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The apps opportunity

Operators, handset vendors, and developers are all rushing onto the 'applications' race. Is this the new gold mine?

Kushan Mitra | Print Edition: April 18, 2010

"Over one million downloads," is how Atul Bindal, President, Mobility, Bharti Airtel, described the success of Airtel's recently launched Application (App) store. In just over 20 days, with next-to-nopublicity (other than online), this store, from where mobile users with data connectivity can download software applications for a range of phones, had hit a modicum of success. And it isn't just Airtel. Other operators—Aircel, Reliance Communications and Vodafone—are all running to get into the applications game.

The reasons for the rush are multifarious. The first is an attempt to replicate the tremendous success of Apple's iTunes App Store. Since the opening of the iTunes App Store in June 2008, iPhone and iPod Touch users have recorded over three billion application downloads to date. The rush to download applications in the store has now reached 350 every second! But incremental revenue from App stores is not the reason why everybody wants a piece of the application pie, since over half of all downloads are free.

Why applications?
Applications are essentially Mobile Value-added Services (MVAS) by another name, so why is everyone so excited?

HANDSET VENDORS
Larger vendors, such as Nokia, feel that applications will build customer loyalty to a particular brand, especially as the marketplace gets increasingly crowded with new local players.

MOBILE OPERATORS
As voice rates drop precariously, operators feel that their own application stores will stand out as a marketing differentiator and will boost data usage increasing non-voice revenues.

SOFTWARE DEVELOPERS
Mobile applications are an important source of revenue from both users (paid and subscription applications) as well as in-application advertising. There is also money in developing "third party" applications for other companies.

MOBILE USERS
Applications make it easier for consumers to access entertainment/information through fewer clicks than would previously be possible, sometimes at a lower cost than before.

Krishna Dhurba, Head of Value-Added Business at Reliance Communications, explains that applications make data-enabled services easier to use. "Many users might not use the basic mobile Internet. Applications make using data on devices extremely easy." That translates into increased data usage. According to the Telecom Regulatory Authority of India, 120 million mobile users have accessed data services from their mobile devices till July-September 2009, which is the latest quarter to have been analysed. However, most operators admit that only an extremely small percentage of mobile users aggressively use data services due to the cost involved. Currently, à la carte data surfing from mobile devices costs 10 paisa for 10 kilobytes of data (therefore, a two-megabyte music file will cost Rs 20 to download over and above the cost of the track). Some operators, however, have started cheaper data plans.

The second major reason behind the application stores' growing popularity is elucidated by Airtel's Bindal. "Voice tariffs have gone into the basement. Application stores will not just boost revenues through better data revenues but also help in market differentiation," he says.

However, increased data throughput has one downside—the antiquated technology powering India's mobile infrastructure. Due to delays in auctions for third generation (3G) mobile phone licences, India's networks run on what is called EDGE (short for Enhanced Data rates for GSM Evolution). Increased data connectivity might trip the networks, many of which are already overburdened by an increased volume of voice traffic. Bindal disagrees with this contention, saying that networks are strong enough to deal with the deluge of data traffic that applications will throw up. But App vendors are not so sure.

Chintan Kartare, CEO of Eterno Infotech, which has developed a news application called NewsHunt, for multiple platforms, acknowledges that logs show multiple failed downloads for its application from Indian users. "Sometimes we wonder if these users will come back." Anuj Kumar, Executive Director, Affle, developers of a graphical-texting application, admits that the way around this is to utilise networks smartly. "Our application downloads advertising data during times when networks are less congested. This allows us to offer the application for free."

However, improvements in network technology, when 3G networks come along, are not guaranteed to help the situation. For instance, earlier this year, American operator AT&T's 3G networks collapsed under the tsunami of data that device (particularly iPhone) users demanded. But while Bindal concedes that networks might not be perfect, he says that "we have to start getting people used to data services first".

That point is best illustrated by a recent Morgan Stanley report on the Mobile Internet. The report argues that a low penetration of fixed-line telephones and an already vibrant mobile valueadded services space will mean that for emerging markets' (including China and India) users and small and medium companies, Internet access will only be through mobile phones. The inflection point (when 3G users reach 20-25 per cent penetration) will be reached when the number of emerging markets' users cross 1.09 billion. This point will come to pass by 2012 thanks to the ready availability of 3G-capable smartphones and devices such as netbooks.

The report makes clear another reason why operators are starting application stores. Using the UK as an example, it argues that users empowered by the mobile Internet change their surfing habits. A majority of mobile Internet users in India stay with the operator's "walled garden" Internet portals (such as Airtel Live and Vodafone Live) because while public Internet usage is ridiculously expensive, these portals are free.

In the UK, in the year that coincided with the launch of the Apple iPhone, the number of subscribers who visited "walled garden" Internet sites declined from 57 per cent of subscribers in 2007 to 22 per cent in 2008. While subscribers to Google climbed from 44 per cent to 82 per cent in the same time frame, Facebook, which was not on the radar in 2007, was visited by 40 per cent of mobile Internet users in 2008. Facebook, which gives away a branded application that works on most smartphones free, has been one of the biggest beneficiaries of increased mobile data usage, Henri Moissinac, Head of Facebook Mobile, said in an interview with BT earlier.

Global mobile Internet revenues (excluding India where revenues from mobile Internet are still minuscule) touched $37 billion in 2008 and were expected to grow 20-25 per cent in 2009, with advertising contributing just five per cent. Most revenues came from paid services (including online banking, travel) and eCommerce (paid downloads of applications and music) with over 76 per cent of users paying for instant access.

The imminent improvement in India's mobile Internet infrastructure with the rollout of 3G is expected to boost the demand for paid services. So, the excitement becomes palpable among Indian operators and developers. Some developers, such as Indiagames, have already made money in this applications economy. Vishal Gondal, Chief Executive Officer, Indiagames, boasts it is the largest Indian developer on the iTunes Apps store and its T20 Crazy game is the most downloaded iTunes application from India. However, he argues that operator-driven application stores have one fatal flaw. "They do not control the hardware and thus cannot control the user experience."

This, along with the inordinately long payment resolution processes on operator stores, will drive developers, especially of paid applications, from the likes of Airtel and into the arms of Apple and Nokia's Ovi Store. Adds Gondal: "And for free applications, users will increasingly go to third-party stores such as GetJar" (GetJar is an online repository of mobile applications that works on the programming language Java optimised for mobile devices).

Affles's Kumar and Kartare of Eterno, whose applications are free for users, admit that the rush among operators to get involved in application stores has meant that they are being pursued aggressively today. And not just operators. Forum Nokia, Nokia's developer outreach community, has gone into overdrive as the Finnish mobile devices company shifts into services (see Nokia Looks Beyond Handsets, BT cover, April 4). Kenny Mathers, Head, Asia-Pacific, Forum Nokia, says: "India is an important market because there are a lot of developers and a lot of consumers.

We have to support our developers by giving them information on what users want and how they should develop their applications." The Ovi Store adds around 800 new applications every month and though it is still well behind Apple, Nokia's dominance in India might be the break that Ovi Store needs. Still, that might not be easy. Operators in India have one advantage despite not controlling the hardware or the user experience—an existing financial relationship with the customer.

"Most Indian users do not have credit cards and nor do they have smartphones, where the user experience is vital. You can buy applications as you move without any billing issues," says Bindal.He claims that applications designed for lower-end "feature-phones" virtually make them into smartphones. "The key here is to understand that India will be a different market for applications," he argues. Whether it will be or not remains to be seen. However, the first chapter of India's Mobile App story has already been written.

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