The mobile market is shifting to a more open, competitive service environment in which an operator's former business methods are becoming less and less effective. The traditional operator model has focused on end-users as the main source of revenues, a closed service environment, a desire to control as many points in the value chain as possible and a blinkered view of the competitive landscape that sees other operators as the most important rivals.
This has got to change and there is broad agreement in the industry that one way operators can adapt their businesses to perform better is by doing more to enable third parties.
Implementing a smart-enabler strategy is transformational in nature and as yet largely untested. To become a smart-pipe enabler, operators need to view their network assets, communications expertise, customer intelligence and other capabilities as resources that can be marketed to third parties, not just used to produce their own B2C services. This kind of approach is far from new in other business environments - notably for web services and in the software-as-a-service (SaaS) model. But in the mobile market it will involve profound changes, some of which will be painful, and not all players will be able to make the transition to achieve best-of-breed smart enabler status.
Slow process
The idea of opening up network APIs is to allow third parties to make the most of network capabilities in a way that can enhance their applications, and to generate new revenues for operators. There are a wide number of potential APIs to play with, but the focus to date has predominantly been on SMS and more recently location, with other network APIs still closed or at beta or alpha stage. Operators need to move more quickly or they will lose out, as they arguably already have with location.
Network APIs need to be considered in the context of first-generation enablers that still have currency and can be improved, such as billing and wholesale. In addition, some operators have a regional play that can offer attractive scale and reach, while others are developing cross-platform capabilities that span both fixed and mobile internet. These assets and capabilities should not be considered in isolation, but instead as part of a holistic telco platform.
There is no consensus on the commercial framework under which third parties use network APIs. A range of different models are being used, including revenue share on the applications sold, revenue share from advertising associated with applications/APIs, plus a variety of fee structures more specifically tied to activating APIs. The latter in particular can prove expensive, particularly for those applications that are by nature transaction-intensive. We believe the most equitable model is one in which there is an element of risk sharing.
In the past operators were accused of not understanding the technological requirements of developers. Currently, they are often accused of not providing the right tools - for example, a developer sandbox - or the right commercial tools such as adequate billing and settlement. Of course, the mobile network is a very different environment to the web, where business and charging models are already established. At least now operators are attempting to understand developer needs, but they must take a more nimble approach to acting on needs and implementing solutions.
Application stores are in theory attractive to operators and provide the final piece of the smart-enabler puzzle in the shape of an attractive retail distribution model for developers. From the operator perspective, it can help them to offer a wider range of applications and address the long tail of content, which they have failed to do in the past. A compelling application store can help with differentiation and improve customer loyalty, and there are wider ripple effects.
However, in our view an operator-branded application store is an option for the few.
Mackenzie and Zoller are principal analysts in Ovum's Consumer Telecoms practice