FINALREPORTFINALREPORT
BBC 
Trust 


Mobile 
apps: 
market 
overview 
and 
strategic 
implications 
for 
the 
BBC 
2nd 
June 
2010 


© Mediatique 
Ltd 
2010 
| 
This 
document 
is 
confidential 
and 
intended 
solely 
for 
the 
use 
and 
information 
of 
the 
addressee 



ExecutivesummaryExecutivesummary
Executive 
summary 


• 
Mediatique 
is 
working 
with 
the 
BBC 
Trust 
to 
better 
understand 
the 
market 
for 
mobile 
apps, 
and 
to 
consider 
the 
potential 
impact 
of 
the 
BBC’s 
entry 
into 
this 
relatively 
nascent 
market 
• 
The 
market 
for 
Mobile 
Apps 
is 
immature, 
chaotic 
and 
competitive, 
and 
there 
is 
a 
paucity 
of 
concrete 
data 
on 
the 
basis 
of 
which 
to 
form 
definitive 
conclusions. 
In 
this 
report, 
we 
have 
has 
reviewed 
the 
available 
data, 
analysed 
current 
trends 
and 
dynamics, 
identified 
source 
of 
future 
dynamics 
and 
proposed 
preliminary 
conclusions 
on 
the 
plans 
by 
the 
BBC 
to 
launch 
mobile 
apps 
for 
news, 
sport 
and 
the 
iPlayer 
• 
Our 
key 
initial 
observation 
is 
that 
the 
apps 
market 
is 
a 
sub-set 
of 
the 
market 
for 
the 
delivery 
of 
mobile 
content, 
which 
includes 
the 
mobile 
browsing 
sector 
and 
apps 
stores 
(including 
both 
integrated 
“portals” 
such 
as 
the 
iPhone-iTunes 
model, 
Blackberry 
World, 
Nokia 
Ovi 
and 
third 
party 
“retail” 
stores)’
the 
fastest 
growing 
segment 
of 
mobile 
content 
is 
the 
iPhone 
platform 
but 
there 
continues 
to 
be 
major 
competition 
from 
Blackberry-RIM 
and 
Symbian 
(Nokia/Sony 
Ericsson) 
• 
While 
the 
apps 
store 
segment 
evinces 
some 
characteristics 
that 
distinguish 
it 
from 
the 
broader 
mobile 
browsing 
market 
in 
the 
short 
term, 
it 
is 
likely 
that 
the 
dynamics 
overall 
will 
converge 
over 
time, 
as 
browsers 
are 
improved 
and 
as 
customer 
relationships 
are 
reconfigured 
• 
In 
particular, 
while 
the 
apps 
store 
market 
is 
currently 
distinguished 
by 
ease 
of 
use/access, 
user-friendly 
billing 
and 
clearer 
navigation 
around 
available 
services, 
which 
are 
aggregated 
and 
compellingly 
offered 
to 
the 
end 
consumer, 
the 
mobile 
market 
already 
shares 
trends 
with 
the 
more 
mature 
and 
large 
online 
content 
and 
services 
market, 
particularly 
in 
relation 
to 
news 
and 
sports. 
In 
both 
distribution 
models, 
customers 
overwhelmingly 
prefer 
“free” 
services, 
and 
the 
ability 
to 
source 
web 
content 
via 
web 
browsers 
is 
already 
able 
to 
substitute 
for 
paid-for 
apps 
in 
the 
delivery 
of 
generic 
news 
and 
sports 
• 
We 
conclude 
that 
the 
availability 
of 
content 
for 
free 
online, 
which 
is 
increasingly 
accessible 
via 
web 
browsers 
affording 
re-purposed 
content 
via 
mobile 
devices, 
will 
make 
it 
harder 
over 
time 
for 
content 
suppliers 
to 
charge 
for 
apps 
that 
provide 
access 
to 
content 
available 
online 
for 
free; 
the 
advantages 
of 
apps 
(bespoke 
mobile-
purposed 
content, 
findability, 
novelty) 
will 
therefore 
reduce 
over 
time 
• 
The 
key 
future 
drivers 
of 
change 
in 
the 
sector 
include: 
network 
speeds 
(still 
patchy)
, 
efforts 
by 
mobile 
operators 
to 
“re-capture” 
billing 
relationships 
for 
customers 
seeking 
enhanced 
mobile 
content 
and 
services, 
associated 
“bundling” 
of 
services 
by 
operators, 
consolidation 
across 
the 
value 
chain 
(operators, 
operating 
systems, 
apps 
aggregators)
, 
consumer 
preferences 
as 
mobile 
content 
trends 
increasingly 
mass 
market 
and 
the 
potential 
emergence 
of 
mobile 
as 
platform 
for 
range 
of 
home 
delivered 
as 
well 
as 
on-the-move 
content 
and 
services 
• 
In 
conclusion, 
the 
BBC 
would 
be 
entering 
a 
market 
that 
is 
already 
trending 
toward 
free 
apps 
(in 
news, 
sport 
and 
long-form 
video 
content) 
and 
is 
likely 
to 
trend 
further 
in 
that 
direction 
over 
time, 
irrespective 
of 
the 
BBC’s 
entry; 
the 
most 
likely 
countervailing 
trend 
tending 
to 
alter 
this 
dynamic 
is 
the 
effort 
by 
content 
suppliers 
to 
introduce 
comprehensive 
charging 
models 
for, 
e.g.
, 
all 
online 
news 
content 
– 
this 
would 
allow 
pricing 
models 
to 
obtain 
in 
mobile 
delivery 
as 
well 
• 
There 
may 
be 
issues 
surrounding 
the 
sequence 
and 
timing 
of 
the 
BBC’s 
launch 
on 
different 
operating 
systems: 
there 
may 
be 
the 
effect 
of 
“picking 
winners” 
if 
the 
BBC 
provides 
de 
facto 
exclusivity, 
even 
if 
time-limited, 
to 
a 
single 
operating 
system 
(given 
that 
the 
BBC’s 
content 
is 
already 
hugely 
popular 
in 
the 
online 
space 
and 
is 
heavily 
promotable 
via 
the 
BBC’s 
other 
“channels 
to 
market” 
– 
TV, 
radio 
in 
particular) 
© Mediatique 
Ltd 
2010 
| 


1

Contents 


1. 
Introduction 
2. 
Market 
overview 
2.1 
Market 
dynamics 
2.2 
Market 
drivers 
2.3 
Business 
models 
3. 
Future 
evolution 
4. 
Implications 
for 
the 
BBC 
5. 
Conclusions 
© Mediatique 
Ltd 
2010 
| 


2

1. 
Introduction 
© Mediatique 
Ltd 
2010 
| 


3

Mediatique is working with the BBC Trust to review the market for mobile apps, in 
the context of the BBC’s plans to enter the market 
• The use of mobile phones as a platform for accessing content and services 
continues to grow, driven by increasing penetration of internet-connected 
phones and consumer demand for on-the-move access 
• Historically, such access was enabled by web browsers on mobiles; 
however, more recently these have sat alongside bespoke mobile 
applications (“apps”), which offer a more seamless made-for-mobile 
experience 
• As is generally the case for content accessible through the internet, there 
are few barriers to entry for those seeking to create and launch an app – 
and the market has boomed as a result, with many hundreds of thousands 
of apps available across a range of devices and operating systems 
• The BBC has to date largely relied on web browsers as a means of reaching 
Introduction 
Scope of our analysis 
Area of analysis Key question areas 
• What the main dynamics of the apps 
market, and who are the main players? 
• What are the drivers of the apps market? 
• What are the key business models – now 
and over time? 
• How will the market evolve? 
Market 
overview 
© Mediatique Ltd 2010 | 4 
mobile viewers, albeit many of its web pages are repurposed for mobile 
consumption and “bookmarks” have been created (for example for the 
iPlayer and BBC News) that can be downloaded via its web page to 
smartphone devices or sent in response to a text from users 
• The BBC is now proposing to launch a number of apps within its core genres 
– news, sport and catch-up TV – to be available via apps stores such as 
that supplying the iPhone; these plans are subject to a review by the BBC 
Trust 
• Mediatique is working with the BBC Trust to better understand the market 
context of these proposals, and to consider the potential impact of the 
BBC’s policy on this relatively nascent market 
• The BBC Trust asked us to analyse the key dynamics of the apps market 
and the role and impact of the BBC in this market. The key areas of our 
analysis are set out opposite 
• What apps are the BBC proposing to 
launch? 
• How does the BBC’s cohort view these 
plans? 
• What is the potential impact on the 
market of the BBC’s entry? 
The BBC’s role 
in the apps 
market 
This report does not constitute a formal market impact assessment, although 
we do consider potential effects of the BBC on the market and its cohort

2. 
Market 
overview 
© Mediatique 
Ltd 
2010 
| 


5

2.1 
Market 
dynamics 
2.2 
Market 
drivers 
2.3 
Business 
models 
© Mediatique 
Ltd 
2010 
| 


6

MarketdynamicsMarketdynamics
The 
launch 
of 
mobile 
apps 
reflects 
moves 
by 
networks 
and 
device 
manufacturers 
to 
incorporate 
new 
features 
into 
their 
user 
propositions; 
although 
the 
market 
is 
nascent 


• 
Technological 
developments 
have 
enabled 
near-universal 
access 
to 
the 
internet 
over 
mobile 
phones 
since 
the 
first 
commercial 
launch 
of 
mobile-specific 
web 
browsers 
by 
DoCoMo 
in 
1999 
• 
The 
early 
days 
of 
mobile 
internet 
access 
were 
characterised 
by 
poor 
coverage 
and 
slow 
speeds, 
coupled 
with 
a 
scarcity 
of 
enabled 
handsets 
(which 
were 
typically 
expensive) 
and 
onerous 
network 
and 
data 
charges 
for 
internet 
usage. 
The 
pace 
of 
change 
has 
been 
rapid 
since 
then, 
however 
– 
driven 
by 
network 
upgrades, 
investment 
in 
handset 
technology 
and 
increasing 
consumer 
demand 
for 
on-the-move 
internet 
access 
• 
The 
mobile 
sector 
is 
highly 
competitive 
across 
the 
value 
chain, 
and 
competition 
among 
device 
manufacturers, 
operating 
systems 
and 
networks 
has 
ensured 
that 
the 
consumer 
proposition 
for 
mobile 
users 
continues 
to 
evolve, 
incorporating 
additional 
features 
and 
functionality 
• 
Standard 
featurephones 
and 
the 
new 
generation 
of 
smartphones 
all 
allow 
users 
to 
access 
the 
internet 
via 
a 
web 
browser, 
even 
if 
this 
initially 
proved 
to 
be 
cumbersome 
for 
mobile 
users, 
as 
screen 
size 
and 
navigation 
meant 
the 
mobile 
internet 
experience 
did 
not 
match 
the 
experience 
of 
consumers 
online. 
Content 
owners 
thus 
sought 
to 
repurpose 
their 
web 
pages 
for 
mobile 
phones 
and, 
more 
recently, 
launched 
bespoke 
mobile 
applications 
which 
provide 
a 
richer 
and 
more 
customised 
way 
to 
access 
online 
content 
via 
mobile 
(in 
particular 
for 
video) 
• 
Historically, 
handsets 
were 
offered 
to 
users 
with 
built-in 
features, 
with 
no 
ability 
to 
add 
or 
remove 
new 
features. 
Device 
manufacturers 
have 
subsequently 
launched 
more 
sophisticated 
smartphones, 
with 
proprietary 
operating 
systems 
allowing 
uses 
to 
add/remove 
third-party 
applications 
themselves 
and 
customise 
their 
devices 
according 
to 
their 
own 
preferences 
• 
These 
advances 
created 
a 
new 
market 
for 
third-party 
apps, 
effectively 
bypassing 
the 
walled 
garden 
approach 
imposed 
by 
the 
old 
handsets. 
The 
launch 
of 
app 
“stores” 
revolutionised 
the 
market 
by 
aggregating 
apps 
into 
a 
single 
access 
hub, 
where 
consumers 
could 
browse 
and 
select 
from 
a 
library 
of 
apps. 
The 
first 
app 
store 
was 
launched 
by 
Apple 
in 
2008, 
followed 
closely 
by 
a 
number 
of 
competing 
stores 
Evolutionofmobilefunctionality
Corephonecapabilities•Voice•SMS•MMSPreloadedfeatures•Ringtones•Themes/
wallpapers•MapsFunctionality•Webbrowsing•Video•MusicUserdeterminerfeatures•Thirdpartyapps•FullPCexperienceSource:Mediatique•TotalmobilepenetrationintheUKstandsatcloseto100%
•Morethan50%ofmobileusersregularlyaccesstheinternetviatheirmobile•…with20%ofusershavingasmartphone•Therearearangeofdevices,includinge-readersandApple’siPad,
thatsharemanyofthecharacteristicsofsmartphones,butwhichareoutsidethescopeofouranalysis•Wenote,however,thattheiPadinparticularwillhavearelationshiptotheappsmarket,asallappsdevelopedforthenewdevicewillalsobeinter-operablewiththeiPhone.Werefertothese,whereappropriate,particularlyastheymayhaveimplicationsfortheBBC’smobiledistributionstrategyinfutureandrecommendfurtherconsiderationoftheissuesinnysubsequentanalysesundertakenbytheTrust
© Mediatique 
Ltd 
2010 
| 


7

MarketdynamicsMarketdynamics
Mobile 
apps 
allow 
users 
to 
select 
and 
download 
third-party 
software, 
thereby 
customising 
their 
devices 
to 
their 
personal 
tastes 
and 
needs 


