The App Store is not the Only Solution in Mobile

We had a lot of discussions and retweets at Twitter on my rant about the US West Coast being drunk on the iPhone (but that the answer was not now Android). There were also many good comments left here at the blog.

I thought I'd do a short follow up. Abraham Maslow invented the "law of the instrument" in 1962, usually described with his immortal quotation "When the only tool you have is a hammer, it is tempting to treat everything as if it were a nail."

The mobile phone is FAR MORE than just an applications platform. Just like your tool box has far more tools than a hammer, you have a saw, a screw driver, a wrench, a drill, etc, so too the mobile offers FAR more than just an OS for installing apps. To start with, every smartphone also has a browser. In far more cases, a browser-based solution will be adopted than a user installing an app. Look at the internet and the PC, how much more we consume browser based content than install apps to our laptops. It is even more so on mobile, where all apps, including user-installed "app store" apps and employer-installed apps on employee phones like a Blackberry, and all pre-installed apps that come pre-installed to our phones, were worth 7 Billion dollars in 2008. Meanwhile mobile content services (excluding messaging) was worth ...72 Billion dollars. Both opportunities are near ten years old on mobile, and the mobile services are over ten times bigger than the apps.

But apps you can only do on a real smartphone, of which there are about 550 million currently in the world - about 14% of the installed base of mobile phones. There is at least a very basic WAP browser on over 90% of all phones so you can reach an installed base of over 3.5 Billion unique phones. Seven times bigger opportunity in scale. And how many use browser-based services? IBM told us that 29% of all mobile phone subscribers use browser services which is 1.3 Billion people. How's that for them apples? If you have a successful Apple iPhone App Store app, you can reach a maximum of 35 million people. If you deploy your app on RIM/Blackberry you reach twice as big a market. On Symbian you reach an 8 times larger user base than all iPhone users. But even if you deploy on all smartphone platforms, Symbian, RIM, iPhone OSX, Windows Mobile, Android, Palm etc etc etc - you only reach 550 million people, maximum. Compare that with an active user base of 1.3 Billion who use browser based services on their phones. The total active user base on browser services (including WAP) on phones worldwide is 'only' 37X bigger than the total installed base of iPhones, not all of which download apps. And the potential market for browser services - the total installed base of mobile phones with some kind of browser (including WAP) is 100X bigger than the total installed base of iPhones.

Now what of your customer experience. Can you perhaps simplify it a bit, and do it on a basic multimedia solution, simple sounds, pictures, video clips, coupons, and interactivity? Why would you need to develop an app? Perhaps you can use the simple but global standard of MMS (unfortunately, the original 2 Apple iPhones were the only smartphones in the world that did not support MMS, now the newest iPhone 3GS does support this ability.). Don't think of MMS as 'picture messaging' sent from one cameraphone to another. Yes, that is a reasonable use of the standard, but MMS is a far more powerful - MEDIA - platform. Make interactive, 'engagement marketing' services on MMS. How many phones in the world are MMS-capable? Try 2.6 Billion. Yes 74X more people have an MMS capable multimedia phone, than own an iPhone. How many of those regular mass-market consumers use the MMS feature on their phone? 1.4B do. Nearly half of Asian phone owners use MMS. Why think of your mobile 'solution' as an application (for an iPhone..) when the active users of MMS are 40X larger than all who own an iPhone.

And if you want to reach the pockets of every economically viable person on the planet, then the only technology - not TV, not the PC, not the iPod or Playstation Portable or Wii or Kindle or any advanced phone - the only way to reach them all - is via SMS text messaging. The phones of all 4.6 Billion mobile phone subscribers can send and receive SMS text messages - yes that is 131X more than all iPhone owners, and over 3 Billion people are active users of SMS texting - 85X more than all iPhone owners. If you want to do a basic coupon, why try to do it on an "app" and have your customers forced to install the app etc. Every one of those customers can do SMS today. Make your coupon very simple, run it on SMS, and you have a FAR cheaper solution, that reaches yes 85X more people than the total installed base of iPhones.

