The industry has long talked about operators evolving into smart pipes by exposing a variety of network based assets for developers to use in their services and applications. The pressure on carriers to do so is certainly mounting. Smartphone sales are blazing and the market for mobile phone applications and browsing is going gangbusters, yet other than revenue from selling data operators are not seeing a lot of the action, particularly as app sale growth is happening through OEM stores rather than carrier portals. Take Telecom Italia just as one example:
- For the first three months of 2009 it reported a 27% drop in content revenue over the same period the previous year from €343m to €250m. This compares to 13% growth in browsing revenue from €469m to €530m.
Therefore increasingly, operators are considering how they can enter the value-chain of applications and services delivered over the top of their networks by exposing network capabilities such as their charging platforms, user location, presence, and user profile information to developers via APIs. There certainly seems to be demand for it if the Mobile Entertainment Forum’s Smart Enablers web seminars have been anything to go by. During these presentations the BBC and Yellow Pages, among other content providers, clearly stated that they hope in future to be able to access carrier information such as network latency for video streaming and user location data.
The stumbling block remains how operators commercialize these assets in a way to make it worth their while, while not employing a model that discourages the developer community. Alcatel-Lucent (ALU), a company that usually sells equipment, has come up with what it believes is a solution. Its Open API service, which will be discussed in more detail in an up coming Insight titled, Commercial Model A Stumbling Block To Alcatel-Lucent's Open API Service, proposes a revenue share model to compensate operators for sharing network based data with developers.
ALU proposes developers take between 60%-75% of application revenue, operators between 7%-10%, 3% to ALU to cover costs and the remainder to any third-party API providers such as advertising networks.
ALU claims to have already signed up some operators to Open API, but my initial thought is that at 7%-10% carrier revenue share represents a significant discount on the 30-70% operators currently receive from billing. Although I believe this type of revenue sharing agreement and API aggregation model is the way forward, the big questions are whether operators see it that way, and importantly, whether or not they are prepared to lower their lucrative 30-70% revenue share?
Nitesh Patel