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Apps have hit the mainstream?

3/10/09

Last weekend the Sunday Times carried a cartoon of a man listening to a seashell. His friend commented “If it can't run apps I'm not interested”.

Unfortunately it was in the In Gear section, the confused mix of healthcare, cycling, cars and gadgets. It's buried inside a section, inside another section and smacks of a 'geeks corner' designed to  keep anything techie away from the important style and culture of the main newspaper.

Applications recognised in a mainstream newspaper, but in reality it's far from something ordinary people do. One thing which masks this from the InGear readers is that they all have iPhones, Blackberries and Android phones.

Real people don't, they have Nokia 6300s, Sony Ericsson W580s and LG Chocolates, but unless you look at GfK figures your gut is led by what you see around you and because you work in the mobile industry you are surrounded by people with the latest thing.

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Those people are also tech savvy enough to have installed Google Lattitude, Maps or at least the Blackberry App World application. They might even have paid for something.

But it's a false dawn. The promise of applications being mainstream, stymied by handset manufactures and networks. Opt for a network like O2 and you'll pay  50%. The developer uses their 50% to pay for producing the code, support, marketing and any licences such as characters or music in the program. The network uses its 50% for what exactly? You might think that it would bear the costs of testing, ranging and generally making sure the O2 customer has a good experience, but that is done by an aggregator. O2 and Orange use PlayerX who charge 25% plus a fee for the testing.

There is little point in trying to go around the operators by getting the handset manufacturers to include the application.  Each new phone has a limited development budget.  The process for approval is tortuous and has very little to with the quality of the application.

Handset companies have a balancing act with new developments.  There is a list of features the new handset needs. The longest list is what the operators want. This might be T-Mobile's MyFaves, Orange's dreadful Home Screen Aggregator or Vodafone Live.

The next part of the balancing act is that each handset manufacturer needs to play catch up with features rival phones have. So if Sony Ericsson launches a smile shutter (the camera waits for the subject of a picture to smile before taking the picture) then rivals need to implement that too.

And the third thing is adding cool features that haven't been seen before so that the phone has an advantage over everything else in the market. It's this third category that has the handset manufacturers most excited but for business reasons gets the least budget. The sales people make sure that it's the first category which has all the attention.

As a third party applications provider you are going to struggle for any attention in the above squabble. The people who work with the third parties have very little influence in mobile phone companies. They are treated by the product managers as a shop “what have you got in the way of sports games”. Everything needs to be tied up and ready to go. This usually means an established relationship with the developer. It means that any names in the game or application have to be cleared for international copyright and the translations available for any language that the phone might support – typically 70 of them – and if there is a way for the handset manufacturer to make money out of the program they want a slice of that too.

All this work has to be done, with the third party application person having it sitting in his library hoping a product manager will pick it up. The internal friction in a phone company means that the lead time is huge. Some manufacturers only review their games and applications library annually. Miss the annual cut off and you won't get listed.

Most of all they don't want to pay a fixed royalty. Networks buy phones on a price curve, the handset is expected to cost less over time. This works because through mass production the costs of manufacture drop. The tooling becomes amortised over more units, the cost of the initial development and optimisation in the design which reduces the component count all bring down the cost of the phone. Parts like the baseband and app processors similarly drop over times and volumes. If a manufacturer develops their own application that too becomes amortised over volumes. It might not even show on the product manager’s costs, being part of the platform. Paying a royalty for an external app particularly one with a fixed price per unit means the cost in the bill of materials rises proportionately over time. There is an additional issue in that the networks pay less per handset over time, while costs drop over volume. This is fine for a handset which sells well early on but if it is delayed or sells slowly the margins are so thin it can rapidly mean the networks are paying less than the handset costs to produce.

Faced with these business and organisational issues the scope for a small applications company to sell in to a handset manufacturer gets close to zero. Certainly too close  to justify even economy plane tickets to Seoul, Livertyville, Lund or Espoo.

The idea of a seashell running app might be a joke, unfortunately the idea of handset manufacturers or networks understanding the value of apps is a joe too.

Important stuff:

There is massive growth potential in the Senior Market. Readers of this column can learn about it at www.seniormarket.co.uk or book with a discount at www.seniormarket.co.uk. You’ll get 15% off if you use the discount code CAT.

And think yourself lucky. A couple of Friends of Cat are sleeping rough, but it’s in a good cause. They are doing it for one night.  But the thousands of young people who are homeless on the streets of our cities experience many, many wet nights and Byte Night exists to help get those people off the streets and into shelter. You can sponsor Kevin Taylor of Company care here or Mark Needham of Widget here.

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