NOTHING WRONG WITH MAKING iPHONE APPS

Now, lets be clear about this. If you have already developed - or are in the process of developing - an app for hte iPhone, there is totally nothing wrong with this. In the USA, you can reach 3.5% of the total US population doing this. What to do next? You need to know, that half of US smartphones are Blackberries. So ask your developers to develop a Blackberry variant to your app, and you reach about 12% of American cellphone owners. Then consider, do you want to go for the fragmented remainder of the US smartphone market. If so, consider Windows Mobile, Symbian, Android, Palm etc. I would suggest, you think very hard, and consider if you can't make a simpler version of your customer experience, and launch a browser based solution or an MMS based one.

If you are in most of the rest of the Industrialized World, and you have an iPhone App, then your next step is obviously Symbian. Outside of North America, Symbian is more than half of the total installed base of smartphones so you reach about 275 Million phones worldwide, and if we look at Europe, the advanced markets of Asia and Oceania, Symbian will get you roughly 25% of all the phones used by Europeans, Australians and Kiwis, and advanced market customers of Asia.

Again, you need to think very hard, do you then bother to develp further versions for Windows Mobile, RIM/Blackberry, Android, the new Bada from Samsung, Palm etc. Again, I'd suggest you challenge your developers to make a browser-based or MMS based adaptation of your idea, and reach a far bigger audience.

In the Emerging World, you don't start with smartphones. You start with browser based apps or MMS or SMS to begin with, and except for some cases of enterprise solutions, you won't ever bother to consider smartphone apps as such.

Now, if you don't have your mobile solution today, which way to start? It depends on your service and product, it depends on which markets you are in, and it most of all depends on your customers. But understand the scale. All user-installed apps on all apps stores worldwide, are worth only 343 Million dollars this year, and smartphones account for only 14% of all phones on the planet. If you can do apps other ways, like pre-installed apps by the manufacturer, or enterprise-installed 'employee apps' etc, you have a mobile application market size that is 20X larger. It is not the easy route to go, but the rewards are far bigger.

Then you can go for browser based solutions, and find 90% of phones able to receive your service, 29% of all users already using it, so active user base is 2.5X bigger than all smartphones of any brand, combined; and the revenues earned by mobile "VAS" ie non-messaging services are 200X bigger than all user-installed apps sold worldwide. The opportunity is so huge, you would be incompetent for not at least considering it. Developing for WAP is not easy, there are huge issues from business models and data fees to device and browser fragmentation, but look at the user base and the money. Your rivals are already there, making billions at it.

If WAP seems too challenging for now, then go MMS. If we simplify the multimedia experience to pictures, video clips, sounds, text and interactivity - typical MMS campaigns can cost under 100,000 to create, develop and run nationally - but now you reach a potential audience that is 4.7X bigger than total installed base of all smartphones and 74X bigger than total installed base of iPhones. And of those MMS phones, a massive 1.4 Billion people are active users, so your MMS campaign can reach 2.5X more people who already use MMS, than all smartphone owners, of which a significant part are not doing application downloads.

If you develop for the Emerging World, then its SMS where you start.

There is nothing wrong with doing iPhone apps, and some iPhone Apps developers will actually make money doing so. The total revenue will be very modest, on a global scale, but still of course, better than nothing. Certainly for some innovative areas, you cannot give the customer that user-experience any other way except by installing an app. That is fine.

And the iPhone is an easy development platform and has no issues of fragmentation. It is 'easy' to do iPhone apps. But that only gives you 0.7% of all mobile phone subscribers on the planet. If that is where you started, fine, now lets look where next. Mobile is by reach far bigger than the PC based internet, far bigger than television, even bigger by reach than FM radio today. Quite literally the widest-reaching mass media channel on the planet. Now that you have your cute little iPhone app, lets go for the big opportunities.

Out of 300 Million Americans, there are already more than 290 Million cellphones - all can do SMS, most can do MMS, most can do browser apps, and less than a quarter are smartphones. Only 3.5% of American mobile phones subscribers own an iPhone. Of the planet, there are 4.6B mobile phone subscribers and only 14% of all mobile phones in use is a smartphone. But two thirds of all phones can do MMS, 90% can do basic browser services and 100% can do SMS text messaging. Only 0.7% - yes less than one percent - of all who have a mobile phone on the planet, have an iPhone. Lets not obsess about iPhone apps. Lets go for the big mobile service solutions, not just apps.