AppsarelistedwithincategoriesonthecentralappstoreUsersselectanddownloadappsfromthesecategorieseitherfreetodownloadorpaidfor(andchargedviaassociatedorthirdpartybillingsystem)
Oncedownloaded,theseresideonthedeviceeitherasiconsalongsidestandardfeatures(e.g.,
iPhone)orwithinanappsfolder(e.g.,Blackberry)
• 
Mobile 
apps 
refer 
to 
any 
third-party 
software 
programme 
available 
to 
download 
on 
a 
mobile 
device. 
Crucially, 
they 
allow 
users 
to 
customise 
their 
phone 
to 
a 
specific 
set 
of 
needs, 
introducing 
shortcuts 
to 
users’ 
favoured 
communication, 
entertainment 
and 
information 
portals 
Theuserexperienceofmobileapps
• 
Whilst 
apps 
will 
typically 
sit 
alongside 
mobile 
web 
browsers 
on 
an 
enabled 
handset, 
they 
represent 
an 
effective 
shortcut 
to 
online 
content, 
by 
feeding 
information 
directly 
to 
the 
app 
without 
having 
to 
navigate 
the 
web. 
These 
apps 
are 
customised 
mobile 
programmes, 
and 
therefore 
provide 
a 
bespoke 
and 
richer 
mobile 
experience, 
specifically 
tailored 
to 
the 
operating 
system 
and 
functionality 
of 
an 
end-user’s 
device. 
This 
makes 
accessing 
apps 
typically 
faster 
than 
accessing 
content 
via 
web 
browsing, 
although 
there 
is 
no 
de 
facto 
technological 
advantage 
to 
apps 
which 
are 
subject 
to 
the 
exact 
same 
network 
restraints 
as 
web 
content 
• 
Mobile 
apps 
are 
available 
across 
a 
range 
of 
categories, 
from 
entertainment, 
gaming 
and 
news 
to 
communication 
and 
social 
networking. 
Notably, 
certain 
apps 
will 
stream 
live 
information 
(on 
share 
prices, 
sports 
results 
or 
breaking 
news) 
for 
those 
wanting 
up-to-the-minute 
information 
on 
the 
move, 
making 
them 
particularly 
suitable 
for 
mobile 
consumption. 
In 
line 
with 
Web 
2.0’
s 
introduction 
of 
more 
video 
content, 
mobile 
content 
is 
increasing 
video-rich 
• 
It 
is 
worth 
noting 
that 
while 
there 
are 
apps 
available 
uniquely 
for 
mobile 
phones, 
most 
content 
and 
services 
are 
in 
fact 
re-purposed 
from 
online 
versions, 
and 
indeed 
users 
are 
able 
to 
access 
similar 
content 
(if 
not 
necessarily 
optimised 
for 
mobile 
use) 
via 
mobile 
browsers 
connected 
directly 
to 
the 
internet 
• 
Apps 
are 
generally 
aggregated 
and 
available 
through 
a 
central 
app 
store, 
from 
which 
users 
can 
search 
by 
category 
or 
revenue 
type. 
Apps 
can 
typically 
be 
downloaded 
directly 
on 
the 
phone, 
or 
downloaded 
to 
a 
computer 
and 
transferred 
to 
the 
phone. 
Once 
downloaded, 
these 
apps 
sit 
as 
icons 
alongside 
the 
device’s 
central 
features, 
allowing 
users 
to 
customise 
the 
prominence 
of 
certain 
services 
• 
There 
are 
a 
range 
of 
payment 
methods 
and 
models 
for 
apps, 
depending 
on 
the 
device 
and 
operating 
system; 
we 
explore 
these 
elements 
of 
the 
market 
overleaf 
and 
in 
subsequent 
pages 
of 
this 
report 
Source: 
Screenshots 
taken 
from 
Apple’s 
App 
Store 
(top)
, 
Blackberry’s 
App 
World 
(middle) 
and 
the 
iPhone 
(bottom) 


© Mediatique 
Ltd 
2010 
| 


8

MarketdynamicsMarketdynamics
The 
market 
is 
already 
very 
crowded, 
with 
key 
players 
across 
the 
value 
chain 
all 
seeking 
to 
forge 
closer 
links 
with 
the 
end 
user 


• 
Consumers 
could 
be 
forgiven 
for 
thinking 
that 
the 
market 
for 
apps 
began 
and 
ended 
with 
Apple. 
However, 
for 
all 
the 
media 
surrounding 
Apple’s 
App 
Thevaluechainformobileapps
Source: 
Mediatique 


Store, 
it 
remains 
only 
one 
of 
a 
multiplying 
number 
of 
such 
stores, 
all 
within 
a 
crowded 
and 
inter-connected 
value 
chain 


• 
Consumers 
must 
subscribe 
to 
a 
network, 
choose 
a 
suitable 
data-rich 
tariff 
and 
select 
an 
enabled 
handset 
before 
they 
are 
able 
to 
access 
apps. 
Availability 
of 
apps 
and 
app 
stores 
varies 
by 
device, 
with 
certain 
networks 
having 
exclusive 
access 
to 
particular 
handsets. 
As 
a 
result, 
the 
dynamics 
of 
NetworkDevicesOperatingsystemsAppstoresApps
CoredistributionnetworkforallmobileservicesAccessto
Software 
Aggregates 
consumer 
decision-making 
are 
no 
longer 
straightforward, 
particularly 
as 


Consumerinterfaceforconnectingconsumerandnetwork
within 
the 
apps 
into 
device 
that 
single 


consumer 
demand 
for 
additional 
functionality 
continues 
to 
increase 


determines 
point 
of 
how 
access 


• 
An 
overview 
of 
the 
value 
chain 
is 
set 
out 
opposite, 
and 
the 
following 
pages 
hardware 


Presents 


sits/ 


set 
out 
in 
further 
detail 
the 
key 
players 
and 
dynamics 
within 
each 
link 


consumer 


• 
We 
highlight 
a 
few 
general 
market 
observations 
here: 
– 
The 
value 
chain’s 
components 
are 
relatively 
distinct, 
but 
many 
players 
straddle 
more 
than 
one 
link. 
Most 
devices 
use 
their 
own 
proprietary 
operating 
system 
for 
example, 
and 
increasingly 
offer 
their 
own 
pre-
loaded 
app 
store 
on 
their 
devices 
– 
hence 
Apple 
functions 
across 
devices, 
operating 
systems 
and 
app 
stores. 
The 
networks 
themselves 
are 
increasingly 
offering 
their 
own 
app 
stores 
contentonlypossibleoverupgradednetworks(e.g.,
GPRS,3G,
4G)
Centraldeviceforhostingservices,
includingaggregatedservices
DownloadedbyendusersUserinterfacewithdevice
AppslaunchedbybusinessesandstandalonedevelopersIncludesuniverseofcontentandservicesacrossmultiplegenres
– 
The 
numerous 
operating 
systems 
and 
app 
stores 
each 
require 
apps 
to 
comply 
with 
their 
proprietary 
technology; 
this 
ensures 
that 
not 
all 
apps 
are 
available 
on 
every 
app 
store, 
and 
those 
seeking 
universal 
reach 
must 
develop 
different 
versions 
for 
each 
platform; 
this 
has 
implications 
Billing 
relationship 
with 
end 
user 


for 
the 
costs 
of 
launching 
apps, 
which 
we 
explore 
subsequently 


– 
The 
end-user 
has 
relationships 
with 
more 
than 
one 
player 
– 
including 
the 
network 
they 
subscribe 
to 
(or 
pay)
, 
the 
device 
they 
use, 
any 
associated 
or 
independent 
app 
store 
they 
search 
and 
any 
apps 
supplier 
whose 
product/service 
they 
use 
or 
pay 
for 
operateswithinthephoneandhowuserscontrolthedevice


interfaceforconsumerselection/
demand


© Mediatique 
Ltd 
2010 
| 


9

MarketdynamicsMarketdynamics
There 
are 
a 
number 
of 
devices 
enabling 
access 
to 
apps, 
each 
with 
their 
own 
look-
and-feel, 
navigation 
and 
underlying 
operating 
system 


• 
Mobile 
users 
are 
able 
to 
access 
the 
internet 
through 
an 
ever-expanding 
range 
of 
devices 
offered 
by 
all 
the 
main 
device 
manufacturers 
• 
The 
current 
generation 
of 
featurephones 
enable 
users 
to 
browse 
the 
internet 
and 
to 
access 
certain 
web-based 
apps, 
but 
the 
launch 
of 
the 
smartphone 
revolutionised 
the 
market 
for 
apps 
by 
increasing 
the 
power 
and 
capability 
of 
the 
handset 
• 
There 
is 
no 
industry 
definition 
of 
a 
smartphone, 
and 
any 
such 
definition 
is 
likely 
to 
be 
a 
relative 
term; 
in 
general 
terms, 
however, 
they 
typically 
have 
a 
central 
operating 
system 
that 
can 
upload 
sophisticated 
multi-media 
apps 
onto 
the 
device. 
The 
proprietary 
app 
stores, 
and 
the 
apps 
contained 
within 
them, 
are 
tailored 
to 
meet 
the 
code 
of 
each 
operating 
system 
• 
By 
definition 
therefore, 
the 
choice 
of 
handset 
by 
any 
user 
determines 
the 
operating 
system 
within 
the 
device 
and 
the 
nature 
of 
any 
pre-loaded 
app 
store 
that 
the 
user 
can 
access. 
For 
example, 
all 
Nokia 
handsets 
operate 
on 
the 
Symbian 
operating 
system, 
with 
the 
Ovi 
Store 
pre-loaded 
on 
all 
Nokia 
smartphones 
and 
operated 
similarly 
to 
the 
Apple 
Apps 
Store 
• 
This 
segmentation 
by 
device 
creates 
some 
interesting 
trends 
in 
the 
app 
proposition 
of 
each 
device: 
for 
example, 
Blackberry 
handsets 
tend 
to 
be 
favoured 
by 
professionals 
and 
the 
nature 
of 
apps 
offered 
by 
App 
World 
is 
biased 
towards 
entreprise 
apps; 
by 
contrast, 
the 
apps 
on 
Apple’s 
App 
Store 
are 
typically 
more 
consumer-oriented 
• 
The 
interface 
and 
functionality 
of 
the 
various 
app-enabled 
devices 
varies 
significantly 
and 
can 
have 
implications 
for 
the 
scale 
of 
usage. 
Most 
market 
analysts 
suggest 
that 
Apple’s 
hardware 
is 
far 
more 
user-friendly 
than 
competing 
handsets 
and 
the 
usage 
of 
apps 
on 
these 
devices 
is 
typically 
greater 
than 
others. 
As 
the 
data 
opposite 
illustrates, 
devices 
running 
off 
Symbian 
have 
the 
highest 
penetration 
rate, 
but 
Apple 
users 
have 
the 
highest 
propensity 
to 
access 
the 
web 
via 
their 
device 
Worldwidesmartphonesales,byoperatingsystem(2009)
Source: 
Comscore, 
M:Metrics 


47% 


20%
14%
9%
5%4%
1%
Totalshipmentsofsmartphonesareforecasttoreachc230min2010,withWesternEuropeaccountingfor20%ofthese
Symbian 
RIM 
iPhone 
OS 
Microsoft 
Linux 
Android 
Other 
Windows 


Windows 
Mobile 



NokiaSonyEricsson
B’berry
iPhone
HTC
SamsungLG
MotorolaSamsungLGHTC
Selectedhandsets
UKsmartphonemarketshare&mobilewebusage(Q42009)
Source: 
Comscore, 
49.1% 
M:Metrics 


17.8%19.3%
10.5%
3.0%
40.0%
19.2%
26.7%
9.7%
4.2%
SymbianRIMiPhoneMicrosoftWindowsMobileAndroid
© Mediatique 
Ltd 
2010 
| 


10

There are many competing app stores, led by the major device manufacturers… 
• The number of app stores has boomed since Apple’s first entry into the market in 
2008, rising from four at the end of 2008 to more than 38 currently 
• The device manufacturers were the first to launch app stores, pre-loading their 
software onto devices, in conjunction with their proprietary operating systems, and 
using their own brands. All the major handset vendors now have their own app 
stores, including Apple, RIM and Nokia 
• The network operators have subsequently sought to wrest the subscriber 
relationship away from the app stores, not least as they control the core mobile 
billing relationship with the end-user, and the launch of device-controlled billing 
systems (e.g., iTunes) represents a form of threatening disintermediation. Many of 
the networks have been late to market, and have appeared to be in strategic 
disarray as they seek to develop app stores that will work across all the 
handsets/operating systems that they offer their subscribers 
Major app stores, and number of listed apps (estimated) 
Market dynamics 
•App Store 
•150,000+ 
Apple 
•Android 
•50,000+ 
Google 
•App World 
•6,000+ 
RIM (Blackberry) 
•Ovi 
•6,000 
Nokia 
•App Catalog 
•2,000 
Palm 
•Windows Marketplace 
© Mediatique Ltd 2010 | 11 
• Whilst the majority of app stores are tied to either network or device, there are a 
number of independent app stores that are unaffiliated to the rest of the value 
chain. These include companies such as GetJar and Handango which can be 
downloaded onto devices by the end-user directly or pre-loaded onto handsets as a 
white-label service for the smaller end of the network/device market 
• Each app store is different in range and quality of apps, revenue model and user 
interface. Notably, each app store operates a different process of certification for all 
apps seeking carriage in the store. For example, Google’s Android is essentially an 
open-source app store (and hence it is currently the fastest-growing store), whereas 
Apple’s App Store operates a stricter quality assurance policy and higher charges for 
the development code. As a result, the nature of any app store is a reflection of 
operators’ policy, consumer demand and the nature of apps development 
• The main stores now offer a vast range of apps, although the depth of available 
apps varies, with Apple retaining its early-move advantage with more than 150,000 
apps. In this context, the app stores face a trade-off between offering a large range 
of apps and providing users with too much choice – recent research by Palm 
suggests that users are satisfied with a library of 1,500 apps. As the competing 
stores reach a critical mass of available apps, the focus of competition is shifting to 
billing, quality of apps and navigation 
•<1,000 
Microsoft 
Sources of downloaded content and apps 
Worldwide apps downloads, by source (Q1 2010) 
From an app store 39% 
From an operator’s portal 34% 
From a third party content provider 18% 
Don’t know 9% 
“breadth of applications is an important factor, but only to a certain limit, 
especially given that about 1,500 apps provide enough variety to satisfy most 
users’ demands…” – Bank of America Merrill Lynch 
Source: Gartner

