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Copyright VisionMobile 2013 Copyright VisionMobile 2012

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

Apps are just the tip of the iceberg


2000s: Mobile and computing are separate islands

Intelligent & open Intelligence = software

Dumb & closed

Telecom island private, vertically integrated, intelligent network

Computing island public, horizontally integrated, ‘dumb’ network


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

Intelligent & open Intelligence = software


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

Source: Eurostat household spending for 2011, VisionMobile

mobile telephony telco are the gatekeepers of the communication needs

(less than 5% of spending)

mobile computing ecosystems are the gatekeepers for the rest 95% of needs

Housing, water, electricity, gas and

other fuels 23%

Transport 13%

Food and non-alcoholic beverages

12%

Miscellaneous goods and services

11%

Recreation and culture 9%

Restaurants and hotels 8%

Furnishings, household equipment

maintenance 6%

Clothing and footwear 6%

Alcoholic beverages, tobacco and narcotics

3%

Health 3%

Communications 3% Education

3%

3%

Communications

6

household spending

EU27

household spending

EU27


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

…but, apps are just the tip of the iceberg

Source: VisionMobile

mobile telephony telco is at the center of the value distribution

mobile computing multi-polar value distribution

Housing, water,

electricity, gas and other fuels

23%

Transport 13%

Food and non-alcoholic beverages

12%

Miscellaneous goods and

services 11%

Recreation and culture

9%

Restaurants and hotels

8%

Furnishings, household equipment

maintenance 6%

Clothing and footwear

6%

Alcoholic beverages,

tobacco and narcotics

3%

Health 3%

Communications 3% Education

3%

3%

Communications

7


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


competition between products

inside-out thinking

defined by product features

what product the customer will buy?

8

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.


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

mobile computing

1M apps (encompassing all user needs)

mobile telephony

4 apps (voice, text, contacts, camera)

new & unpredictable proven & predictable business models

value creation

value capture

ecosystem owners and participants

telco and their suppliers


value distribution

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

telco

9


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

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

identify complements to your product

boost demand for complements and ensure supply

bundle your product with the flow of value

1 2

3 4


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

Complement Core product

Product demand increases as complement price decrease

A product consumed with the main product


Apple ecosystem recipe

12


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

13

Bigger than combined

magazines, newspapers

ebooks

music, movies apps, games


Why Apple is in the media and apps business?

Source – TechCrunch, Company reports

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

14

“ iP

hone

Mac

iTunes

iPad

We run the App Store just a little over breakeven” Peter Oppenheimer, Apple CFO


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

iOS platform

developers sw publishers

content retailers content owners internet players

brands verticals

operators

subsidies

users and data plans

content, apps and services

contributes App Store to offer $$$ and user engagement

premium product experience

premium $$$

telcos reduce friction for the iPhone business

accessory manufacturers

complements, revenue share

access to market

15

contribution

how value is captured


Apple iOS ecosystem recipe

ecosystem recipe

redefine the market

communicate, play , work and relax on the go

(computing on the go)

complements apps and content

boost demand make it easy for users to discover and obtain apps

bundle with demand

Apple devices


Google ecosystem recipe


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


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.

Google strategy pillars: Flatten, expand & mine

19


The mechanics of Google Android ecosystem drives eyeballs, consumer insights and commoditization of mobile

Android platform

app developers media publishers

Google

Handset OEMs operators

handset subsidies

data plans, app sales rev. share

handsets

technology and design

content, apps and services

monetisation & user reach

eyeballs, insights contributes

mobile platform

mass-market product experience

eyeballs

telcos reduce friction for Android distribution

20

contribution



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

Apple devices Google services Play, Search, Maps,

YouTube, Plus, Gmail, Drive


Amazon ecosystem recipe


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

23

Kindle devices (“mobile storefront”)

books and media

E&GM

platform for 3rd party sellers

(2M sellers)


Amazon: A $60B e-commerce empire but running on a single-digit profit margins

Amazon 2012 revenues: $61.1B

Electronics & General

Merchandise Electronics Computers

Home, Garden & Tools

Grocery Health & Beauty

Toys, Kids & Baby Clothing, Shoes

Jewelry Sports & Outdoors

Automotive & Industrial

Media Books Music

Movies Games

Software

Other services AWS, credit cards, other seller sites, …

$19.9B 33%

$2.5B 4%

$38.6B 63%

24


What business is Amazon in?

25

“Amazon is in the business of taking the right decisions for customers”

Amazon VP of Design, Brian Kralyevich at SXSW


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

Traffic to Amazon

Recommendations

26

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)


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

Online ads

Affiliates

$$$ - Search ads

Traffic to Amazon

$$$ - Referrals

Traffic to Amazon

$$$ - Amazon apps

Traffic to Amazon

$$$ - Device subsidies

Traffic to Amazon

$$$ - Revenue share

Traffic to Amazon

Smartphone apps

Subsidized devices

Telco/OEM as affiliates Source: VisionMobile


“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

28

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


The mechanics of Amazon Kindle ecosystem drives “foot traffic” to its retail properties making most of Amazon users

Amazon Fire platform

content and E&GM retailing

applications and services

monetisation & user reach

Personalized content and shopping

experience

traffic

app developers media publishers

open–source OS

proven software stack contribute devices

traffic

29

nothing

contribution



Amazon is playing in winner-takes-all market reinvests the profits to become the only winner

source: Ben Evans

invested $13.9 in fulfillment infrastructure including 50 new facilities since 2010


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

ecosystem recipe

redefine the market

computing on the go

affordable mobile internet

convenient lean- back 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

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

market telco and OEM

thought they own

contribute content, killing telco content

business

device sales




thought they own


business

device sales

contribute mobile platform, killing traditional OEM business

eyeballs and consumer intelligence




thought they own


business

device sales



contribute devices turning distribution

on its head

e-commerce traffic




thought they own


business

device sales



contribute devices turning distribution

on its head

e-commerce traffic

user engagement contribute services, bleeding core telco business


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


emerging model hardware = distribution

traditional model hardware = profits

No Name

take most profits

“demolition derby” break-even or

lose money

37

? ?


Taking it to extreme: Handsets as a distribution channel

38

high-end specs

promotes a politician


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

Copyright VisionMobile 2013 Copyright VisionMobile 2011

Knowledge. Passion. Innovation.

Let’s talk!

[email protected] Michael Vakulenko | Strategy Director | +44 2033 844166

Updated: 12 November 2010

digitalwinners2013: michael vakulenko shared

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