advance of its 3G network launch, while GetJar, a multi platform-supported app store raised $25 million for expansion in February.

However, despite the size and growth of the mobile apps industry, there remains significant confusion around which parties stand to gain the most, and particularly how telecom operators fit into the equation. In particular, there appeared to be widely differing views as to whether telecom operators should attempt to launch their own apps stores.

The subject was discussed by a number of attendees at last month’s ‘Planet of the Apps’ event, which drew together delegates from across the telecoms ecosystem to discuss the growth and development of the apps sector.

David Ashford, general manager of Apps Arabia, an investment initiative from the Abu Dhabi government to help grow a sustainable industry for app development throughout the Middle East and North Africa, has an objective view of the sector. He sees potential value in mobile apps for all parties, and the operators are certainly no exception.

Initially, it may appear difficult to see where operators fit in, when under the standard model the application developer generally receives about 70% of the sales revenues and the application store the remaining 30%.

Ashford said he does not believe that operators should operate app stores but he adds that operators “can help massively” with the marketing and promotion of apps, by leveraging the knowledge they hold about their customers to make targeted recommendations.

“I believe operators are very well-placed to offer consumer portals. They do it in other markets of the world like the UK for example. The operator should know who their customers are, what phones they have, what lifestyle they lead, what apps they consume, and then they should be able to promote similar apps that would be relevant to them based on their lifestyle, needs and preferences,” he says.

Under this model, the operator can recommend apps to their customers and then redirect the person to the relevant app stores to buy the product. The operator will earn a fee for redirecting the customer, but avoids the significant cost and risk of having to launch and operate their own app store. Most of the app stores offer affiliate programmes, which allow third parties to receive a fee for referring a customer to buy a certain app.

“You don’t have to spend millions of dollars on developing an app store. You can have a consumer portal and promote apps on that and when people click on them to download them from the app store you get a few percent. That is a great model because the costs and the risks are negligible,” Ashford says. “It is a very expensive thing to operate an effective app store that has the right payment mechanisms, that is virus free, secure, and has a good critical mass of consumers using it. A consumer portal is where telcos are really well placed.”

While this model might work well for telecom operators in other parts of the world, operators in the Middle East may face some difficulties. Indeed, in order for the model to work, the operator requires a significant amount of information on their customers, including what device they use, their age and general interests.

But many operators in the region are not accustomed to gathering this type of information, according to Ashford, who suggests that telcos in the region should have “consumer portals” to gather and use such information.

“If they have a consumer portal, they can add value to the consumers through that portal. They can gather that information, see what apps customers are consuming, and start building up some customer insight. The problem is they don’t have a lot of this information. They need to fix that problem and one of the ways of doing that is ask people to provide it.”

There are a number of ways that telcos can gain information from their customers that can also serve the dual purpose of improving customer retention. For example, Ashford points to O2, a mobile operator in the UK, which allows customers to top up their PAYG accounts on O2’s website. While doing this, the customer is offered the chance to enter a prize draw, but in return they have to provide some information about themselves.

“That is what the telcos here should be doing, because then they will be able to build up that customer insight and intelligence, and that is where they are really going to gain strength,” he says.

“They have got a problem in that they are not capturing the data properly. But in addition to that they need to get some insight that is more than just data, such as lifestyle patterns so that they can build up that sort of consumer knowledge and insight. Entrepreneurs, brands, application developers, and publishers are all hungry for that sort of intelligence.”

Another opportunity for telecom operators in the region to benefit from apps is via their billing platforms, and their existing billing relationship with their customers. Indeed, one of the big challenges in the MEA region is that smartphone users do not necessarily have credit cards, says Ashford.

“In this part of the world it is a massive problem and the solution is operator billing. As an example, Ashford says that the customer could visit an app store such as Nokia’s Ovi, select an app to purchase, and then have that charge placed on their phone bill. “This is a phenomenal opportunity.” Ashford says.

“Operators will get a slice of revenue from that, which is great because they will also be adding value.”

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