Digital Winners 2014: Andreas Constantinou, VisionMobile

Ecosystems and Digital Business Models �Telenor Digital Winners © VisionMobile.com. October 2014

survey trends across �10,000+ app developers�

largest ever developer survey

VisionMobile | the analysts of the developer economy�We#help#companies#understand#developers#and#create#winning#ecosystems#

clients�trusted by the top names in tech

target the right �developer segments�

unique segmentation methodology

measure and improve your ecosystem performance�

track technology usage and awareness across 100,000s of apps

© 2014 VisionMobile

@andreascon �

Andreas Constantinou �CEO & Founder, VisionMobile�

Adjunct Professor, Lund University�

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Digital Ecosystems and Co-creation Networks�


Ecosystem business models are behind most startups �

Top-10 companies most referenced by Angelist startups in their 1-line pitch. �These account for 46% of all startup references on Angelist (2013)


Apple GDP: The iOS ecosystem has grown to $180B �Apple captured most of this revenue in 2013

iOS platform devices

App Store content platform

device sales content revenue share

accessories revenue share

content licensing revenues

direct revenues, user engagement

premium mobile computing

experience

revenues from sales of premium

devices

accessory manufacturers

accessories, revenue share

access to market

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how value is captured

mobile app developers

Source: VisionMobile analysis Figures for 2013

content owners (music, books,

magazines, movies

content

apps and games

App Store

$138B iOS device

revenue

$27B app revenue, ads

revenue and contract sales

$9B content license

revenue

$7B accessory sales


Android GDP: an ecosystem valued at $260B�Enormous defensive value for Google’s core business, but little direct value capture

Android platform technology

services, free content governance app store

eyeballs insights

apps user engagement and direct revenues

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how value is captured

Handset OEMs

handsets

technology and services

mass-market mobile computing

experience

eyeballs

mobile app developers

Play Store compatibility certification

$210B handset sales

$6B est. revenue from ads

on Android devices

$26B app revenue, ads

revenue and contract sales

Source: VisionMobile analysis Figures for 2013

© 2014 VisionMobile 8

How did Apple, Google build ecosystem empires?�What can history teach us?�


2000 2001 2002

app

ecos

yste

ms

softw

are

plat

form

s

Android

iOS

2007 2008 2009 2010 2011 2012 2013

= dead end

Apple, Google emerged out of the ashes of 20+ dead platforms. Only the first-mover app ecosystems survived

A la Mobile

Access ALP

Azingo

Comneon Apoxi

Danger OS

e-SIM Intrinsyc OS

IXI Mobile Mizi Prizm

S40

Motorola L-J Nokia GEOS

OpenMoko

OpenWave MIDAS

Palm 5/6

Sasken Aria

SavaJe OS SKY-MAP

TTPCom Ajar

MeeGo

Tizen

Firefox OS

Windows Phone

Blackberry

Maemo

Bada

Jolla

first two platforms with an app store

Ubuntu

bubble size = apps available

Only the first-mover, app ecosystems survived


Apple / Google built ecosystems, not just platforms�

ecosystem� platform technology� people & companies�= � + �

OS


iOS, Android built app ecosystems with superior economics app ecosystems have very different economics to platforms before them

software platform

communications platform

app ecosystem*

examples Linux

participants handset makers users users and developers

wins by sharing costs and risks of software development

connecting large number of users

connecting users with developers

economics economies of scale

same-side network effects

same- and cross-side network effects with winner-

takes-all dynamics

growth potential linear quadratic exponential

*also referred to as a computing platform


Ecosystem economics resulted in a duopoly �

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Apple, Android deliver benefits to all sides �exponential growth comes from cross-side network effects across all five sides

mobile platforms

app developers

handset makers operators

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brands advertisers

reach eyeballs increase ad value with insights engage audience

reduce costs be able to compete in

smartphone market

find choice & novelty (apps) be sure of quality

convenience support identity

increase ARPU lock-in users

achieve personal fulfilment have commercial success

belong to a community


To compete, challengers have to achieve the impossible three conditions necessary to compete with Apple / Android

mobile platforms

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2 activate all sides of the network simultaneously for same-rate growth

1

3 Incur additional opportunity cost for participants due to limited resources (e.g. to adopt WP you have to abandon Android)

achieve the same outcomes cheaper/faster/better

Three conditions to compete:


Mobile app ecosystems create black oceans �

Inspired by “Blue Ocean Strategy” (2005) by W. Chan Kim and Renée Mauborgne (INSEAD)

Blue ocean uncontested markets

no competition

e.g. luxury home appliances

Black ocean ecosystem-driven markets

impossible competition

e.g. app ecosystems

Red ocean existing markets

fierce competition

e.g. mobile handsets

no name


How do you compete�In a black ocean?�


Leverage, don’t compete�how Facebook sees the world of mobile platforms

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FB and Amazon leverage & attack weak points of ecosystems �Operating systems are a commodity, no longer the basis of competition

operating system

runtime APIs tool chain

app platform

monetization distribution retailing

app ecosystem

developers users

compete head-on attack weak points & leverage ecosystems duopoly

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tools ecosystem

analytics monetisation discovery

*rumored $2.6B in OEM incentives for 2014.