Market dynamics Marketdynamics
The 
array 
of 
available 
apps 
is 
huge, 
across 
a 
number 
of 
categories 
from 
entertainment, 
information, 
e-commerce 
and 
services… 


• 
Apple’s 
central 
marketing 
message, 
“there’s 
an 
app 
for 
that”
, 
confirms 
– 
albeit 
anecdotally 
– 
that 
the 
market 
for 
apps 
is 
crowded 
and 
multi-genre 
• 
A 
breakdown 
of 
any 
app 
store 
into 
categories 
illustrates 
the 
range 
and 
breadth 
of 
services 
available, 
including 
TV 
and 
audio 
content, 
news, 
communication, 
commerce, 
gaming, 
maps/navigation, 
location-
specific 
information, 
listings, 
etc. 
• 
…the 
source 
of 
these 
apps 
is 
vast 
– 
from 
consumer 
brands 
and 
media 
owners 
to 
banks 
and 
gaming 
companies. 
Crucially, 
the 
apps 
market 
contains 
thousands 
of 
new 
entrants, 
including 
aggregated 
content, 
user-generated 
content 
and 
original 
produced 
content. 
Many 
of 
the 
currently 
available 
apps 
have 
significant 
novelty 
value, 
centred 
around 
gaming, 
entertainment 
and 
“themes”
; 
these 
have 
proved 
initially 
popular 
among 
smartphone 
subscribers 
as 
users 
continue 
to 
experiment 
with 
the 
new 
functionality 
• 
A 
burgeoning 
community 
of 
apps 
developers 
has 
ensured 
that 
the 
range 
of 
apps 
continues 
to 
expand, 
a 
reflection 
in 
part 
of 
the 
nature 
of 
negotiations 
between 
app 
stores 
and 
app 
developers: 
– 
There 
are 
now 
broadly-accepted 
industry 
standards 
for 
revenue 
shares, 
which 
favour 
the 
app 
developer 
– 
both 
in 
terms 
of 
quantum 
and 
transparency. 
Indeed, 
70-80% 
of 
revenue 
accrues 
to 
the 
app 
developer, 
with 
the 
remainder 
retained 
by 
the 
app 
store 
– 
The 
relatively 
simple 
process 
of 
certification 
and 
submission 
favoured 
by 
most 
of 
the 
app 
stores 
lessens 
barriers 
to 
entry 
further 
and 
lessens 
the 
time-to-market. 
We 
note, 
however, 
that 
the 
cost 
of 
launching 
apps 
on 
multiple 
operating 
systems 
tends 
to 
favour 
the 
larger 
established 
app 
stores 
• 
The 
most 
highly-rated 
apps 
vary 
considerably 
by 
app 
store, 
and 
we 
set 
out 
the 
top-10 
paid 
and 
free 
apps 
from 
Apple’s 
App 
Store 
opposite. 
This 
illustrates 
that 
users 
are 
accessing 
similar 
services 
to 
those 
they 
would 
online 
(e.g.
, 
social 
networks, 
sports 
information)
, 
but 
notably 
games 
are 
the 
most 
popular 
apps. 
Indeed, 
across 
the 
entire 
App 
Store, 
gaming 
represented 
58% 
of 
all 
downloaded 
apps 
in 
2009 
Breakdownofappstore,bycategory(illustrative)
This 
list 
is 
representative 
387 
of 
Blackberry’s 
App 
World; 
although 
some 
79 
categories 
are 
excluded 
395 
1291 
120 
185 


270 
239 
583 


57180233
Highestrankingapps:freevs.pay,byusage(Q22009)
RankFreePay1SkySportsLiveFootballScoreCameraGenius2WaterslideExtremeMotoXMayhem3TubeMapFlightControl4SheepLauncherFree!RagdollBlaster5FacebookMinigore6SpottheDifference!WORMS7All60GamesInternetRadioBox8PaperTossCivilisationRevolution920QMindReaderBejeweled210iGlowStickPaperToss:WorldTourSource:Distimo
Business/finance 
Education 
Entertainment 
Games 
IM/Social 
networking 
Maps/navigation 
Music/audio 
News/weather 
Reference/books 


Sh 
i

Shopping 
Sports/recreation 
Travel 


© Mediatique 
Ltd 
2010 
| 




The market for news apps is crowded and well served by legacy news providers; 
most news apps are available to download for free… 
• The time-sensitive, time-critical nature of news makes it an ideal category for 
distribution on mobile devices, allowing users to access news 
content, breaking stories and results on-the-move. More than 75% of internet- 
enabled mobile users access news and information on their devices 
• Web-enabled mobile users have always been able to access news content via 
browsers; however, small screen sizes and poor navigation hindered the user 
experience of accessing news pages first designed for consumption on PCs 
• Certain online news sites (including the BBC’s) sought to offer bespoke mobile 
web pages, which are repurposed specifically for consumption on a small 
screen. News providers continue to repurpose their pages for mobile, but the 
launch of mobile apps has enabled them to offer an even more bespoke and 
rich user experience 
Market dynamics 
News apps in the UK (selected examples only on App Store) 
Telegraph mobile •Free 
The Guardian •Pay (£2.39) 
Independent •Free 
Daily Star •free 
Financial Times •Bundled with FT.com 
Wall Street Journal •Bundled with WSJ.com 
New York Times •Free 
Irish Independent •Pay (£1.79) 
Manchester Evening News •Free 
© Mediatique Ltd 2010 | 13 
• It is no surprise therefore that the market for mobile news apps is already a 
crowded one. The range of mobile apps available mirrors the range of online 
sites, including national and regional press, freesheets, broadcasters, news 
agencies, magazines and online/mobile only sites. There are approximately 
1,500 news apps on Apple’s Apple Store and more than 200 news apps on 
Blackberry’s App World; there are 40 free news sites from traditional media 
owners on the iPhone in the US (from all the TV networks and from leading 
newspaper publishers) 
• Unsurprising too is the popularity of news apps among smartphone users. The 
BBC estimates that 1.5m UK adults used news apps and 1m used sports apps 
in January 2010; they also estimate that around 25% of smartphone users 
accessed news via applications during 2009 
• Revenue models vary across the spectrum of news apps, however the majority 
are freely available – a very recent survey undertaken by Journalism.com 
found that 24 of the most popular 36 news apps on Apple’s App Store were 
free. In addition, The FT and The Wall Street Journal offer free access to those 
with an existing offline or online subscription; a notable exception to these 
trends is the Guardian, whose app is priced at £2.39 on iTunes, although the 
Guardian’s app on Blackberry’s App World is available for free. Other paid-for 
news apps include Al Jazeera, Fox and CNET 
Kent News •Free 
Metro •Free 
Sky News •Free 
ITN News •Free 
CNN Mobile •Pay (£1.32) 
Al Jazeera English •Pay (£1.79 
Thomson Reuters •Free 
Bloomberg •Free 
Associated Press Mobile •Free 
NPR •Free 
Huffington Post •Free 
Yahoo •Free 
Spin Mobile •Free 
Broadersheet •Pay (£3.31)

We have also looked at the key players in the two other categories in which the 
BBC is considering launching apps – sports news and AV entertainment 
• There are a huge array of sports-related apps within the numerous app 
stores, across several categories including sports news, information on 
fixtures, teams and players, games and guides to specific events. As with 
general news, the market for sports news is increasingly crowded, with 
significant entry from legacy providers and new application developers 
• As an illustration, the forthcoming Football World Cup has seen many premium 
apps launch including, for example, an official England App (£2.99), several 
trivia games (£0.59-£0.99) and a premium travel guide to Cape Town (£9.49) 
• Many of the sports apps are freely available from brands and from existing 
sports broadcasters/aggregators. Some apps charge users to 
download, although in most cases, the content also commands a premium in 
other windows – live premium sport being the primary example. Basic 
information on players and fixtures is essentially a commodity and is freely 
Market dynamics 
• Although the apps market is relatively new, the app stores contain 
significant audio-visual (AV) content, spanning many categories and 
sources 
• None of the major commercial public service broadcasters has launched a 
mobile app as yet, although we believe they intend to do so over time. The 
ad-funded nature of their online catch-up services suggests that any catch- 
up app would be freely available. The BBC has launched an iPlayer app 
Nokia’s Ovi store, and repurposed mobile shortcuts and web applications for 
the iPlayer are available on other devices 
• There may be some premium AV apps – such as Sky’s live sports channels 
– however, these are likely to be linked to underlying subscription TV 
services 
© Mediatique Ltd 2010 | 14 
available online and via browsers; as a result, it is unlikely to justify a paid-for 
model on internet-connected devices 
• We set out below an illustrative sample of the major sports news apps on 
iPhone. The popularity of sports apps will mirror the popularity of particular 
sports generally, with sports games apps attracting a novelty premium initially 
Sports apps in the UK (selected examples only on App Store) 
Sky Sports – Football Score Centre •Free 
Sky Mobile TV News & Sport (live premium channels) •£6/month 
Sky Sports- Cricket Score Centre •Free 
ESPN Score Center •Free 
Eurosport •Free 
UEF.com •Free 
ECB Cricket •Free 
F1 Timing App •£2.99 (per season) 
Wimbledon •Free 
Chelsea FC •£3.99 
• Most AV apps that offer video-rich content are in the short-form category – 
clips, user-generated content – and this is consistent with network 
constraints for extensive video either streamed live or available on demand

2.1 
Market 
dynamics 
2.2 
Market 
drivers 
2.3 
Business 
models 
© Mediatique 
Ltd 
2010 
| 


15

MarketdriversMarketdrivers
We 
have 
identified 
the 
key 
drivers 
of 
the 
market 
for 
mobile 
apps… 


• 
We 
have 
identified 
the 
key 
drivers 
that 
will 
determine 
growth 
and 
change 
in 
the 
market 
for 
mobile 
apps, 
both 
to 
date 
and 
into 
the 
future 
• 
These 
drivers 
capture 
the 
broader 
context 
of 
network 
and 
device 
convergence, 
and 
also 
the 
intersection 
of 
technological 
development 
and 
changes 
to 
consumer 
behaviour 
which 
affect 
the 
wider 
communications 
and 
media 
markets 
• 
The 
key 
drivers 
are 
set 
out 
opposite, 
and 
in 
the 
pages 
that 
follow 
Keydriversoftheappmarket
SmartphonepenetrationNetworkcoverageandspeedConsumerbehaviourValuechainstrategies
© Mediatique 
Ltd 
2010 
| 


16

MarketdriversMarketdrivers
Increasing 
penetration 
of 
smartphones 
is 
a 
primary 
driver 
of 
mobile 
apps, 
allowing 
users 
to 
run 
third-party 
software 
on 
the 
underlying 
operating 
system 


UKsmartphonepenetration,byoperatingsystem(Q12010)
• 
Take-up 
of 
smartphones 
is 
one 
of 
the 
primary 
drivers 
of 
the 
apps 
market, 
as 
the 
consumer 
access 
point 
to 
mobile 
networks 
and 
the 
main 
device 
on 
which 
apps 
are 
selected, 
downloaded 
and 
stored 


Android 


Microsoft 


3% 


• 
The 
UK 
has 
the 
highest 
growth 
rate 
of 
adoption 
of 
smartphones 
in 
Europe, 
with 
10% 
Symbian 


take-up 
growing 
70% 
in 
2009 
to 
more 
than 
11m 
subscribers 
– 
equivalent 
to 


46% 


20% 
of 
all 
mobile 
phone 
subscribers. 
Despite 
Apple’s 
pre-eminent 
brand 
position, 
the 
market 
leader 
in 
UK 
smartphone 
usage 
remains 
Nokia, 
followed 


Apple 


by 
Apple 
and 
RIM 
(Blackberry) 


22% 


• 
Consensus 
forecasts 
suggest 
that 
growth 
in 
the 
take-up 
of 
smartphones 
worldwide 
will 
exceed 
30% 
per 
year 
between 
2010 
and 
2014, 
accounting 
for 
26% 
of 
all 
mobile 
devices 
by 
the 
end 
of 
that 
period. 
Crucially 
for 
the 
handset 
manufacturers, 
Nokia 
expects 
smartphones 
to 
account 
for 
60-65% 
of 
handset 
Source: 
Comscore, 
M:Metrics 


•SymbianistheprimaryOSforNokiaandSonyEricssonhandsets•RIMoperatesonBlackberrydevices•Apple’sOSoperatestheiPhone(andallassociated
hdildiiPd17© MediatiqueLtd2010|
revenuesin2011•Almostallsmartphonescomewithpre-installedappstores(typicallytiedtotheunderlyingoperatingsystem),andtheyofferthemostconsumer-friendlywayofaccessingappsandonlinecontentgenerally•Allthemajormanufacturers,inEurope,theUSandAsiacontinuetoinvestheavilyindevicedevelopmentandtechnology;particularlyasmanyofthemajorplayerswerecaughtoutbyApple’slaunchofitsAppStore,andthehugeresultantboosttoitsmarketshare.Suchinvestmentisalsoaresponsetoconsumers’increasingdesireforgreaterandgreaterfunctionalityontheirdevices•Google’sErikSchmidtremarkedrecently“maybeitistimenottospeakofsmartphonesanymore.Thesmartphoneisreallynotasmartphone.It’sreallyaGPSdevice,it’sacamera,andavideocameraandaplacethatyoucanplaygamesandyoucanbrowse,andohbytheway,youcanmakescalls.Sothisnewgenerationofphoneshavesomuchpowerinthem,somanyactivities,they’vegotsomuchinformationonthemthatitisthedefiningnewcategoryforourindustry”
RIM19%
Worldwideshipmentsofsmartphones(mhandsets)
02004006008001,0001,2001,4001,6002006200720082009201020112012SmartphoneNon-smartphoneshardwareincludingiPads,
iPodsandMacs)
Source:BankofAmericaMerrillLynch