If you don't know any other tools than an iPhone application, you will tend to see any solution as an App, like Maslow said about hammers and nails. We have FAR more wide-reaching services, used by FAR more people, delivering FAR more revenues. YOU can be FAR more SUCCESFUL if you understand the full tool kit at your disposal. You can create more satisfied customers, if you use the optimal tool for whatever happens to be the situation. Just today we heard that apps stores would deliver coupons? Typical hammer/nail situation. yes, it can be done, is DUMB. We can do PERFECT coupons on MMS at far less cost to deliver, better customer interaction and redemption, farther reach etc. And in most cases even simpler SMS can be used to very satisfied customers, who won't need to download anything.

Please learn about the full scope of mobile as a mass medium, don't only obsess about apps.

Comments

[ARJWright]

Another solid post; but one where I think that more folks are getting it - at least a bit more than that previous 'west coast' piece ;)

One of the things I've been playing with is how to take a site like Mobile Ministry Magazine (mobileministrymagazine.com) and decopule the website from it - if you will, make it mobile-ily engaging using mobile features that don't necessarly equal an applicaiton. The idea of doing a WRT widget or SMS services really pique my interest, the problem is getting that mindshare (in the US). Outside of the US, SMS (and language translation) is too easy not ot take advantage of.

Ya got me thinking (again).

[Kuryaki]

So if you are developing MMS-SMS solutions won't they depend on the mobile operator, so there isnt only a device fragmentation issue but also a network fragmentation... if you plan to create a MMS-SMS solution you wont hit 1.4B share, but just the ones on the network you working with...??

[Tomi T Ahonen]

Hi ARJ and Kuryaki

Thank you for the comments. Will reply to both individually

ARJ - yeah, we seem to be well in synch right now haha.. Thanks. Yeah and there is massive amounts of innovation still to be had with SMS, not to mention the much more versatile MMS. The more I see industry players taking MMS seriously, the more I see magnificent services and ideas around it. Like the TV celebrity cook in Poland (think Jamie Oliver) who has MMS cooking recipes done as free cooking advice, sponsored by soup makers Knorr. Brilliant. An engagement marketing platform.. so much more to be done.

Kuryaki - very true. Yes, its a network service, SMS, MMS and WAP all are, and it means you have to either pay consumer rates for your service if it is a niche market size or else get an aggregator or agency or someone to do the bulk rate with all of the operators/carriers in any country. That is nothing different from say television, where you have to get your ad on different networks, or say the newspaper syndicates, who deliver one of the city's main papers but not all.

That is typical of most mass media. But you are right, if you develop for a smartphone operating system, and there is a smartphone operating system based 'apps store' in your home market - none are active in all countries so far by the way - then yes, you can deploy apps to that type of smartphone, disregarding which network it happened to be on. But in most countries (not USA) in most cases, the network operators number only in the 3-5 range, like just about all of Europe (in Norway its only 2 network operators) and they have standardized ways to deal with bulk purchases of their messaging services so this is not very cumbersome. It is far less of a problem than say managing screen size resolutions on most smartphone platforms...

thank you both for writing

Tomi Ahonen :-)

[Sami]

(This comment relates to this and the previous post)

Thanks for another pair of provocative posts!

I think one of your main arguments was that iPhone-related things are "small" whereas all the other parts of the mobile business are "big". This begs just one question: so what?

Yes the iPhone is a luxury phone used by a tiny percentage of the global subscribers. So?

Yes the App Store revenues are small compared to, say, SMS or MMS. So?

You say that people should focus more on e.g. MMS as it has a vastly bigger potential market. True. But getting access to that market - and converting the potential to real sales - is another story altogether. SMS is not an easy "service" in business sense; to tap into the audience of ALL iPhone users, you need to write an app and submit it to the app store. If it's approved, you're done - from a distribution point of view anyway.

But try coming up with an SMS service and delivering that globally.. you enter a world of pain of negotiating with operators and middlemen, distributors and whatnot. Running an SMS or MMS service on a global scale is not easy. In fact it's *ucking hard (a logistical nightmare compared to Apple's App Store), which is why there aren't many of such services around.

