Open Mobile Survey 2012

Open Mobile:
The growth era accelerates
The Deloitte Open Mobile Survey
2012

Open Mobile: The growth era accelerates 45

Contents

1 Foreword

2 Executive summary

5 Open mobile redux

6 Emerging insight themes

8 The hypercompetitive mobile sector

12 Mining for gold

20 Software, the great disruptor

26 Industry snapshot: the surging apps economy

29 Assessing strategies and capabilities

36 Following the mobile elite

38 About the survey

39 Endnotes

41 Author and acknowledgements

46 Open Mobile: The growth era accelerates

Foreword

Just over two years have passed since our last survey of the U.S. mobile sector, and I am again delighted to present the
Deloitte Research Open Mobile Survey 2011–2012. Once more, we have selected findings from a highly targeted survey
of senior executives from organizations large and small, representing a broad range of opinions on the challenges and
opportunities the mobile industry will face in the coming three to five years. Companies represented include network
carriers, mobile device manufacturers, software applications developers and infrastructure component manufacturers, all
of which compete in an increasingly convergent and turbulent mobile sector.

As our survey insights show, much has changed in two years. The 4G era has finally arrived, and Hypercompetition has
taken hold. With it, the core elements of open mobile — accelerated development of mobile Web technology, shifting
consumer behavior and a regulatory policy landscape that is constantly under scrutiny — remain very much in flux. This
led to the issues of competitiveness, growth and innovation becoming the key themes of exploration for this year’s
research, which seeks to understand the strategies and capabilities firms are using to sustain market leadership and
capitalize on new opportunities.

I hope you enjoy our report and that you will find practical value in its insights. As always, feedback on our ongoing open
mobile research program is very welcome.

Phil Asmundson
Vice Chairman,
U.S. Media and Telecommunications Leader


Executive summary

Among the report’s findings:
About the Deloitte Research Open Mobile Series • The change in the mobile power structure is
Since 2009, the Technology, Media and Telecommunications team in Deloitte accelerating – new entrants continue to rewrite
Research has explored the advent of the open mobile era and the subsequent the rules on competition: 49 percent of respondents
shifting competitive landscape in the United States and global mobile markets. believe that Internet/web-based companies, rather
The team has produced a number of research reports and whitepapers on a wide than network carriers or handset makers, will dominate
range of strategic issues mobile technology companies face in this increasingly mobile in five years. Moreover, 89 percent believe the
turbulent industry. For more details on our current research and free downloads of role of carriers will be limited to delivering data access
all our reports, please visit: http://www.deloitte.com/us/openmobile anywhere and anytime. Meanwhile, 87 percent state
that to sustain competitiveness, carriers must make the
transition from the walled gardens of the past to new
Mobility is seemingly everywhere, and with the growing organizational models built around open development
ubiquity comes a set of unique challenges for companies ecosystems.
riding the mobile wave of opportunity.
• Mobile services are poised to dominate future
This study is the latest in a series of ongoing mobile revenue opportunities – mobile cloud, M2M and
research reports that offer insight and guidance on mobile payments thought to hold most value
maintaining competitiveness in the face of heightened potential: In the short term, a majority 51 percent
market competition and technological disruption. At the of respondents thought that mobile services in areas
core of the study is a survey on the impact open mobile such as social media and networking, location-based
will have over the three to five years timeframe. Issues technologies, and general mobile commerce etc. will
covered include the transformation of the planning, have more potential value than sub-segments such
preparation and overall strategy formulation process as mobile search advertising, display advertising and
in mobile technology-oriented companies today. The mobile software applications. Digging deeper, most
survey checks the pulse of companies in the throes of think mobile cloud computing and mobile payments
transitioning from closed business models to a more hold the biggest potential for carrier value generation
open, collaborative approach to competing in the mobile in the next three years, closely followed by increased
4G era. utilization of machine-to-machine (M2M) technologies.
With regards to the app economy, gaming is thought
The headlines this year reflect the pressing need for
to be the most lucrative paid app category for paid
incumbents to secure viable pathways to growth or
applications five years out, while apps for social
else risk being marginalized by a growing army of new
networking, broad-based entertainment and mobile
entrants from non-traditional mobile industries. To that
navigation round-out the top four. In the enterprise
end, the majority of our survey respondents believe
apps category, customer relationship management
network carrier competitiveness in the 4G era will be
(CRM) apps are thought to hold the most potential
dependent on accelerating the transition from the old,
value for developers in the next five years, closely
tightly-controlled “walled gardens” of the past to a more
followed by apps in the productivity category. Finally,
distributed approach to business model development.
85 percent of respondents believe the long anticipated
However, open mobile requires more than paying lip
arrival of HTML 5 is unlikely to impact the general
service to the idea of looking beyond the four walls of an
health of the paid app economy.
organization for inspiration. It requires a shift in mindset
away from the “old wireless” school of competition to
help companies adapt fresh thinking and compete in the
new “hypercompetitive” wireless era. The days of divide,
conquer and protect are fast disappearing and only those
agile enough to change will survive.


• Healthcare sector thought to be the most • Mobile Carriers urged to follow a managed
promising new mobile growth channel: Survey open strategy to sustain competitive advantage:
respondents were asked to nominate the top three Respondents debated the best course of action network
vertical industries where they thought 4G technology carriers could take to sustain competitive advantage in
would have the biggest impact in stimulating mobile the next 3–5 years. A majority believed that a managed
business model innovation - increasing the potential open strategy, where carriers would retain prioritized
for value generation outside of traditional mobile and control over premium assets and grant third parties
wireless markets in the process. Of those polled, 78 access to selected core network functions, would be
percent stated that the health care/life sciences sector the most likely route to sustained success. This contrasts
held the most potential, with the consumer products/ with providing full and open access to consumers,
retail industry and financial services/commerce also allowing use of any third party device and application
considered prime sectors set to benefit most from the for a flat fee, which 27 percent of respondents
emergence of 4G broadband technology. suggested would be the next best route to enhancing
competitive advantage.
• Economic downturn yet to have an impact
on planning for open mobile: On the subject of • Innovation and platform leadership thought
strategizing for the anticipated opportunities, survey to be the two most important capabilities in
respondents reported that the recent economic mobile: From a growth and performance perspective,
downturn had not affected their organizations’ respondents were asked to select capabilities important
commitment to planning for the open mobile era. to enable competitiveness in the emerging 4G era. The
Indeed, while 52 percent stated it was still very much capability to innovate — at the product or service level
business as usual, 31 percent reported that their and/or at the business model level — was thought to
individual company’s commitment had increased or be most critical, followed by the need for vision and
increased significantly, despite challenging economic commitment to platform leadership. Respondents were
conditions. At the industry level, this increased then asked to rank their own organizations’ capabilities
commitment was most apparent among network across a number of business function areas, and again,
carriers, with 48 percent reporting an uptick in open innovation topped the list, both in terms of aggregated
mobile planning commitment. average and sub-industry categories.

• Potential shifts in regulatory policy not seen as a • User experience and cross-industry potential
hurdle to market competitiveness: Other elements
of the competitive landscape, such as regulatory
policy, were also explored in the context of planning
and potential impact on revenue. Respondents on
the whole think revenue generation opportunities
will not be negatively affected with any new policy
shifts in the area of broadband net neutrality. Those
who believe that new policy in this area will enhance
sector-wide revenue generation totaled 40 percent,
while 35 percent thought the current status quo would
be maintained, despite any changes implemented
by the FCC in this area. Perhaps unsurprisingly, given
their current position in the debate, respondents from
network carrier companies were most skeptical; 36
percent believed that proposed shifts in policy will have
a negative or significantly negative effect in this area.

seen as critical success factors of mobile companies orchestrating (42 percent) or participating
platform strategies: 67 percent of survey (30 percent).
respondents work in organizations that either had
or were planning to have an open mobile strategy • Increased knowledge and learning potential
in operation. Questions were asked on the broader the main incentive for ecosystem participation:
role of platform leadership within that strategy. An Also addressed were the incentives organizations use
average of 65 percent reported that their organizations to attract partners to build or become members of
had already developed what they considered to an ecosystem network. Overwhelmingly, two main
be a mobile technology platform. A discussion on incentives were reported to ensure active participation:
the top three critical elements of the platform’s increased knowledge and learning potential and the
success then highlighted simplicity of application promise of financially lucrative opportunities emerging
development and user experience, combined with in the future between ecosystem partners (termed
cross-industry potential, were thought to be the most “shadow of the future”). This remained consistent
critical elements for success (62 percent). Use of open at the industry level with data aligned to each sub-
interface access and modular technology architectures, segment, illustrating a consensus view on incentives.
was ranked next important (52 percent) followed by
the deployment of a vibrant ecosystem to support and • Open source platforms continue to grow a
develop the platform standard (45 percent). powerful presence in the open mobile era: An
overwhelming majority (85 percent) of respondents
• Confusion abounds on the role and use of believes an open platform OS such as Android, rather
ecosystems – C-Suite yet to buy in to the than closed OS platforms, will dominate the mobile OS
importance of an ecosystem strategy for market in three years. Similarly, the proliferation of open
platform success: Interestingly, both network carrier source technology throughout the U.S. mobile sector
respondents (39 percent) and software developers (28 is predicted to remain in a steady uptick; 59 percent
percent) ranked the use of ecosystems much lower in of the survey respondents believe that investment in
terms of platform success criteria. A further analytical open source technologies by their organizations will
cut by function/decision-making was even more increase or increase significantly in the next three years.
revealing. Only 10 percent of C-suite respondents Respondents cited the biggest benefits of adoption as
believed the use of ecosystems is a critical element. twofold: improved time-to-market and reduced total
However, this seemed contrary to data collected on cost of software development and ownership. On the
the most critical elements for value generation when other hand, 64 percent of respondents view security as
developing a mobile OS platform. In this instance, an obstacle when adopting an open source strategy —
the use of a large, developer ecosystem was deemed more so with network carriers than other respondent
essential by 42 percent of respondents, beating out industry sub-segments where 70 percent believe that
large market penetration (24 percent). However, security remains a serious issue with open source
respondents at the C-suite level again lagged other technologies. In discussing OS platform growth, 58
functional roles in determining its value; only 29 percent of survey respondents do not believe the issue
percent were in agreement that it remains critical. This of OS fragmentation will stymie platform innovation.
does not seem to have a lasting impact on the overall
The report concludes by identifying the broad strategic
need for a mobile ecosystem strategy; 58 percent of
focal points that incumbents should consider in order to
respondents reported that their organizations have
remain competitive in the open mobile era. The guidance
strategies in place for either playing a leading role
provides executives with a lead-in to forthcoming
in orchestrating an ecosystem (29 percent) or are
open mobile studies focused on tactics for ecosystem
a participating partner in one (29 percent). At the
development and platform leadership, across and beyond
industry level, mobile device manufacturers lead the
the mobile industry.
way with 72 percent of device respondents either in

Open mobile redux

Back then, the first two reports — The Promise of Open
“A tidal wave is coming with 4G and Mobile and The Democratization of Wireless: Assessing
the impact of open mobile — concentrated on engaging
customers are going to do what they want. a select group of senior executives across a range of
Our objective is to make this seamless and companies in and around the U.S. mobile telecoms
sector. Our goal was to take the pulse of the industry
open as possible.”i on the likely impact open mobile would have on the
– Randall Stephenson, CEO AT&T, Mobile World Congress, 2011. competitive landscape. In parallel, we also wanted to
explore how companies were preparing to transition to
an era marked by strategic uncertainty and the looming
Attitudes in mobile shift quickly – even among those once prospect of hypercompetition.ii The findings provided
skeptical to change. In 2009, Deloitte Research published strong correlation to our underlying hypothesis: the
two inaugural reports on the topic of competitiveness in locus of innovation in mobile telecoms has shifted to
the new “open mobile” telecoms era. We defined open Silicon Valley. Network carriers in particular would have
mobile as a macro-level phenomenon that reaches beyond to unshackle from the walled gardens of the past and
the boundaries of the traditional U.S. mobile industry, embrace unfamiliar pathways for future revenue growth
with the accompanying disruptive market shifts being felt and compete with the new world order of Google and
deep into the surrounding technology and media sectors. Apple.
At the core of this volatility, a patchwork of seismic
events is unfolding around three pillars of change: the
rapid acceleration of innovative mobile Web technology;
insatiable consumer demand for new mobile products and
data services; and an evolving regulatory policy debate
pushed along by the FCC, which seems dedicated to
pursuing a more open, competitive market environment
— the likes of which the industry has yet to experience.

i
See “AT&T chairman urges open devices, platforms and networks globally; Stephenson even chides partner Apple for not being more open”, networkworld.
com 2/15/2011.
ii
Hypercompetition, as described by Prof. Richard D’Aveni, denotes hyper-inflated market competition that can emerge in sectors prone to rapid
technological disruption with competitive advantage often difficult to sustain. See D’Aveni, R. (1994): Hypercompetition: Managing the dynamics of
strategic maneuvering, New York: The Free Press.

