Building a Digital Ecosystem

The Evolving Imperative

July 2010

A presentation by Subrahmanyam KVJ

Telecom operators are facing significant pressure on their core voice services and competition from Internet players
Most mobile operators have been seeing a steady decline in ARPU« Vodafone ARPU in UK, in £, Q2 08/09 ± Q4 09/10 «And they are also facing significant competition from overthe-top players

Apple¶s iTunes ecosystem effectively cuts out the operator from the billing relation that they share with the customer

Multiple Google services are aimed at generating revenue on top of infrastructure that telcos build and maintain |2
Source: Vodafone annual report

Traditional content players are also facing tough times
Music Industry Trade Sales (US $ Bn), Global, 2004-2008

News Paper Circulation (Mn), US, 2004-2008
57.8 55.3 53.2

TV as a proportion of total advertising spend, UK, 2003-2008

29.6% 29.6%
51.2 49.1


19.4 18.4

26.9% 26.5%

















Source: IFPI Statistics; Newspaper Association of America; Ofcom¶s Annual Communications Report, 2009

These pressures are forcing telcos to partner with a wide range of players
Ecosystem Partners Details

Nokia Ovi

Nokia, Mobile operators, developers

Ovi is Nokia·s attempt to create a mobile ecosystem that can act as an alternate to Apple·s iTunes platform


Google, Mobile operators, Device vendors, developers, chipset vendors

Android is Google·s attempt to create a strong ecosystem on an open-sourced platform that brings together a plethora of players

Source: Company websites

Telcos will need to take a clear three-step approach towards developing such ecosystems
1 2 3

Develop Partnerships

Differentiate Portfolio

Drive Adoption

Partnerships with key players in the ecosystem, including developers, device vendors, and content players

Follow consumer usage trends, lower usage barriers and make available multiple monetization models to partners

Adopt sequential launch approach, simultaneous promotions from all stakeholders involved


The rapid rise of interactive applications on the three screens will require operators to focus on independent developers


Rise of smartphones has given the mobile applications space a strong boost

‡ Independent developers play a key role in the development of an effective application ecosystem, as evidenced by Apple·s success ‡ Apple offers developers an easy way of submitting their apps and earning revenues


Rise in popularity of social gaming is encouraging development of apps for PCbased services

‡ Apple·s straight-forward 70% commission to developers was much more transparent and perceived fair when compared to mobile operators ‡ The value of the ecosystem is directly proportional to the number of active developer community


Development of powerful software for third-party set-top boxes and increasing processing capabilities of TVs is likely to boost uptake of apps on TV

‡ Apple has over 225,000 apps available on a device base of around 60 Mn, while Symbian has only 6,900 apps on a device base of over 390 Mn |6

Source: Vision Mobile, ³Mobile Developer Economics 2010 and Beyond´, July 2010

The mobile applications space currently has the most potential, following the significant success of Apple¶s App Store
Apple·s app store has seen strong uptake in downloads« Apple App Store, No of Downloads (in Mn) and No of Apps, July 2008- Jun 2010 5,000
225,000 3,000 1,500 500 0 500 Jul-08 65,000 120,000

«This growth is expected to be the key driver for overall mobile applications market Mobile applications stores¶ downloads and revenue, in Millions, Worldwide, 2009-2013 $ , 7


$ ,77

$ ,
15,000 Jan-09 Jul-09 Jan-10 Jun-10

8 , 7 |7


Source: Gartner, ³Gartner Says Consumers Will Spend 6.2 Billion in Mobile Application Stores in 2010´, Jan 2010; Apple press releases

On the mobile platform, telcos should partner with device vendors, third-party app stores and independent developers
Category of Partner Potential Partnership Details Indicative Examples

Device Vendors

Partnerships for operator billing for operator·s app store; Helps in reducing barriers to consumer usage

Third-Party App Stores

Partnerships for providing ready access to existing app portfolio; Helps in scaling rapidly

Independent Developers

Partnerships to encourage developers to write for the telco·s ecosystem; Helps in creating a thriving ecosystem of apps


The recent spate of announcements in the PC and TV content and applications space portend a potentially strong market
Market Indicators


Acquisitions/ Partnerships 
Xbox 360 partnership with ESPN  Roku¶s Netflix player partnership with MLB

Market Forecasts



In-Stat estimates that TV apps will generate over 1.7 Bn by 2013 in the US 

Yahoo¶s TV Widgets are available in over 100 countries and over 25% of all new Sony TVs  Google TV launched


Google¶s acquisition of LabPixies  Zynga¶s partnership with Yahoo and Google 

Social gaming market estimated at 639 Mn in 2009 and forecast to rise to 1.5 Bn in 2014 

