The battle to dominate the ecosystem
The first thing to recognize is that the mobile ecosystem is neither homogenous nor platform agnostic. Rather, it is heavily influenced by a small number of dominating platforms that, if truth be told, wield the power to transform the entire industry and its key value chain components.
Generally speaking, platform markets eventually tend to standardize around just one or two platforms. In the mobile space, Apple* and AndroidTM currently dominate and – between them – they enjoy around 80 percent market share. Yes; Android is the clear winner in terms of unit sales (driven in part by its recent dominance in China), but Apple is still the undisputed number one when it comes to mobile application revenue, e-commerce and web traffic.
What these platforms recognized early on was that their success would depend on a robust application developer community to drive market demand. In turn, the increasing scale of the successful platform would attract financial investment in the form of more application development. In other words, it is the app stores that have become the key ecosystem control point. A platform’s place in the ecosystem, therefore, is largely based on the prevailing business and revenue sharing models between platform participants.
Competition drives innovation and choice
We have, however, also seen multiple competing business models evolving in tandem within the same geography and sector. In Europe alone, there are dozens of mobile banking platforms at work, many of which offer what are essentially identical services and – in some cases – common players.
And so it should be. For one, consumers want choice when deciding which platforms they choose to support. Nobody likes to be told that they can only use a certain phone type or a certain payment card and few would look kindly on being tied to a group of service providers simply because that’s the platform that their bank or retailer operates within.
Multiple competing platforms are also advantageous for the sector itself. Competition drives innovation and ensures that a great customer experience, as well as value for the consumer is – most of the time – a top consideration. It also helps ensure that monopoly situations do not arise, thereby focusing the ecosystem participants on providing the best services at the lowest cost.
Keeping the field wide open
The interesting part of all this is that few – if any – organizations cater to just one platform. Consider, for example, apps developers who create dozens of different versions of their programs to operate on different platform versions now in the market. The same can be said for retailers and banks which, if tied to just one platform, would be putting themselves at a significant disadvantage and limiting their accessibility.
Obviously, participating on multiple platforms ushers in a set of different problems. Increased cost, multiple service offerings, rising complexity and even competing go-to-market strategies can create a management nightmare for those with their fingers in multiple pies. Yet, until the market starts to consolidate, few organizations or operators can afford to isolate themselves within a single platform.
Taking a bigger part of the value chain
And while, to a certain extent, the beauty of a well-calibrated ecosystem is that there may not be one dominating center of gravity, it is interesting to note that many organizations are currently focused on enhancing their position within the ecosystem in order to increase their gravitational pull and therefore command a greater share of the spoils in the future.
For example, over the past 12 to 18 months, almost every major mobile operator has announced some form of innovation center dedicated to developing, incubating and commercializing new ideas and services that can be incorporated into their mobile offerings. In part, this is a defensive move to ensure that they – as mobile operators – are not relegated to offering a utility service of simply shoveling data down the pipe. But it also reflects the new and emerging revenue opportunities (such as data analytics, customer segmentation or location-based targeting) that would align nicely with mobile operators’ business models while simultaneously allowing them to own a greater share of the customer’s wallet.
No single solution
Clearly, the mobile ecosystem will not reach any type of equilibrium or steady state soon. Mobile platforms will continue to drive distinct aspects of the ecosystem, with iOS primarily addressing the ‘premium’ end of the market and Android focusing on mass market segments. Therefore any organizations playing in the mobile space – whether mobile operators, retailers, banks or technology vendors – will almost certainly want to participate in, and contribute to, a number of key platforms within the ecosystem (for now at least).
But they will also need to check their egos at the door if they hope to create a successful and sustainable ecosystem that supports future growth.
By Milan Sallaba, Partner, KPMG in the UK
* Apple is a trademark of Apple Inc., registered in the U.S. and other countries.
Android is a trademark of Google Inc.