Why telcos may finally be moving past app store envy


Credit: Shutterstock / Stanislav Komogorov

Remember the early days of mobile content, before the iPhone, when you’d fire up your mobile browser and see your operator’s “portal”? Those portals are still around, incredibly, but not for much longer.

Juniper Research has just put out a report about mobile content business models and, according to the UK analyst firm, just 6 percent of content downloads now come from these portals, with the rest being attributable to third-party stores, chiefly Apple’s(s aapl) App Store and Google’s(s goog) Play store. Frankly the 6 percent figure is surprisingly high – report author Windsor Holden told me the portals in question belong to “China Mobile and two or three others”, and even those are “going to wither away over the next few years”.

And the real money isn’t even in app sales, as Holden explained:

“Only a small proportion of apps are monetized at the point of sale. On the App Store it’s at the 10 percent mark, and it’s around 3 percent on Google Play. Where the apps are really making money is in terms of in-app payments and in-app billing. If you look at the highest-grossing apps… none of them are predicated on the pay-for-download model.”

In selling all those virtual swords and poker chips, the standard developer-OS vendor split is 70-30, meaning the carrier needs to try to wrangle some share out of that 30 percent cut. Is that just wishful thinking on the operators’ part? Not necessarily.

What carriers have to offer

According to Holden, there is still a problem that needs to be solved if even more money is going to be made out of mobile apps: in order to buy apps and make in-app purchases, the customer needs to register a bank card. And who doesn’t have one of those? Kids, and a heck of a lot of people in developing countries – in these segments, the ability to buy content with pre-paid phone credit makes a whole lot of sense.

“While operators have never been the best at direct content sales, there is a growing opportunity for operators to monetize their assets,” he said. “On a number of storefronts, including those for Nokia and BlackBerry, the conversion rates when you add carrier billing go up by a factor of 5 or 6 – there’s significant uplift on second or third purchases.”(s nok)(s rimm)

In the U.S., customers of operators such as Sprint(s s) and Verizon(s vz) can do this for Android apps, and Holden reckons around 15 percent of such transactions take place through carrier billing in that country. Globally, Juniper expects carrier billing-derived mobile content revenues to soar from $2 billion to $13 billion between now and 2017.

Of course, iOS is not part of this party, as Apple doesn’t share like that. However, Holden said, the flow of second-hand iOS devices into developing nations may eventually mean Cupertino is missing out on an opportunity — would it rather share revenues, or not make any?

Welcome evolution

This shift towards giving operators a slice of the pie is, in my opinion, a good thing – not because the operators deserve it by virtue of existing (a stance they’ve taken many times before), but because it rewards them for the use of assets that only they can provide.

We can see an analogy in the slow but steady emergence of carrier apps that exploit the good old mobile phone number. In that case, the operator’s asset is its ability to manage identity — my colleague Kevin Fitchard reported just the other day on an interesting new carrier initiative called OneAPI that shows how serious they are about expanding this role. In the case of app and content sales, the carrier can capitalize on the existing billing relationship it has with its customer — this makes the smartphone game more lucrative for the carrier while making life easier for the customer (see also: carriers getting a cut of Skype credit sales).

Recent years have involved so much struggle on the part of the operators against newer, more nimble players in the mobile value chain, but carriers are starting to find a comfortable and rewarding new position in that chain. In time, this evolution of their role may reshape the mobile ecosystem yet again.

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