Emerging insight themes

Findings from this new study continue to analyze the The concept of “open” once more permeates strongly
impact of the turbulence across mobile’s competitive across the value chain and capabilities levels of analysis of
landscape. The data provides another clarion call for tactics used to gain competitive advantage. In turbulent
incumbents to act and act quickly. Growth and innovation sectors, resources, often more so than market position,
are again the dominant issues of the day. The gentle can be a determining factor of success. Now more than
breeze of change is long gone, and in its place, a full- ever, new organizational capabilities are required to
blown (Schumpeterian) headwind threatens to leave a compete and capitalize on new opportunities. But in what
trail of creative destruction in its wake. Incumbents are areas, and to what extent, should strategic approaches
seemingly challenged on an almost daily basis by floods be built upon open or closed methods of platform
of new entrants, many with limited prior knowledge development, collaboration with third parties, alliance
or experience in developing mobile-technology-based formation and intellectual property management? Perhaps
business models1. Proof that experience is no harbinger of unsurprisingly, innovation, or the notion of innovation,
success in this mobile era. is the dominant strategic theme running through these
questions. But in this year’s study it seems confusion
From an insight perspective, this study focuses on three abounds on how to get beyond running hard to stand still
levels of analysis — industry, value chain, and firm on the innovation treadmill. Recognition of the importance
capabilities, which together comprise the basic tenets of innovation to an organization is clear; a majority of
of competitive advantageiii — to illustrate the emerging survey respondents rank it as their company’s leading
growth areas beyond the traditional wireless boundaries. capability, but what is not so clear is how to amplify and
Identifying these new beacons of revenue generation is sustain this capability.
critical when incumbents are attempting to regenerate
top-line growth. Innovative wireless opportunities in What is also evident from our survey findings is
industries such as healthcare and life sciences, energy, the expanded role of new platform and ecosystem
consumer products, and financial services are set to propel development to support top-line growth and innovation
key players in these verticals to the forefront of mobile initiatives. But understanding the role capabilities play in
business model innovation. And in the process provide deploying these strategies remains inconsistent to say the
a significant revenue opportunity for mobile incumbents least. At the heart of this issue lies a growing tentativeness
buckling under pressure from shareholders to grow. among incumbents to fully embrace open platform tactics.
Carriers in particular seem hesitant to exploit the tactic
of open collaboration through co-opetition2 to explore
growth opportunities beyond traditional network assets
above the level of the mobile operating system (OS). Trust
in partnering on a collaborative, open-basis is lagging,
and concerns that new products and services developed
at the OS level will harm traditional network revenues,
seem to be lingering. This needs to change if incumbents
want to avoid a long, arduous road to maintaining
their dominance. Mobilizing and managing new open
ecosystems becomes crucial to business model innovation,
especially in light of recent sector events that are rapidly
redrawing the competitive landscape.

For example see Porter, M.E. (1980): Competitive Strategy, New York: The Free Press.
iii


Figure 1. Ranking key organizational capabilities in the 4G era
Ranking the importance of organizational capabilities to compete in the 4G era (by industry).
“1” is most important
9

8

7

6

5

4

3

2

1
Innovation in Innovation in Vision and Mobilizing an Adapting Building trust Collaboration with Fostering an Ability to understand
product, service business model leadership external ecosystem dynamically to a with ecosystem external subject internal culture and navigate
or market or process commitment to around your changing business partners matter experts to of collaboration regulatory policy on
mobile platform organization’s environment stimulate innovation mobile broadband
leadership mobile technology
platform

Network carrier Mobile device manufacturer Infrastructure and component manufacturers Software developer

Ranking the importance of organizational capabilities to compete in the 4G era (by function)
“1” is most important
9

8

7

6

5

4

3

2

1
Innovation in Innovation in Vision and Mobilizing an Adapting Building trust Collaboration with Fostering an Ability to understand
product, service business model leadership external ecosystem dynamically to a with ecosystem external subject internal culture and navigate
or market or process commitment to around your changing business partners matter experts to of collaboration regulatory policy on
mobile platform organization’s environment stimulate innovation mobile broadband
leadership mobile technology
platform

“C” suite member Partner/Director Senior Vice President/Senior Manager

Source: Deloitte Open Mobile Analysis.


The hypercompetitive mobile sector

So significant is the accelerated rate of development in find themselves at a fork in the road: embrace the
mobile Web technology that the wireless sector now finds opportunities of a more democratized world, or stoutly
itself in a period of hypercompetition. The rate at which defend the business of yesterday and protect traditional
established markets are being threatened by new entrants revenue streams. However the decision is not so black and
wielding disruptive technologies shows no sign of white, and more than ever, the challenge is to be effective
slowing down. This in turn is causing traditional standards with both strategies. But first, incumbents must find new
and established market “rules” to remain volatile, putting ways to compete against the wave of innovation emerging
incumbent competitive advantages and profits at risk from Silicon Valley — one that has shifted the locus of
over a sustained period of time. Viewed through an innovation firmly to the West Coast.
open mobile lens, the accelerated turbulence is a direct
consequence of the shifts in technology, regulatory policy Figure 3. U.S. mobile phone market penetration
and consumer demands sweeping the sector. Events in
these areas have overlapped simultaneously, giving rise Featurephones Smartphones
57% 43%
to an almost black-swan-like episode emerging to push
the industry towards a new, less restrictive, open era
in market competition. As a result, mobile incumbents

Figure 2. Total mobile data revenue, United States, 2007 – 2015E
140,000

120,000

100,000

Source: Nielsen, Q3 2011, U.S.
United States 80,000
mobile data
revenue ($M)
60,000

40,000

20,000

0
2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E

Source: Gartner, Mobile Services, Worldwide, 2007-2015, 3Q 2011.


Figure 4. U.S. smartphone OS market share These market data points in particular highlight the
challenges that hypercompetition will throw up for
established incumbent wireless carriers. An overwhelming
Apple iphone majority of respondents – 70 percent — think that
(IOS)
28%
Internet/web-based companies, defined as companies in
the Google and Apple mould, will come to dominate the
Android
43% mobile sector in five years. In the same vein, 31 percent
of survey respondents employed by network carriers
thought the proposed changes in open access regulations
Other
4% would accelerate the commoditization of carriers and
an overwhelming 90 percent of the same group stated
Windows, mobile
7% the traditional carrier “closed garden” (tightly controlled
network/device/software platforms) business model is
RIM fast becoming a strategic relic. Instead, network carrier
18%
respondents think the future of mobile rests on the
Source: Nielsen, Q3 2011, U.S.
proliferation of open platforms across multiple facets of
the value chain. In particular, the opportunity to tap into
Figure 5. Cisco forecast 6.3 exabytes per month of mobile data traffic by 2015 the burgeoning mobile software applications market is
deemed critical to success.
7,000,000
6.3EB
6,000,000

5,000,000

Terabytes 3.8EB
4,000,000
per month

3,000,000
2.2EB
2,000,000
1.2EB
1,000,000 0.5EB
0.24EB
0
2010 2011 2012 2013 2014 2015

Source: Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2010-2015, February, 2011.


Certainly, network carriers still seem slow to react to this from reaching their full potential in mobile business
reality, wary that a more progressive approach to the model innovation. This despite the significant increase in
question of open versus tightly controlled platforms will forecasted mobile data traffic, itself a direct consequence
unlock the flood gates to commoditization and turn them of mobile software innovation. And with 90 percent of
all into the dreaded “dumb pipe.” Part of this fear stems survey respondents also believing that the role of the
from a continuing concern over ceding too much control carrier will continue to be limited to pushing data bytes,
over lucrative revenue generating content development recognition that value in mobile now sits above basic
to software developers and becoming even more of a bit connectivity is broadening. But where exactly will that
player in the process. Hence, the fear of commoditization value reside?
continues to lurk in the background preventing carriers

Figure 6. Exploring the future mobile landscape (survey question)

In five years, “internet companies”, rather than network carriers or
49% 51%
mobile device makers, will dominate the US mobile sector

In the Open Mobile/4G era, services will predominantly drive new
revenue opportunities rather than products/hardware 87% 13%

Open source mobile operating systems, such as Android or MeeGo, will
85% 15%
lead the mobile market by 2014

Closed, proprietary mobile operating systems, such as iOS or Blackberry
14% 86%
OS, will lead the mobile market by 2014

Carrier competitiveness in the 4G era will be dependent on making the
87% 13%
transition from “walled gardens” to “open development ecosystems”

By 2014, the primary role of network operations will be to deliver data
89% 11%
access anywhere/anytime
Percentage of respondents
Yes No


Accelerating into the 4G era
Very much the backbone of the open mobile growth So what does this mean for WiMax? Recent analyst
era, the rollout of fourth generation (4G) LTE (Long Term estimates suggest worldwide WiMax subscribers will reach
Evolution) and WiMax (Worldwide Interoperability for 33.4 million by 2014, far below comparable LTE forecasts.
Microwave Access) wireless network technologies is However, reports of a quick death may be somewhat
gathering speed. The long-awaited network upgrade premature with WiMax deployment in the United States
is set to address voracious U.S. consumer demand for still reasonably solid due mainly to the rollout beginning
higher download speeds and greater bandwidth capacity, in 2008 by wireless broadband provider Clearwire — 54
which should provide for enhanced mobile data products percent of which is owned by network carrier Sprint.
and services. On paper, 4G networks promise to usher Clearwire’s WiMax services are available in 70 markets in
in a new wave of mobile ubiquity, opening the door for the United States, although expansion of this coverage has
innovation to increase across all areas of the mobile value stalled of late. In a parallel move, Sprint is starting to build
chain and beyond. And although nationwide 4G coverage out its own LTE infrastructure due to be up and running
is some way off (and the initial data rates may be far by 2012. Analysts suggest this could mean the carrier will
less than the advertised theoretical rates), the network proceed with a dual LTE and WiMax 4G strategy while
standards battle between WiMax and LTE has mostly tilted gradually expanding its LTE foothold (it should be noted
in favor of LTE. The majority of wireless service providers that Clearwire has also been testing the use of LTE)5. For
have announced support for the LTE standard, which is WiMax, future growth opportunities may be skewed more
designed to be backward compatible with GSM and HSPA toward deployment in other enterprise areas to sustain
technologies, giving it a clear cost advantage over WiMax utilization.
in the process. LTE will also provide network operators
2–5 times greater spectral efficiency than the most
advanced 3G networks, reducing the transmission cost
per bit and allowing better economics for carriers and end
users3. Analyst estimates continue to bear this position out
with recent market forecasts suggesting LTE services will
generate more than $11 billion in service revenue in the
United States by 2015 and that global LTE subscribers will
number 744.2 million by 20144. Leading the deployment
is Verizon, which successfully launched its LTE network in
late 2010 and rapidly expanded to beyond 170 markets
by November 20114a. Meanwhile, AT&T is currently
focused on pushing expansion of its HSPA+ network while
building out their LTE network in 2012.

Figure 6a. WiMax as a carrier consumer data solution will decline by 2016

Network carrier 75.0% 25.0%

Mobile device manufacturer 79.7% 20.3%

Infrastructure and component
81.8% 18.2%
manufacturers

Software developer 64.6% 35.4%

Yes No


Mining for gold

3–5 years. This is emphasized even in the device vendor
“A good hockey player plays where the context where services, rather than hardware per se, are
thought to represent a greater source of value. Important
puck is. A great hockey player plays where here is to define services in the context of emerging
the puck is going to be.” mobile business models in popular consumer and
enterprise areas such as entertainment, social networking,
– Wayne Gretzky
mobile payments, mobile cloud services and productivity
etc.

