digitalwinners2013: michael vakulenko shared
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DigitalWinners 7-8 November Deep dive into the economics and business models of mobile ecosystems. Michael VakulenkoTRANSCRIPT
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Copyright VisionMobile 2013 Copyright VisionMobile 2012
VisionMobile Ecosystems Workshop at DIGITAL WINNERS November 2013
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Copyright VisionMobile 2013
VisionMobile | the ecosystem analysts Developer Economics The biggest, most global developer research platform
Mobile Business Models Thought-leading research for managing disruption and reinventing your business
Trends watch Tracking under-the-radar industry trends
Tier-1 clients trusted by the top brand names in mobile
Digital ecosystem experts Thought leaders in the economics of ecosystems and telecoms in the software era
Media coverage Global media reach
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Copyright VisionMobile 2013 3
apps, devices
shifting basis of competition
asymmetric business models
cross-industry competitive arenas
Apps are just the tip of the iceberg
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Copyright VisionMobile 2013 4
2000s: Mobile and computing are separate islands
Intelligent & open Intelligence = software
Dumb & closed
Telecom island private, vertically integrated, intelligent network
Computing island public, horizontally integrated, ‘dumb’ network
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Copyright VisionMobile 2013 5
Today: Mobile computing brought the two together Convergence led to clash of business models and emergence of new leaders
Intelligent & open Intelligence = software
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Copyright VisionMobile 2013
Fundamental shift in how value is created value is created on top of digital ecosystems in all aspects of user needs
Source: Eurostat household spending for 2011, VisionMobile
mobile telephony telco are the gatekeepers of the communication needs
(less than 5% of spending)
mobile computing ecosystems are the gatekeepers for the rest 95% of needs
Housing, water, electricity, gas and
other fuels 23%
Transport 13%
Food and non-alcoholic beverages
12%
Miscellaneous goods and services
11%
Recreation and culture 9%
Restaurants and hotels 8%
Furnishings, household equipment
maintenance 6%
Clothing and footwear 6%
Alcoholic beverages, tobacco and narcotics
3%
Health 3%
Communications 3% Education
3%
3%
Communications
6
household spending
EU27
household spending
EU27
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Copyright VisionMobile 2013
Fundamental shift in how value is captured and delivered asymmetry challenges the very fundamentals of traditional business models
…but, apps are just the tip of the iceberg
Source: VisionMobile
mobile telephony telco is at the center of the value distribution
mobile computing multi-polar value distribution
Housing, water,
electricity, gas and other fuels
23%
Transport 13%
Food and non-alcoholic beverages
12%
Miscellaneous goods and
services 11%
Recreation and culture
9%
Restaurants and hotels
8%
Furnishings, household equipment
maintenance 6%
Clothing and footwear
6%
Alcoholic beverages,
tobacco and narcotics
3%
Health 3%
Communications 3% Education
3%
3%
Communications
7
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Copyright VisionMobile 2013
Fundamental shift in how competition is defined challenges business models of incumbents
Source: VisionMobile
competition between products
inside-out thinking
defined by product features
what product the customer will buy?
8
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.
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Copyright VisionMobile 2013
Fundamental shift in the basis of competition in mobile companies need new capabilities to compete in this new market environment
mobile computing
1M apps (encompassing all user needs)
mobile telephony
4 apps (voice, text, contacts, camera)
new & unpredictable proven & predictable business models
value creation
value capture
ecosystem owners and participants
telco and their suppliers
Source: VisionMobile
value distribution
digital ecosystems (iOS, Android, Amazon, FB, …)
telco
9
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Copyright VisionMobile 2013 10
The success formula of ecosystem business models based on case studies of Apple, Google, Amazon, Facebook, KakaoTalk, and others
redefine the market in terms of what customer is trying to get done
identify complements to your product
boost demand for complements and ensure supply
bundle your product with the flow of value
1 2
3 4
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Copyright VisionMobile 2013 11
The 101 of economics of complements widely used by Internet players in competitive strategies
Complement Core product
Product demand increases as complement price decrease
A product consumed with the main product
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Copyright VisionMobile 2013
Apple ecosystem recipe
12
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Copyright VisionMobile 2013
Apple media business – a $8.5B empire? (fiscal 2012 ) but the real story is bigger than that
13
Bigger than combined
magazines, newspapers
ebooks
music, movies apps, games
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Copyright VisionMobile 2013
Why Apple is in the media and apps business?