Amazon adds: +better discovery

+active paying customers +integrated device

*

FB adds: +better discovery +ad monetisation +deep app links +free SDK bundle


Successful ecosystems lock demand to supply�To strengthen network effects

producers

e.g. developers doctors

taxi drivers landlords

consumers

e.g. users patients

taxi riders tenants

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distribution development discovery


Successful ecosystems have 3 control points�Development, distribution and discovery

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Development Distribution Discovery

Platform APIs

Tools

Performance management

Marketplace connecting producers to consumers

Monetization tools

Distribution partnerships

Discovery, promotion, placement, search, recommendations

Curation

developers users

control points

producers consumers


Asymmetric Business Models�


A business model describes the rationale of how an

organization creates, delivers, and captures value,...

Wikipedia

value creation

value capture

value delivery

“

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Digital changes how value is created, delivered and captured�

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traditional business models

digital business models

value creation

create a product within your industry

create value in a new industry

value delivery

deliver through established distributors

transfer value as attention (FB),

intent (Google) or data (Waze) to your core industry

value capture

sell product for money

Capture in your core industry as money

Source: VisionMobile


Asymmetric Business Models: transfer value across industries�

value capture value creation

media handsets retail advertising

Amazon app store

e-commerce sales

App Store

value transfer value destruction 24

devices

travel

Google Play

ad sales

Google Flights Android

handsets

Kindle Fire

devices

Google Wallet


ABM = A business model �that crosses industries, �by forcing profits to migrate �from one industry into another.�

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Asymmetric Business Models are based on economics of complements�

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commoditisation of mobile increases demand for Google products

mobile is a complement Google core business

mobile networks handsets

net neutrality Android

on-line advertising (90+ % of profits)

Closed “Open”

Complement Core product

A product consumed with the main product

A product where a business generates profits

commoditise

commoditise


ABMs cause disappearance of industry boundaries�

27 Source: VisionMobile

competition between products

inside-out thinking

defined by product features what product the customer will buy?

competition between industries

outside-in thinking

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

vs. vs.

“selling a newspaper” “killing 10 minutes of time”

“selling a phone service” “keep in touch with friends”

vs. vs.


ABMs are often disguised as feature or price competition – Understand it before it’s too late�

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2010

2012

Telcos saw Android and iOS as a competing ‘ringtone’ business. They set up WAC to compete with iOS and Android for apps revenues.


Google is asymmetrically disrupting industry after industry�

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ads Search, AdWords

enterprise software Google Apps

mobile Android

PC Chromebook

TV Chromecast, YouTube

home appliances Nest

travel Google Maps, Google Flights

wearables Android Wear

automotive Android Auto


The Digital Business Model Recipe�


The Digital Innovation Dilemma�Corporate innovation now has two options: diversify or grow asymmetrically�

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core business

new

mar

ket

new market

profits

prof

its

Diversify Grow asymmetrically

Direction ! "

Profit migration

from core biz to new market

from new market to core biz

Strategy acquire growth companies in new markets

create complements in new markets

Integrate marketing bundle core biz

Act like private equity Google

KPIs new revenues core business growth

diversify

grow asymmetrically

=revenues


The 3-step recipe of digital business models�

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Identify complements to your product in a new market

Boost demand for complements (subsidise, use ecosystems)

Bundle complements with your core business

1 2 3


Example: Apple iOS ecosystem�core business – consumer electronics�

step how Apple implements it

identify complements in new market mobile apps

boost demand for complements create developer ecosystem and app store

bundle with core business iOS apps only available on iDevices

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Example: Google Android ecosystem�core business – online advertising�

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step how Google implements it

identify complements in new market mobile operating system

boost demand for complements

commoditise smartphones, create developer ecosystem and app store

bundle with core business Android OEMs must preload Google services


Example: Amazon Fire tablets and phones�core business - ecommerce�

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step how Amazon implements it

identify complements in new market tablets, smartphones

boost demand for complements sell devices at cost to acquire users

bundle with core business Bundle devices with immersive shopping experience


Example: WeChat messaging app�core business - ecommerce�

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step how WeChat implements it

identify complements in new market

Messaging apps Taxi services

boost demand for complements

Free messaging, 3rd party ecosystem, incentives

bundle with core business Messaging is bundled with Tencent ecommerce services


And now fast forward into the future..�


Audience question�Which industry is most likely to be disrupted next by digital business models? - Automotive - Travel - Healthcare - Energy - Logistics - Fashion - Construction

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If you could speak to 10,000 developers What would you ask them?


Knowledge. Passion. Innovation.

Andreas Constantinou CEO & Principal Analyst [email protected] +44 20 8123 1738

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