Recent analyst studies suggest that for wireless carriers, Also under focus in this year’s study are the vertical
voice revenues have declined 7 percent over the last 4 industries adjacent to mobile thought to be front-runners
years, while data revenue has soared 132 percent and in adopting emerging mobile technology. Data from the
now accounts for 35 percent of the total revenue for the survey indicated that the health care and life sciences
wireless industry6. This trend is set to significantly grow industry, closely followed by consumer products and the
over the short term, and with it new revenue opportunities financial services industry, are likely to experience higher
will emerge for incumbents distinct from their traditional rates of new mobile business model growth in the next
network services. five years. This is generally in alignment with current
market trends — in particular, the rise of mHealth (and
Exploring this in more depth, data from the survey also Smart Grid energy technology) is offering huge
suggests that mobile services, distinct from straightforward potential revenue opportunities for mobile incumbents to
advertising and software applications revenues, will expand top-line growth.
provide the greatest revenue opportunities in the next

Figure 7. Which vertical industry has most potential for new mobile growth and value generation?
90%

80%

70%

Percentage of 60%
respondents
selecting top 50%
three industries
40%

30%

20%

10%

0%
Healthcare/ Consumer products/ Financial services/ Automotive Energy Government Manufacturing
Life sciences retail commerce




The rise of the machines wireless home-based healthcare applications and services
The cornerstone of these opportunities is often machine- is estimated to grow at a 5-year CAGR of 80 percent and
to-machine (M2M) wireless technology. Although M2M become a $4 billion industry by 20139. The majority of
technologies are certainly not new to the industry, the remaining M2M service opportunities are currently
worldwide M2M connections are on a steady upward clustered around the transportation, automotive, logistics
march and forecast to reach 225 million by 2014. This and fleet management sectors, where applications can
is off the back of an expected increase in the number be as varied as reducing traffic congestion by monitoring
of mobile connected devices that will rise to almost 412 traffic flows, to facilitating RFID tracking in supply chain
million by 2014. On a global scale, the figures are even management. In all cases, M2M technology assists
stronger with revenues from mobile connected M2M and improvements in productivity, innovation and compliance-
embedded devices set to rise to $18.9 billion by 20147. related business functions and is set to play an even
greater role in mobile growth strategies as networks and
Driving this surge in the M2M market are a number platforms shift to facilitate more open access.
of forces such as the declining cost of mobile device
and infrastructure technology, increased deployment For companies looking to exploit the opportunities,
of IP, wireless and wireline networks, and a low-cost roadblocks to navigate are mainly focused at the sector
opportunity for carriers to eke out new revenue streams level where fragmentation exists among the various
by utilizing existing infrastructure in new markets. This ecosystems that have grown to support the rollout
opportunity will be most prominent across a number of M2M across multiple industry sub-sectors. Several
of enterprise verticals with energy leading the way; elements of the M2M value chain are at risk within these
smart grid and smart metering technologies are set to ecosystems. This includes companies and organizations
experience the most growth in the M2M market. The active in the services (systems integration), software
Obama Administration’s targeted economic stimulus (middleware and application infrastructure vendors),
package of $3.4 billion to modernize the nation’s power hardware (manufacturers of GPS chips, and RFID sensors)
grid will further accelerate development of this market8. and telecom (network access/connectivity/infrastructure
The Healthcare sector is also set to gain from increased vendors) sectors. Each of these areas is subject to
adoption of mobile technology, which should benefit technological fragmentation, and a particular lack of
carrier service revenues in the U.S. where the market for standardization is apparent in the many coalition and
standards bodies set up to develop targeted technology
solutions. The presence of a general standard would help
Figure 8. M2M connections for enterprise applications worldwide, 2011–2015 to achieve seamless national and international coverage
but idiosyncratic solutions for specific devices over specific
16
Other networks are the main issues currently preventing this
Connected energy
from happening. In Brazil, for example, there are more
43%
77 Vending/ATM/PoS/Kiosk
than 15 regional network operators, none of which can
Number 53% Security applications
support a national, end-to-end, M2M solution10. Hence,
of cellular potential buyers of M2M solutions are often dissuaded
connections 18% 29 Industrial applications
(millions) 9%
due to a perception of complexity in implementation that
4
18 Fleet telematics
9
13
12% overrides any economic benefit. The challenges are similar
31 Consumer electronics
12
18% in the U.S. market. However, if carriers can successfully
18 15
6 11% 34
orchestrate a consolidated ecosystem strategy across
20
the fragmented elements of the current value chain,
2011 2015
then prospects will remain strong that a new pathway to
Source: Eugene Signorini, John Keough, Ken Rehbehn, and Dmitriy Molchanov, “Mobile Broadband Connected Future: From sustainable M2M business models will emerge.
Billions of People to Billions of Things,” Yankee Group, October 2011.


Case Study: mHealth
Overview as geriatrics. The rising baby boomer population can
Mobile Health, or mHealth as it’s commonly known, then expect to face the considerable challenge of getting
is emerging as a significant growth opportunity for quality healthcare on a timely and consistent basis.
companies looking to capitalize on advances in wireless
healthcare utilizing M2M technology (see Figure 9). Despite these concerns, all may not be lost in fighting the
Analyst forecasts estimate the potential value of the double whammy of rising demand and decreasing supply.
mHealth market to be approximately $4.6 billion as early Advances in the area of remote patient monitoring (RPM)
as 201411. The driving forces behind this expected uptick are expected to have a big impact across targeted disease
are numerous. Mounting pressure to cut burgeoning areas where chronic conditions are a leading cause of
costs in the U.S. healthcare system is a government the readmissions problem. RPM can equip healthcare
mandated objective; in particular, preventable providers with timely information about patients’ health,
readmissions cost an estimated $12–17 billion per while improving speed and accuracy of diagnosis.
year12. On top of this lies the problem of an aging Wearable body sensors and remote monitoring can keep
population, exacerbated by the size of the baby boomer chronic patients out of hospitals and improve their quality
demographic. Americans aged 60 or older represented of life while significantly reducing admission expenses.
18 percent of the U.S. population in 2009, and this Continuous remote monitoring of patients through
segment is expected to grow to 27 percent by 205013. wireless sensors and wireless networks also allows
caregivers to detect and respond to intermittent problems
Wireless healthcare solutions offer a way to deal with and improve scheduling of visits by medical providers. This
these pressing issues and more. Improving disease in turn, helps alleviate pressures pertaining to resource
management, despite an increasing incidence of chronic planning, especially problems related to unnecessary call-
diseases, is particularly attractive considering seven out of outs.
ten deaths among Americans each year are from chronic
diseases with heart disease, cancer and stroke accounting If, as expected, adoption of such RPM technology
for more than 50% of all deaths each year. And in 2005 becomes suitably widespread, savings are expected to
alone, 133 million Americans – almost 1 out of every reach $197 billion over the next 25 years17. Heart disease
2 adults – had at least one chronic illness14. Given this is one such targeted area for RMP utilization, with
situation, the numbers are stark. Costs associated with congestive heart failure (CHF) alone accounting for 27
chronic disease management accounts for more than percent of Medicare patients being rehospitalized within
four-fifths of the total healthcare expenditure, or $2 30 days18. Recent RPM pilot schemes lent credence to
trillion annually by 2009, and are expected to increase on the potential cost savings forecast with the use of the
average 6.1 percent per year over the projection period technology in one remote study yielding a remarkable 6
2009-201915. percent CHF readmit rate versus the national average of
47 percent19. Other pilots showed a 72 percent reduction
Value outlook in the average number of emergency department
Adding more fuel to the fire is a chronic shortfall of visits and a 65 percent reduction in overall hospital
physicians. The Association of American Medical Colleges admissions20.
estimates a shortage of 90,000 doctors nationwide by
202116. The impact of this dwindling resource pool will
be amplified and felt even more in specialist areas such


Figure 9. U.S. wireless healthcare revenue 2009-2013 In similar fashion, the rapid advance in smartphone
technology and adoption has led to acceleration
5,000 in mHealth innovation that in-turn is stimulating
the growing market for mHealth mobile software
4,000
applications. Analysts tracking the flow of activity in
this area predict a threefold spike in apps available
in 2012 from a baseline of 200 million available in
3,000
Millions of 201021. Customized applications such as pill reminders,
dollars appointment scheduling, personal health alerts,
annually
($M) 2,000 information and feedback are again contributing to
a growing empowerment of patients who can better
monitor and manage their own health by using
1,000 these applications. Other examples include Airstrip
Technologies’ Airstrip OB product, which is an FDA
0 approved app that delivers critical patient obstetrics
2009 2010 2011 2012 2013 information directly from an iPhone or Android
Source: Wireless Healthcare: Analysis and Forecasts, Parks Associates 2009 device to their doctor’s mobile device during prenatal
periods22.

Key drivers and benefits Current challenges
Other factors driving momentum in mHealth are rooted Before the real breakthroughs occur on a scale
in society’s broader technology adoption across multiple required to address escalating healthcare costs,
generations and demographics. For instance, the ubiquity mHealth adoption needs to build momentum by
and utilization of social media has led to a steady overcoming some important hurdles. To begin with,
increase in patient-to-patient interaction over online more trials are required to broaden the disease
message boards, blogs and social networking sites. Often and population samples and align them with FDA
referred to as a Health 2.0, this shift in democratized recommendations. To date, trials have been carried out
communication between patients and healthcare on a selective basis but need to broaden to end the
providers is helping bring the previously disenfranchised uncertainty about the true extent of health benefits
into the system where increased monitoring and to the patient, and the subsequent effect of reducing
appropriate care can then help alleviate avoidable hospital readmissions and caregiver visits. This should
costs. The emergence of these new communication also help broaden commitment from the healthcare
channels will ultimately lead to patients becoming more industry’s insurance sector, which so far has been
knowledgeable, which in turn, can lead to enhanced reluctant to provide coverage for patients using these
empowerment to take further responsibility for personal technologies. In parallel, pricing on RPM devices needs
healthcare. All of these trends should improve the to align with current consumer electronics price points
potential for cost reduction throughout the current to stimulate consumer demand and ensure widespread
system. adoption.


Evolving ecosystems
With these challenges firmly front and center of
the prospective mHealth industry, many mobile and
healthcare/life sciences companies are beginning to
collaborate in high profile alliances. The immediate
benefit being to combine resources and knowledge and
push the growth of wireless technology in healthcare
to the next level. A good example of this is the open
mHealth consortium, which has established a flourishing
ecosystem of multiple players across the mobile and
healthcare industries to implement a roadmap for
mHealth technology development. The Continua Health
Alliance is another such example, in this case a growing
collective of 200 or so technology, medical devices,
and healthcare companies who have collaborated to
accelerate the development of interoperable mHealth
solutions23. These ecosystems point to a growing
recognition that unlocking value in this nascent market
will require sustained collaboration across traditional
incumbent boundaries. This will be critical to integrate
mobile solutions across monitoring, wellness and
reminder services, which together represent the core of
the mHealth opportunity.


Case study: Smart Grids
Overview Value outlook
The energy sector — specifically, the emergence of smart Growth opportunities are significant; recent analyst
grid networks across the United States — is perhaps the projections suggest the U.S. smart grid market will
leading value proposition for exploiting M2M technology. grow from $21.4 billion in 2009 to $42.8 billion in
At the broadest level, these networks provide means on 201424. By 2014, 88 percent of this market is projected
tracking energy utilization, mainly in the form of smart to comprise of device and hardware manufacturers,
grid metering, for two-way communication between software developers and communications equipment
consumers and the electricity grid in real time. This providers. Within these sub-sectors, double-digit growth
enables significant energy and cost-saving features not forecasts are not uncommon. The smart grid integrated
possible with today’s grid. communications segment is expected to grow at a
compound annual rate of 13.5 percent from 2009 to
Figure 10. Projected U.S. smart grid market size 2014 and reach a market size of $6.4 billion. In addition,
2009–2014 (U.S. billions) other lucrative areas include the sensors and devices
US $billions market, which is expected to grow at a CAGR of 14.5
$50
percent from 2009 to 2014 and reach a market size
$42.8 of $21.8 billion. Then there is the smart metering and
$40 $38.6 hardware/software markets, where growth forecasts are
$34.3 projected at 16.9 percent and 16.1 percent, respectively25.
$30.0
$30 Other forecasts suggest that the smart grid infrastructure
$25.7
market, including grid automation upgrades as well
$21.4
as smart metering, represents yet another golden
$20
opportunity and will attract $200 billion in worldwide
investment from a starting point in 2008 through to
$10
201526.

