Let’s take a quick look at how the arrival of the iPhone fundamentally changed the Mobile Convergence [MobCon] Value Chain.
Here is the original MobCon value chain as it was around the time of the launch of the iPhone.
It was originally created back in the days when the Telco’s Mobile Convergence strategy essentially about profiting from publishing content to people on the move. It was loosely is based on what Tomi Ahonen calls the 7th Screen or the simple idea that the Mobile Phone has emerged as the dominant media platform…
If you were a content provider wanting to make money out of the 7th Screen you had to play be the Telco’s rules (i.e. They ran the app store, they did the billing and you received a small % of the subscription fee – Generally somewhere around 20-40% depending on your leverage in the deal). Although others had tried to change the content paradigm from within the existing value chain (Think Nokia) the emergence of the iPhone and the App Store proved to be a game changer.
So now let’s take a look at how the arrival of the iPhone and more importantly the rise of the app store has disrupted the Telecoms industry.
As you can see the App Store – and to a less extent the Mobile Web Browser – has displaced the Telco as the Customer’s gateway for consuming media and advertising. Apple and the other mobile media stores settle for just 30% of the take and the Telcos have lost a premium revenue stream that was in reality of negligible value compared to SMS and Voice.
So what’s next? In what ways will the MobCon value chain evolve moving forward?
Let’s explore a couple of options.
Option 1 is where history repeats itself and the Mobile Web Browser becomes the surrogate mOS just as the web browser has done on the desktop. Here the mOS is replaced by a surrogate mOS (e.g. the Mobile Web Browser or even a Facebook App) as previously described in Microsoft, Nokia, Google, Apple and the rise of the surrogate Mobile OS (Hint: Facebook).
Option 2 is where the App Stores emerge as both the dominant media platform by removing the Telco from the customer relationship by either offering free wireless access (e.g. WiFi) or by offering wireless access as a “pay as you go” or subscription option within the App Store model.
The rule of Mediocrity in Innovation suggests that the Mobile Web is a far more mediocre development platform than the Mobile Apps Platforms of Apple, Android or Windows and so the odds are in favour of the Mobile Web dominating the next iteration the MobCon value chain.
It also allows the Telecoms industry to continue to receive the bulk of the ecosystem’s revenues without having to invest resources and capital in creating expensive media content and software as per the existing web revenue pyramid. So although the pipes may well be dumb the revenues continue to be healthy.
This idea also raises the question of why Nokia didn’t just give the Smartphone App Store wave a big miss and focus on delivering the best low cost Mobile Web Phone to the market well ahead of the cycle.
Obviously Google and Microsoft are the only players in the market that has both options covered. Google with Android is has a device mOS and with Chrome the surrogate OS. Microsoft with Windows and IE.
Of the two options, the second one is far more interesting simply because it achieves something the web has failed to do so far. It significantly disrupts the Telecoms industry and has the potential to drive the cost of wireless access to $0.00… which as we have seen before is central to the MobCon theory of the long-term trend towards Mobile Convergence delivering free media and apps, across free wireless networks to free handheld devices.