Network coverage is a crucial enabler of consumer demand for apps, ensuring a 
reliable user experience – particularly for the delivery of data-rich services 
• Network coverage and speeds are crucial to enable a reliable and quality mobile 
experience. This is particularly the case for mobile internet services, and 
especially where consumers are accessing data-rich content such as video 
• As networks became digitised – through the launch of 2G networks initially – 
mobile networks were able to deliver greater quantities of data wirelessly. 
However, as smartphone penetration increases and consumption of data-rich 
services increases, wireless networks have come under increasing pressure 
from the inevitable contention rates 
• As Nielsen writes: “while content is king in media, today network satisfaction is 
the largest driver of overall satisfaction with the mobile internet. …After 
cost, network quality is the top reason former data users cancel their data 
services” 
Overview of wireless networks in the UK 
Market drivers 
• Delivered using EDGE or GPRS technology 
• …intended for voice and text services, but capable of 
broadband delivery – albeit at slow speeds 
2G / 2.5G 
• 3G networks were created to enable faster delivery 
of data-rich services 
• …offering speeds up to 6 times faster than 2G/2.5G 
3G 
• Advanced networks (either LTE or WiMax standards) 
• …offering super-fast reliable IP delivery 
4G 
© Mediatique Ltd 2010 | 18 
• The roll-out of 3G networks has improved network capability and currently 
enables users to access the internet at sufficient speeds, thereby greatly 
improving the quality of the mobile internet experience. The increasing 
sophistication of mobile apps, and greater use of mobile web 
browsers, continues to place even these networks under pressure. Many 
carriers have sought to persuade users to connect their devices to WiFi 
networks in order to relieve stress on their networks – even though this 
reduces data charges generated by the user 
• As a result, network operators are seeking to roll out so-called 4G 
networks, designed to offer super-fast delivery of content and services over IP. 
All the mobile networks are exploring the possibility of bidding for spectrum 
under Ofcom’s Digital Dividend Review, which could give them access to highly 
efficient spectrum previously used to broadcast analogue television. Such an 
outcome is subject to an auction by Ofcom, and any plans under DDR are part 
of a broader approach to spectrum allocation (specifically the re-allocation of 
existing spectrum to legacy mobile operators) that Ofcom is consulting on. 
• The current re-allocation process is also part of the Broadband Britain goals set 
by the Digital Britain report, whereby wireless is one method of ensuring 2Mb/s 
access to all homes by 2012 
3G coverage of the UK, by network 
94% 
91% 
85% 
80% 
80% 
Orange
3 
T-Mobile 
Vodafone 
O2 
Network speeds vary 
significantly within 3G 
networks – sometimes 
anywhere between 2Mb/s and 
10Mb/s 
Coverage rates relate to 
population, not geography 
Source: Ofcom

Market drivers Marketdrivers
Changing 
consumer 
behaviour 
has 
led 
to 
demands 
for 
greater 
device 
functionality 
and 
customisation… 


• 
Enabled 
by 
more 
sophisticated 
handsets 
and 
faster 
networks, 
users 
are 
increasingly 
accessing 
the 
internet 
via 
their 
mobile 
phones. 
The 
demand-side 
elements 
of 
this 
trend 
are 
part 
of 
a 
more 
general 
shift 
in 
consumer 
behaviour 
towards 
greater 
control 
over 
communication 
and 
media 
consumption. 
As 
penetration 
of 
mobile 
phones 
reaches 
ubiquity, 
consumers’ 
expectations 
of 
what 
else 
the 
device 
can 
offer 
them 
(beyond 
calls 
and 
text) 
have 
led 
networks 
and 
manufacturers 
to 
offer 
greater 
functionality 
• 
Moreover, 
the 
BBC 
estimates 
that 
people 
spend 
53% 
more 
time 
out 
of 
the 
home 
than 
15 
years 
ago, 
providing 
an 
important 
context 
to 
the 
upgrade 
of 
handsets 
to 
enable 
a 
much 
broader 
and 
richer 
range 
of 
services 
to 
users 
• 
Already 
to 
date, 
handset 
and 
network 
developments 
have 
begun 
to 
meet 
users’ 
demands 
for 
greater 
control, 
with 
the 
next 
generation 
of 
smartphones 
operating 
as 
a 
tool 
for 
communication, 
entertainment 
and 
information 
on-themove 
• 
The 
range 
of 
activities 
undertaken 
on 
mobile 
phones 
is 
now 
strikingly 
similar 
to 
what 
people 
typically 
do 
on 
their 
computers, 
including 
accessing 
the 
internet, 
emailing 
and 
– 
more 
recently 
– 
downloading 
software 
applications 
onto 
their 
device. 
This 
provides 
an 
important 
context 
to 
the 
evolving 
role 
of 
the 
mobile 
device 
from 
a 
simple 
communication 
tool 
to 
one 
of 
organisation 
and 
entertainment. 
Deloitte 
suggests 
that 
almost 
half 
of 
all 
users 
identify 
mobile 
devices 
as 
one 
of 
their 
three 
most 
valuable 
media 
and 
entertainment 
products 
• 
Enabled 
with 
better 
functionality, 
it 
is 
unsurprising 
that 
smartphone 
users 
access 
the 
internet 
far 
more 
than 
those 
without 
a 
smartphone. 
Recent 
data 
suggests 
that 
smartphone 
users 
are 
six 
times 
more 
likely 
to 
email, 
and 
four 
times 
more 
likely 
to 
search 
the 
web, 
than 
those 
without 
a 
smartphone. 
By 
way 
of 
illustration, 
AT&
T 
has 
seen 
an 
18-fold 
increase 
in 
its 
mobile 
data 
traffic 
in 
the 
two 
and 
a 
half 
years 
since 
the 
iPhone 
was 
introduced; 
further, 
O2 
reported 
an 
18-fold 
increase 
in 
data 
usage 
in 
2009. 
and 
estimates 
that 
use 
of 
its 
network 
is 
doubling 
every 
four 
months 
• 
As 
with 
general 
website 
usage, 
smartphone 
users 
access 
a 
wide 
range 
of 
apps 
and 
are 
promiscuous 
in 
their 
usage; 
the 
typical 
iPhone 
user 
has 
almost 
40 
apps 
on 
his 
or 
her 
device 
at 
any 
one 
time 
© Mediatique 
Ltd 
2010 
| 


Internetusage,bydevice(2009)
Source: 
Comscore 


56% 
Smartphone 
users 


42% 


Non-smartphone 
users

41% 
36% 


13%

11%

10% 
10%

9% 


7% 
1% 


1% 


Email 
Web 
search 
Social 
News 
TV/video 
Retail 
networking 



Averagenumberofappsonthephone,byOS(Q109)
“
”
“…manyappsarebeingdownloaded,usedonceortwiceandthendeletedfromphones”Gartner
Source: 
Nielsen 


37 


2214131016
iPhone 
OS 
Android 
Palm 
Microsoft 
RIM 
Other 
Windows 
Mobile 




The launch – or carriage – of app stores (and apps) has proven to be a source of 
competitive advantage for players in the mobile sector… 
• The launch of mobile apps reflects a number of complementary commercial 
strategies by players across the value chain 
• As we have witnessed with television operators launching additional 
functionality beyond linear TV channels, the mobile networks and device 
manufacturers have sought to improve their consumer propositions in order to 
drive revenue and retain customer relationships 
• The network carriers see apps as a way of retaining customer loyalty and 
increasing data charges on their networks, while the device manufacturers see 
their vertically-integrated app stores as a means of driving handset sales and 
strengthening customer loyalty to mobile handsets. Both sets of operators are 
hoping that apps will generate additional direct revenues too 
• Such trends are crucial determinants of success in the crowded and 
Key operating strategies driving the apps market
Market drivers 
•Handset manufacturers have launched pre-loaded app 
stores onto their devices as they seek to strengthen 
consumer loyalty and drive ARPU 
•This is heavily driven by marketing strategies, with 
Apple’s global marketing budget at $500m in 2009 
Sales of 
devices 
•The app store is increasingly seen as “must-have” 
functionality for a device and network contract 
•…this influences operator strategies in an increasingly 
competitive and commoditising mobile sector – and 
© Mediatique Ltd 2010 | 20 
competitive mobile market, particularly where revenue tariffs are broadly 
commoditised and networks have to seek alternative sources of gaining 
competitive advantage. Offering users a compelling suite of apps is a crucial 
development in this context 
• This explains the willingness of networks to offer attractive terms to Apple in 
return for a period of exclusivity to drive take-up; these exclusive 
arrangements have largely now ended as Apple seeks scale across multiple 
networks 
• These strategies operate across the “distribution” end of the market – 
namely, the networks and device operators – however, apps also play an 
important role in the strategies of non-mobile companies which seek to reach 
consumers and users outside the home – both to build and maintain brand 
loyalty and as a potential source of incremental revenues – either direct or 
through bundling with other non-mobile services. This reflects the standard 
“follow-the-eyeballs” strategy of content owners, service providers and retail 
companies all seeking to reach consumers – not just in the home but on-the- 
move as well 
• An overview of the key strategy drivers is set out opposite, including examples 
explains why certain operators have sought to achieve 
device (and associated app store) exclusivity, notably 
Apple’s early deals with O2 and AT&T 
•These strategies represent implicit bundling of app store 
functionality within pre-existing subscriber 
contracts, although networks have not offered bundled 
access to individual apps 
Deepening 
consumer 
experience 
•Network carriers have encouraged consumption of 
data, and thereby greater use of their networks (even at 
the risk of bottlenecks in the short-term) 
•Any propensity to pay incrementally for data, particularly 
via apps, represents a direct source of revenue for the 
app store making these available 
Increasing 
ARPU

2.1 
Market 
dynamics 
2.2 
Market 
drivers 
2.3 
Business 
models 
© Mediatique 
Ltd 
2010 
| 


21

There are a range of business models in the apps market – along a spectrum of 
free to pay; many of which are unproven in this nascent market 
• A range of business models exist in the apps market, across the spectrum 
from free to pay. This is perhaps an unsurprising characteristic in light of the 
exponential growth in the number of apps launched, many of them without a 
proven revenue model for their application or within their category 
• Indeed, far from having a proven revenue model, certain apps have no 
revenue model at all. As the FT writes: “with developers scrambling for 
attention in a crowded market, most developers do not make any money. But 
the allure of reaching a big audience for very little effort has encouraged 
many to dabble”. Such an approach works well for certain “novelty” apps that 
are developed by individuals; however, this is unsustainable longer-term for 
data-rich apps which generate ongoing costs 
• Furthermore, consumer behaviour in this market is unproven and historically 
skewed towards early-adopters which tend to display experimental attitudes 
Universe of business models in the apps market 
Business models 
Free models 
•Ad-funded 
apps, including a 
mixture of 
impression-driven 
advertising (CPM 
metrics), performanc 
e-driven advertising 
(CPC metrics) or 
promotion-driven 
advertising (based on 
fixed negotiations 
Pay models 
•Pay-per-app 
model, including 
upfront payment for 
continued access or 
for metered 
access, charged via 
app store’s chosen 
billing system 
•Ongoing subscription 
for continuing access 
Hybrid models 
•Fremium: apps are 
upsold from a demo 
or limited version to 
a paid-for version 
•Bundling: users are 
given free access to 
mobile apps if they 
pay for or subscribe 
to a service in 
another media 
© Mediatique Ltd 2010 | 22 
towards consumer payment models – being both more willing to pay for 
certain things than the mainstream consumer, more trusting of billing 
mechanisms and also more prepared to search for alternatives should 
revenue models prove uncompetitive 
• The sustainability of business models will also crucially depend on how 
revenues are shared across the value chain in future (among networks, apps 
retailers and apps suppliers), the degree to which bundling of content and 
services evolves in new directions and the costs incurred to deliver content 
and services across multiple devices, which will dictate required revenues to 
cover distribution 
• We set out an overview of the major business models opposite, including 
examples of the major categories in each case. There is some early data 
relating to consumption across the various business models, which we set out 
overleaf; such data is relatively patchy, as many of the app stores do not 
release information themselves and we have relied on certain third-party 
estimates in this case. We return to the future viability of business models in 
subsequent sections 
between app and 
advertiser) 
•Major advertisers in 
this space include 
McDonalds, Volvo, 
Adidas and Fiat 
•Other apps serve as 
brand-building 
portals for offline 
companies, with no 
revenue model per se 
other than an 
extension of reach 
to the app (typically 
accompanied by 
valued-added 
services such as 
continuous 
update, alerts, up- 
graded services) 
(either offline or 
online) 
•Mobile commerce: 
retail, travel and 
services apps allow 
users to transact via 
their device 
(e.g., Next, Ocado in 
the UK) 
Source: Mediatique

Business models Businessmodels
The 
range 
of 
business 
models 
varies 
by 
app 
store, 
as 
do 
price 
points 
and 
the 
popularity 
of 
categories… 


MostpopularappscategoriesBreakdownofavailableapps,byrevenuemodel
Source: 
Distimo 
(2009) 


Free 


Pay 


25% 
75% 
24% 
76% 
57% 
43% 
15% 
85% 
22% 
78% 


Averagepriceforallpaidapps($)
Source: 
Distimo 
(2009) 


8.26 


3.623.273.476.99
AppleBlackberryAndroidOviWindows


Averagepricesvarysignificantlybyappstore,
reflectingtherangeandnatureofcarriedappsoneachappstore
Source: 
Distimo 
(2009) 


Mostpopularcategories,byappstore(%ofappsdownloaded)
Apple58%games18%entertainmentBlackberry29%games18%utilitiesOvi40%personalisation15%musicPaid-forappsoutnumberfreevariantsinrelationtoavailability,
butnotinrelationtouse(seeoverleaf)
Averagepaiddownloads,perpricepoint
-
2,0004,0006,0008,00010,00012,00014,000Averageprice$1.90Source:PinchMedia(Q12010)
$0.99$1.99$2.99$3.99$4.99$9.99allpaidapps

Userspayfornoveltyapps(e.g.,$0.99)…butarealsopreparedtopayforquality(e.g.,$4.99)
Apple 
Blackberry 
Android 
Ovi 
Windows 


