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Digital Winners 2014: Andreas Constantinou, VisionMobile
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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�
3
© 2014 VisionMobile
Digital Ecosystems and Co-creation Networks�
© 2014 VisionMobile
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)
© 2014 VisionMobile
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
6
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
© 2014 VisionMobile
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
7
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?�
© 2014 VisionMobile 9
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
© 2014 VisionMobile 10
Apple / Google built ecosystems, not just platforms�
ecosystem� platform technology� people & companies�= � + �
OS
© 2014 VisionMobile
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
© 2014 VisionMobile
Ecosystem economics resulted in a duopoly �
12
© 2014 VisionMobile
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
13
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
© 2014 VisionMobile
To compete, challengers have to achieve the impossible three conditions necessary to compete with Apple / Android
mobile platforms
14
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:
© 2014 VisionMobile 15
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
© 2014 VisionMobile 16
How do you compete�In a black ocean?�
© 2014 VisionMobile
Leverage, don’t compete�how Facebook sees the world of mobile platforms
17
© 2014 VisionMobile
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
18
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
© 2014 VisionMobile
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
19
distribution development discovery
© 2014 VisionMobile
Successful ecosystems have 3 control points�Development, distribution and discovery
20
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
© 2014 VisionMobile
Asymmetric Business Models�
© 2014 VisionMobile
A business model describes the rationale of how an
organization creates, delivers, and captures value,...
Wikipedia
value creation
value capture
value delivery
“
22
© 2014 VisionMobile
Digital changes how value is created, delivered and captured�
23
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
© 2014 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
© 2014 VisionMobile
ABM = A business model �that crosses industries, �by forcing profits to migrate �from one industry into another.�
25
© 2014 VisionMobile
Asymmetric Business Models are based on economics of complements�
26
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
© 2014 VisionMobile
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.
© 2014 VisionMobile
ABMs are often disguised as feature or price competition – Understand it before it’s too late�
28
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.
© 2014 VisionMobile
Google is asymmetrically disrupting industry after industry�
29
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
© 2014 VisionMobile
The Digital Business Model Recipe�
© 2014 VisionMobile
The Digital Innovation Dilemma�Corporate innovation now has two options: diversify or grow asymmetrically�
31
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
© 2014 VisionMobile
The 3-step recipe of digital business models�
32
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
© 2014 VisionMobile
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
33
© 2014 VisionMobile
Example: Google Android ecosystem�core business – online advertising�
34
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
© 2014 VisionMobile
Example: Amazon Fire tablets and phones�core business - ecommerce�
35
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
© 2014 VisionMobile
Example: WeChat messaging app�core business - ecommerce�
36
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
© 2014 VisionMobile
And now fast forward into the future..�
© 2014 VisionMobile
Audience question�Which industry is most likely to be disrupted next by digital business models? - Automotive - Travel - Healthcare - Energy - Logistics - Fashion - Construction
38
© 2014 VisionMobile
If you could speak to 10,000 developers What would you ask them?
© 2014 VisionMobile
Knowledge. Passion. Innovation.
Andreas Constantinou CEO & Principal Analyst [email protected] +44 20 8123 1738
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If you could speak to 10,000 app developers, what would you ask them?