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Opinion Paper

Microsoft OneApp – bringingmobile applications tothe masses?

Detecon Analysis andStrategic Recommendations

2010 / 03

We make ICT strategies work



Microsoft OneApp – bringing mobile applications to the masses?

Opinion Paper 2 Detecon International GmbH

Table of Contents

1 Executive Summary.............................................................................................3

2 Product Potential Analysis...................................................................................4

2.1 Product Facts ....................................................... ....................................... 4

2.2 Success Drivers...........................................................................................6

2.3 Possible Prohibitors.....................................................................................8

3 Strategic Business Impact ........................... ...................................................... 10

3.1 Microsoft ............................. ....................................................................... 10

3.2 Mobile Phone Manufacturers.....................................................................11

3.3 Network operators ........................................................... .......................... 12 3.4 Application Developers..............................................................................13

4 Conclusion and Recommended Action ............................................................. 14

5 The Authors.......................................................................................................15

6 The Company....................................................................................................16





2 Product Potential Analysis

2.1 Product Facts

Microsoft OneApp provides a runtime environ-ment for mobile apps that is installed on a mobilephone. It appears as a single application on thephone through which users can easily accessand execute all their favorite mobile apps. With itssmall and resource-conserving footprint (ca. 150kilobytes), it aims at feature phones that arepositioned between basic phones (only voicefunctionality) and smartphones (high-end graphic

processors and large built-in memory).

The OneApp phone platform is Java-based andthus (almost) independent from the phone’soperating system. Currently, it runs on the mostpopular feature phones from Nokia, Samsung,and Sony Ericsson. Whenever an app is started,Microsoft OneApp dynamically downloads andlaunches only the currently needed parts of the app. This procedure avoids the storage oflarge apps on the mobile phone as well as extra download and installation times.

Microsoft OneApp-enabled apps typically exhibit avery small footprint of at most 30kB (e.g. theFacebook App for Microsoft OneApp has a footprintof approx. 10kB). This numbers resemble the initialdownload efforts – additional data traffic is neededduring the usage of the apps. In comparison, aregular mobile web site is already much larger (e.g.the mobile start page of “Spiegel online”, a Germannews magazine, requires a download of around150kB). This benchmark indicates that a good userexperience can be achieved due to low delay timesduring usage.

Besides the lightweight phone client, the OneAppconcept comprises server components that areprovided via cloud services. The cloud services shiftthe processing and storage efforts from the mobiledevice towards the cloud. The network trafficbetween the phone and the backbone is optimizedto further reduce data traffic.

Fact Box

Enables feature phones to runmobile apps

Runs on a wide range of popularphones

Provides cloud computingcomponents for additional

processing power and storage

Allows service providers to deploytheir own instance of OneApp thatcan be fully customized (from look-and-feel to app portfolio)

Available Apps

Source: Microsoft .

Windows Live Messenger, Face-book, Tweetlite, Weather, CelebrityNews, RSS-Reader, News, Sports,Stocks, Contacts, Mobile Wallet,Games





OneApp is a set of technologies and apps rather than a service. A service provider whowants to offer mobile apps via OneApp needs to deploy an instance. OneApp allowscustomizing of both the app container on the mobile phone, and the set of offered apps.

This approach allows service providers to roll out a fully branded and customized offering. Inaddition to the applications provided by Microsoft, service providers can decide to offer otherthird-party apps or develop their own apps. Full control over the offered app portfolio is in thehands of the service provider. Application developers have no direct influence on the appsthat are being offered on certain OneApp implementations. They always have to workthrough a mobile service provider.

Microsoft announced to provide a software developer kit (SDK) that supports development ofnew apps using industry standards such as JavaScript and XML. The developer kit wasannounced to be available by the end of 2009. OneApp only runs apps that were developed

based on the Microsoft’s OneApp framework. It does not yet support any other existingmobile app frameworks.

