How Much Revenue can Carriers Make from Their Own Apps?
Some service providers believe they can, and must, become more active developers of applications. Telefonica and SingTel might be the best examples of such thinking.
Others have chosen to partner or acquire communications-related apps. Deutsche Telekom is a good example of that approach.
But it would be reasonable to argue most telecom service providers have not done so on a significant level, though some would argue third party development is another matter.
One can argue that is because communications service providers historically have not been good at app development or innovation, though an argument can well be made that telcos have managed a couple of key business model transitions fairly well.
The first transition was from a reliance on long distance revenue to drive profits, to mobile services. Now a transition is being made from voice revenue to Internet access and video revenue.
It would be a mistake to underestimate the significance of those shifts. Very few industries find they must replace about half their current revenue every decade or so, with revenue drivers shifting to new products.
But one might argue the telecom industry already has been through one or two such shifts, and is in the process of a couple more similar changes.
Still, there is what might be called a structural problem. Decades ago, communication apps were vertically integrated with the suppliers of network services. Voice and text messaging are the classic examples.
But even before the Internet emerged, enterprise and consumer apps were created and designed to run on operating systems independent of the communications infrastructure.
In the Internet era, all apps are designed to run independently of the underlying communication networks. That “permissionless” mode of innovation means value now is created at the top of the protocol stack, or even above the stack, at what might be called the “business” layer.
But even if telcos were very good at innovating at the business and application layers, there is another problem. The app business is quite fragmented.
Consider the supply of apps in any large mobile app store. Even if a mobile service provider were to create a functioning app in any given category, that service provider’s app still has to compete against all the other apps in the category that are available in the app store.
You might argue that ownership by the firm supplying mobile Internet access and other services might be helpful. It might. But how many apps created by mobile service providers--other than the carrier’s apps that allow you to check usage and account details, or customize your access experience in some way--do you actually use?
Some of us could probably think of one or two apps, possibly quick response code readers or navigation. But many users would struggle to identify any such apps.
In other words, the “innovation and differentiation layer got unbundled,” according to Benedict Evans, Andreessen Horowitz analyst. So any "carrier-generated" apps must compete with all others.
That is a direct result of the fact that apps now are loosely coupled with communications infrastructure.
Up to a point, carriers can bundle apps with devices. But only up to a point. And users decide which apps succeed, not device or access providers.
The point is that revenue upside from carrier apps might be quite limited.