Ecosystems and Digital Business Models
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This document discusses ecosystems and digital business models. It provides examples of how Apple and Google built large app ecosystems through their iOS and Android platforms. It describes how ecosystems create "black oceans" where competition is nearly impossible. It introduces the concept of asymmetric business models, where companies generate profits in a different industry than where they create value. The document presents a three-step recipe for digital business models and provides examples from Apple, Google, Amazon, and WeChat.
Ecosystems and Digital Business Models
- 1. Ecosystems and Digital Business Models Telenor Digital Winners © VisionMobile.com. October 2014
- 2. VisionMobile | the analysts of the developer economy We#help#companies#understand#developers#and#create#winning#ecosystems# survey trends across 10,000+ app developers largest ever developer survey clients trusted by the top names in tech target the right developer segments unique segmentation methodology measure and improve your ecosystem performance track technology usage and awareness across 100,000s of apps
- 3. Andreas Constantinou CEO Founder, VisionMobile Adjunct Professor, Lund University @andreascon © 2014 VisionMobile 3
- 4. Digital Ecosystems and Co-creation Networks © 2014 VisionMobile
- 5. Ecosystem business models are behind most startups Top-10 companies most referenced by Angelist startups in their 1-line pitch. These account for 46% of all startup references on Angelist (2013) © 2014 VisionMobile
- 6. Apple GDP: The iOS ecosystem has grown to $180B Apple captured most of this revenue in 2013 © 2014 VisionMobile iOS platform content owners (music, books, magazines, movies content licensing revenues device sales content revenue share accessories revenue share devices App Store content platform direct revenues, user engagement premium mobile computing experience access to market revenues from sales of premium devices accessory manufacturers accessories, revenue share 6 how value is captured mobile app developers Source: VisionMobile analysis Figures for 2013 content apps and games App Store $138B iOS device revenue $27B app revenue, ads revenue and contract sales $9B content license revenue $7B accessory sales
- 7. Android GDP: an ecosystem valued at $260B Enormous defensive value for Google’s core business, but little direct value capture Handset OEMs mobile app developers technology and services © 2014 VisionMobile user engagement apps and direct revenues Play Store compatibility certification Android platform eyeballs insights technology services, free content governance app store 7 how value is captured handsets mass-market mobile computing experience eyeballs $210B handset sales $6B est. revenue from ads on Android devices $26B app revenue, ads revenue and contract sales Source: VisionMobile analysis Figures for 2013
- 8. How did Apple, Google build ecosystem empires? What can history teach us? 8 © 2014 VisionMobile
- 9. Apple, Google emerged out of the ashes of 20+ dead platforms. Only the first-mover app ecosystems survived = dead end © 2014 VisionMobile 9 2000 2001 2002 app ecosystems software platforms Android iOS Azingo Access ALP OpenWave MIDAS A la Mobile 2007 2008 2009 2010 2011 2012 2013 Comneon Apoxi Danger OS e-SIM Intrinsyc OS IXI Mobile Mizi Prizm S40 Motorola L-J Nokia GEOS OpenMoko Palm 5/6 Sasken Aria SavaJe OS SKY-MAP TTPCom Ajar MeeGo Tizen Firefox OS Windows Phone Blackberry Maemo Bada Jolla first two platforms with an app store Ubuntu bubble size = apps available Only the first-mover, app ecosystems survived
- 10. © 2014 VisionMobile 10 Apple / Google built ecosystems, not just platforms ecosystem platform technology=+people companies OS
- 11. iOS, Android built app ecosystems with superior economics app ecosystems have very different economics to platforms before them © 2014 VisionMobile software platform communications platform app ecosystem* examples Linux participants handset makers users users and developers wins by sharing costs and risks of software development connecting large number of users connecting users with developers economics economies of scale same-side network effects same- and cross-side network effects with winner-takes- all dynamics growth potential linear quadratic exponential *also referred to as a computing platform
- 12. © 2014 VisionMobile Ecosystem economics resulted in a duopoly 12
- 13. Apple, Android deliver benefits to all sides exponential growth comes from cross-side network effects across all five sides © 2014 VisionMobile mobile platforms app developers handset makers operators 13 brands advertisers reach eyeballs increase ad value with insights engage audience reduce costs be able to compete in smartphone market find choice novelty (apps) be sure of quality convenience support identity increase ARPU lock-in users achieve personal fulfilment have commercial success belong to a community
- 14. To compete, challengers have to achieve the impossible three conditions necessary to compete with Apple / Android Three conditions to compete: achieve the same outcomes cheaper/faster/better © 2014 VisionMobile mobile platforms 14 2 activate all sides of the network simultaneously for same-rate growth 1 3 Incur additional opportunity cost for participants due to limited resources (e.g. to adopt WP you have to abandon Android)
- 15. Mobile app ecosystems create black oceans Blue ocean uncontested markets no competition e.g. luxury home appliances Red ocean existing markets fierce competition e.g. mobile handsets no name Inspired by “Blue Ocean Strategy” (2005) by W. Chan Kim and Renée Mauborgne (INSEAD) Black ocean ecosystem-driven markets impossible competition e.g. app ecosystems 15 © 2014 VisionMobile
- 16. How do you compete In a black ocean? 16 © 2014 VisionMobile
- 17. © 2014 VisionMobile Leverage, don’t compete how Facebook sees the world of mobile platforms 17
