July 1, 2009

By Kate Bulkley
www.katebulkley.com

 As the impact of Apple’s iPhone resonates around the mobile industry, operators and device makers are all running to raise the bar on their own smartphones and services, hoping to catch the wave of higher revenues and customer loyalty driven by Apple.

One result, much commented on at the recent MeM conference in London, is the large number of “apps stores” that are being launched by operators and device manufacturers, from Vodafone re-configuring its Vodafone Live! WAP portal to Research in Motion (RIM) launching its own apps store this spring called Blackberry World for its 28 million devices. Nokia/Symbian is launching a publisher programme to make the “ingestion of apps” easier and to promote “innovative publishers”.

“The world has clearly changed,” said James Parton, head of O2 Litmus, part of 02. “The days of the operator trying to control the customer experience are gone. It’s much more about collaboration and partnership.”

Parton added: “Our challenge as an industry is in this mad rush to launch app stores you have to say what is my USP? If there are three app stores resident on the home page of the phone it could be confusing and the customer could get bills and customer service experiences that are very different.”

The answer, said Faraz Syed, CEO of Device Anywhere, is to chart a course where the apps don’t destroy the phone experience.

Smartphones still command less than 20% of the handsets in most developed markets (Comscore M:Metrics says that in Europe’s five biggest markets – Germany, the UK, Spain, Italy and France- smartphones represent 18.5% of the market) but the potential for increased revenue for operators from these higher-end devices has made selling them a priority.

In a keynote panel on Day 2 of the MeM conference, Orange argued it will not ignore the lower-end of the market and began including a widget player in 80% of its new Orange-branded handsets this month (June 2009). “We decided not to wait until the low-end, feature phones have the right browser in them,” said Pascal Thomas, vice president of digital innovation and communities at Orange . “Pre-pay customers will not pay €300 to €400 for smartphone and 45% of our market is prepay today.”

“App stores are a kind of fever,” says Andrea Casalini, CEO of Buongiorno. “I think there are too many of them right now.”

Likley not all of the App stores will survive, cautions Ron Czerny, CEO of Playphone. “There will eventually be only a few. The success factor is not just about the apps. It’s about the marketing and merchandising (of them) and I think we are much better at marketing than the operators.”

Meanwhile, Vodafone is convinced that phones with Web-run time capabilities are the answer to the gap between high-end smart phones and low-end feature phones and that these devices will experience significant price falls over the next 18 months.

Peter Knook, director of internet services at Vodafone, said that phones with this capability will cost less than €100 this year and be selling for under €50 in 2010. “A single function app could be installed at the point of sale for markets like India and Turkey, making the phone customised to the user and without the complexity that a browser implies.”

Knook, who joined Vodafone 15 months ago after 18 years at Microsoft, said that having Web distributing applications is a must-have because WAP portals are old technology. Vodafone has teamed up with three other big operators – Softbank Wireless, China Mobile and Verizon- to create JIL, a joint venture to develop a common platform to develop mobile services aimed at the companies’ combined 1.1 billion customers.

“Apple has changed people’s expectations,” said Knook. “They want a personalised Web and HTML at the heart of it. The idea that mobile is a different technology from the rest of the internet world is not tenable anymore. Apple shattered that.”

There is clearly also a battle shaping up for control of the customer in what the Mobile Entertainment Forum (MEF) estimates is a $32 billion global mobile entertainment market.

While operators have a direct billing relationship with their customers, other players including Apple, Google, RIM, Microsoft and Nokia/Symbian, among others, all have different motivations for offering their own operating platforms for developers to build mobile applications and services. Indeed, the large number of platforms makes developing applications to work on a number of devices very expensive.  “The industry needs to work together to develop some rules to gather developers together so we can have success like the Apple’s app store has had success,” said Orange’s Thomas. “When you talk to developers now they all want to be on the Apple app store.”

Knook says that one answer is to focus on using Web run-time as a platform for apps. “Web run-time works across a broad range of devices and it’s all based on a Javascript widget which is something that every high school graduate can write,” said Knook. “So from a development perspective you are enabling a much bigger ecosystem.”

Device makers and in particular Nokia and Sony Ericsson, are on a collision course with operators as they expand their business beyond the device itself and into services like Nokia’s Comes with Music. Already Vodafone does not allow Comes with Music on its network devices. “We don’t like spending our handset subsidies on helping Nokia sell more music,” said Knook.

Orange’s Thomas agreed: “Some applications on the device are unacceptable.”

On the other hand, Vodafone is opening up its billing engine to application providers over the course of the next 12 months. By October 2009 micro-billing capabilities should be open across eight of Vodafone’s countries with the rest following in 2010. “Opening up our billing engine allows for many more scenarios with a micro-billing capability,” said Knook.

Although there are challenges ahead the future for smart phones looks bright and the operators have taken a leaf out of iPhone’s book about simplicity of use. Now they need to package that with the advantages they bring including a billing and customer service relationship. “We think that the next step if we want to avoid being just a dumb pipe carrying bits around with maximum efficiency is to build our own services suite, which is what we are doing,” said Knook.