Emergence of the app-economy: what drives the mobile business industry in Germany?

• Author: Karla, Jurgen
• Position: Report

1. DEVELOPMENT OF THE MOBILE BUSINESS SECTOR IN GERMANY

   The mobile business sector is a highly dynamic one on account of the ongoing technological advances taking place there: new market participants continue to enter, whilst other participants continuously reposition themselves (Bohm et al., 2008). Some firms have the tendency to extend their activities to embrace neighboring supply chain stages, a development already known as "disintermediation" in the domain of electronic commerce. This phenomenon has been particularly observable in the case of mobile network operators who, owing to their unique market position, are able to actively participate in areas other than that of their core business, e.g. as portal providers, content providers, or application developers (Geer and Gross, 2001). To observe supply chain processes in the mobile business sector in the form of a one-dimensional supply chain would seem, then, to be inadequate, and an extension of the model to be necessary. In this context, the literature often cites so-called supply chain networks (Reichwald and Meier, 2002; Muller-Veerse, 2000; Li and Whalley, 2002; Peppard and Rylander, 2006). This particular paper aims to contribute to this ongoing discussion by providing a detailed analysis of the driving forces of market development in Germany. The German mobile business sector is highly developed. Therefore, the results from this study allow to draw conclusions that are valid for other countries as well.

   The mentioned phenomenon of disintermediation amongst the main players in the market is a key development process in the mobile business sector. Although supply chain relationships in this sphere have been continuously dynamic since the creation of the mobile business sector, current developments show that the mobile industry is about to undergo dramatic changes. Technological innovations and the enormous rise in demand for mobile data services are motivating all players to profit as fast as possible from the current market situation. The entrance of new players onto the market is serving to increase the complexity of these market relationships.

   Despite the continuing positive market forecasts, still in the mid of the first decade of this century the market players were unable to reach their anticipated turnover targets for mobile data services (Alby, 2008). Cost-intensive investments--e.g. in particular the acquisition of the 3G licenses in the year 2000 in Germany--exerted pressure on the mobile network operators to achieve their high turnover targets (Schweizer et al., 2002). Although developments on the mobile business market had been initially unsuccessful, the market now began to experience a turnaround (Bohm et al., 2008). The utilization of mobile data in Germany rose from 3.5 million GB in 2007 to 33.5 million GB in 2009 (Bundesnetzagentur, 2010).

   [FIGURE 1 OMITTED]

   The exponential development of mobile data service usage derives in part from the introduction of new devices and innovative concepts--in particular those of mobile ecosystems. It was Apple Inc. who triggered off this development when they introduced the iPhone device in 2007. The success factors, however, are not to be found in the device alone, but in the entire surrounding package. The success of the original concept motivated other device manufacturers to develop their own products with similar concepts. Since 2007, developments have been quite remarkable: whereas mobile network operators (MNO) have been losing their influence, mobile device manufacturers (MDM) and mobile platform providers (MPP) in particular have been increasing theirs. The concept of the app store--originally introduced by Apple in 2008--has caused a further new constellation of supply chain activities in the mobile business sector. Prior to that, it was the mobile network operators who controlled the content of and the revenues from mobile data services. This role is now being taken over by the app store operators. The success of the app store concept has been so momentous, that people are now referring to an "app economy" (MacMillan et al., 2009).

2. MAJOR FACTS FOR THE MOBILE PLATFORM ECOSYSTEM

   In the past, the core business of mobile device manufacturers (MDMs) consisted of the production and the distribution of cell phone devices. Usually, the devices were sold via mobile network operators (MNOs) in combination with mobile service contracts. The MDMs have, then, always been closely connected with the MNOs. If particular devices were not taken up by network operators in their product range, the MDMs were often obliged--on account of a lack of other distribution options--to give in to the wishes of the operators. Business for MDMs was characterized by relatively low margins. However, the MDMs still played a key role, since they contributed extensively to technological advances--and thus help to further develop the mobile business sector. The extent, to which the MDMs' situation has changed in recent times, and the consequences of those changes, are major topics of this paper.

   MNOs had several core competences that enabled them to occupy a dominant position on the market vis a vis other players. One such competence is that of the "direct" business relationship with the customer. The existing contractual relationships places MNOs in a position to charge directly for services rather than having to depend on third party invoicing (Muller-Veerse, 2000; Zobel, 2001, Geer and Gross, 2001). Another competence is that of their having the edge over other players with regard to information. For example, MNOs are able to roughly ascertain the geographical location of logged-in customers. This type of information is highly valuable for location based services--such as advertising--and may be sold or exploited by the MNOs themselves (Geer and Gross, 2001). Since they supply the SIM card for the mobile device, MNOs are able to dictate certain device...