The head of one of the UK’s biggest telecoms companies recently said, if he got the sack, he would go into the mobile applications business because it represents the biggest opportunity in the mobile industry.
And he’s not the only one to have noticed. It seems everyone is getting into the game, including handset manufacturers, networks, software developers, and even companies that have nothing to do with mobile.
British Airways, the Wall Street Journal, Lonely Planet and YouTube have all launched dedicated mobile applications in the past few weeks. Even charities are joining in with the RSPCA having launched a mobile application to educate users about animal welfare.
Analysts are predicting the market for applications to grow exponentially for the next few years.
It’s the ease of use of these applications that is driving their popularity. Rather than having to use the handset to go to a website and find information on the fiddly keyboard and small screen, users can download the applications onto their handsets and access the specific information they need to go back to quickly and easily.
The BA applications, for example, shows real-time flight times, and the Wall Street Journal application lets users customise feeds of news stories onto their phones.
Higher network speeds, lower data costs and more sophisticated handsets have driven the usage of mobile applications, but the launch of Apple’s App Store, which coincided with the release of the 3G iPhone, was the biggest single event behind the sudden surge in the popularity of mobile applications.
Paolo Pescatore, director of applications at analyst firm CCS Insight, says: ‘They [Apple] have not only raised the benchmark for manufacturers with the launch of the iPhone, but also for networks to have a shop window like the App Store. Apple has definitely demonstrated consumer willingness to use applications.’
Only one month after the launch of the App Store, Apple announced that 60 million downloads had been made. Many of the apps in the store are free, but despite this Apple said it had generated £15m from application downloads in the first month.
And Apple’s business model isn’t even in software. Like with the iPod, Apple’s main source of revenue is from the hardware rather than what it sells in iTunes. Still, Apple takes a 30% cut of everything the developers make from the App Store and gives them the remaining 70%.
Apple’s achievement in getting hundreds of applications developed for the iPhone and iPod Touch is also very impressive, taking into consideration the limited customer base for these devices.
Although there has been a rush in the applications market, the money flows are still undetermined. Some of the developers, such as those making games and other entertainment, are clearly in the business for making a profit from their applications through volume of sales. And these categories have been especially popular, making up the majority of iTunes’ top 10 free and paid-for application charts.
Other companies are hoping to make money by inserting ads into the applications. One example is ROK Entertainment, which inserts short ads into downloaded videos, and another is Wall Street Journal, which displays ads next to news stories, the same way as online.
But an increasing number of businesses are creating applications not to make a direct profit from them, but as customer service tools. The BA application, for example, is free to users and just an extension of the company’s online flight schedule service.
Meanwhile, handset manufacturers are putting effort into applications not necessarily to make money from them, but to enhance the appeal of their handsets.
Pescatore says: ‘The manufacturers that want to be true mass-market players are all working with content in some shape or form. And it’s not just Apple, Nokia and BlackBerry; even Sony Ericsson, Samsung and LG are getting into it.’
Apple’s competitors, like BlackBerry (RIM), have upped their game in the applications arena after the launch of the Apple App Store. Although BlackBerry has been running an applications store for its devices for well over a year, it has recently added new, high-profile names, such as Wall Street Journal, to its apps library.
However, for BlackBerry, applications are not so much about making money from software – at least for the time being – but rather the handset manufacturer hopes to sell more phones on the back of them. However, the company does take a cut of paid for applications, but also has different business models elsewhere. Rory O’Neill, director of solutions and alliances at RIM, says: ‘The innovation in applications helps us to differentiate.
‘Email was the one of the first application on mobile, so we were the pioneers for the market in terms of applications. We continue to invest in the program, and we see it as an integral part of what we do. People want their mobile phones to do more.’
Staying true to its biggest market segment, RIM offers a large number of enterprise applications and the manufacturer has been successful with getting users to go beyond email, with 70% of BlackBerry business users using applications beyond email.
‘In the enterprise application space it’s all about running your business on your BlackBerry, so most of the software we see are applications that help productivity,’ says O’Neill.
But with BlackBerry becoming increasingly consumer focused, the company also has a large suite of non-business applications, including media and entertainment. These too have proven to be very popular and the Facebook app, for example, has been downloaded onto BlackBerrys 1.5 million times since October.
Applications that are seeing the fastest growth according to O’Neill are infotainment, music and media, location-based services and ecommerce. And with GPS becoming an increasingly common feature, especially on smartphones, sat nav applications are among the most popular.
Competing with networks
Nokia’s Comes With Music handset is the application that has the networks most worried. The free, unlimited music is likely to cause huge damage to the sales of networks’ own music stores.
Pescatore says: ‘One major competitor for the networks will be Nokia, especially with music, and the carriers need to do something. Vodafone recently repositioned its music service by introducing an application to replace the browser-based service that they had before. They have made improvements to increase usage.’
Nokia is also planning to dominate the navigation space. Its existing map application, Nokia Maps, was seen as inferior to Google Maps by much of the industry, but this is likely to change very soon. Nokia’s £4bn acquisition of navigation firm Navteq will see the manufacturer produce improved navigation applications.
However, networks also have their own applications that they are trying to sell to customers, but are forced to offer these side-by-side with competing apps from handset manufacturers. When Nokia first announced the launch of its Ovi portal, some of the networks, including Orange, refused to offer any handsets with it pre-loaded for fear of losing revenue from their own application and content offerings.
Operators have since then realised that they have no choice but to offer the manufacturer apps along with their own. They are sticking to the services and applications game to avoid becoming ‘dumb pipes’ – faceless networks that only carry voice and data.
A spokesman for Vodafone says: ‘We need to be developing applications because we know what our customers want.’
However, operators do also benefit from their customers using other companies’