- 18. FB and Amazon leverage attack weak points of ecosystems Operating systems are a commodity, no longer the basis of competition © 2014 VisionMobile operating system runtime APIs tool chain app platform monetization distribution retailing app ecosystem developers users compete head-on attack weak points duopoly leverage ecosystems 18 tools ecosystem analytics monetisation discovery *rumored $2.6B in OEM incentives for 2014. Amazon adds: +better discovery +active paying customers +integrated device * FB adds: +better discovery +ad monetisation +deep app links +free SDK bundle
- 19. © 2014 VisionMobile Successful ecosystems lock demand to supply To strengthen network effects producers e.g. developers doctors taxi drivers landlords consumers e.g. users patients taxi riders tenants 19 development distribution discovery
- 20. producers consumers © 2014 VisionMobile Successful ecosystems have 3 control points Development, distribution and discovery 20 Development Distribution Discovery Platform APIs Tools Performance management Marketplace connecting producers to consumers Monetization tools Distribution partnerships Discovery, promotion, placement, search, recommendations Curation developers users control points
- 21. © 2014 VisionMobile Asymmetric Business Models
- 22. A business model describes the rationale of how an organization creates, delivers, and captures value,... Wikipedia © 2014 VisionMobile value creation value capture value delivery “ 22
- 23. Digital changes how value is created, delivered and captured © 2014 VisionMobile 23 traditional business models digital business models value creation create a product within your industry create value in a new industry value delivery deliver through established distributors transfer value as attention (FB), intent (Google) or data (Waze) to your core industry value capture sell product for money Capture in your core industry as money Source: VisionMobile
- 24. Asymmetric Business Models: transfer value across industries handsets media retail advertising © 2014 VisionMobile devices Kindle Fire value creation value capture Amazon app store e-commerce sales App Store Google Wallet value destruction value transfer 24 devices travel Google Play ad sales Google Android Flights handsets
- 25. © 2014 VisionMobile ABM = A business model that crosses industries, by forcing profits to migrate from one industry into another. 25
- 26. Asymmetric Business Models are based on economics of complements Core product Complement A product consumed with the main product A product where a business generates profits commoditise Google core business mobile is a complement commoditise on-line advertising (90+ % of profits) Closed “Open” mobile networks handsets net neutrality Android © 2014 VisionMobile 26 commoditisation of mobile increases demand for Google products
- 27. vs. vs. © 2014 VisionMobile ABMs cause disappearance of industry boundaries competition between products inside-out thinking defined by product features what product the customer will buy? 27 Source: VisionMobile 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”
- 28. ABMs are often disguised as feature or price competition – Understand it before it’s too late Telcos saw Android and iOS as a competing ‘ringtone’ business. They set up WAC to compete with iOS and Android for apps revenues. © 2014 VisionMobile 28 2010 2012
- 29. Google is asymmetrically disrupting industry after industry © 2014 VisionMobile 29 ads Search, AdWords enterprise software Google Apps mobile Android PC Chromebook TV Chromecast, YouTube home appliances Nest travel Google Maps, Google Flights wearables Android Wear automotive Android Auto
- 30. © 2014 VisionMobile The Digital Business Model Recipe
- 31. © 2014 VisionMobile The Digital Innovation Dilemma Corporate innovation now has two options: diversify or grow asymmetrically 31 =revenues new market new market profits core business profits Diversify Grow asymmetrically Direction ! Profit from core biz to migration new market from new market to core biz Strategy acquire growth companies in new markets create complements in new markets Integrate marketing bundle core biz Act like private equity Google KPIs new revenues core business growth diversify grow asymmetrically
- 32. © 2014 VisionMobile The 3-step recipe of digital business models 32 Identify complements to your product in a new market Boost demand for complements (subsidise, use ecosystems) Bundle complements with your core business 1 2 3
- 33. © 2014 VisionMobile Example: Apple iOS ecosystem core business – consumer electronics step how Apple implements it identify complements in new market mobile apps boost demand for complements create developer ecosystem and app store bundle with core business iOS apps only available on iDevices 33
- 34. © 2014 VisionMobile Example: Google Android ecosystem core business – online advertising 34 step how Google implements it identify complements in new market mobile operating system boost demand for complements commoditise smartphones, create developer ecosystem and app store bundle with core business Android OEMs must preload Google services
- 35. © 2014 VisionMobile Example: Amazon Fire tablets and phones core business - ecommerce 35 step how Amazon implements it identify complements in new market tablets, smartphones boost demand for complements sell devices at cost to acquire users bundle with core business Bundle devices with immersive shopping experience
- 36. © 2014 VisionMobile Example: WeChat messaging app core business - ecommerce 36 step how WeChat implements it identify complements in new market Messaging apps Taxi services boost demand for complements Free messaging, 3rd party ecosystem, incentives bundle with core business Messaging is bundled with Tencent ecommerce services
- 37. © 2014 VisionMobile And now fast forward into the future..
- 38. Audience question Which industry is most likely to be disrupted next by digital business models? - Automotive - Travel - Healthcare - Energy - Logistics - Fashion - Construction © 2014 VisionMobile 38
- 39. If you could speak to 10,000 developers What would you ask them? © 2014 VisionMobile
- 40. Knowledge. Passion. Innovation. © 2014 VisionMobile Andreas Constantinou CEO Principal Analyst [email protected] +44 20 8123 1738 Track developer trends Talk to us Work With us If you could speak to 10,000 app developers, what would you ask them?