April 2011

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.

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.

On the other hand the power of the Apple "Lovemark" cannot be underestimated as the App Store Gold Rush continues to gain momentum. Largely thanks to the abundance of "Cheap Money" being channelled into the sector by Venture Capital and the growing number of Start-Up Incubators taking advantage of this investment cycle.

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