Source – TechCrunch, Company reports
Lion share of Apple revenues are coming from sale of iPhone, iPad and Mac devices
14
“ iP
hone
Mac
iTunes
iPad
We run the App Store just a little over breakeven” Peter Oppenheimer, Apple CFO
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Copyright VisionMobile 2013
The mechanics of Apple iOS ecosystem ecosystem around iOS platform is designed to drive hardware sales
iOS platform
developers sw publishers
content retailers content owners internet players
brands verticals
operators
subsidies
users and data plans
content, apps and services
contributes App Store to offer $$$ and user engagement
premium product experience
premium $$$
telcos reduce friction for the iPhone business
accessory manufacturers
complements, revenue share
access to market
15
contribution
how value is captured
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Copyright VisionMobile 2013 16
Apple iOS ecosystem recipe
ecosystem recipe
redefine the market
communicate, play , work and relax on the go
(computing on the go)
complements apps and content
boost demand make it easy for users to discover and obtain apps
bundle with demand
Apple devices
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Copyright VisionMobile 2013 17
Google ecosystem recipe
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Copyright VisionMobile 2013 18
Why Google is in the mobile business? Lion share of Google revenues is coming from online advertising
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Copyright VisionMobile 2013
Flatten anything standing between eyeballs and ad inventory Uses the economics of complements to increase the value of Google’s core product. Android and Chrome strategies are examples.
Expand the footprint of ad inventory Across user journey by introducing new services like Gmail, Google Maps, YouTube, Google TV.
Mine information on every user Helps Google to better micro-target users directly increasing the value of its inventory. Mobile payments will provide even more customer intelligence.
Google strategy pillars: Flatten, expand & mine
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Copyright VisionMobile 2013
The mechanics of Google Android ecosystem drives eyeballs, consumer insights and commoditization of mobile
Android platform
app developers media publishers
Handset OEMs operators
handset subsidies
data plans, app sales rev. share
handsets
technology and design
content, apps and services
monetisation & user reach
eyeballs, insights contributes
mobile platform
mass-market product experience
eyeballs
telcos reduce friction for Android distribution
20
contribution
how value is captured
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Copyright VisionMobile 2013 21
Google Android ecosystem recipe
ecosystem recipe
redefine the market
computing on the go
affordable mobile internet
complements apps and content handsets, networks and apps
boost demand make it easy for users to discover and obtain
apps
commoditise handsets, networks
and apps
bundle your products
Apple devices Google services Play, Search, Maps,
YouTube, Plus, Gmail, Drive
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Copyright VisionMobile 2013 22
Amazon ecosystem recipe
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Copyright VisionMobile 2013
Amazon: From books to dominant e-commerce platform transformed itself expanding onto new areas and business models
23
Kindle devices (“mobile storefront”)
books and media
E&GM
platform for 3rd party sellers
(2M sellers)
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Copyright VisionMobile 2013
Amazon: A $60B e-commerce empire but running on a single-digit profit margins
Amazon 2012 revenues: $61.1B
Electronics & General
Merchandise Electronics Computers
Home, Garden & Tools
Grocery Health & Beauty
Toys, Kids & Baby Clothing, Shoes
Jewelry Sports & Outdoors
Automotive & Industrial
Media Books Music
Movies Games
Software
Other services AWS, credit cards, other seller sites, …
$19.9B 33%
$2.5B 4%
$38.6B 63%
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Copyright VisionMobile 2013
What business is Amazon in?