$0
2009 2010 2011 2012 2013 2014
Source: “Smart Grid: Hardware and Software Outlook,” Zpryme Research &
Consulting, December 2009

Figure 11. Projected U.S. smart grid market (by technology) 2009–2014 (U.S. billions)
Smart sensors and devices $21.8
(14.5%) $11.1

IT hardware and software $9.9
(16.1%) $4.7
Smart grid integrated $6.4
2014
communications (13.5%) $3.4
2009
Smart metering hardware and $4.8
software (16.9%) $2.2

Source: “Smart Grid: Hardware and Software Outlook,” Zpryme Research & Consulting, December 2009


Key drivers and benefits From a benefits perspective, efficiency gains lead the way.
In the United States, smart grid implementation has been The Electric Power Research Institute (EPRI) estimates
predominantly driven from government initiatives in $1.8 trillion in annual additive revenue by 2020 with
both the energy and telecoms sectors. With the former, a more efficient grid operating across regional state
energy conservation is a key objective of the U.S. national areas30. System balancing and optimal power-factor
sustainability program, which is trying to improve energy performance, both of which can be achieved through the
efficiency, reduce the overall environmental impact use of smart grids, may result in a 30 percent reduction in
of the communications industry and increase energy distribution losses. On top of this, EPRI estimates savings
independence. To date, a total of $8.1 billion in public of 2.2–8.8 billion kWh, depending on the level of smart
and private investments have been made in the smart grid market penetration. Consumers could potentially
grid sector, much of which is from government stimulus reduce their electricity consumption by up to 25 percent
packages27. As part of this investment, a number of during peak loads31. Cost reduction in infrastructure also
grants have been awarded to companies working across plays an important role. The Galvin Electricity Initiative
the industry. Recipients are wide and varied and include predicts smart grids have the potential to reduce the
Idaho-based M2M Communications, who won $2.2 need for infrastructure investments by between $46
million to install smart grid control systems in California’s billion and $117 billion over the next 20 years32. Finally,
Central Valley, which will help reduce peak electricity the use of M2M technologies will also enable real-time
demand in the state. Other recipients include the San communication across the grid enabling providers to
Diego Gas and Electric (SDG&E) company, which was remotely identify, locate and isolate outages much more
awarded $28 million to implement advanced wireless efficiently. For instance, information gathered from
communications systems to provide connections for 1.4 sensors will enable data analysis of fault conditions
million smart meters. SDG&E has since partnered with from power circuit breakers that protect transformers.
Arcadian Networks (utilizing WiMax technology), Cisco Data mining will lead to a higher level of informed
and IBM for applications development in this area28. decision-making related to maintenance, repairs, and
replacements, and estimates suggest this will lead to a 50
Government activity in the telecoms sector has come percent reduction of trouble calls.
from the Federal Communications Commission (FCC),
which placed smart grids at the heart of the U.S. national Current challenges
broadband plan. At the center of this mandate is an Cyber security is an ongoing concern that frequently tops
objective requiring state governments to ensure utilities risk assessment studies of grid rollouts across the United
suppliers provide real-time access on energy consumption States33. IP-enabled smart meters give utilities providers
data to consumers29. The FCC also mandates the use of the ability to track and manage unsecured smart meter
700MHz spectrum for smart grids and the adoption of endpoints. However, unsecured meters are vulnerable to
open standards for delivering the data. A key target is to hackers and attackers. Costs are then incurred to deploy
improve smart grid access to rural areas across the United security infrastructure to track, manage and enforce
States that have been of a lesser priority in the past due to security policies across prioritized risk areas. Privacy is
the high costs associated with the required infrastructure also a growing area of concern with consumers; energy
rollout. To support this rollout, the Rural Utilities Services consumption information traveling through public and
(RUS) will provide loans to projects aimed at developing private networks requires encryption. A recent study
smart grid broadband technology. by the Ponemon Institute concluded a general lack of


awareness among consumers about the roles and benefits Evolving ecosystems
of smart grids34. But as knowledge increases, so do A comprehensive smart grid ecosystem will consist
concerns regarding privacy. A majority of the Ponemon of a number of overlapping industries and M2M
survey respondents believe the smart grid will weaken value chain players. From power generation through
their privacy, reflecting ongoing, broader consumer energy distribution and management, communications
concerns on the issue. infrastructure and future applications development, the
complexity of the sector’s growing ecosystem cannot be
underestimated. However, this has not deterred network
carriers from making inroads into the energy market with
the aim of growing their subscriber base by increasing
their M2M connections and services. For example, AT&T
has already entered into a number of strategic alliances
with smart meter providers34a, sensor manufacturers
and utility companies, allowing the carrier to position
its network for use in remote monitoring, automated
metering and outage detection. The company is also
expanding its integrated solutions by offering, among
other things, an M2M device certification process using
the AT&T wireless data network for its partners and grid
optimization services for utility providers. Verizon has
also made significant moves and is involved in pilots
and deployments with 20–30 utility companies. The
firm is pursuing opportunities across various energy
management, home monitoring and network utility
services utilizing its 3G wireless data network35. Strategic
alliances include a deal with the CURRENT group to
provide networking services for smart grid sensors while
also managing network security for the grids. The firm—
along with GE, Qualcomm, and Constellation Energy —
has also recently invested $17.7m in Consert Inc., a smart
grid technology provider36.


Software, the great disruptor

Perhaps the biggest element of mobile hypercompetition The company has risen to become a powerful mobile
is the impact that so-called “Web companies” continue to platform leader, pushing the rapidly evolving iOS operating
have in transforming the traditional competitive landscape. system into the core of its expanding portfolio of mobile
There can be no doubt the locus of innovation in mobile is smartphones and tablets. The results chart an astonishing
now firmly established in the Bay Area, yet again pushing rise, and Apple has enjoyed consistently stellar growth
Silicon Valley’s creativity and resourcefulness to the unrivalled in recent years. The success has in large part,
forefront in technology. Google and Apple in particular been the result of increased demand for the company’s
continue to be the keystones of the new wave vanguard iPhone and iPad devices and proof it continues to
in mobile that also sees the likes of Facebook, Amazon dominate in mobile Web products and services, despite
and Twitter — all giants of the Internet economy — exert increased competition from rival firms such as Samsung
more and more influence over the design and utilization and HTC, most of whose devices run on the Google
of Web-enabled mobile devices and services. Just how Android platform. In July 2011, it was announced that
meteoric this rise has been continues to astonish observers Apple finally became the number one global smartphone
who note the likes of Google et al are only at the start of producer beating Samsung into second place and
their journey to exert their full potential in mobile. Indeed, although Samsung reclaimed the top spot a few months
on a recent conference call with analysts, Google CFO later it is clear the battle for market leadership has entered
Patrick Pichette referenced a Q3 2010 statement from a new phase of competition37.
the firm that its mobile arm was already a billion-dollar
business, stating that it “tripped” into $1 billion “without In this context, our survey respondents perhaps reflected
any radical effort.” Much of this growth has been driven recent market developments with 49 percent believing
by the one-two punch of the Android operating system that Internet companies, rather than network carriers or
geared to boosting revenues from the company’s mobile handset makers will dominate mobile in five years. The
search and advertising platform, which has increased by significance of this shift in the balance of power toward
more than 500 percent since 2009iv. firms that are software-led should not be underestimated.
Today, some analysts estimate software innovation
Not to be outdone, Apple has aggressively pursued its outpaces network innovation by a factor of five to one,
own double-whammy of leading edge consumer hardware meaning new product introduction lifecycles for mobile
design, combined with world class software development, software can average 3–6 months while network service
to carve out a significant slice of the value pie in mobile. innovation can take 18–24 months38. No surprise that

Figure 12. In 5 years, Internet companies will dominate the U.S. mobile sector
(survey question)



55.6% 44.4%
manufacturers


Yes No


Additionally, the company reports 550,000 Android devices activated per day resulting in 190 million Android devices now activated globally, while the
iv

Android Market has seen more than 6 billion apps installed. Source: Google, Inc, 10-Q October 26, 2011


network services are often left playing catch-up with as purely delivery mechanisms for their products, genuine
software innovation. From a carrier perspective, the rise API platforms or as payment gateways to revenues39. Our
of software in their network-dominated world poses survey respondents were questioned on this issue, and
interesting questions as to the future role they should 89 percent believed the role of the carrier will solely be
play. With the mantra “content is king” ringing in their to deliver data access anywhere and anytime. To avoid
ears, there is little doubt that software innovation is this happening, 87 percent believe carriers must make
driving platform innovation, which in-turn is driving the transition from the walled gardens of the past to
device adoption that ultimately fuels network data service new organizational forms built around open ecosystems
growth. But being stuck at the bottom of the mobile to enable enhanced collaboration with developers. A
food chain is not good for carrier health. Competing in majority (36 percent) of respondents also suggested
an area in which they traditionally lack strong capabilities a managed open strategy — where carriers retain
seems fraught with risks, and this uncertainty has led prioritized control over premium applications and assets
to an overly cautious approach to transacting and but allow third parties access to core network functions
collaborating with key software developers. Many of — would be the most likely route to sustained success.
these developers are unsure of whether to view carriers

Figure 13. Carrier competitiveness in the 4G era will be dependent on transitioning
from “walled gardens”(survey question)



91.1% 8.9%
manufacturers


Yes No


Figure 14. By 2014 the primary role of the network operator will be to deliver data
access anytime/anywhere. (survey question)



86.7% 13.3%
manufacturers


Yes No



The good news is this message seems to be hitting home likes of Apple and those running the Android OS rule the
more so than ever. Only a few years ago, U.S. carriers were roost. At the lower end of the technology chain, Android
virtually impenetrable for the majority of developers, but increasingly dominates the basic feature phone market
signs are this is starting to change. Today, each member thanks to its capacity as a cost-effective, flexible and open
of “the big 3” is making a bigger effort to attract more operating platform — one that allows handset OEMs to
developers to collaborate. Both Sprint and AT&T have move away from legacy platforms and compete solely
recently launched new innovation centers and processes on hardware technology43. But with software developers
to further their links to the developer community. This increasingly controlling the decision of which platform
should help facilitate co-development platforms that to develop for, there is little doubt their influence on
should see new apps and services launched in areas competitive dynamics has grown significantly.
such as messaging, geo-location, and M2M. Beyond
this increased collaboration, carriers are also looking to To that end, the current U.S. mobile ecosystem landscape
develop new app storefronts that will cater to multiple remains dominated by Apple, Google and RIM. Apple
third party platforms and handsets directly linked to new and RIM share a preference for vertical integration, but
external developer channels. This will offer developers a that’s where the similarities end, although at the time of
range of economic, technical, sales and marketing benefits publication Google has struck a deal to acquire Motorola
in return for creating the apps with best revenue potential Mobility, the mobile device vendor. Whether that deal
to run on their networks 40, 41. And perhaps in a nod to will see Google morph into a more traditional vertical
the likes of Apple’s WWDC program, each of the big 3 solutions provider is yet to be determinedv. RIM has
now hosts its own annual developer conference with built market leading traction in the enterprise market
the goal of growing a sustainable developer community and has traditionally benefited from good relations with
to further the collaboration42. All of these steps suggest carriers across all networks, leading to favorable supply-
carriers are beginning to follow a collaborative product side economics. However, the last 24 months have
and services strategy to keep pace with threats from the been challenging due to increased competition from
likes of Google, Apple and Nokia/Microsoft and win the the Silicon Valley frontrunners, and the company faces
prized developer mindshare. a difficult battle to regain its shrinking market share44.
Apple, on the other hand, goes from strength-to-strength
Platform wars 2.0 in both hardware and software design. iOS continues
In the two years since our first report, a greater sense of to be favored by developers, despite being a tightly
clarity has developed concerning the evolving platforms controlled, proprietary platform that initially offered
that form the core of the dominant mobile ecosystems. third parties little in the way of collaborative potential.
Software innovation now outpaces hardware innovation, This has changed dramatically over the last few years,
but the sophistication of smartphone (and now tablet) and although still “closed”, the Apple iOS ecosystem
design is blurring the lines of technology convergence to resembles more of a “rain garden” than a walled garden,
even greater levels. Device makers have been held almost offering significant commercial potential for all those
captive to the machinations of the strongest software who develop in and around it. Growth in the ecosystem
ecosystems, their competitive fates more than ever tied to surrounding the iOS platform shows no signs of slowing
the market’s leading OS platforms. Consequently, the U.S. down and is mainly fueled by the highly successful Apple
mobile landscape is rapidly morphing into two tiers. At the apps store, which currently has over 500,000 apps, with
top-end, sophisticated mobile devices dominated by the total paid app downloads now exceeding 18 billion45.

v
At the time of publication the Google-Motorola Mobility deal had just been announced amid speculation the move was made to secure important intel-
lectual property rights from Motorola’s patent portfolio – this in order to fend off potential litigation concerning intellectual property law violations.