With Blue Label Telecoms, Microsoft found afirst partner for its offering in South Africa. BlueLabel offers OneApp as part of its data trafficservice “mibli”. mibli initially includes a dozen ofpopular apps, like Facebook and Twitter. TheFacebook app for example allows picturestaken with the phone’s built-in camera to bedirectly uploaded to a Facebook accountwithout having to store them on the phone. Miblialso contains a localized app called “mobilewallet”. Rather than carrying cash, which can bedangerous, especially in South Africa,customers can use their phones to conductmoney transactions or make payments inshops. Blue Label already announced to offermore such apps, addressing peoples’ basicneeds, e.g. health care services.

Microsoft plans to establish further deploymentsin China and India in the next rollout phase.

Product potential at a glance

+ Large market potential

+ Out-of-the-box solution and lowtechnology risk

+ Nearly unique selling point

+ High enduser benefit+ High scalability potential

+ Mixture of global and regionalcontent

- Requires a solid, long-term andfruitful eco-system around it

- OneApp is a Bridge technology.





2.2 Success Drivers

Large Market Potential. Even today mobile phones connect more than 4 billion peopleworldwide, which corresponds to around 60 percent of the global population 1. Mobile phoneshave become ubiquitous and an essential contingent are feature phones. Around 2 billionfeature phones are currently in use, and an additional billion units per year are expected tobe sold until 2012 (see figure 1a). With OneApp, Microsoft helps to unlock this tremendouspotential of users for mobile apps.

Sales of mobile phones(worldwide, billions of units)

0.5

2.0

1.5

1.0

0.0

BasicPhones

FeaturePhones

SmartPhones

2010 2011 2012 Figure 1a: Global Sales of mobile phones, clusteredby phone type (based on Gartner).

Figure 1b: Global Sales of mobile phones 2010-2012, cumulated (based on Gartner).

The potential of mobile phones as an access channel to mobile apps is even larger inemerging countries, where most people do not have their own landline or computer with aninternet connection. Analysts forecast that 61 percent of the mobile phones sold globallywithin the next three years will be sold in emerging countries (see figure 1b). 90 percent of alltelephone subscribers in Africa own mobile phones, and the number of mobile phones is stillgrowing by around 50 percent per year in this region 2. Figures from India and China plotsimilar stories 3. In India the usage rate of mobile phones almost doubles each year, and inChina by today nearly half of the total population uses mobile phones. According to analysts’forecasts, feature phones are the main element in this game. 25 percent of mobile phonesales worldwide until 2012 will be feature phones sold in emerging countries (see figure 1b).This is the main target market that Microsoft addresses with OneApp.

1 Source: “Mobile Phone Subscribers Pass 4 Billion Mark,” Cellular News, December 23, 2008

2 Source: International Telecommunication Union, “New ITU ICT Development Index Compares 154 Countries,”March 2, 2009.

3 Source: Normandy Madden, “China’s Mobile Phone Users Hit 650M,” AdAge China, March 11, 2009

Feature phonessold in emergentcountries

Mobile phonessold in emergent

countries

25%

6.4 billion units

61%

Sales of mobile phones 2010-2012(cumulated, worldwide)





OneApp could give this ever-growing part of the global population the opportunity to useapplications like social networks, instant messaging and simple games without the need toown an expensive personal computer.

Despite the high attractiveness of OneApp for emerging countries, the potential in developedcountries should not be underestimated. Feature phones constitute a significant share indeveloped countries as well. In addition, many users are interested in using mobile apps, butare not willing to pay the premium for data flat rates and smartphones. OneApp is just inbetween premium mobile application products and no mobile applications at all, and it couldbecome a market leader by closing this gap.

Out-of-the-box solution and low technology risk. OneApp makes it easy to enter themobile application business, as it is very much an out-of-the box solution. Microsoft providesall of the technology and a set of basic apps. Provided that application developers get

enthused and engaged with OneApp, a multitude of apps will soon emerge and be madeavailable to the service providers. Initially, the service providers just need to deploy theirinstance of the platform and ensure its operations. This should make OneApp a rather cheapservice to establish.

While Microsoft provides the technology platform, the service providers who implementOneApp keep control over their specific instance. They can exclude apps from the offeringand add others at their will. The appearance of the OneApp instance may be customized insuch a way that it fits each service provider’s brand strategy.