What's more, Apple is a single commercial entity. Comparing iTunes app store revenues or even their phone sales to the global service revenue or handset sales is just not fair. And mind you, Apple is raking in some pretty good profits from their iPhone sales. For one player, their achievements are nothing to sneeze at. The fact that they haven't delivered anything dramatically new over the past year and a half and are STILL going strong just further goes to show that what they have done is a very good thing indeed.

[Romain]

Hi Tomi,

Speaking about mobile app technologies, why aren't you mentionning J2ME ? It's by far the most commonly available mobile app platform, even available on some smartphone OSes like Symbian.
J2ME is the WAP of apps, so to speak.
So if you really aim for the big numbers and really need the full interactivity and power of an application, then you need to consider J2ME

[Romain]

One more general comment about this post as well as the previous "West coast iPhone drunk" post: I think direct revenue does not give you the full picture of the "relevance" of, say, the App Store.
Software in general is increasingly shifting to a model where it becomes free, because the revenue comes from subscription, advertising or other indirect sources.
For instance I just found this IDC prediction that Open Source Software revenues will reach $8.1 Bn in 2013 at an annual compound growth rate of 22.4% from 2008, which gives us about $3 Bn in 2008.
$3 Bn is certainly "small" compared to the whole software industry, but that doesn't make Open Source software any less relevant, does it ?

So basically the App Store is no different from the whole software market: paid apps are dominated by games and content-centric apps, because consumers no longer pay for software, they pay for services and content.

[Tomi T Ahonen]

Hi Sami and Romain

Thank you for the comments. Will reply to both individually

Sami - good stuff as always thanks. You are right on all points and I did at least partly attempt to say so as well in the articles. Apple is perfectly fine to do this, they are the "BMW" of phones, a luxury brand with loyal customers and they - Apple like BMW - are far more profitable than any major rivals. Very good strategy - for Apple.

For the developers and content owners and brands, for whom I had intended the blog - I was not intending in any way to criticize Apple, they have done a brilliant job last 2.5 years in mobile, brilliant, far far better than was reasonable - and compare their performance against for example Microsoft (similar player from IT industry and West Coast) who had dabbled in this space half-heartedly for almost a decade to pathetic results..

But yes, for developers, content owners and brands, whether they have iPhone App or not, they should understand the 'real picture' of mobile apps and services, not the hype that now many perpetuate with misinterpretations of Admob data etc. That was my point. But you are right, Apple is doing perfectly in this space. (My gut says, they would do far better with that one major part still missing of my original recommendations for them - the flip/foldaway/slider keyboard, but that might never come - yet I believe as we analyze the industry, far more touch-screen + keyboard phones will sell than pure touch screens but we'll see..)

As to deploying on SMS and MMS and globally, is of course totally different to launching on iPhone App Store and selling in the USA. All sorts of globalization issues there from languages to currencies to distribution to legal matters. What we may see as fashion in the West can be seen as pornography in parts of the world etc... But that is typical for any company or service going from local to international...

And I didn't suggest it was easy haha, nothing valuable is easy..

Romain - yes, very good point about J2ME, should have included it into the article. You are right, that is in the same categorization and delivers an installed base of about 3X that of all smartphones in use. Obviously Java has all sorts of issues, but no more or less in the big sense than say WAP..

As to your second comment, where you say apps shifting to services, that was again, perhaps clumsily, my main point. That while there is yes a (modest) oppoortunity now to make money on apps via consumer apps stores, the far far (200X) bigger opportunity is on the services side.. I think we kind of agree.

Thank you both for writing

Tomi Ahonen :-)

[Boris Dragovic]

Tomi, thanks for another article that really prompts me to think.

I would tend to conclude that the bottom line is that from the point of view of an INDIVIDUAL (perhaps even an SME) businesswise the difference between 343 million and 7 or 72 billion does not make much difference. The easier and MUCH less complex path to entry, not to mention the need for very LITTLE upfront investment and considerably SHORTER time to market (iPhone market, or any other app store for that purpose) make environments such as app stores perfectly legitimate and perhaps even the only logical option for (potentially) fast turnover (not on a global scale) which is not negligible.

If we talk about global-scale markets, operator scale business, etc. and HUGE projects with ample capital and other resources (even marketing) than your article is at the right level and down to the point.

Thank you!

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