Developers perceive iOS as the most secure platform and cost prohibitive. Device OEMs are not in control of, nor are
the least susceptible to device fragmentation46. To boost they responsible for, maintaining current versions of the
revenues further, Apple has made significant inroads in Android OS across their device portfolio. As a result, more
the enterprise market with strong corporate employee centralized development control from Google is expected
demand and custom app development, resulting in over with the latest “Honeycomb” version of Android, and this
80 percent of the Fortune 100 now deploying the iPhone is likely to become standard procedure for all subsequent
and iPad mobile devices47. updates.

Despite Apple’s commanding presence throughout Our survey respondents did not believe fragmentation
the sector, developers favor Google’s Android over the to be a serious barrier to growth and Google is
long term to emerge as the dominant OS ecosystem48. rapidly expanding the Android ecosystem through its
Google’s focus on building an open source OS that can Open Handset Alliance, which counts not only device
be embedded on multiple devices from multiple vendors manufacturers in the network but also key players from
is the major element of a strategy focused on increasing the software sector, mobile operators, semiconductor
platform adoption within (and beyond) its already- companies, and commercialization companies, all of
burgeoning developer community. The platform’s flexible which are pushing Android adoption into new markets.
approach to customization is appreciated by handset The network effects from this ecosystem are significant
vendors, network carriers and third-party app developers and should allow Google to further exploit revenue from
alike. This has led to widespread, rapid adoption with Android platform adoption, app store development,
Android devices outselling iOS devices in the last 12 and increased utilization of its core mobile search and
months with market share escalating 35 percent over advertising platform. A growing presence in these key
the last 12 months to a current figure of 40 percent49. areas allows Google to reach far and wide across all
However, if there is an Achilles heel in the Android aspects of the mobile value chain, including industry
strategy, it could be the issue of fragmentation — a key verticals where mobile technology is emerging, to disrupt
concern for developers. Testing and developing apps traditional markets once again.
across the multiple versions of the OS currently in use is

Figure 15. Mobile OS fragmentation will stymie OS platform growth and innovation.
(survey question)



46.7% 53.3%
manufacturers


Yes No



And then there were three?
At the time of writing, a potential challenger to Google
and Apple’s market share is the new Nokia- Microsoft
partnership, announced in Q1 2011. This is a significant
move for both companies particularly Nokia, the long-
standing global smartphone leader, which has seen its
market share decline over the past 24 months. Symbian,
the one-time king of mobile platforms, is now considered
a platform of the past despite a still strong presence
in markets outside of the U.S. Nokia’s difficulties in
expanding its developer community in the smartphone
category ultimately had a negative effect on sales,
particularly in the U.S. market. New CEO Stephen Elop,
a Microsoft alum, described the challenges facing the
company in his now infamous “burning platform” internal
memo to leadership. However, subsequent action has
been swift. Symbian is now being phased out, and Nokia
— in a surprise move, considering the development of
its relatively new open source platform “MeeGo” — has
now partnered with Microsoft, itself positioning into
mobile in a significant way with its new OS platform,
Windows Phone 750.

Figure 16. Mobile OS market share (by manufacturer)

HP OS
Other 2.2%
0.7% Nokia (Symbian OS)
Windows 1.7%
Mobile/WP7 Samsung
Samsung
6% 0.6%
0.3% HTC Windows
HTC 0.6% phone
4.7% Other 1.5%
0.3%
HTC
RIM Blackberry 15%
17.8%

Motorola
Android OS
10.4%
42.7%

Samsung
Apple 10.1%
28.3%
Other
7.2%

Source: Nielsen, Android Phones and iPhones Dominating App Downloads in the US, November 29, 2011 <http://blog.nielsen.
com/nielsenwire/?p=30235>.


The remaining ecosystem landscape of an open-source platform will provide an advantage in
The winds of Schumpeterian change have blown hardest customization as companies look to expand in the area of
through the device OEM, and network carrier markets mobile services. With software differentiation now a key
where once dominant players are now playing catch- driver of consumer adoption, particularly in the high-end
up in their core markets. Android adoption by device smartphone market, device platforms that can provide the
OEMs — who in the past, relied on their own proprietary best route to mobile services and overall apps experience
OS platforms to power their hardware — has risen for consumers will winvi.
dramatically. Not only has market penetration been
boosted via support from key handset OEMs such as HTC, When questioned on where they thought device vendors
LG and Samsung et al, but also from other hardware would generate most revenue three years out, survey
manufacturers who are positioning large portions of respondents suggested that mobile services would hold
their future product development strategy in the area of more potential as an area of focus, with 47 percent of
mobility. Companies such as Dell, NEC, Intel and Sharp — respondents ranking it above hardware (31 percent) and
all leaders in personal computing and consumer products then apps (22 percent) as the potentially greater route to
— have recently adopted the Android OS on a number value.
of mobile computing devices. Many believe the flexibility

Figure 17. Mobile services will drive future revenue opportunities
70%

60%

50%

Percentage of 40%
respondents
30%

20%

10%

0%
Apps Services Hardware

Network carrier Mobile device manufacturer

Infrastructure and component manufacturers Software developer
Overall


vi
Recent estimates put activation of Android devices at 190 million globally, with over 400 such devices, 39 OEMs, 231 carriers and 123 countries, and
over 78 Open Handset Alliance partners all supporting the Android platform. Source: Google inc.Q2 earnings call 2011; Q3 earnings call 2011.

The surging apps economy

Not so long ago it was easy to discount the rising numbers The app store phenomenon
of games and random novelty programs consumers were Today, app stores are the major route to market for
downloading onto their smartphones, as nothing more developers looking to commercialize their software across
than a passing fad. How times have changed. Now one of the mobile industry’s dominant OS platforms. The rise
the biggest drivers of value generation in the open mobile of the app store has in turn hastened the demise of the
era, the development and proliferation of mobile software carrier controlled content-portals and walled gardens.
applications, or simply “apps”, has rapidly blossomed into The ability to reach more consumers using the leading OS
a multi-million dollar industry of its own. Analysts predict platforms and expand market penetration in the process is
this market is likely to be worth in excess of $2 billion the common goal among developers seeking to enhance
dollars by 201251 with fortunes undoubtedly being made app revenues. Apple, of course, is the company who
and lost in the process. But the rising “app economy” perhaps single-handedly defined the category back in
is doing more than providing the next wave of Silicon 2008 with the launch of its first app store to support the
Valley entrepreneurs with a bona fide route to riches, it’s iPhone iOS platform. Now fully expanded to incorporate
fueling the mobile hypercompetition and changing the a range of Apple devices including tablets and the
way companies compete. It’s determining who in mobile mac range of desktop and notebook computers, the
will be winners in the short-term and who will be best company’s app store strategy has been a core element
positioned for the long haul. of its broader growth strategy in recent years. This
has resulted in phenomenal growth in revenues from
To understand just how big the impact will be on the consumers downloading paid apps with a significant
current competitive landscape, one only has to look at the trickle-down effect into hardware revenue. This in turn
mass entrance of software developers into the industry has helped grow the popularity of the iOS platform,
over the last three years to realize where the development boosting sales of the iPhone and enabling the company
money lies. Software has always played an important to become number one in the global smartphone market
part in mobile technology but its sphere of influence has in 2011. With over 500,000 apps available at the time
grown way beyond the realm of pure engineering and of writing, no other company has been able to match
coding and straight to the heart of mobile business model the staggering rate of software innovation seen on and
innovation and digital marketing playbooks everywhere. around the core iOS platform.
This has propelled a wave of developer talent all rushing
to launch apps that provide gateways to brands expanding At the beginning, it wasn’t always so easy with third
their digital presence and to companies deploying new parties initially shut-out of the platform until finally
mobile business models. bowing to consumer and developer demand, the
company radically improved relations with external
Three interlinked elements are at the root of the mobile developers. Distributing the innovation process beyond
app phenomenon helping propel growth for those the confines of their tightly controlled proprietary business
incumbents and new entrants agile enough to take model was critical to kick-starting their upward march-
advantage; the rise of the mobile app store; the hunt for to-market share in mobile. Opening the kimono to third
developer mindshare; and the expansion of mobile brand party developers became a winning move in expanding
strategies into all facets of corporate marketing. the iOS ecosystem far beyond the company’s traditional
closed-net approach to collaboration and the pay-off has
been handsome.


Others have been quick to catch-up, with Google’s no barriers to entry, it is difficult to sustain competitive
Android app store seemingly set to achieve similar levels advantage among so many competitors. Those device
of success. Many developers favor the Android OS as platforms that have the best chance of reaching increasing
a long-term winner in the platform wars due to the numbers of consumers will migrate to the top of the
flexibility of its open source platform. This has made developer mindshare index. Not all platforms are equal in
the task of attracting increasing numbers of third party this sense and the current leading two are unsurprisingly
developers into its ecosystem to supply the Android iOS and Android, reflecting the impact Google and
app store a relatively easy one, helping device vendors Apple have made overall in mobile consumer markets.
adopting the Android OS boost handset and tablet sales Investment in the app ecosystems that supply them is
accordingly. The remaining players are also racing to burgeoning, with increased capital flowing from the
gain traction before the window of opportunity closes. VC community to provide support to a myriad of app
Research in Motion (RIM) recently unveiled a $150 million developer start-ups. In 2009, Kleiner, Perkins, Caufield
venture fund, with investments from Thomson Reuters & Byers, one of Silicon Valley’s most reputable VC firms,
and RBC Venture Partners, to develop apps and services launched a $100 million investment fund specifically
for its BlackBerry app store to supply its expanding range to back startups creating software applications for the
of mobile devices52. Meanwhile, Microsoft’s recent launch iPhone.
of the Windows Phone 7 OS has initially made a favorable
impact in the developer community. Perhaps the biggest Other routes to monetization are also important to
incentive to working with this platform is Microsoft’s consider in attracting mindshare, with developers
recent deal with Nokia and the promise of an enhanced generally citing pay-per-download as their preferred
user base for app companies to target. method of compensation. Alternatives to this include
mobile advertising and business models using “freemium”
Mindshare and the route to monetization concepts, wherein apps are free to the user to download
Which mobile platform to invest development talent, who then pay for the subsequent upgrades. Deals to
skills and resources is a major decision for software app develop directly for particular corporate clients are also
companies looking to expand market reach. In parallel, becoming more common, monetization then occurring
attracting the right developers to work on your platform via salaries and commissions. Finally, other considerations
is even more critical for those who have adopted it in the route to monetization include developing native
onto their range of mobile devices. This has led to an versus web-based apps. With HTML5 coming into play,
intensifying race to attract developer mindsharevii and developers could see more demand for web-based apps
ensure the mobile app pump is continually primed if they can replicate the same rich user experience native
ready to help drive consumer adoption of devices. For apps provide. App store fragmentation would then be
developers, revenue potential is obviously the biggest reduced.
driver in deciding which platform to select. With virtually

The term Mindshare was first popularized during the initial dot.com boom period of the late 1990’s to indicate where intended, and actual, effort and
vii

resources were being targeted by developers.

