Mobile Applications, Smartphones will drive industry growth; AppStore "miles ahead" of its rivals

Despite the economic downturn, it is expected that the latest mobile applications for smartphones like BlackBerry and iPhone will drive industry growth in the coming years, providing alternate sources of revenue for operators.

A new report by Juniper Research forecasts that smartphones will account for 23% of all new handsets sold by 2013 (Cellular News). Another report by Informa forecasts 35 percent growth in sold smartphones in 2009 and according to The Washington Post, Gartner expects smartphone sales to jump in 2009.

The common element in these reports is the potential that innovative devices and applications have to promote mobile data consumption. This has industry players scrambling to secure their place in the value chain, including content providers, handset vendors and application developers.

Handset vendors need to diversify into high-value content to offset falling margins on handset sales (1). This week, Nokia announced the arrival of new Nokia Music Stores, more Comes With Music launches and three new oriented mobile phones (Cellular News, March 11 2009).

On the side of content providers, Facebook is reported to be in talks with a number of mobile phone manufacturers to more tightly embed access to its services within the phone menus (The Wall Street Journal, February 12, 2009).

Other announcements from industry leaders include RIM, who is launching BlackBerry App World later this month; Microsoft announced at the Mobile World Congress in Barcelona the launch of Windows Mobile marketplace, which will allow developers to build and sell Windows Mobile applications. Both will compete head to head with Apple's AppStore (PC World, March 11, 2009). Android, Palm and Symbian have announced they are opening similar online stores.

Apple remains ahead of the curve; according to ChannelWeb, the AppStore now boasts more than 25,000 downloadable applications and is expected to become a $1 billion business by the end of 2009. Last week, AppStore was ranked as the best among the competition by research firm Global Intelligence Alliance Group, which said AppStore was "miles ahead" of its rivals.

This is good news for Apple and AT&T: "Despite the economic environment, we grew revenues in 2008, and I expect 2009 will be another year of overall revenue growth and solid progress for our company," said Randall Stephenson, AT&T chairman and chief executive officer (source). AT&T reported 1.9 million iPhone 3G devices activated in in the fourth quarter. iPhone 3G continues to deliver high-value subscribers with significantly higher ARPU and lower churn than AT&T's postpaid subscriber average.

It is unlikely that the success of Apple's iPhone and their business model can be replicated, but there are many opportunities for other industry players. Market followers need to position a similar offering as the market leader but it is equally important to understand Apple's competitive advantage: a superior design that stands heads above its competition (see Improving the User Interface to drive revenue).

The iPhone's true innovation is not the touch screen, it is a user interface that makes it easier and more intuitive for the end user to use applications. This is the key element that drives data consumption, which will be the main growth engine for operators in the coming years.

(1) Motorola, Nokia, LG and Sony Ericsson all reported a poor performance for the fourth quarter of 2008; Nokia recently stated that they expect a 10 percent decline in global handset sales for the entire industry (Gigaom).