© Mediatique 
Ltd 
2010 
| 


23

82% 
77% 75% 
82% 
67% 70% 
Gartner (UK) Gartner 
(France) 
Gartner (US) Gartner 
(Germany) 
Yankee Group 
(US) 
Pinch Media 
(UK) 
Most available apps require a payment; however, the majority of consumption is 
free…although some users will pay for certain apps in certain categories 
• The market for mobile apps remains relatively nascent, with consumers 
experimenting with what is essentially a new medium. However, it is possible 
to draw some early conclusions from consumer data to date 
• Despite the numerous revenue models operating across the various app 
stores, usage of free apps far outweighs pay apps. For example, the average 
paid-for app within Apple’s App Store has generated 9,300 downloads to date 
worldwide, compared to an average 71,000 downloads for free apps 
• Numerous sources confirm that 75%-80% of usage across all apps platforms 
accrues to free apps; this is disproportionate to the number of free apps 
available. For example, only 25% of apps on Apple’s App Store are free, but 
these generate 77% of usage across all territories. Indeed, consumption 
patterns are broadly consistent across major European territories and the US 
Business models 
% of downloaded apps that are free (third-party estimates) 
Source: various 
(as stated) 
© Mediatique Ltd 2010 | 24 
•“Games remain the number one [paid-for] 
application, and mobile shopping, social 
networking, utilities and productivity tools continue 
to grow and attract increasing amounts of money,” 
(Gartner, March 2010) 
Pure pay models 
work for specific 
genres… 
•“Across all platforms, users [are] most likely to 
download a paid app if they liked the free version… 
free-to-paid upgrades are the most cited driver for 
mobile apps purchases” (AdMob, Q1 2010) 
…elsewhere, the 
“fremium” 
model may 
bolster pay 
revenues 
• The flipside of this trend is that some users are willing to pay for certain apps. 
Indeed, survey data from AdMob suggests that, on average, iPhone and 
Android users download eight free apps per month, but also spend 
approximately $10 on paid-for apps per month 
• Consumers have proved more willing to pay for apps in certain genres than 
others – most notably for games. In addition, apps have been able to 
promote paid-for usage via the fremium model – namely, inviting users to use 
the app for free for a limited time or in limited form, and then inviting 
payment for further or extended usage 
• Other forms of consumer-pay include subscriptions (for example for updated 
information on a regular basis), location-specific services such as 
maps/navigation and cinema/restaurant listings and transactional services 
(including music, ticketing, premium video or mobile apps for existing online 
retailers such as Amazon ) 
• We note that the apps market is currently skewed towards young men – as is 
the case for most data consumption on mobile devices, including music and 
video; this demographic bias will equalise over time as smartphone 
penetration increases 
Key genres/models for paid-for apps

Business models Businessmodels
Consumer 
willingness 
to 
pay 
is 
typically 
based 
on 
the 
app’s 
underlying 
characteristics 
and 
the 
availability 
of 
free 
alternatives 
– 
both 
within 
the 
app 
store 
and 
on 
the 
web 


• 
Despite 
being 
able 
to 
identify 
to 
most 
popular 
categories 
of 
apps 
within 
the 
major 
app 
stores, 
detailed 
data 
relating 
to 
apps 
consumption 
by 
category 
is 
patchy 
• 
All 
evidence 
suggests, 
however, 
that 
there 
is 
a 
mixed 
economy 
of 
pay 
and 
free 
apps 
– 
with 
users 
willing 
to 
pay 
for 
certain 
apps 
within 
certain 
categories, 
while 
expecting 
other 
categories 
to 
be 
free; 
this 
is 
true 
in 
all 
major 
markets, 
including 
those 
with 
no 
equivalent 
player 
to 
the 
BBC 
• 
We 
have 
sought 
to 
classify 
the 
major 
categories 
of 
apps 
along 
a 
spectrum 
of 
free 
to 
pay, 
based 
on 
their 
genre 
and 
their 
underlying 
characteristics 
Keypropertiesdeterminingfreevs.paymodels
HighpropensitytobepayHighpropensitytobefreearacteristicsExclusiveorpremiumcontentGeneralinformation/contentSpecialistcontent/knowledgeCommoditisedappsLocation-specificapps…orthosewithinhighlycrowdedandcompetitivecategoriesThosewithpaymodelonotherplatforms(e.g.,online)
Thosewithfreeaccesselsewhere(e.g.,
online)
ThillidMkidfbdbildi25© MediatiqueLtd2010|
•Thenatureofbusinessmodelsforindividualappsisprimarilydrivenbytheircompetitivecohort(notablythenumber/natureofcompetingapps,includingfreealternatives)andconsumerbehaviour(includingpromiscuityinappsconsumption,preferenceforfreevs.pay)
•Thesedriversareverysimilartotheexperienceofpaymodelsintheonlinesector.Ineachcase,whileconsumerstypicallywantfreeaccesstocontent,priceelasticitieswillbelessforcertaincategoriesthanothers,dependingontheirgenre,characteristics,exclusivityandperceivedpremiumvalue–asaresult,arangeofrevenuemodelshaveemerged,basedoncontentsegmentationalongaspectrumofcommoditisedcontenttopremiumorspecialistcontent•Wherethecontent/serviceofamobileappisavailableelsewhere–
notablyonline–wesuggestthatthishasasignificantinfluenceontheviabilityofmobilebusinessmodels.Wenote,however,thattherearesomeexamplesofappsseekingpaymentfromconsumerseventhoughtheyareavailablefreeviaamobilebrowser(orviaonline).
Thisapproachisbasedonthecurrentwillingnessofsomeconsumerstopayfortheeaseofaccess/easeofusethatanappprovides,anditisunclearwhetherthisistenableovertimeasmobilebrowsingimprovesandascompetitorbusinessmodelsoffersubstitutableservicesviaappforfreeorbundledwithoff-platformsubscriptionsChaThoseparticularlysuitedtoportableconsumptionMarketingapps,usedforbrandbuildingAppsthatbecomehighlyranked/popularcanmigratetopayovertimeHighpropensitytobepayHighpropensitytobefreeIllustrativecategoriesGamingGeneralnewsMusicSocialnetwrkingPremiumsportEntertainmentAdultGeneralinformation(e.g.,listings,
maps)
Retail/commerceSource:Mediatique

Revenuefromappsremainsasmallsegmentofthemobilemarket,althoughrevenuesharesfavouracommunityofsoftwaredevelopersand/ormediaownersBusinessmodelsRevenuefromappsremainsasmallsegmentofthemobilemarket,althoughrevenuesharesfavouracommunityofsoftwaredevelopersand/ormediaownersBusinessmodels
• 
The 
prominent 
role 
of 
device 
manufacturers 
in 
launching 
app 
stores 
has 
led 
to 
a 
fragmented 
flow-of-funds 
for 
apps 
revenue 
as 
the 
stores 
have 
developed 
their 
own 
billing 
systems, 
or 
relied 
on 
third-party 
billing 
systems, 
rather 
than 
use 
Source: 
Mediatique 
existing 
network 
billing 
relationships 
Flowoffundsformobileapps
• 
For 
example, 
iPhone 
uses 
can 
purchase 
apps 
through 
an 
existing 
iTunes 
billing 
relationship; 
Nokia 
has 
attempted 
to 
replicate 
the 
iTunes 
model 
through 
its 
Ovi 
Store; 
Blackberry 
users 
are 
billed 
via 
PayPal 
when 
purchasing 
apps 
through 
App 
World; 
Vodafone 
and 
other 
network 
operators 
are 
attempting 
to 
encourage 
Apps 
developers 
to 
use 
its 
existing 
billing 
relationship 
to 
handle 
payments 
• 
Such 
an 
outcome 
is 
potentially 
cumbersome 
for 
the 
end-user 
which, 
by 
definition, 
has 
an 
existing 
billing 
relationship 
with 
the 
network, 
but 
has 
to 
set 
up 
a 
new 
billing 
relationship 
with 
the 
app 
store 
or 
a 
third-party. 
Apple 
has 
been 
able 
to 
rely 
its 
legacy 
iTunes 
billing 
system, 
with 
iPhone 
users 
typically 
using 
their 
device 
as 
a 
media 
player 
and 
a 
communication 
device, 
such 
that 
apps 
sit 
seamlessly 
within 
the 
overall 
iTunes 
experience. 
Players 
such 
as 
Blackberry 
cannot 
rely 
on 
existing 
systems 
and 
have 
had 
to 
forge 
billing 
relationships 
with 
third-parties, 
although 
they 
are 
working 
with 
the 
network 
carriers 
to 
incorporate 
billing 
for 
apps 
within 
the 
primary 
network 
billing 
relationship 
• 
The 
revenue 
share 
for 
paid-for 
apps 
has 
converged 
to 
an 
industry 
standard, 
whereby 
70-80% 
of 
revenues 
are 
retained 
by 
the 
app 
developer 
(reimbursed 
through 
the 
billing 
system) 
and 
20-30% 
are 
retained 
by 
the 
app 
store 
(either 
reimbursed 
through 
the 
third-party 
billing 
system 
or 
retained 
by 
the 
vertically-integrated 
network/device 
players) 
• 
Revenue 
sharing 
arrangements 
for 
advertising 
are 
more 
nascent, 
with 
display 
ads 
and 
search 
generally 
residing 
in 
the 
app 
itself. 
To 
date, 
the 
app 
developers 
have 
negotiated 
advertising 
deals 
with 
advertisers 
and 
agencies 
directly, 
and 
have 
agreed 
any 
sharing 
arrangements 
with 
the 
app 
store 
or 
network 
Contributionofappsrevenuetothemobilesector
• 
The 
direct 
revenues 
from 
paid-for 
apps 
provide 
incremental 
income 
for 
the 
app 
store 
operators 
and 
the 
networks 
are 
able 
to 
boost 
ARPU 
through 
higher 
network 
usage. 
However, 
these 
revenues 
currently 
form 
a 
tiny 
subset 
of 
total 
mobile 
revenues. 
which 
generated 
$860bn 
worldwide 
in 
2009 
(including 
$220bn 
of 
data 
charges) 
© Mediatique 
Ltd 
2010 
| 


Userpayment/
consumptionAppstorebillingsystemThird-partybillingsystemDatausagechargedbynetworkAdvertisingbudgetsViaCPCorCPMmodelsDevicemanufacturerNetworkAppdeveloper/
operatorReturntonetwork/OEMdependsonownershipornegotiatedoutcomes;forexample,vertically-integratedappstoresownedbyAppleorO2receiveallrevenuesharefromappstore;independentappstoresnegotiatesdealswithdevicemanufacturers/networksforcarriage
26DevicemanufacturerNetworkAppsrevenueHandsetsales(cost-plusfromnetworksubsidyanddirectsales)
Callandnetworkcharges(SMS,
MMS,data)–subscriptionandPAYG

BusinessmodelsBusinessmodels
The 
economics 
for 
individual 
apps 
remain 
challenging 
in 
light 
of 
unproven 
revenue 
models, 
particularly 
if 
they 
wish 
to 
address 
all 
platforms… 


• 
The 
economics 
of 
the 
apps 
market, 
owing 
principally 
to 
its 
nascent 
stage 
of 
development, 
are 
far 
from 
clear; 
in 
particular, 
the 
business 
model, 
revenue 
and 
cost 
trends 
are 
complicated 
by 
overlapping 
roles 
by 
players 
across 
the 
value 
chain, 
the 
multiple 
routes 
to 
mobile 
content 
possible 
(browsers, 
apps 
available 
via 
internet 
pages, 
apps 
downloadable 
via 
text 
prompts, 
pre-loaded 
apps, 
apps 
stores) 
and 
the 
unknowable 
costs 
of 
future 
technological 
innovation 
• 
It 
is 
worth 
recalling 
that 
revenue 
generation 
among 
early 
adopters 
in 
a 
nascent 
sector 
is 
often 
untenable 
once 
the 
sector 
moves 
toward 
the 
mainstream, 
especially 
where 
the 
premium 
is 
being 
paid 
for 
services 
that 
are 
available 
free 
elsewhere 
– 
notably, 
in 
this 
case, 
via 
the 
internet 
• 
As 
we 
discussed 
on 
the 
previous 
page, 
the 
key 
revenues 
generated 
by 
apps 
accrue 
to 
apps 
developers 
(often 
existing 
media 
owners) 
and 
“retailers” 
such 
as 
integrated 
(e.g.
, 
Apple, 
Blackberry) 
and 
stand-alone 
(e.g. 
Getjar) 
apps 
stores; 
the 
use 
of 
apps, 
once 
downloaded, 
also 
generate 
data 
charges 
which 
accrue 
to 
network 
operators 
• 
Network 
operators 
are 
attempting 
to 
respond 
to 
the 
disintermediation 
of 
their 
billing 
relationships 
by 
offering 
apps 
developers/suppliers 
access 
to 
the 
operators’ 
own 
billing 
mechanisms, 
permitting 
for 
example 
a 
charge 
for 
apps 
(one-off 
and 
on-going) 
to 
be 
added 
to 
the 
customer’s 
standard 
network 
bill. 
However, 
the 
key 
smartphone 
device 
manufacturers 
all 
have 
their 
own 
apps 
stores 
and 
operating 
systems, 
and 
therefore 
capture 
a 
significant 
and 
growing 
share 
of 
the 
consumer 
revenues 
generated 
by 
apps. 
Complicating 
this 
picture 
is 
the 
availability 
of 
free 
apps, 
both 
in 
stores 
and 
via 
mobile 
web 
browsing 
short 
cuts 
available 
in 
response 
to 
a 
text 
form 
the 
consumer 
or 
on 
the 
supplier’s 
website 
• 
The 
resultant 
market 
structure 
has 
a 
significant 
impact 
on 
the 
costs 
of 
developing 
apps 
specifically 
for 
mobile 
or 
for 
re-purposing 
online 
content 
for 
mobile 
distribution: 
while 
the 
costs 
of 
developing 
a 
single 
app 
for 
a 
single 
operating 
system 
is 
relatively 
modest 
(albeit 
higher 
for 
Apple 
than 
for, 
say, 
Google’s 
Android)
, 
the 
overall 
costs 
for 
addressing 
all 
platforms 
are 
by 
definition 
higher 
• 
Developers 
therefore 
are 
already 
tending 
to 
target 
particular 
operating 
systems 
in 
order 
to 
optimise 
outcomes 
– 
in 
effect 
“picking 
winners” 
and 
thereby 
confirming 
current 
market 
leadership 
by 
preferring 
fast-growing 
apps 
environments 
over 
smaller 
market 
players. 
Market 
laggards 
such 
as 
Google’s 
Android 
are 
attempting 
to 
address 
their 
market 
size 
disadvantage 
by 
making 
the 
costs 
of 
accessing 
the 
platform 
cheaper 
than 
for 
market 
leaders 
such 
as 
Symbian, 
RIM 
or 
Apple 
• 
These 
various 
dynamics 
suggest 
that 
the 
market 
has 
not 
yet 
settled, 
and 
could 
be 
significantly 
re-structured 
over 
the 
short 
to 
medium 
term; 
we 
consider 
likely 
scenarios 
for 
future 
evolution 
in 
the 
following 
section 
© Mediatique 
Ltd 
2010 
| 


