Are Mobile App Store Efforts Damaging Handset Makers?

The conventional widsom, which is not to say the conventional wisdom is wrong, is that application richness is a key driver of value for handset brands. But are handset vendors, in general, making a mistake pouring resources into mobile app stores? Some think so.

Acoording to the "MEX Handset Industry Insight" service, since 2007, the combined average annual profit margin of the five major handset manunfacturers (Nokia, Samsung, LG, Motorola and Sony Ericsson) has fallen from 12.5 percent to 6.3 percent in 2009.

In the second quarter of 2010, margin dipped yet again, reaching 5.3 percent. In real terms, this means the total combined profit made by these five companies has fallen from about $15.1 billion in 2007 to $5.8 billion in 2009.

In other words, as important as the mobile app stores might be, the handset vendors largely cannot afford to support them.

The other part of conventional wisdom is that service providers cannot create or maintain such mobile app store initiatives as well as handset suppliers. In the long term, that might not prove correct.

If margin pressures force the app stores to be divested, among the logical buyers are the service providers, or at least some third-party entities owned collectively by service providers. People might say it is hard to do so, as rivalries between service providers are too fierce. That is true, at least in principle.

But a recent agreement by AT&T, Verizon Wireless and T-Mobile USA to collaborate on a new mobile payment business is evidence that given a big enough carrot, or a big enough stick, cooperation is possible.

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