When digging deeper into the issues surrounding the The brand angle
“app economy”, a majority of the survey’s respondents A knock-on effect of app store growth has been the
think gaming will be the most lucrative category for paid expansion of commercial digital strategies for mobile.
applications five years out. This was closely followed by Brands involved in developing products and services
apps for social networking, broad-based entertainment for enterprise and consumer markets have embraced
apps, and mobile navigation apps to round-out the wholeheartedly the digital marketing possibilities mobile
top four categories selected. In the enterprise apps apps represent. Those responsible for determining
category, customer relationship management (CRM) and appropriate app strategies have to consider many of
productivity apps are the categories thought to hold most the same questions developers face when targeting
value potential. app development to extend mobile brand recognition.
Customer reach and market penetration are again shared
common objectives and determining factors in brand OS
platform selection.

Figure 18. Digging deeper into where mobile Internet revenue will be five years out

Which of the following consumer app categories will have the By 2016, which of the following enterprise app categories will have
most potential revenue value for mobile software developers? the most potential revenue value for mobile software developers?

Lifestyle/travel Others
Backup services ERP
5% 1%
(Documents & file) 5%
Music 6% Customer relationship
7% Games management
20% Infrastructure 17%
Banking/ management
finance (Mobile IT)
8% 9%

Communi- Analytics Productivity
cations 10% 16%
Social
9%
networking
16%
Business
Video/movies intelligence
10% 11% Salesforce
Entertainment management
Maps/navigation/ Advertisement 14%
14%
search 13%
10%



Assessing strategies
and capabilities

The final part of the study focused on the development
of strategy and organizational capabilities in the open
mobile era. The main objective was to understand the
level of planning taking place in companies active across
the industry value chain. Of particular interest were
strategies for mobile business model innovation. The good
news is that survey respondents reported that the recent
economic downturn had not affected their organizations’
commitment to planning for open mobile in the 4G era.
Indeed, while 52 percent stated it was still very much
business as usual, 31 percent reported that their individual
company’s commitment had increased or increased
significantly, despite challenging economic conditions.
This positive response was reiterated throughout the
sub-industry categories with increased commitment most
apparent within the network carrier category, where 48
percent of respondents reported an uptick in planning
commitment (see Figure 19).

Figure 19. The recent downturn has had little effect on forward planning

Percentage of
respondents

70%
63.5%

60% 58.0%
53.3%
52.2%
50%

40%
35.5%

30% 27.6%
24.4%
21.1% 22.0%
20.0%
20% 18.9% 18.6%
16.2%
14.0% 13.2%
10.8% 11.5%
10% 6.8%
4.0%
2.2%
0%
Business as usual, Commitment increased Commitment decreased Commitment increased
no changes significantly
Network carrier Mobile device manufacturer Infrastructure and component manufacturers Software developer Overall



The potential impact of shifts in regulatory policy in the
industry was also probed. Again, on average, respondents
expressed a positive view that revenue generation
opportunities would not be negatively impacted with
any new policy changes in the area of broadband net
neutrality (see Figure 20). Those who believed that new
policy in this area would enhance sector-wide revenue
generation totaled 40 percent, while 35 percent thought
the current status quo would be maintained, despite any
change implemented by the FCC in this area. Perhaps
unsurprisingly, given their current position in the debate,
respondents from network carrier companies were most
skeptical; 36 percent believed that proposed shifts in
policy would have a negative or significantly negative
effect in this area.

Figure 20. Policy shifts on net neutrality not seen as a major hurdle to market competitiveness

50%
46.0%

40% 37.8%
34.8% 35.6%
32.9% 32.4%
30.8%
30% 28.9%

Percentage of 26.0%
23.7%
respondents 22.4% 21.6%
19.0%
20%
15.6%
13.3% 13.2%
12.0%

10% 7.9% 8.1% 8.0% 8.7% 8.0%
6.7% 6.7%

0%
No change expected Positive Negative Significantly positive Significantly negative

Network carrier Mobile device manufacturer Infrastructure and component manufacturers Software developer Overall



Capability development technology platform. We then asked respondents to
Having observed the disruption that has ripped through rank what they thought were the three most critical
the mobile sector over the last 24 months, we believe elements associated with platform success. Interestingly,
the twin pillars of platform leadership and ecosystem 62 percent thought that simplicity of application
development are central to capitalizing on emerging development and user experience, combined with
growth opportunities. Planning for growth is thought to cross-industry potential, was the most critical element.
be gaining momentum with 67 percent of respondents This was followed by use of open interface access and
in organizations that either had or were planning to modular technology architectures, which 52 percent
have an open mobile strategy in operation (see Figure ranked as second most important. The use of a vibrant
21). The broader role of platform leadership within that ecosystem to support and develop the platform standard
strategy seems to be taking hold with 65 percent of was ranked third most important, with a 45 percent
survey respondents reporting that their organizations had average response.
already developed what they considered to be a mobile

Figure 21. General strategic planning for the open mobile era is mostly at an advanced stage

Does your company have an open mobile strategy in place?

Yes, strategy in place and 40.5%
operational

Yes, strategy in the planning stage 26.2%

No, strategy planned at this 13.5%
moment/not a strategic objective

No, not applicable 9.5%

Don’t know 10.3%


Has your company developed a mobile technology platform?

Don’t know
8.4%
Yes
64.9%

No
26.7%



As Figure 22 highlights, analyzing this on an industry However, respondents at the C-suite level again lagged
basis also proved interesting, with both network carrier other functional roles in determining its value; only 29
respondents (39 percent) and software developers (28 percent were in agreement that it remains critical. This
percent) ranking the use of ecosystems much lower in does not seem to have had a lasting impact on the overall
terms of platform success criteria. A further analytical cut need for a mobile ecosystem strategy, however, with 58
by function was even more revealing; only 10 percent percent of respondents reporting that their organizations
of C-suite respondents believed the use of ecosystems have strategies in place for either playing a leading role
to be a critical element. However, this seemed contrary in orchestrating an ecosystem (29 percent) or acting as a
to data collected on the most critical elements for value participating partner in one (29 percent). At the industry
generation when developing a mobile OS platform. In level, mobile device manufacturers lead the way with
this instance, the use of a large, developer ecosystem 72 percent of device respondents either in companies
was deemed essential by 42 percent of respondents, orchestrating (42 percent) or participating (30 percent).
beating out large market penetration (24 percent). This could be viewed as indicative of the confusion that
surrounds the notion of ecosystem development and how
and where it is most appropriately executed.

Figure 22. Understanding the critical elements of platform leadership in the 4G era

Top 3 critical elements of the platform’s success

80%

70%

Percentage of 60%
respondents
selecting top 50%
three elements of
platform success 40%

30%

20%

10%

0%
Simplicity with appli- Use of open Vibrant ecosystem Represents a Clear understanding Trust-built partner- Represents an
cation development, interface access/ of partners in place horizontal business of the innovation ships with external integrated business
user experience, modular technology to support and model built on open scope between de- collaborators model, proprietary in
crosss-platform architectures develop the platform technology velopment partners nature
potential standard

Network carrier Mobile device manufacturer Infrastructure and component manufacturers

Software developer “C” Suite member Overall



Figure 22. Understanding the critical elements of platform leadership in the 4G era, cont.

Which of the following elements of a mobile operating system platform is most important for value generation?

50%

40%

Percentage of 30%
respondents
20%

10%

0%
Large developer Large market Revenue potential Cross-industry Platform has distinct
ecosystem/ penetration (direct or potential (modular app store
community in place advertising) technology solution)

“C Suite” member Partner/Director Vice President/Manager

Senior Vice President/Senior Manager Overall

Does your company have an open mobile “ecosystem*” strategy in place?

50%

40%

Percentage of 30%
respondents
20%

10%

0%
Network carrier Mobile device Infrastructure and Software
manufacturer component manu- developer
facturers
Yes, as a leader/ Yes, as a partici- No, but plan to partici-
orchestrator of an pating partner in pate/lead an ecosystem in
ecosystems an ecosystem the near future

No, not a strategic objective Don’t know/ Overall
not applicable



The remaining focus on ecosystem development Survey respondents were therefore asked to self-assess
concerned what incentives organizations who orchestrate their organization’s capabilities in the following areas (see
the ecosystem use to attract partners to build or Figure 23):
participate in such a network. Overwhelmingly, two • Innovation
incentives seemed to dominate. First, increased knowledge • IP management
and learning potential via network participation was • Sales and marketing
thought to be a key driver. Second, the promise of • Supply chain management
lucrative revenue generation opportunities between • Knowledge management
ecosystem partners (termed “shadow of the future”) is • Alliance formation
also considered critical to ensure active participation. This
remained consistent at the industry level. Similar findings Innovation and IP management were the top two
aligned to each industry subcategory illustrate a consensus capabilities ranked while alliance formation and
view on incentives. Tied to this issue is the continuing knowledge management brought up the rear.
proliferation of open source technology throughout the Furthermore, respondents were then asked to rank
industry, which is predicted to remain in a steady uptick. capabilities they thought were important to compete in
Indeed, 59 percent of the survey respondents stated the emerging 4G era. The ability to innovate — either
that investment in open source technologies by their at the product or service level (22 percent) or at the
organizations will increase or increase significantly in the business-model level (15 percent) — was thought to
next three years. From an organizational perspective, be most important, followed by the need for vision and
embedding open source principles into capability commitment to mobile platform leadership (13 percent).
development should enhance the collaborative elements Capabilities that were considered less important included
of an open platform and ecosystem strategy. Respondents building trust with ecosystem partners, collaborating with
also pointed to improved product development time-to- third parties to stimulate innovation and fostering an
market and reduced total cost of software development internal culture of collaboration, all of which recorded low
and ownership as benefits of open source adoption. On responses.
the other hand, 64 percent of respondents see security
as an obstacle when adopting an open source strategy In many ways, this data highlights the confusion that
— more so with network carriers than other respondent exists among companies and executives unsure of how to
industry sub-segments where 70 percent stated that go beyond paying lip service to the notion that innovation,
security remains a serious issue with open source platform leadership and ecosystem development are
technologies. important when competing during periods of turbulent
market conditions. Moreover, it suggests a troubling
Digging deeper into what firms must do to become paradox, evident in the key responses to questions
leaders in the open mobile era, it is clear that competing surrounding the required building block capabilities.
in new mobile business model development will require a Uncertainty of the roles played by alliance formation,
broad range of deployable capabilities. These will include knowledge management, trust-building and collaboration
ecosystem building, platform development, effective in general will ultimately hold back the development of
partnering with third parties, understanding customer platforms and ecosystems to stimulate innovation. As
needs and effectively managing intellectual property. such, this problem should be a priority issue.


Figure 23. Ranking organizational capabilities
How would you rank your company’s capabilities in the How important are the following organizational capabilities in terms of
following functions? competing in the 4G era?
Ability to understand and
navigate regulatory policy
Alliance formation Collaboration with external subject on mobile broadband
15% matter experts to stimulate innovation 4%
7%
Innovation Innovation in product,
Fostering an internal culture
22% service or market
of collaboration
22%
7%
Knowledge
Building trust with
management
ecosystem partners
15%
7%
Innovation in business
Adapting dynamically to model or process
IP management a changing business 15%
17% environment
Supply chain 12%
management
15% Mobilizing an external ecosystem Vision and leadership commitment
Sales and marketing around your organization’s mobile to mobile platform leadership
16% technology platform 13%
13%
Note: The percentage denotes the rank order.