Google planning to incorporate social games into its rumoured upcoming social networking service

Source: In-Stat, ³TV Widgets/Apps Key to Monetizing OTT Video´, Apr 2010; Screen Digest, ³Social Network Games: Casual Games' New Growth Engine´, Jul 2010; Press releases


Telcos should consider partnering with Internet players that have already made significant inroads into TV and web applications
Platform Indicative Partner Nature of Partnership Benefits for Telco
A partnership with an established and tested platform can help telcos cut down on the time-to-market



A partnership with Yahoo can help telcos integrate widgets for their IPTV offerings



Telcos can explore partnerships with social gaming companies for web applications on their web portals

For operators who are already focused on the online advertising opportunity through their portals, this offers a means of increasing stickiness

Verizon¶s Widget Bazaar for Fios TV and Softbank¶s recent investment in Zynga come across as representative examples of telco involvement
Source: In-Stat, ³TV Widgets/Apps Key to Monetizing OTT Video´, Apr 2010; Screen Digest, ³Social Network Games: Casual Games' New Growth Engine´, Jul 2010; Press releases

| 10

Differentiating the ecosystem and the service portfolio represents a significant challenge
Key challenges faced in differentiating

Threat of commoditization 

Of late, there has been a spurt in the number of telecom and media players trying to set up ecosystems; in this rush, there appears to be a focus on quantity, rather than quality  New ecosystems should strive to steer clear of the race for the maximum number of apps, and instead focus on quality

Stakeholder Lethargy 

Developers are loath to learn programming for new platforms since that involves significant investments on their part  Similarly, content players usually cite the significant costs involved in porting content for different platforms

| 11

A clear way to avoid the risk of commoditization is to encourage partners to stick closely to consumer usage
Usage statistics of mobile applications on iPhone and Android platforms, Jan 2010

‡ For instance, mobile app developers in the ecosystem should consider developing apps only for the most popular categories of applications on existing platforms ‡ Similarly, in the online TV platform, ecosystem operators should carefully introduce content from partners that is already popular in the traditional linear TV

Source: Flurry

| 12

Ecosystem operators should strive to lower the usage barriers in order to differentiate their platform
Case Study of Amazon·s Kindle

Bundled Access Pricing   Whispernet (Cloud Access)   Reading Experience 

Kindle users do not need to pay for additional data access charges globally; the cost of network access is built into the cost of the device This helps users focus on consuming content, than worrying about incidental costs of usage Kindle users can access their purchased content from the cloud on any of the multitude of devices that Amazon offers the Kindle application on This helps consumers to move effortlessly between devices, yet seamlessly access content Kindle¶s E-Ink screen attempts to create an experience close to reading a physical book By making technology work with consumer habits, rather than expecting consumers to change usage patterns, Amazon has separated itself from the competition | 13

Content services delivered in the ecosystem should ensure that they closely follow evolving consumer trends
‡ Attention deficit ‡ Preference for short-form content Snacking

On-Demand ‡ Media consumption is now µPull¶ ‡ Linear is passé

Real-Time ‡ Consumers want content NOW ‡ Real-time need is platform-agnostic

Social ‡ Content from social network takes priority ‡ Hyper-local is the new buzzword

| 14

Ecosystem operators should also try and ensure that they have easy-to-implement monetization models available for partners
Illustrative Use Cases of Various Monetization Models

Pay Per Use

Bundled with Device
Limited access to content with new TVs -NA-



In-app Purchases


On-demand Content On-demand Content On-demand Content

Subscription plans to premium content Subscription to web apps with premium content iPad-style on-demand network access

Ad support on TV widgets/apps Ad support on web apps Integration of mobile apps with adverts

Ability to purchase inside TV apps Billing integration inside web-based apps In-app purchasing for mobile apps | 15



Kindle-style pricing

Ecosystem operators should adopt a sequential launch strategy in releasing the elements of the ecosystem
1 2 3




Currently, the largest audience for any ecosystem is the PCusing consumer base, and they should ideally be made the first target

After the ecosystem operator has gained experience, then they should move on to mobile, where innovation bar is quite high

Since the TV digital ecosystem is still in a developing phase, it should be approached after gaining significant experience on the other platforms
| 16

Ecosystem promotion should be a simultaneous joint activity between all the players

Social Media

Content Partners


Device Vendors

Telecom Operator | 17

In Summary«

Ecosystem creation or participation in one is fast becoming an imperative for telecom and media players
Image Credits: Flickr users Ben Heine and FlightlessXbird

Sign up to vote on this title
UsefulNot useful