27

3. 
Future 
evolution 
© Mediatique 
Ltd 
2010 
| 


28

FutureevolutionFutureevolution
We 
have 
considered 
the 
future 
evolution 
of 
the 
apps 
market 
including 
how 
business 
models 
and 
consumer 
behaviour 
will 
evolve 
in 
the 
short 
to 
medium 
term 


• 
The 
market 
for 
mobile 
apps 
remains 
an 
immature 
market, 
with 
consumer 
demand 
uncertain 
and 
commercial 
strategies 
unproven. 
In 
the 
context 
of 
relatively 
low 
smartphone 
penetration 
and 
internet 
usage 
via 
mobile 
– 
as 
a 
proportion 
of 
total 
mobile 
users 
and 
use 
currently 
– 
the 
major 
future 
development 
will 
be 
growth 
• 
This 
may 
seem 
an 
obvious 
statement; 
however, 
not 
all 
analysts 
expect 
the 
market 
for 
apps 
to 
continue 
growing 
and 
see 
mobile 
web 
browsing 
as 
a 
more 
effective 
consumer 
proposition 
over 
the 
longer 
term. 
We 
doubt 
this, 
and 
believe 
that 
the 
user 
experience 
of 
apps 
will 
continue 
to 
drive 
increasing 
usage 
– 
certainly 
in 
the 
short 
to 
medium 
term, 
even 
if 
the 
ability 
to 
generate 
premium 
revenues 
is 
likely 
to 
be 
untenable 
• 
We 
have 
identified 
some 
potential 
evolutionary 
outcomes 
for 
the 
apps 
market 
in 
the 
medium 
term, 
as 
we 
set 
out 
opposite 
and 
in 
the 
pages 
that 
follow. 
These 
future 
outcomes 
have 
been 
informed 
by 
precedents 
in 
the 
broader 
mobile 
and 
online 
sectors, 
and 
through 
discussions 
with 
players 
in 
the 
market; 
we 
stress 
that 
we 
are 
viewing 
these 
developments 
in 
the 
short 
to 
medium 
term, 
rather 
than 
the 
frankly 
unknowable 
longer 
term 
• 
In 
order 
for 
the 
dynamics 
that 
currently 
favour 
apps 
to 
alter 
radically 
in 
the 
short 
to 
medium 
term, 
a 
number 
of 
changes 
would 
need 
to 
occur, 
including: 
– 
The 
introduction 
of 
easier 
access 
via 
browsers 
to 
the 
entire 
range 
of 
online 
services 
– 
routinely 
re-purposed 
for 
mobile 
use 
– 
Greater 
use 
of 
favourites/bookmarks 
and 
social 
recommendation 
in 
the 
face 
of 
crowded 
and 
chaotic 
apps 
stores 
– 
Far 
faster 
speeds 
for 
general 
connections 
and 
more 
efficient 
video 
streaming 
(perhaps 
through 
new 
industry 
standards) 
– 
Full 
integration 
of 
downloads, 
inter-operability 
of 
devices, 
promoted 
by 
mobile 
networks 
looking 
to 
address 
both 
home 
and 
on-the-move 
applications 
– 
Network 
providers 
capturing 
full 
billing 
relationship 
for 
apps 
of 
equivalent 
functionality, 
thereby 
cutting 
out 
the 
retailer 
“middle 
men” 
Futureoutcomesintheappsmarket
TheemergenceofpopularmainstreamappsTheconvergenceofmobilebrowsingandmobileappsThecontinuationofkeybusinessmodelsConsolidationacossthevaluechain
TheroleofappsasdriversoftakeupandloyaltyTheroleofmobiledevicesinabroaderconsumercontextWealsoconsiderthird-partyforecastsforthesizeoftheappsmarketovertime
© Mediatique 
Ltd 
2010 
| 


29

FutureevolutionFutureevolution
The 
popularity 
of 
apps 
is 
often 
self-fulfilling; 
as 
the 
apps 
market 
matures, 
we 
expect 
further 
convergence 
of 
consumer 
behaviour 
towards 
“mainstream” 
apps 


• 
Certain 
types 
of 
consumer 
behaviour 
in 
the 
apps 
market 
follow 
legacy 
consumption 
trends 
and 
patterns, 
despite 
its 
relative 
immaturity 
as 
a 
platform. 
As 
one 
might 
expect 
from 
any 
crowded 
consumer 
market, 
Distimo 
Research 
confirms 
that 
10% 
of 
available 
apps 
generate 
81% 
of 
all 
usage. 
Indeed, 
survey 
data 
confirms 
that 
success 
can 
be 
self-fulfilling 
with 
popularity 
driving 
increasing 
usage, 
through 
both 
word 
of 
mouth 
and 
through 
rankings; 
in 
addition, 
brand 
recognition 
and 
prominence 
are 
crucial 
drivers 
• 
In 
relation 
to 
individual 
apps, 
however, 
consumption 
and 
popularity 
is 
relatively 
unpredictable 
and 
fragmented, 
a 
reflection 
of 
the 
market’s 
nascent 
nature, 
the 
user 
bias 
towards 
early-adopters 
(those 
traditionally 
prepared 
to 
pay) 
and 
the 
“novelty” 
factor 
of 
many 
apps/app 
stores 
• 
Over 
time, 
we 
suggest 
that 
consumption 
of 
apps 
will 
shift 
towards 
something 
approaching 
predictability. 
For 
while 
there 
will 
be 
an 
ever-expanding 
universe 
of 
available 
apps, 
increasing 
penetration 
of 
smartphones 
into 
the 
mass-
market 
will 
drive 
more 
predictable 
consumption 
outcomes. 
Those 
apps 
that 
one 
would 
expect 
to 
feature 
highly 
in 
any 
representative 
app 
store 
will 
do 
so, 
such 
as 
those 
dedicated 
to 
news, 
sports 
results, 
timely 
information 
and 
communication. 
The 
long 
tail 
will 
of 
course 
continue 
to 
populate 
app 
stores 
and 
will 
generate 
usage 
in 
niche 
categories 
• 
We 
do 
maintain, 
however, 
that 
the 
depth 
and 
range 
of 
the 
current 
app 
stores 
is 
likely 
to 
be 
sustained 
even 
as 
certain 
apps 
fail 
and 
leave 
the 
market, 
new 
apps 
will 
continue 
to 
be 
developed. 
App 
stores 
will 
invest 
heavily 
in 
search 
functionality 
to 
cut 
through 
the 
vast 
libraries 
of 
available 
apps; 
BofA 
Merrill 
Lynch 
suggests 
that 
“the 
sheer 
number 
of 
available 
applications 
will 
lead 
over 
time 
to 
a 
growing 
emphasis 
and 
growing 
investment 
to 
improve 
the 
discovery 
process 
of 
applications”
. 
This 
increases 
the 
pressure 
on 
apps 
developers 
to 
create 
compelling 
quality 
apps 
that 
users 
want 
or 
need 
• 
Finally, 
while 
the 
app 
market 
continues 
to 
grow, 
it 
is 
inevitable 
that 
browser 
technologies 
and 
billing 
strategies 
developed 
in 
particular 
by 
network 
operators 
will 
combine 
to 
limit 
the 
ability 
of 
the 
apps 
market 
to 
continue 
to 
price 
at 
a 
premium 
Driversofappusage
Source: 
AdMob 


How 
do 
you 
discover 
the 
apps 
you 
want 
to 
download? 


survey 
(2009) 


Browsing 
through 
top 
store 
ranking 


60% 


Searching 
for 
specific 
type 
of 
app 
Word 
of 
mouth 
Seeing 
ads 
while 
using 
other 
apps 
News 
articles 
or 
blogs 
Recognised 
brand 
introduces 
an 
app 


50%
30%
23%
17%
15%
Afuturebreakdownofappsconsumption(illustrative)
A 
residual 
category 
of 
the 
ever-replacing 
long 
tail 
will 
contain 
a 
huge 
number 
of 
apps 
with 
limited 
usage 


Certain 
niche 
apps 
may 
prove 
successful 
particularly 
those 
designed 
wholly 
for 
mobile 
platforms, 
without 
a 
pre-existing 
popularity 



The 
most 
popular 
apps 
are 
likely 
to 
feature 
existing 
mass-market 
brands 
from 
media, 
social 
networking, 
news 
and 
information 
…displaying 
similar 
consumption 
trends 
to 
those 
evident 
in 
the 
online 
(PC) 
space 


Source: 
Mediatique 


© Mediatique 
Ltd 
2010 
| 


30

FutureevolutionFutureevolution
While 
the 
apps 
market 
currently 
evinces 
characteristics 
distinct 
from 
mobile 
browsing, 
dynamics 
are 
likely 
to 
converge 
over 
time 
as 
browsers 
improve 


• 
Much 
of 
the 
content 
– 
and 
many 
of 
the 
services 
– 
available 
via 
mobile 
apps 
are 
not 
“new”
, 
but 
are 
repurposed 
formats 
of 
content 
available 
elsewhere. 
For 
many 
years, 
enabled 
users 
have 
been 
able 
to 
access 
much 
of 
this 
content 
via 
mobile 
web 
browsers 
and, 
even 
today, 
mobile 
apps 
sit 
alongside 
mobile 
browser 
capabilities 
on 
the 
handset 
• 
Navigation 
trends 
are 
ultimately 
determined 
by 
the 
consumer 
seeking 
out 
the 
content 
that 
they 
want 
– 
if 
it 
is 
not 
available 
via 
an 
app 
store 
then 
they 
will 
use 
a 
web 
browser 
to 
find 
it 
Thebattlebetweensearchandapps…
“’
”
“’onamobiledevice,searchisnotwhereitsat,notlikeonthedesktop.
[instead,peopleare]usingappstogettodataontheinternet,notgeneralisedsearch”
SteveJobs,Apple
• 
Indeed, 
the 
apps 
market 
is 
a 
sub-set 
of 
the 
broader 
market 
for 
mobile 
content. 
What 
differentiates 
apps 
is 
their 
bespoke 
nature, 
their 
findability 
within 
a 
central 
app 
store, 
and 
their 
position 
on 
the 
handset 
once 
downloaded 
(in 
contrast 
to 
the 
equivalent 
web 
“favourites” 
listed 
on 
browser 
toolbars)
. 
The 
current 
user 
Thespectrumofmobiledistributionforonlinecontent
S 
Mdi 
ti

:
31© MediatiqueLtd2010|
experienceofwebbrowsingisostensiblyfarmoreclunkythanthatofsearchinganappstore–Nielsensuggeststhattheaveragemobileinternetuservisited5.5websitespermonthin2008,comparedtomorethan100websitesontheirPC;whilstthereareanumberofreasonsforthistobethecase,itdoessuggestthatmobileisnotnecessarilythemostuser-friendlyplatformforgeneralisedwebsearch•Althoughthereismuchindustrydebateontheissueofwhetherappswillentirelyreplacemobilebrowsingasasourceofcontent,wesuggestthatthedistinguishingcharacteristicsofappswilldiminishovertime,asdevicemanufacturerscontinuetoinvestinthedevelopmentofmobilewebbrowsingtechnologyandbrowsingfunctionalityimprovesovertime•Inanyevent,ahybridecosystemislikelytodevelopwithcertaincategoriessuitedtoapps(e.g.,games,data-richmediaandpaid-forservices),whileothersmaybecontentwithweb-basedservicesthatruninbrowsersratherthannativetothedevice.Inanyevent,partofthisbroadecosystemwillinvolveconvergenttechnology,particularlyasappstoresbecomeincreasinglycrowded,theyarelikelytoincorporatemuchofthesearchfunctionalityinherentinwebbrowsingWebbrowserMobileappFullystandardisedaccesstovideo,otherIPcontent,throughdirectconnectiontointernet…includingamixofstandardonlinewebpages(generallyunsuitableformobile)
andrepurposedmobilewebpagesPushservicestoprovidebespokeapplicationstoresideonmobiles,repurposedbyplatformConsumergeneratedtexttorequestapplicationfromwebbasedservice,againrepurposedbyplatformThirdpartyapps,specificallydesignedformobiledistributionintegratedbydevice,operatorSource:Mediatique

FutureevolutionFutureevolution
We 
expect 
the 
apps 
market 
will 
continue 
its 
bias 
towards 
free 
consumption 
as 
the 
market 
reaches 
critical 
mass 
and 
new 
entrants 
compete 
away 
any 
premia… 


