VisionMobile - Business models of mobile ecosystems - Digital Winners

VisionMobile Ecosystems Workshop at DIGITAL WINNERS
November 2013
Copyright VisionMobile 2013

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apps, devices

shifting basis of competition
asymmetric business models
cross-industry competitive arenas

3

Apps are just the tip of the iceberg

2000s: Mobile and computing are separate islands
Telecom island
private, vertically integrated, intelligent network

Computing island
public, horizontally integrated, dumb network

Dumb & closed

Intelligent & open
Intelligence = software

4


Today: Mobile computing brought the two together
Convergence led to clash of business models and emergence of new leaders

Intelligent & open
Intelligence = software

5


Fundamental shift in how value is created
value is created on top of digital ecosystems in all aspects of user needs

mobile telephony

mobile computing

telco are the gatekeepers of the communication needs
(less than 5% of spending)

ecosystems are the gatekeepers for the rest 95% of needs

Communications
Health
3%

Communications
3%

Alcoholic beverages,
tobacco and narcotics
3%

3%

Housing, water,
electricity, gas and
other fuels
23%

Clothing and footwear
6%

household
spending
EU27

Furnishings,
household equipment
maintenance
6%

Education
3%

household
spending
EU27

Transport
13%

Restaurants and hotels
8%

Recreation and culture
9%
Miscellaneous goods
and services
11%

6

Source: Eurostat household spending for 2011, VisionMobile

Food and nonalcoholic beverages
12%


Fundamental shift in how value is captured and delivered
asymmetry challenges the very fundamentals of traditional business models
Communications

3%

mobile telephony
telco is at the center of the value distribution

Alcoholic
beverages,
tobacco and
narcotics
3%
Clothing and
footwear
6%

Health
3%

Communicatio
ns
3%

Education
3%
Housing,
water,
electricity, gas
and other fuels
23%

Furnishings,
household
equipment
maintenance
6%
Transport
13%

Restaurants
and hotels
8%

Recreation and
culture
9%

Miscellaneous
goods and
services
11%

Food and nonalcoholic
beverages
12%

mobile computing
multi-polar value distribution

…but, apps are just
the
tip of the iceberg

7

Source: VisionMobile


Fundamental shift in how competition is defined
challenges business models of incumbents

competition between
products

competition between
industries

inside-out thinking

outside-in thinking

defined by product features
what product the customer will buy?

defined by product benefits
what customer is trying to get done?

vs.

vs.

“selling a newspaper”

“killing 10 minutes of time”

vs.

vs.

“selling a phone service”

8

“keep in touch with friends”


Fundamental shift in the basis of competition in mobile
companies need new capabilities to compete in this new market environment

mobile telephony

mobile computing

4 apps

1M apps

(voice, text, contacts, camera)

(encompassing all user needs)

value
creation

value
distribution
value
capture

telco and
their suppliers

ecosystem owners
and participants

business
models
9

telco

proven & predictable

new & unpredictable


digital ecosystems
(iOS, Android, Amazon, FB, …)


The success formula of ecosystem business models
based on case studies of Apple, Google, Amazon, Facebook, KakaoTalk, and others

1redefine the market in terms of what customer is trying to get done
3

2 identify complements to your product

boost demand for complements and ensure supply

4 bundle your product with the flow of value

10


The 101 of economics of complements
widely used by Internet players in competitive strategies

Core product

Complement

A product consumed
with the main product

Product demand increases
as complement price decrease

11


Apple ecosystem recipe

12


Apple media business – a $8.5B empire? (fiscal 2012 )
but the real story is bigger than that

apps, games

magazines,
newspapers

Bigger than
13

music, movies

ebooks

combined

Why Apple is in the media and apps business?

iPhone

Lion share of Apple revenues are coming from sale of iPhone, iPad and Mac devices

iPad
Mac
We run the App Store just a little over breakeven
iTunes

Peter Oppenheimer,
Apple CFO
14

Source – TechCrunch, Company reports


The mechanics of Apple iOS ecosystem
ecosystem around iOS platform is designed to drive hardware sales

telcos reduce friction
for the iPhone business

contributes App Store
to offer $$$ and
user engagement

content, apps
and services

users and data plans

access to market
complements, revenue
share

subsidies

operators

developers
sw publishers
content retailers
content owners
internet players
brands
verticals

iOS platform
premium
product experience

accessory
manufacturers

premium $$$

contribution
how value is captured

15


Apple iOS ecosystem recipe
ecosystem recipe
redefine
the market
complements

apps and content

boost demand

make it easy for users to discover
and obtain apps

bundle
with demand

16

communicate, play , work and
relax on the go
(computing on the go)

Apple devices


Google ecosystem recipe

17


Why Google is in the mobile business?
Lion share of Google revenues is coming from online advertising

18


Google strategy pillars: Flatten, expand & mine
Flatten anything standing between eyeballs and ad inventory
Uses the economics of complements to increase the value of Google’s core
product. Android and Chrome strategies are examples.

Expand the footprint of ad inventory
Across user journey by introducing new services like Gmail, Google Maps,
YouTube, Google TV.

Mine information on every user
Helps Google to better micro-target users directly increasing the value of its
inventory. Mobile payments will provide even more customer intelligence.