How would you rank your company’s capabilities in the following functions?
6

5

“1” is most 4
capability

3

2

1
Innovation IP management Sales and Supply chain Knowledge Alliance
marketing management management formation




Following the mobile elite

content, media and network applications is a dead-end
“Openness is driven by consumer demand. Consumers will use technology
strategy. In this market era, innovation in software drives
far beyond what is envisioned by the provider. This is largely enabled by the
OS and device utilization and boosts network asset
independent developer. Openness is therefore a competitive requirement.”
utilization. For carriers, the walled garden policy should be
reviewed extensively with a view to replacing with a more
“Network carriers need to realize they are being viewed more & more as a utility –
open and collaborative policy to platform development.
i.e. simply a pipe for users to access the internet. All the net neutrality negotiations,
the tiered billing and such indicate to me is that they do not understand the Cautious incumbents forced to play catch-up
changing market. Smart phones have re-defined expectations from consumers, The good news is that the economic downturn does
and they will demand more and more changes.” not seem to have negatively affected the need to
– Survey respondent comments
plan and invest to capitalize on emerging growth
opportunities. However, the not-so-good news is that
Some of our respondent’s comments say it best. The open capability development in key functional areas remains
mobile phenomenon has accelerated significantly since inconsistent. Despite a growing recognition that the
Deloitte Research published findings from its first open move to open platforms is necessary, transitioning from
mobile survey. The rapid development of mobile Web closed, proprietary business models to get there is not
technology, surging consumer demand for data services easy. Focusing on the need for platform leadership, and
and an evolving regulatory policy landscape are pressuring the organization of a supporting ecosystem, should be
incumbents held captive by past success. Concerns are a cornerstone of any tactical plan to thrive in the open
raised but intransigence to change still lurks across the mobile era. Enabling these strategies will stimulate the
mobile value chain. Worse still, confusion and ambiguity broader innovation process and facilitate new competitive
add to the uncertainty of appropriate strategic responses footholds in markets outside the traditional wireless sector.
to diminishing market share. But to compete in this era This holds true for both incumbents and new entrants, be
of hypercompetition, where waves of new entrants — they carriers, device makers or software providers. Winners
unencumbered by bureaucratic management structures in this era will be those who can astutely mobilize new
and empowered by digital technology — are rewriting the ecosystems, manage network alliances, build trust with
rule books on market competition, incumbents have little new partners in the innovation process and generate value
choice but to follow the lessons learned from the new from mobile technology platforms that in-turn will form
mobile elite. the core of new business model development. Companies
that fail in these key areas will struggle to compete.
The crumbling walled garden
Our first report discussed the need for carriers’ walled Run to where the money will be
gardens to disappear in order to begin reenergizing the Today, incumbents in mobile are struggling to hold off
process of innovation and spur them toward growth. relentless challenges from Silicon Valley. Finding new,
At the time of this report’s publication, there seems to non-traditional, sources of wireless growth will become
be a gradual acceptance of this, and some efforts are imperative to regaining their leading positions. Companies
underway, albeit at a slower pace than is called for by active in areas such as wireless health care, smart grid
the market. This process of change needs to accelerate energy management, financial services and consumer
significantly. A majority of our survey respondents agrees products/retail are set to experience explosive growth
and thinks carrier competitiveness in the 4G era will in the use of mobile technology. New business models,
be dependent on dismantling the closed platforms of with wireless technologies at the core of the platforms,
the past and replacing them with more open forms of will drive value generation. Top-line growth will become
organization. This will be essential to stimulate business increasingly dependent on how well incumbents,
model innovation and ensure new platforms will gain particularly carriers, can organize to collaborate with
sustainable footholds amid market turbulence. Exerting players in adjacent industries where they do not possess
restrictive control and access over software applications, leading knowledge or prior experience.


Differentiate or die Go toe-to-toe with the new wave
The art of innovation lies at the core of the incumbent If nothing else, the spectacular arrival of Silicon Valley
challenge in mobile. The question becomes how to into the mobile telecoms industry has made for great TV.
balance the daily grind of defending hard-won market But along with the excitement of widespread adoption
share with the need to find unexplored opportunities in of mobile Web technologies, an acceleration of market
foreign lands. The first step will be to map out previously competition has left many incumbents struggling to keep
unchartered waters and focus on areas of the value chain pace. Insight from our research on this phenomenon
that are still under-served by new entrants. Survey insight has highlighted the strategies used by those successful
points to targeting innovation at the services level, across new entrants — the mobile elite — to focus on two
the adjacent vertical industries where wireless technology main tactics: the development of astute open platform
is set to disrupt established markets. For incumbents, leadership and the mobilization of agile innovation
the ability to differentiate service offerings at the mobile ecosystems. To seize the moment with emerging growth
OS layer and above will be critical to address challenges opportunities, incumbents must adopt similar tactics to
from new entrants. Fostering innovation in areas such as reenergize their innovation process. By following what we
M2M technologies, mobile cloud computing and mobile describe as a “managed open strategy,” wherein careful
commerce and payments, combined with making bold targeting of open platform development is balanced with
plays in the ever-expanding field of mobile social media retaining proprietary control of core value-generating
will allow incumbents to reach beyond the boundaries assets, incumbents can go toe-to-toe with the new wave.
of their established footholds and strike out into new First steps should include extending third party developer
frontiers. collaboration in areas of promising value generation
such as M2M in the healthcare and energy sectors. By
developing supporting innovation communities that
reconfigure talent, resources and capabilities to serve and
feed the platforms, companies can ensure innovation is
regenerated beyond their own four walls. Doing so will
enable them to emulate the mechanisms of the open
source development model and utilize dispersed networks
of development partners, drawn together across disparate
geographies. This model has traditionally linked self-
organizing talent quickly and efficiently to develop code,
and the same process is now being used to boost product
and service innovation to enhance the platform that
coordinates their activities. More on the topic of strategies
and tactics used in innovation and platform leadership
will be discussed in upcoming open mobile research
publications.


About the survey

Deloitte, in conjunction with our survey vendor, collected accounted for accordingly. This report highlights key
250 targeted responses from executives in and around findings in selected context. The full survey breakout,
the U.S. mobile sector. Respondents were drawn from a including responses by specific industry, decision-making
wide range of mobile-oriented organizations (both big role, revenue and organization size can be found at
and small) across multiple industry segments and from a www. deloitte.com/openmobile. The survey analysis was
variety of senior-level job functions and decision making completed in August 2011.
roles. Participation was voluntary and anonymous. In
some questions, multiple responses were allowed and The responses broke down as follows:

Industry segments Size of organization (Number of employees)
Other
2% >250,001
2%
Software developer – mobile 1,000 – 10,000
operating system developer/mobile Network carrier 22%
100,001 – 250,000
applications developer 30%
9%
20%

Infrastructure and
component manufacturers
18% 50,001 – 100,000
27%

10,001 – 50,000
Mobile device manufacturer 30%
30%

Functional role Revenue
Other $51M – 200M
1% “C” Suite member 4%
7% $201M – 600M
7%

$601M – 1B
7%

Vice President Partner/ $1B – 5B
37% Director 82%
34%

Senior Vice President/
Senior Manager
21%


Endnotes

1
Charles S. Golvin, “A rebirth of competition in mobile WPA2009/WPA2009_WorkingPaper.pdf>
connections,” Forrester Research, September 20, 2010; Chronic Diseases and Health Promotion, Centers for Disease
14
Thomas Husson and Julie A. Ask, “2011 Mobile Trends,” Control and Prevention, <http://www.cdc.gov/chronicdisease/
Forrester Research, January 24, 2011. overview/index.htm#ref1> updated July 7, 2010; HC Kung
2
For more on Platform Leadership strategy see A. Gawer and et al., “Deaths: final data for 2005.” National Vital Statistics
M.A. Cusumano, Platform Leadership: How Intel, Microsoft Reports 2008;56(10) <http://www.cdc.gov/nchs/data/nvsr/
and Cisco Drive Industry Innovation, (Boston: Harvard nvsr56/nvsr56_10.pdf >.
Business School Press, 2002); A. Gawer and M.A. Cusumano, Laurence C. Baker, Scott J. Johnson, Dendy Macaulay
15
“The elements of platform leadership”, Sloan Management and Howard Birnbaum,,“Integrated Telehealth And Care
Review, Spring 2002; A. Gawer and M.A. Cusumano, “How Management Program For Medicare Beneficiaries With
companies become platform leaders”, Sloan Management Chronic Disease Linked To Saving,” Health Affair, 30:9, Sept.
Review, Winter 2008. 2011,pp. 1689-1697; Centers for Medicaid and Medicare
3
For more on LTE see Next Generation Mobile Networks Services, National Health Expenditure, <https://www.cms.
(NGMN) < http://www.ngmn.org/home.html>; Also, GSMA gov/NationalHealthExpendData/25_NHE_Fact_sheet.asp>.
<http://www.gsmworld.com/technology/lte.htm>. Association of American Medical Colleges, “Cuts to
16

4
ABI Research “LTE Services in the US Will Generate More doctor training will hurt the nation’s health, economy,”
than $11 Billion in 2015”, ABI Research, December 16, 2010; September 19, 2011 < https://www.aamc.org/newsroom/
Francis Sideco, “LTE Momentum Expected to Easily Overcome newsreleases/2011/260420/110919.html>.
WiMAX Head Start”, iSuppli, February 3, 2011; Francis Sideco, Robert E. Litan, “Vital Signs via Broadband: Remote Health
17

“4G LTE to Enjoy Blistering 300 Percent Subscriber Growth in Monitoring Transmits Savings, Enhances Lives,”October 24,
Next Two Years,” iSuppli, November 8, 2011. 2008, Kauffman Foundation/Brookings Institution report.
4a
See, Verizon Wireless, “America’s Fastest And Most Reliable Available at: <http://www.corp.att.com/healthcare/docs/litan.
4G Network Expands To More Than 175 Markets On Nov. pdf>.
17”, Press Release, Verizon Wireless, October 10, 2011, Ibid 12
18

available at: <http://news.verizonwireless.com/news/2011/10/
mTeleHealth, Remote Monitoring for Congestive Heart Failure
19
pr2011-10-07d.html>.
(CHF) Patients, January 2010 <http://www.mtelehealth.com/
5
Roger Cheng, “Sprint to launch own 4G LTE network in early pdf/products/Remote_Health_Monitoring_for_Congestive_
2012 (scoop),” CNET, September 27, 2011 < http://news.cnet. Heart_Failure_(CHF)_Patients_-_mTelehealth_Solutions_
com/8301-1035_3-20112095-94/sprint-to-launch-own-4g- Powered_By_MedApps.pdf>; For more related studies on
lte-network-in-early-2012-scoop/>. benefits of remote patient monitoring, see Catherine Klersy,
6
Jenna Wortham, “Skype-Style Calls Force Wireless Carriers to Annalisa De Silvestri, Gabriella Gabutti, François Regoli, and
Adapt,” The New York Times, May 15, 2011. Angelo Auricchio, “A Meta-Analysis of Remote Monitoring
of Heart Failure Patients,” Journal of the American College of
7
“Embedded Mobile & M2M Connected Devices to rise to Cardiology, 54:18, 2009, pp. 735-1097; Ambar Kulshreshtha,
412 million globally by 2014”, Juniper Research, January 19, Joseph C. Kvedar, Abhinav Goyal, Elkan F. Halpern, and Alice
2010; “Embedded Mobile and M2M Device Revenues to Rise J. Watson, “Use of Remote Monitoring to Improve Outcomes
to $19 Billion by 2014”, Cellular News, February 9, 2010. in Patients with Heart Failure: A Pilot Trial,” International
8
Michele Pelino, “The M2M Market Is A Blossoming Journal of Telemedicine and Applications, 2010, 7 pages.
Opportunity”, Forrester Research, March 16, 2010. PricewaterhouseCoopers, Telehomecare Phase One Program
20

9
“Wireless Home Healthcare to be $4 Billion Industry by Evaluation – Final Report Summary, Ontario Telemedicine
2013”, Park Associates, August 5, 2009. Network, July 2009; Ontario Telemedicine Network,
Telehomecare, <http://otn.ca/index.php?uri=/en/services/
10
Ibid 8
telehomecare/>.
11
Sophia Yan and Christopher Flavelle, “Boeing Blocks GE,
Pyramid Research, “mHealth Applications to Increase
21
Philips Wireless Spectrum for Patient Monitoring Device”,
Threefold by 2012”, Pyramid Research, December 16, 2010.
Bloomberg, July 22, 2010.
AirStrip Technologies, <http://www.airstriptech.com/>
22
12
Stephen F. Jencks, M.D., M.P.H.; Mark V. Williams, M.D., and
Eric A. Coleman, M.D., M.P.H., “Rehospitalizations Among For more on the Continua Health Alliance see, <http://www.
23

Patients in the Medicare Fee-for-Service Program,” The New continuaalliance.org/about-the-alliance/member-companies.
England Journal of Medicine. 360; 14, April 2, 2009, pp. html>.
1418-1428. ZPryme Research “Smart Grid: Hardware & Software
24