• 
Whilst 
forecasting 
the 
future 
revenue 
outcomes 
of 
a 
nascent 
market 
is 
fraught 
with 
difficulties, 
we 
expect 
the 
apps 
market 
to 
become 
even 
more 
skewed 
towards 
free 
models, 
as 
opposed 
to 
pay 
(and 
in 
all 
major 
markets) 
• 
Notwithstanding 
that 
some 
users 
will 
always 
be 
willing 
to 
pay 
for 
certain 
apps 
within 
certain 
categories 
– 
notably, 
for 
games, 
premium 
content 
and 
novelty 
apps 
– 
the 
market’s 
bias 
towards 
free 
consumption 
is 
likely 
to 
continue. 
Gartner’s 
estimate 
of 
the 
proportion 
of 
apps 
consumption 
that 
is 
free 
is 
forecast 
to 
increase 
from 
80% 
to 
87% 
by 
2013 
• 
Experience 
from 
the 
online 
sector 
confirms 
that 
consumers 
are 
typically 
unwilling 
to 
pay 
for 
content 
where 
there 
are 
free 
alternatives. 
In 
an 
increasingly 
crowded 
apps 
market, 
enabled 
by 
search 
functionality 
within 
the 
app 
store, 
users 
will 
be 
able 
to 
make 
clear 
choices 
among 
those 
apps 
that 
require 
payment 
and 
those 
that 
offer 
similar 
content 
free 
of 
charge 
• 
The 
move 
toward 
free 
will 
be 
enhanced 
by 
competition 
from 
suppliers 
able 
to 
secure 
other 
revenues 
in 
place 
of 
consumer 
payment, 
including 
bundled 
services 
(with, 
for 
example, 
subscriptions 
off-platform) 
• 
Recent 
data 
from 
Distimo 
Monitor 
points 
towards 
deflation 
in 
apps 
ARPU, 
with 
the 
average 
price 
of 
the 
most 
popular 
apps 
on 
Apple 
falling 
15% 
between 
December 
and 
February 
2010. 
We 
suggest 
this 
is 
a 
reflection 
of 
a 
commoditising 
market 
and 
part 
of 
a 
general 
shift 
towards 
free 
consumption 
for 
all 
but 
premium 
applications 
• 
Even 
though 
the 
costs 
of 
developing 
and 
launching 
an 
app 
on 
any 
given 
platform 
have 
not 
proved 
prohibitive, 
it 
goes 
without 
saying 
that 
apps 
require 
a 
corresponding 
revenue 
model 
in 
order 
to 
survive. 
As 
a 
result, 
we 
expect 
free 
apps 
to 
generate 
increasing 
revenues 
from 
advertising, 
mobile 
commerce 
and 
sophisticated 
bundling 
strategies 
• 
Even 
now, 
with 
e-commerce 
mechanisms 
unproven 
and 
the 
mobile 
advertising 
market 
very 
small, 
the 
reach 
of 
retail 
sites 
on 
iPhones 
is 
more 
than 
10% 
and 
advertising 
contributes 
12% 
of 
total 
apps 
revenue. 
As 
these 
markets 
develop, 
the 
ability 
of 
apps 
to 
survive 
on 
a 
free 
model 
looks 
more 
certain 
Driverstowardsafreemarket
Themobileadvertisingmarketremainssmall,asappsdevelopersexperimentwithinventoryandadplacement,andadvertisersremainunconvincedofitspotential.Thisislikelytoimprove,withbettercreativeandefficienttargetingcoupledwithincreasingsmartphonepenetrationforcingadvertiserstoreachconsumersviamobile.Totalmobileadvertisingrevenueswere£37min2009;however,asadvertiserdemandgrows,freeappsarelikelytobenefitSmartphoneusersaretypicallypromiscuousintheirconsumptionofappswiththeaverageiPhoneuserdownloadingeighappspermonthandrunningapproximately40appsontheirphoneatanyonetime.Asappstoresremaincrowdedandcompetitivesourcesofcontent(sustainedbyfewbarrierstoentry),paymodelsmaycomeunderpressureasuserssubstitutetheseappsforfreeonesincertaincategoriesInlinewithincreasingsmartphonepenetration,companieswithexistingcustomerrelationshipswilltargetmobileusersasmeansofextendingtheirreachandpromotingtheirbrandsinanewenvironent.Suchcompaniesarelikelytobebigplayersinthefreeappsmarketlaunchingbundledapps(whereusersgetfreeaccesstoanappwheretheyhaveanexistingsubscriptionelsewhere)orappswhicharefreetodownloadbutrelyonrevenuesfromelsewhere(e.g.,ecommerce)
“
”–
“Fromamarketingandcontentpointofview,wepredictanexplosionofcontentandmassivesurgeintheuseofmobileapplicationsbyestablishedbrandsandbrandagencies”–PatrickMonk,Getjar“-
-
-”–
“Today,tech-savvyusersflocktodownloadthemobileappstheyneedandhavenoqualmsaboutpayingforthemonline.Downtheroad,non-techtypesmaybemorewaryofpayingforapps,atrendthatcouldpavethewayformoread-generatedfreeapps”–CNETnews
© Mediatique 
Ltd 
2010 
| 


32

We expect the crowded and fragmented apps market to consolidate over time –as 
a result of both corporate failure and strategic M&A 
•Many of the larger UK carriers are already working 
together to forge common standards for apps (through 
the Wholesale Applications Community) and may do so 
on a more formal basis over time 
•The recent merger of Orange and T-Mobile represents a 
fundamental consolidation of power among the carriers 
Network 
Future evolution 
Consolidating trends along • As we set out earlier, the mobile apps market is crowded and heavily the value chain 
fragmented. Since the launch of the first app store in 2008, there has been a 
rush to market across the value chain, from the launch of app stores by 
network operators, device manufacturers and independents to an explosion in 
the development and launch of individual apps 
• Even in this context, the number of app stores continues to increase, as the 
subscriber-facing elements of the value chain see the provision of an app store 
as a must-have for users. Equally, countless thousands of apps have launched 
across the numerous operating systems without a clear or proven revenue 
model for the medium or long term 
• These trends create significant pressure on the current market structure. 
Getjar, one of the leading independent app stores, highlights “our concern is 
that certain players are getting into the app business more to ride the hype but 
© Mediatique Ltd 2010 | 33 
•All the major OEMs continue to develop and launch 
more enabled devices, ensuring significant competition 
and choice for the consumer 
•This has sustained numerous operating 
systems, however – currently 6/7 established OS. This 
has cost implications for application developers, the 
networks and consumers that wish to switch devices: 
consolidation to 2 or 3 OS is inevitable over time 
Handset 
vendors & 
operating 
systems 
•“…we predict a large number of app stores will fail over 
the next 12 months or so. Being successful in the apps 
business requires scale, a global reach, a deep product 
catalogue, a solid value proposition for developers and 
content owners and a seamless way to deliver content 
to consumers quickly and cheaply” Getjar 
App stores 
without a clear understanding of what the consumer wants, what resources are 
needed internally to manage or grow this business or without a solid 
understanding of what developers need to be successful in this space” 
• We expect the market to experience a number of structural developments, as it 
consolidates from its currently fragmented state: 
- A number of app stores and apps will fail in the short to medium 
term, owing to unproven revenue models or inability to replicate more 
compelling functionality. Competition among app stores will likely favour 
those which are vertically integrated with networks and/or devices that can 
offer depth of choice and effective billing systems 
- The market will further consolidate through strategic M&A 
activity, particularly at the level of handset manufacturers and operating 
systems. Whilst not a driver of consolidation in itself, the myriad of 
operating systems on which the multiple app stores sit forces apps to 
develop different versions for each system – this imposes additional costs 
on developers, too often forcing them to pick winners among the 
competing app stores: this is potentially unsustainable

Future evolution Futureevolution
Device 
manufacturers 
will 
seek 
to 
engage 
customer 
loyalty 
via 
apps; 
but 
over 
time, 
competitive 
advantage 
will 
likely 
diminish 
as 
all 
smartphones 
converge 
to 
offer 
app 
functionality 


• 
Mobile 
users 
historically 
displayed 
significant 
loyalty 
to 
their 
network 
provider, 
by 
virtue 
of 
their 
primary 
billing 
relationship 
with 
the 
end 
user; 
this 
is 
despite 
recent 
changes 
to 
telco 
regulation 
making 
network 
switching 
easier. 
By 
contrast, 
any 
loyalty 
towards 
handsets 
has 
tended 
to 
be 
on 
practical 
grounds 
such 
as 
swapping 
battery 
chargers 
and 
users’ 
familiarity 
with 
handset 
experience 
and 
navigation 
– 
but 
also 
affected 
by 
retailer/handset 
arrangements, 
including 
subsidies 
and 
upgrades 
• 
The 
launch 
of 
smartphones 
has 
changed 
dynamics 
as 
the 
inherent 
sophistication 
of 
these 
new 
devices 
has 
enabled 
far 
greater 
differentiation 
among 
competing 
manufacturers. 
Indeed, 
the 
recent 
cases 
of 
networks 
securing 
exclusive 
access 
to 
particular 
handsets 
– 
the 
iPhone 
being 
the 
primary 
example 
– 
proves 
that 
devices 
are 
increasingly 
important 
in 
consumers’ 
decision 
making 
• 
Implicit 
within 
these 
trends 
are 
consumers’ 
decisions 
relating 
to 
the 
content 
and 
functionality 
offered 
by 
various 
handsets, 
including 
the 
depth 
and 
range 
of 
mobile 
apps. 
Apple 
was 
able 
to 
forge 
an 
early-mover 
advantage 
in 
this 
regard, 
by 
launching 
its 
App 
Store 
ahead 
of 
the 
other 
devices. 
This 
has 
shifted 
loyalty 
from 
network 
to 
device, 
and 
emphasized 
competition 
among 
devices 
• 
As 
mobile 
apps 
become 
de 
facto 
standard 
for 
all 
smartphone 
devices, 
this 
competitive 
advantage 
is 
likely 
to 
be 
countered, 
as 
all 
device 
manufacturers 
seek 
to 
incorporate 
quality 
app 
stores 
into 
their 
consumer 
proposition. 
Research 
by 
BofA 
Merrill 
Lynch 
suggests 
that 
all 
smartphone 
operators 
will 
have 
a 
de 
minimis 
quantity 
of 
compelling 
apps 
within 
their 
stores; 
as 
a 
result, 
whilst 
the 
availability 
of 
apps 
is 
evidently 
a 
driver 
of 
consumer 
take-up 
and 
satisfaction, 
moves 
by 
the 
networks 
and 
manufacturers 
to 
ensure 
that 
the 
“best” 
apps 
are 
offered 
within 
their 
stores 
will 
create 
a 
more 
level-playing 
field 
in 
competition 
• 
Indeed, 
the 
consumer 
proposition 
and 
user 
experience 
of 
any 
given 
app 
store 
will 
form 
part 
of 
broader 
range 
of 
factors 
that 
consumers 
consider 
when 
choosing 
their 
handset 
and 
network 
relationship. 
For 
example, 
recent 
research 
by 
Nielsen 
suggests 
that 
“improved 
battery 
life 
is 
the 
single 
most 
important 
enhancement 
to 
be 
made 
to 
their 
mobile 
device…followed 
by 
larger 
screen 
size, 
more 
memory 
capacity 
and 
better 
data 
inputs” 
© Mediatique 
Ltd 
2010 
| 


Convergenceofappstoresmitigatestheirpower…
“
’”
“-
“
’”
“
inthenascentgrowthphaseofthesmartphonemarket,webelievethebreadthofapplicationscanbecomeadifferentiatingfactor,andtheperceptionof(Apples)100,000appsishardtocounter[however],whenitcomestomass-marketapplicationswedonotbelievethattherewillbeanydifferencesinthedepthofapplicationsofferedbythesurvivingapplicationstores.
BankofAmericaMerrillLynch(December2009)
Consumerloyaltyisfragmenting…
TNS’GlobalTelecomsInsights(March2010)
•33%ofUKmobileusersseecontentandapplications–suchasgames,
musicandmaps–asanimportantdecisionfactorwhenchoosingtheirnextmobilehandset.
•Infact,13%ofUKmobileusersconsidercontentandapplicationstobethesinglemostimportanthandsetpurchaseconsideration,comparedtoonly9%whopicktheirphonebasedonthemodelofhandsetand12%
whomaketheirchoicebasedonthenetworkoperator•Thisconfirmsthegrowingpowerofcontentandapplicationprovidersinthemobilesector,wherealmostafifth(19%)ofusersregularlydownloadapplications–morethanthosethatdownloadringtones(17%)andcallertunes(13%)

FutureevolutionFutureevolution
Mobile 
devices 
may 
take 
on 
a 
larger 
role 
in 
coordinating 
entertainment 
and 
communication 
over 
time 
– 
with 
implications 
for 
the 
apps 
market 


• 
Underlying 
many 
of 
the 
issues 
we 
address 
in 
this 
report 
is 
the 
changing 
role 
of 
mobile 
platforms 
in 
delivering 
content 
and 
services 
in 
replacement 
of 
other 
distribution 
networks, 
including 
fixed-network 
online 
• 
Poor 
network 
reliability 
and 
lack 
of 
standards 
have 
meant 
that 
mobile 
delivery 
has 
moved 
in 
incremental 
stages 
of 
development, 
most 
recently 
hastened 
by 
the 
take-up 
of 
smartphones 
and 
the 
growth 
of 
apps 
• 
There 
are 
very 
real 
opportunities, 
however, 
for 
mobile 
to 
take 
a 
far 
greater 
role 
not 
only 
in 
providing 
content 
and 
services 
on-the-move, 
but 
more 
widely 
for 
in-home 
and 
in-office 
delivery 
as 
well 
• 
A 
transition 
point 
in 
this 
context 
may 
be 
the 
introduction 
of 
e-readers 
and 
the 
iPad, 
representing 
a 
hybrid 
PC/smartphone 
device 
able 
to 
organise 
and 
deploy 
content 
and 
services 
delivered 
wirelessly; 
over 
time, 
these 
devices 
could 
evolve 
into 
home 
“ports” 
for 
the 
management 
of 
entertainment 
and 
services, 
including 
everything 
from 
video-on-demand 
to 
social 
networking 
• 
For 
example, 
mobile 
could 
provide 
the 
basis 
for 
ensuring 
inter-operability 
of 
devices 
in 
the 
home 
(TV, 
audio, 
PC, 
mobile) 
and 
represent 
a 
crucial 
way 
of 
organising 
media 
and 
communications 
– 
characterising 
the 
mobile 
device 
as 
“life’s 
remote 
control” 
• 
The 
evolving 
role 
of 
mobile 
devices 
generally 
will 
have 
implications 
on 
the 
nature 
of 
app 
development 
and 
technical 
standards 
over 
time, 
as 
apps 
purchased 
via 
a 
mobile 
app 
store 
may 
ultimately 
be 
consumed 
on 
alternative 
devices. 
• 
An 
impetus 
for 
these 
outcomes 
would 
be 
the 
efforts 
by 
network 
operators 
to 
wrest 
back 
control 
of 
billing 
relationships 
from 
apps 
stores 
and 
integrated 
handset/OS 
players, 
working 
directly 
with 
content 
and 
service 
providers 
• 
This 
role 
would 
require 
the 
bandwidth 
and 
speed 
that 
LTE 
developments 
may 
usher 
in. 
Such 
developments 
will 
be 
critical 
to 
all 
legacy 
content 
players 
(including 
the 
BBC)
, 
as 
they 
would 
to 
tend 
to 
erode 
the 
value 
of 
traditional 
means 
of 
distribution 
(broadcast, 
satellite, 
fixed 
line) 
Lifesremotecontrol:afutureroleformobile
Content 
services 
selected 
from 
app 
store… 