19


The mechanics of Google Android ecosystem
drives eyeballs, consumer insights and commoditization of mobile
Google
app developers
media publishers

telcos reduce friction
for Android distribution

eyeballs,
insights

contributes
mobile
platform

monetisation
& user reach
content, apps
and services

data plans,
app sales rev. share
handset subsidies

operators

technology and design
handsets

Android platform
mass-market
product experience

Handset OEMs

eyeballs

contribution

20


Google Android ecosystem recipe
ecosystem recipe
redefine
the market

computing on
the go

affordable mobile
internet

complements

apps and content

handsets, networks
and apps

boost demand

make it easy for users
to discover and obtain
apps

commoditise
handsets, networks
and apps

bundle
your products

21

Apple devices

Google services

Play, Search, Maps,
YouTube, Plus, Gmail, Drive


Amazon ecosystem recipe

22


Amazon: From books to dominant e-commerce platform
transformed itself expanding onto new areas and business models

Kindle devices
(“mobile storefront”)
platform for
3rd party sellers
(2M sellers)

E&GM
books and
media
23


Amazon: A $60B e-commerce empire
but running on a single-digit profit margins
Amazon 2012 revenues: $61.1B
Other services
AWS, credit cards,
other seller sites, …
Electronics &
General
Merchandise
Electronics
Computers
Home, Garden &
Tools
Grocery
Health & Beauty
Toys, Kids & Baby
Clothing, Shoes
Jewelry
Sports & Outdoors
Automotive &
Industrial
24

$2.5B
4%

$19.9B
33%
$38.6B
63%

Media
Books
Music
Movies
Games
Software


What business is Amazon in?
“Amazon is in the business of taking
the right decisions for customers”
Amazon VP of Design, Brian Kralyevich at SXSW

25


Amazon expertise: Convert engagement into sales
The retailing business depends on ‘foot traffic’ to Amazon and depth of consumer insights

Recommendations

Traffic to Amazon

20%-30% of sales come from recommendations **
Only 16% of people go to Amazon with
explicit intent to buy something **
(** Andreas Weingend, ex Chief Scientist at Amazon)

26


For Amazon, Kindle is an alternative to Google
’foot traffic’ can be acquired by ads, affiliates, developing apps or subsidizing devices
$$$ - Search ads

Online ads

Traffic to Amazon

$$$ - Referrals

Affiliates

Traffic to Amazon

$$$ - Amazon apps

Smartphone apps

Traffic to Amazon

$$$ - Device subsidies

Subsidized devices

Traffic to Amazon

$$$ - Revenue share

Telco/OEM as affiliates

Traffic to Amazon


“Our business approach is to sell premium hardware at
roughly breakeven prices. We want to make money when
people use our devices – not when people buy our devices.”
Jeff Bezos, Amazon

http://www.sec.gov/Archives/edgar/data/1018724/000119312513151836/d511111dex991.htm

28


The mechanics of Amazon Kindle ecosystem
drives foot traffic to its retail properties making most of Amazon users
app developers
media publishers
monetisation
& user reach

applications
and services

content and E&GM
retailing

traffic
contribute devices

nothing

Amazon
Fire platform

Personalized content
and shopping
experience

proven software stack

open–source OS

traffic

contribution

29


Amazon is playing in winner-takes-all market
reinvests the profits to become the only winner
invested $13.9 in fulfillment infrastructure including 50 new facilities since 2010

source: Ben Evans
30


Amazon ‘Fire’ ecosystem recipe
all play in devices, but for very different reasons and with different business models

ecosystem recipe
redefine
the market

affordable mobile
internet

convenient leanback shopping

complements

apps and content

handsets,
networks and apps

tablets

boost demand

make it easy for
users to discover
and obtain apps

commoditise
handsets,
networks and apps

sell tablets at cost

bundle
your products

31

computing on
the go

Apple devices

Google services

Play, Search, Maps,
YouTube, Plus, Gmail, Drive

Kindle as a mobile
storefront’


What about telco?

Telecom was disrupted by asymmetric competition
that forced value migration from telecom to adjacent industries

contribute content,
killing telco content
business

market
telco and OEM
thought they own

device sales

33



eyeballs and consumer
intelligence
contribute content,
business

contribute mobile platform,
killing traditional OEM business

market
telco and OEM
thought they own

device sales

34



intelligence
contribute content,
business
device sales

35


market
telco and OEM
thought they own

contribute devices
turning distribution
on its head
e-commerce traffic



intelligence
contribute content,
business

market
telco and OEM
thought they own

device sales

contribute services,
bleeding core telco business

36

contribute devices
turning distribution
on its head
e-commerce traffic

user engagement


The 3rd wave of disruption in the handset market
hardware becomes distribution vehicle for digital services and e-commerce

traditional model
hardware = profits

emerging model
hardware = distribution

take most
profits

“demolition derby”
break-even or
lose money
No Name

37


?

?


Taking it to extreme: Handsets as a distribution channel

high-end
specs

promotes
a politician
38


The success formula of ecosystem business models
Use the formula to greatly increase your market opportunity
redefine the market
identify complements
boost demand
bundle with the flow

If you don't, someone else will

39


Knowledge. Passion. Innovation.

Let’s talk!

michael@visionmobile.com
Michael Vakulenko | Strategy Director | @mvakulenko

Updated: 12 November 2010


want more?

“Mobile Innovation Economics”
first-of-its-kind workshop on the
mechanics of mobile business models
http://visionmobile.com/strategy


VisionMobile - Business models of mobile ecosystems - Digital Winners

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