13
Philip Seligman, “Industry Surveys Healthcare: Product & Outlook,” ZPryme Research & Consulting, December 2009.
Supplies”, Standard & Poor’s, August 20, 2011. See also Ibid 24
25
United Nations, World Population Ageing 2009, Department
of Economic and Social Affairs, United Nations, December Pike Research, “Smart Grid Investment to Total $200 Billion
26

2009 <http://www.un.org/esa/population/publications/ Worldwide by 2015,” Pike Research, December 28, 2009


< http://www.pikeresearch.com/newsroom/smart-grid- Sprint Developer Conference <http://developer.sprint.com/
42

investment-to-total-200-billion-worldwide-by-2015>; site/global/community/events/2011devcon/2011_conference_
Santos A. Pires, Smart Grids: Funding and partnering for home.jsp>; AT&T Developer Summit <http://developer.att.
energy security and efficiency, paper presented at The First com/developer/forward.jsp?passedItemId=4300122>, Verizon
Sustainable Infrastructure Financing Summit, Basel, January Wireless <http://www.vdcconference.com/>.
2011. Nielsen, “In U.S. Smartphone Market, Android is Top
43

27
ZPryme, “Smart Grid: 2010 U.S. Project Spending,” ZPryme Operating System, Apple is Top Manufacturer,” Nielsen
Research & Consulting, 2010. Mobile Research, July 2011.
28
Ibid 27 Appcelerator/IDC, “Q3 2011 Mobile Developer Report,”
44

Appcelerator Research, July 2011.
29
Federal Communications Commission, Connecting America:
The National Broadband Plan, Federal Communications Apple Inc, Q4 2011 Apple Inc Earnings Conference Call,
45

Commission, March 16, 2010. Apple Inc, October 18, 2011.
30
Electricity Advisory Committee, “Smart Grids: Enabler of Appcelerator, “Q2 Mobile Developer Survey, Appcelerator,”
46

the New Energy Economy”, U.S. Department of Energy, June 2010; Appcelerator/IDC, “Q4 Mobile Developer Report”,
December 2008. Appecelerator, September 14-16, 2010.
31
Ibid Apple Inc., “AAPL - Q1 2011 Apple Inc. Earnings Conference
47

Call,” Thomson StreetEvents, January 18, 2011.
32
Ibid
Matos Kapetanakis, “Developer Economics 2011 – Winners
48
33
Usman Sindhu and Doug Washburn, “Smart Grid Q&A:
and losers in the platform race,” VisionMobile Research, June
Unveiling The New Grid”, Forrester Research, June 4, 2010.
8, 2011.
34
Ponemon Institute LLC, Perceptions about Privacy on the
ComScore, “U.S. Mobile Subscriber Market Share” Comscore
49
Smart Grid, November 2010.
Research, June 2011.
34a
See: AT&T Press Release, “Low-cost connectivity electrifies the
As part of the alliance, Nokia will receive a significant
50
smart grid industry”, Sept.22nd, 2011, att.com at <www.att.
payment from Microsoft to take the deal forward, but in
com/gen/press-room?pid=21261&cdvn=news&newsarticleid=
return will pay a license fee to Microsoft for each copy of
32871&mapcode>; For more on AT&T’s smart meter alliance
the OS that will become standard on all Nokia smartphones.
see <www.zigbee.org>; For more on AT&T’s M2M services
The ramifications of this alliance are potentially far-reaching.
see; www.business.att.com/enterprise/Family/mobility-
Windows Phone 7 has been critically well received within the
services/machine-to-machine/; http://www.wireless.att.com/
developer community due to its best-in-class user experience
businesscenter/solutions/industry-solutions/vertical-industry/
and suite of advanced developer tools. Microsoft, while in
utilities/smart-grid-solutions.jsp
many ways remaining the epitome of the closed, proprietary
35
Joan Engerbretson, “An Inside Look at Verizon’s Smart Grid,” platform, made significant efforts to attract, grow and incent
Telecompetitor, September 28, 2010. a vibrant external developer community around Windows
36
Brad Reed, “Verizon part of smart grid technology team,” Phone 7. Early indications point to a growing adoption of the
Network World, February 04, 2010. platform as a serious contender to Android and iOS, although
the company still faces a significant challenge in the short
37
“Apple Becomes World’s Number One Smartphone Vendor in term to grow its user base to the levels commensurate with
Q2 2011”, Strategy Analytics, July 29, 2011.Lance Whitney; Apple and Google. See “Full Text: Nokia CEO Stephen Elop’s
“Samsung outshines Apple in smartphone shipments, market ‘Burning Platform’ Memo,” The Wall Street Journal, February
share,” CNET, November 4, 2011. 9, 2011; Andreas Constantinou, “Is Microsoft buying Nokia?
38
“Developer Economics 2011,” VisionMobile Research, June An analysis of the acquisition endgame,” Visionmobile,
2011. February 24, 2011; Dina Bass, “Microsoft Is Said to Pay Nokia
More Than $1 Billion in Deal,” Bloomberg, March 7, 2011
39
Ibid
Strategy Analytics, “Strategy Analytics: Apple Dominates
51
40
Dan Hesse, Sprint CEO- Delivering on the Sprint Promise:
Mobile App Space with Content while Android Aims for
Enabling the Developer Ecosystem, presented at the 2010
Numbers,” Businesswire, July 21, 2011 <http://www.
Sprint Developer Conference, Santa Clara, CA, USA, October
businesswire.com/news/home/20110721005072/en/Strategy-
26-28, 2010.
Analytics-Apple-Dominates-Mobile-App-Space>.
41
41 For more on AT&T’s collaborative innovation strategy, see:
Hugo Miller, BlackBerry Partners Will Raise $150 Million
52
E.B. Boyd, Why AT&T is opening itself up to app developers,
Venture Fund for BRIC Markets, Bloomberg, October 28,
Fast Company, Sept. 14th 2011 available at <http://www.
2010.
fastcompany.com/1779967/why-att-is-opening-itself-up-
to-app-developers>; AT&T ups the innovation ante with
new collaboration center in the heart of Silicon Valley,
Fierce Mobile, Sept. 15th, 2011, available at: http://www.
fiercemobilecontent.com/press-releases/att-ups-innovation-
ante-new-collaboration-center-heart-silicon-valley

Author and acknowledgments

Author Acknowledgements
Scott Wilson, Ph.D. The author would like to thank the following people for
their comments, feedback and assistance:
Scott Wilson leads research and thought leadership
development for Deloitte’s U.S. technology, media and Phil Asmundson, Deloitte LLP (United States), Eric
telecommunications practice. As a member of Deloitte Openshaw, Deloitte LLP (United States), Wallace Gregory,
Research, his work explores technology management, Deloitte LLP (United States), Dan Latimore, Deloitte
innovation, competitiveness and corporate growth Services LP (United States), Jonathan Copulsky, Deloitte
strategy across the global TMT sectors. Dr. Wilson has Consulting LLP (United States), Skip Moore, Deloitte
over 15 years experience in the TMT sector and has & Touche LLP (United States), Dan Littman, Deloitte
held a variety of industry and academic leadership Consulting LLP (United States), Craig Wigginton, Deloitte
roles. As a consultant, he has served clients on a broad & Touche LLP (United States), Gene Monacelli, Deloitte
range of growth issues and has led collaborations Consulting LLP (United States), John Namovic, Deloitte
with several executives and academics including at Consulting LLP (United States), Randy Whitney, Deloitte
Cambridge University and MIT. An expert on the subject & Touche LLP (United States), Teresa Briggs, Deloitte
of innovation strategy, he has spoken at a number of Consulting LLP (United States), Ken Porrello, Deloitte
technology, business and policy forums and is the author Consulting LLP (United States), Mike Williams, Deloitte
of numerous articles in leading business and academic & Touche LLP (United States), Paul Keckley, Deloitte LLP
publications including, Harvard Business Review, Forbes (United States), Harry Greenspun, Deloitte LLP (United
and Deloitte Review. His research has also been cited in States), Gerald Belson, Deloitte Consulting LLP (United
high profile publications such as The Wall Street Journal, States), Don Newell, Deloitte & Touche LLP (Canada),
The New York Times and Dow Jones. A native of the Christine Brodeur, Deloitte Services LP (United States),
UK, he holds Masters and PhD degrees from Cambridge Amanda Goldstein, Deloitte Touche Tohmatsu (United
University’s Engineering Department at the Center for States), Jon Warshawsky, Deloitte Services LP (United
Technology Management. Scott is currently based in States), Ryan Alvanos, Deloitte Services LP (United States),
Deloitte’s San Francisco office. Shiva Standifur, Deloitte Services LP (United States), Satish
Raghavendran, Deloitte Support Services India Pvt. Ltd.
Research Team (India), Divakar Goswami, Deloitte Support Services India
Praveen Tanguturi, Ph.D. Pvt. Ltd. (India), Paul Lee, Deloitte Touche Tohmatsu
(United Kingdom) Duncan Stewart, Deloitte Touche
Praveen Tanguturi is a member of the Deloitte Research Tohmatsu (Canada), Robert Underwood, Deloitte Services
Technology, Media and Telecommunications team based LP (United States), Negina Rood, Deloitte Services LP
out of Hyderabad, India. In addition to his extensive (United States) Nancy Holtz, Deloitte Services LP (United
industry knowledge and experience, Dr. Tanguturi is States). Prasad Kantamneni, Deloitte Support Services
an expert on the subject of real options investment India Pvt. Ltd. (India), Sushant Gaonkar, Deloitte Support
strategy in telecommunications and has been published Services India Pvt. Ltd. (India), Aleem Khan, Deloitte
in a variety of academic journals including the Journal Support Services India Pvt. Ltd. (India), Antony Raj,
of Telecommunications Policy, Journal of Technology Deloitte Support Services India Pvt. Ltd. (India), Prathima
in Society and the International Journal of Mobile Shetty Deloitte Support Services India Pvt. Ltd. (India).
Communications. Praveen holds a Ph.D. in Technology
Management from the Stevens Institute of Technology,
New Jersey; a Master’s in Telecommunications from
University of Pittsburgh, Pennsylvania; and a Bachelor’s in
Electronics and Telecommunications from the University
of Mumbai, India. He is the recipient of the Wesley J.
Howe School of Technology Management’s outstanding
Ph.D. dissertation award 2007–2008.

Contacts Other reports in the Deloitte Research
Phil Asmundson Open Mobile Series
National Sector Leader, Media and Telecommunications • The mobile elite: Meeting the growth challenge in the
Deloitte LLP 4G era, Deloitte Review Winter Edition, 2012
+1 203 708 4860 • Platforms and the open door, Deloitte Review Summer
pasmundson@deloitte.com Edition, 2009
• The Promise of Open Mobile: Capturing value in a brave
Eric Openshaw new world, Deloitte Research report, 2009
National Industry Leader, Technology, Media and • The Democratization of Wireless: Assessing the impact
Telecommunications of Open Mobile, Deloitte Research report, 2009
Deloitte LLP
+1 714 913 1370 Recent TMT Thought Leadership
Email: eopenshaw@deloitte.com • The impact of 4G technology on commercial
interactions, economic growth and U.S.
Scott Wilson competitiveness, Deloitte Telecommunications industry
Lead, Technology, Media & Telecommunications report, 2011
Deloitte Research • Cell me the money: Unlocking the value in the mobile
Deloitte Services LP payment ecosystem, Deloitte Research report, 2011
+1 203 252 9192
scowilson@deloitte.com About TMT
The Deloitte Touche Tohmatsu (DTT) Technology, Media &
Christine Brodeur Telecommunications (TMT) Industry Group consists of the
U.S. Telecommunications Marketing Lead TMT practices organized in the various member firms of
Deloitte Services LP DTT and includes more than 5,000 member firm partners,
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of Deloitte’s member firms’ TMT practices include some
of the world’s top software companies, computer
manufacturers, wireless operators, satellite broadcasters,
advertising agencies, and semiconductor foundries – as
well as leaders in publishing, telecommunications, and
peripheral equipment manufacturing.


This publication contains general information only and Deloitte Services LP is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other
professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your
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As used in this document, ‘Deloitte’ means Deloitte LLP (and its subsidiaries). Please see deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its
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Copyright © 2011 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited

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