…forconsumptionin-home&
on-the-move…
Source:Mediatique


Themobiledevicealreadyactsasaremotecontrolledorganisationdeviceforcertainplatforms–forexample,Sky’sRemoteRecordallowssubscriberstosettheirSky+preferencesviatheirmobiledeviceOvertime,aswirelessnetworksbecomeevenmore
networksbecomeevenmorerobustanddevicetechnologyconverges,themobilemaytakeanevengreaterroleincoordinatingconsumptionamongallmediadevices–
thisextendsnotjusttoorganisation,butultimatelytotheselectionandpurchase/downloadofcontentandservicesSuchtrendssuggest,forexample,thatcontentchosenfromamobileappmayendupbeingwatchedontheTVorhomePC
© Mediatique 
Ltd 
2010 
| 


35

FutureevolutionFutureevolution
Several 
third-party 
forecasters 
expect 
significant 
growth 
in 
the 
apps 
market 
over 
time… 


• 
Our 
observations 
relating 
to 
the 
evolutionary 
trends 
in 
the 
apps 
market 
are 
broadly 
qualitative, 
and 
we 
have 
not 
forecast 
revenue 
or 
consumption 
trends 
over 
time, 
other 
than 
to 
suggest 
that 
the 
market 
will 
grow 
exponentially 
in 
the 
35 
Source: 
various 
Globalappsrevenueconsensusforecasts($bn)
(as 
stated) 


short 
to 
medium 
term 


Gartner 


• 
It 
is 
worth 
bearing 
in 
mind 
that 
the 
smartphone 
sub-sector 
is 
growing 
rapidly 
30 
but 
from 
a 
relatively 
small 
base 
and 
there 
is 
likely 
to 
a 
significant 
number 
of 
consumers 
who 
do 
not 
make 
the 
transition 
in 
the 
short 
to 
medium 
term; 
these 
25 


late 
adopters 
may 
have 
access 
to 
increased 
functionality, 
but 
probably 
well 
short 
of 
the 
cutting 
edge 


Juniper 


20 


• 
This 
suggests 
a 
relatively 
large 
market 
still 
dependent 
on 
traditional 
means 
of 
delivery 
of 
content 
and 
services 
– 
which 
has 
important 
implications 
for 
the 
BBC 
Getjar 


15 


and 
other 
legacy 
content 
providers 


17.529.518.936© MediatiqueLtd2010|
•Whileourevaluationoffutureevolutionhasbeenqualitative,wehavenonethelesscollatedanumberofthird-partyforecastsinrelationtotheconsumptionofappsandassociatedrevenuegeneration.Thereislargevariationinrevenueoutputsamongthevariousforecasts,althoughunsurprisinglythegeneralconsensusisoneofsignificantmarketgrowth.Theseconsensusforecastssuggestthattotalworldwideappsrevenuewillreachsomewhereintheregionof$15-20bnby2013/14;thiscomparestototalappsrevenueoflessthan$5bncurrently•Gartnerestimatesthattotalappsrevenuewillreach$30bnby2013,withadvertisingrevenuescontributing$6.5bnofthisamount;
notably,however,theyforecastfreeappstorepresentapproximately90%ofconsumptionbutonly20%ofrevenuesinthatyear.Thiscorroboratesourviewthatthemarketwilltrendtowardsafreemodelforconsumption,albeittherearesignificantrevenueopportunitiesforpremiumandspecialistappstochargeconsumers•Theseforecastsunderlinethenascentnatureofthemobileadvertisingmarket,whichwillneedtodevelopsignificantlyifitistooffsetthe(inourviewinevitable)declineinpaid-formobileapplications4.06.711.0010520082009201020112012201320142015GartnerYankee(USonly)
ForecastsoftheUK’sshareoftheserevenuesarenotreadilyavailable.
Forcontext,WesternEurope’sshareofthesmartphonemarketwasonly20%in2009,andissettodeclineovertimeasdevelopingmarketstakealargershare.Moreover,eventhoughpropensitiestopayforappsarefairlyconsistentacrossterritories,pricingtrendsvarysignificantly–
averagepricesforthemostpopularappsonAppStoreare$2.59inAsia,
$2.43inNorthAmericaandalmost$3.70inEuropeThesetrendssuggestthattheappsmarketinWesternEuropecouldreachrevenuesofc$6bnby2013;onaread-acrossoftheUK’sGDPshareasaproportionofEurope,theUKmarketcouldbeworthc$800m(i.e.,notaccountingforanyout-performanceofmobileintheUK)

4. 
Implications 
for 
the 
BBC 
© Mediatique 
Ltd 
2010 
| 


37

BBCimplicationsBBCimplications
The 
BBC 
is 
proposing 
to 
launch 
a 
number 
of 
mobile 
apps 
– 
initially 
for 
distribution 
on 
the 
iPhone 


• 
The 
BBC 
is 
intending 
to 
launch 
mobile 
apps, 
initially 
for 
BBC 
news 
and 
BBC 
sport, 
for 
initial 
distribution 
to 
the 
iPhone. 
The 
BBC 
had 
hoped 
to 
launch 
the 
BBC 
news 
app 
in 
time 
for 
the 
parliamentary 
elections 
on 
6 
May 
2010, 
with 
the 
sports 
app 
available 
by 
the 
time 
of 
the 
World 
Cup 
in 
June 
2010. 
The 
apps 
are 
intended 
to 
be 
free 
at 
the 
point 
of 
consumption, 
and 
will 
carry 
no 
advertising 
• 
While 
the 
proposal 
is 
concentrated 
on 
these 
two 
apps, 
initially 
on 
the 
iPhone 
platform, 
it 
is 
the 
BBC’s 
clear 
intention 
to 
introduce 
other 
apps 
(specifically 
the 
iPlayer 
but 
perhaps 
other 
applications 
later) 
and 
to 
address, 
eventually, 
all 
operating 
systems 
over 
time 
• 
The 
BBC 
specifically 
recognises 
that 
the 
iPhone 
is 
the 
fastest 
growing 
TheBBCsplansformobileapps
ThenewsappwouldprovideaccesstotheBBC’sexistingwebsitecontent(emphasisinglocal,nationalandinternationalnews,breakingnews,commentary,on-demandAVcontent,livestreamingofBBCNewschannel),withtheabilitytopersonalisetheservice;therehadbeenanintentiontoprovideelection-specificservices(livefeedsoftheleaders’debates,electionresultsastheyareavailableonthenight)
smartphoneapplicationplatform,andisseekingtolaunchtherefirst.TheintentiontomovetootheroperatingsystemsisconditionaluponissuestodoThesportsappwouldequallyprovideaccesstoexistingwebsitecontetandwouldincludelivematchAV,WorldCupclipsonddh(bjih38© MediatiqueLtd2010|
withtechnology–includingtheease/complexityofaddressingplatforms–an“brandprotectioncriteria”
–WenotethattheBBCpointstothelaunchoftheiPadasasourceofincreasedmarketpenetrationastheiPadwillallowusersaccesstoappscreatedforthePhone–albeittheBBCintendstoinvestonlymodestlytoupgradethevideoexperienceforiPaduse•InitsapplicationtotheTrust,theBBCspecificallyexcludesdetailedconsiderationofBBCWorldwide’scommercialappdevelopments•TheTrustapplicationisdetailedastotheplansonnewsandsport,andarticulatesmorebrieflyastrategyinrelationtotheiPlayer;planstoextendthedistributionfootprinttootheroperatingsystemsandtodeepentheavailablecontentaccessibleviaappsarefarsketchier;wenotethattheBBCsetsoutitsviewexplicitlythat“enablingaudiencestoaccessexistingBBConlinecontentviasmartphoneapplications”isnota“newserviceorasignificantchangetotheBBCUK’spublicservices,requiringregulatoryscrutinyviaaPublicValueTest”
•WehaveanalysedpotentialeffectsoftheBBC’sappsstrategyonthemarket.Wehavenotconsideredissuesaroundcomplianceandstateaid,andconcentrateinsteadonissuesaroundpotentialcompetitiveimpactinbroadtermsdemand,othersportscontent(subjecttorightsclearance),commentary,Radio5Livefeeds,accesstoblogs,etc.
FollowingadvicefromFairTrading,theappwouldnotfeature“push”
elementssuchasalerts(atleastnotatlaunch)
TheiPlayerappisscheduledforlaterin2010,andbuildsonexistingaccessviamobilebrowsers(wherethefeedisoptimisedformobile)andtheappalreadylaunched(inQ32009)ontheNokiaOvistore

BBCimplicationsBBCimplications
Give 
the 
BBC’s 
absence 
from 
the 
apps 
market 
to 
date, 
our 
major 
observations 
of 
the 
likely 
trends 
and 
dynamics 
constitute 
an 
implicit 
counter-factual 
in 
the 
event 
of 
non-entry 
by 
the 
BBC 


OurpreliminarymarketobservationsThemobileappsmarketisnascentandsmall,butisgrowingrapidlyKeydriversoftheappsmarketareeaseofuse,easeofaccess,portabilityandmobilityKeycontentandservicecategoriesinclude:communication,games,location-specificservices(e.g.,maps/navigation,listings),news,videoandaudioWhilethereareanumberofmobile-exclusiveapps,muchofthecontentavailableviaappsisre-purposedcontentfromtheinternet,andisaccessibleviamobilewebbrowsersinadditiontobespokeappsThereareanumberofdifferentrevenuemodelsacrossthevaluechainformobiledeiveryofcontentandservices,includingmicro-pay,premium-pay,
subscription,ad-funded;althoughthesectorhasyettosettleonacoherentstructurePaidforappsoutnumberfreeappsintermsofavailability,whilstthemajorityofusageremainsfree39© MediatiqueLtd2010|
Thenumberofappstoresisgrowingquickly,ledbyintegrateddevice/OSproviders–asistherangeanddepthofavailableappswithinthesestores.NetworkoperatorshavebeenlaggardsbutareofferingtheirownappstoresintegratedintoexistingbillingrelationshipsKeylikelysourcesoffutuechangewillbe:
•Improvementinthedeliveryofmobileservicesgenerally,allowingfastermorereliabledeliveryofdata-richcontent/services•Industryconsolidationacrossthevaluechain•Consumerpreferencesforfreeoverpay,acceleratedbyincreasingavailabilityoffreesubstitutesfromonlineandbundledofferingsfromappsproviders•Anincreasingemphasisonnavigationandfindability,asappstoresbecomeincreasinglycrowded•Effortsbynetworkoperatorstore-capturebillingrelationshipsItislikelythattodatetherevenuesgeneratedbymobileappshavelargelybeeneithernewordirectlypoachedfromothrmobileandonlinerevenues;forexample,inthecaseofadvertising,thereisunlikelyyettohavebeenanydisplacement(giventhesector’stinysize)otherthanfromdigitalexpenditurebyadvertisersWeconcludethat,fortheshorttomediumterm,mobileappswillcontinuetogrowasaproportionoftotalmobilecontentandservicedelivery,therevenuemodelwilltendtotrend“free”,withadvertisingsubstitutingforonlineratherthantraditionalcategoriesandincreasedincomefromcertainspecialistcategoriesandfromtranactionalservicesCritically,wedonotenvisageprovidersofcontentsuchasnewsandsporttobeabletochargeformobiledeliverywhiletheironlineservicesremainfree;
therefore,broadertrendsinindustry’sattemptstointroducechargingmodelsforonlineserviceswillhaveadirectimpactonanyabilitytochargeforrelevantobileappsovertime

A 
number 
of 
third 
parties 
have 
criticised 
the 
BBC’s 
plans 
to 
launch 
apps. 
Whilst 
not 
defending 
the 
BBC, 
we 
set 
out 
below 
our 
market 
observations 
in 
relation 
to 
these 
complaints 


CriticismMediatiqueobservationsTheappsmarketisanewmarket,whichtheBBCmightdistortThedynamicsofmobileandonlinedistributionaretypicallydifferent,andservicesareoftentailoredasaresult;
however,muchofthecontentisthesameandmobileappsfornewsandsportrelyheavilyonre-purposedonlinecontent.Inaddition,consumerpreferencestowardsmultipleservicesandfreeaccessarerelativelysimilarMobileappsareone-to-onedistribution,notbroadcasting
DistributiontomobiledevicesoverIPisnodifferenttoIP-distributiontothePC,andthelaunchofmobileappsisinthesameveinastheBBC’scurrentre-purposingofonlinepagesformobileconsumption–indeed,allsmartphoneuserscanalreadyaccessBBCcontentviatheirwebbrowsersTheBBC’sentryrepresentsathreattopluralityThemarketformobilenewsapsisalreadyextremelycrowdedandcompetitive,withconsumersincreasinglypromiscuousinrelationtotheirnewsconsumption–typicallyrelyingonseveralsitesandsearchengines,oftenBBCimplicationsInidentifyingthenatureofthesecriticisms,wehavemadereferencetoaformalcomplaintbytheNewspaperPublishers’AssociationtotheBBCTrustinApril201040© MediatiqueLtd2010|
skimmingnewsheadlinesTheBBC’stargetaudienceforappsisalreadywellservedWenotethattheNPA/Guardianc