Francisco Kattan

Once upon a time operator branded app stores were thought to be doing well.  After all, lots of games, screen savers, and ring tones were being downloaded on mass market feature phones.    Qualcomm bragged about its thriving developer community and Verizon’s Get it Now store was a good case study in the industry.

But then, with one swift move, Apple raised the bar and you know the rest of the story.  What a difference a year makes.  Operators are now watching from the sidelines as Apple, Google, Nokia, RIM, Microsoft and soon Palm compete for developer mind share and app store supremacy (see my last post on RIM’s recent launch).

But wait!  what happened to the argument that smartphones are only 12% of devices and it’s really the mass market devices that matter?  Well, that was a flawed argument.  What’s the use of a billion devices if developers can’t reach them? What matters is to have a well defined base of devices that developers can target easily.  This is the biggest lesson from the App Store, I think.  Apple’s developer program tag line says it all:  “The fastest time from code to customer. “ We should have learned this from the desktop: the Mac had only 5% of the market, yet it had a thriving and lucrative developer community, thank you very much.

What’s an operator to do now?

Operators will pursue one of two options, and only one of them is viable over the long term, in my opinion:

1. Compete.  Operators will push for a common set of APIs across different OEMs so they can enable a community to target their handsets and compete with the handset specific stores.   OMTP’s BONDI is a good example of a common API effort and it was touted heavily by ATT’s Ralph de la Vega in Barcelona.  The problem with these initiatives is that although they sound good, in the end, each party moves to favor its own interest.  And without broad OEM support, BONDI will fail.  Another example is the Joint Innovation Lab announced by Verizon Wireless, Vodafone, China Unicom, and Softbank.  The idea here is that since these operators have influence over their handsets, they can create a spec for their OEMs to follow and build a developer community that could reach 1 billion users, in theory.
2. Embrace and Enhance the App Stores.  Operators can leverage their network assets to enrich the applications in the App Stores and collect a fee or higher revenue share in return.  Key operator assets include presence, location, charging, messaging, call control, and subscriber profile.  The obvious example here is charging and in fact is already being planned by many of the app stores: offer a more convenient payment option to consumers (over Paypal or credit cards) in exchange for a bigger piece of the action.  But there are many more such examples.   Imagine a social networking app that shows the location and presence of your friends (after they opt in).  You could also initiate calls or multiparty conference calls with your friends, based on presence information.  If your friend looks busy (based on presence), you could also record a voice message and have it delivered as text.  You could also post a voice message on your friend’s wall for everyone to listen.  These are all consumer examples, but I bet there are also many enterprise examples.  For example, it’s not hard to imagine how a sales force automation application could benefit from location and voice or text messaging.

Unfortunately, most operators still believe they can make their walled garden, operator branded stores thrive.  However there are a few “rabbits” that will innovate and enhance the app stores with their network assets.  As an example, take a look at Telefonica’s O2 Litmus experiment.  If you are interested in this trend, you can read a lot more in the Telco 2.0 blog.

What are your thoughts?  How do you think Operators will (or should) respond to the App Stores?  Participate in the poll below and leave us a comment.