25
“Amazon is in the business of taking the right decisions for customers”
Amazon VP of Design, Brian Kralyevich at SXSW
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Copyright VisionMobile 2013
Amazon expertise: Convert engagement into sales The retailing business depends on ‘foot traffic’ to Amazon and depth of consumer insights
Traffic to Amazon
Recommendations
26
20%-30% of sales come from recommendations **
Only 16% of people go to Amazon with explicit intent to buy something ** (** Andreas Weingend, ex Chief Scientist at Amazon)
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Copyright VisionMobile 2013
For Amazon, Kindle is an alternative to Google ’foot traffic’ can be acquired by ads, affiliates, developing apps or subsidizing devices
Online ads
Affiliates
$$$ - Search ads
Traffic to Amazon
$$$ - Referrals
Traffic to Amazon
$$$ - Amazon apps
Traffic to Amazon
$$$ - Device subsidies
Traffic to Amazon
$$$ - Revenue share
Traffic to Amazon
Smartphone apps
Subsidized devices
Telco/OEM as affiliates Source: VisionMobile
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Copyright VisionMobile 2013
“Our business approach is to sell premium hardware at roughly breakeven prices. We want to make money when
people use our devices – not when people buy our devices.”
Jeff Bezos, Amazon
28
http://www.sec.gov/Archives/edgar/data/1018724/000119312513151836/d511111dex991.htm
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Copyright VisionMobile 2013
The mechanics of Amazon Kindle ecosystem drives “foot traffic” to its retail properties making most of Amazon users
Amazon Fire platform
content and E&GM retailing
applications and services
monetisation & user reach
Personalized content and shopping
experience
traffic
app developers media publishers
open–source OS
proven software stack contribute devices
traffic
29
nothing
contribution
how value is captured
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Copyright VisionMobile 2013 30
Amazon is playing in winner-takes-all market reinvests the profits to become the only winner
source: Ben Evans
invested $13.9 in fulfillment infrastructure including 50 new facilities since 2010
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Copyright VisionMobile 2013 31
Amazon ‘Fire’ ecosystem recipe all play in devices, but for very different reasons and with different business models
ecosystem recipe
redefine the market
computing on the go
affordable mobile internet
convenient lean- back shopping
complements apps and content handsets, networks and apps tablets
boost demand make it easy for users to discover and obtain apps
commoditise handsets,
networks and apps sell tablets at cost
bundle your products
Apple devices Google services
Play, Search, Maps, YouTube, Plus, Gmail, Drive
Kindle as a mobile storefront’
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Copyright VisionMobile 2013
What about telco?
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Copyright VisionMobile 2013 33
Telecom was disrupted by asymmetric competition that forced value migration from telecom to adjacent industries
market telco and OEM
thought they own
contribute content, killing telco content
business
device sales
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Copyright VisionMobile 2013 34
Telecom was disrupted by asymmetric competition that forced value migration from telecom to adjacent industries
market telco and OEM
thought they own
contribute content, killing telco content
business
device sales
contribute mobile platform, killing traditional OEM business
eyeballs and consumer intelligence
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Copyright VisionMobile 2013 35
Telecom was disrupted by asymmetric competition that forced value migration from telecom to adjacent industries
market telco and OEM
thought they own
contribute content, killing telco content
business
device sales
contribute mobile platform, killing traditional OEM business
eyeballs and consumer intelligence
contribute devices turning distribution
on its head
e-commerce traffic
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Copyright VisionMobile 2013 36
Telecom was disrupted by asymmetric competition that forced value migration from telecom to adjacent industries
market telco and OEM
thought they own
contribute content, killing telco content
business
device sales
contribute mobile platform, killing traditional OEM business
eyeballs and consumer intelligence
contribute devices turning distribution
on its head
e-commerce traffic
user engagement contribute services, bleeding core telco business
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Copyright VisionMobile 2013
The 3rd wave of disruption in the handset market hardware becomes distribution vehicle for digital services and e-commerce
Source: VisionMobile
emerging model hardware = distribution
traditional model hardware = profits
No Name
take most profits
“demolition derby” break-even or
lose money
37
? ?
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Taking it to extreme: Handsets as a distribution channel
38
high-end specs
promotes a politician
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Copyright VisionMobile 2013 39
The success formula of ecosystem business models
Use the formula to greatly increase your market opportunity
redefine the market identify complements
boost demand bundle with the flow
If you don't, someone else will
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Copyright VisionMobile 2013 Copyright VisionMobile 2011
Knowledge. Passion. Innovation.
Let’s talk!
[email protected] Michael Vakulenko | Strategy Director | +44 2033 844166
Updated: 12 November 2010