Operators need to ebrace apps for new revenue streams

A new report from PwC called Embrace New Revenue Sources: Living in an Apps-driven World, suggests that in the future just 50% of operator revenues will come from text and calls. The remainder of their revenues need to come from other sources such as apps. So how’s that going to work?

The problem for the operators is this:

They have little chance to increase their call/sms/data revenues. Most people are on the package they want, including their data, and don’t feel they should pay any more for it. They also expect a free (or cheap) new phone every 18 months. Yet, the operators are having to provide more and more service for that package. At the same time, their little extras have been eroded: inter-network calls, roaming charges and data charges have all been limited by legislation.

To some extent they have no choice but to get into other revenue streams such as content and apps. The problem for the operators is that they’ve already tried apps and it didn’t work. Contrary to some perceptions, Apple did not invgent the AppStore. The operators were at it a few years before Steve Jobs launched apps on iTunes. Stores such as Vodafone’s Betavine and O2’s revolutions put apps in front of their customers. The problem with them, however, was two-fold:
Firstly from the content provider perspective it was expensive. As one developer put it, ‘it would cost £1000 to get in there, and you had about one weeks’ visibility. Unless you had a major hit on your hands, you would lose money’. Apple changed all that with their appstore, going from a B2B to a direct to consumer model, where the developer received a revenue percentage rather than paying to be there.

Secondly, there is the problem of the consumer relationship. People don’t see their mobile operator as a place for content, but more as a utility company to provide calls, texts and access to that content. The operator portal was a classic of this: users tolerated it as it was the first port of call, but they only used it as a jumping-off point to the things they really wanted. When it came to promotion on these portals, if you weren’t on the first page (the Top Deck) you were basically nowhere.

The biggest problem that the operators now have to face is that the consumer relationship for apps and content is now with the operating system: Apple’s iTunes, Android Market, BlackBerry World and Nokia’s OviStore. Changing people’s perception of operators as a utility will be hard, if not impossible to achieve. In the long-term the only solution for content revenue is to create tie-in’s and joint ventures with the OS app stores.

What is the revenue from app stores? (and how does it compare to other mobile content)

With all the hype over app stores (yes, I do believe there is a lot of hype), it’s worth putting a bit of perspective on the size of the marketing compared to other mobile-related activities:

iphone has 35 million users is 0.7% of all phones worldwide and 3.5% of the US market (yes, it has sold 50+ million, but various people are on upgrades so in terms of active users the fiture is lower).
The current value of app sales across ALL handsets was $7 billion in 2009.
The value of MMS (arguably a niche medium) was $28 billion in 2009 (1.4 billion active users).
The global value of SMS? $128 billion (3 billion users).
*figures from Portio

Whilst a lot of media types are running around telling us the future of mobile is in apps, this kind of puts things into perspective really.