So OneApp offers service providers the flexibility of a tailored solution, but at the cost ofbuying it off-the-shelf. This should be an attractive offering and drive OneApp’s success.

Nearly unique selling point. OneApp’s combination of running on a large number of featurephones and reducing data traffic is singular among large technology companies. TheIsraeli/British start-up company Moblica has similar technology to offer. Their service, called“Snaptu”, offers Web 2.0 apps on feature phones and can be downloaded for free. It claimsto run on hundreds of feature phones and the offered app catalogue already comprisesFacebook, Twitter, Flickr, Picasa, Google Calendar and more. Moblica also talks aboutachieving fast response time and great user experience by leveraging cloud technology.However, network operators and application developers are more likely to go with anestablished technology company Microsoft than an unknown, potentially unstable start-up.So any network operator who is interested in targeting feature phone users over smallbandwidth networks is well advised to go with Microsoft.

High end-user benefit. Microsoft OneApp is designed to provide feature phone users witheasy access to mobile apps. With its low technical entrance barriers, it has the potential tobecome the single entry point for mobile apps on feature phones. By minimizing thenecessary data traffic through cloud processing combined with optimized communicationstreams, Microsoft tackles the generally low bandwidth of mobile connections in the targetmarkets. Most emerging countries, especially in their rural regions, do not have high-speedHSDPA-networks at their disposal, but at present rely on GPRS-networks.





Potential for scale. Besides the technical limitations – compared to smartphones – featurephones exhibit a large variety of different standards. Therefore, it is a great help forindependent software vendors to design their apps and services for a single platform, rather

than having to deal with a zoo of 50 to 100 different handset types. Though success is notguaranteed, OneApp is more likely to be successful than any similar initiative by serviceproviders or start-ups like Snaptu could be.

Mixture of global and regional content. The popularity of services varies across the globe.While some are globally relevant (e.g. Facebook), others are only popular or make sense incertain regions or countries (e.g. payment apps or games). An app could be a bestseller inIndia while no one would use it in South Africa. Service providers can customize OneApp sothat it has a good mixture of globally relevant and regionally popular apps. These targetedlocal markets will help OneApp’s attractiveness. It also makes it easier for the localdevelopers to distribute their apps on their home turf.

2.3 Possible ProhibitorsEstablishing a solid, long-term and fruitful eco-system around the solution is a challenge. One requirement for OneApp’s success is Microsoft’s ability to build up acomprehensive eco-system around it. Microsoft needs to address the network operators aspotential service providers, the mobile phone manufacturers to enable a quick and wide-spread rollout and the application developers to develop attractive apps.

Persuading the network operators to build up their own OneApp offerings seems to be theeasiest part, since they can engage in OneApp at a low risk and with low preparatory efforts.Making the crowd of application developers join will be much more challenging.

The mobile world has already produced a number of app stores. Android Marketplace, Ovi,and Apple AppStore – to just name the most popular – are trying to attract developers toadapt their services and to get appealing content to their platform. OneApp will have to offeran attractive value proposition to enthuse application developers. Three main factors willdetermine this: the number of users, the opportunities to earn money from each single user,and the effort needed to make an app.

As for the number of users, this is very much a hen-egg-situation: the more users OneApphas, the more apps are programmed for OneApp making it more attractive for users.Microsoft and its partners are well advised to create enough buzz around their offering – acommon feeling that OneApp will be a success will work as a self-fulfilling prophecy and helpOneApp over its initial phase until it has sufficient scale.

Incentives for third-party application developers are another important factor, but as of today(monetary) benefits when participating in OneApp have not been revealed. Presumably, themodel will follow that of app stores in place: there will be a three-way revenue split of somekind between Microsoft, the service provider (network operator or device manufacturer) andthe developers. On the user side, one-time download charges and subscriptions arepossible; in addition, advertising seems to be an option. It is possible that the benefits willvary between individual OneApp implementations – this, however, would be daunting fordevelopers as it makes it difficult to come up with a solid business case for development.





Another dark horse is the support for application developers. Not much is in place here yet.A software development kit (SDK) has been announced by the end of 2009, but it is not outto date (March 2010). Support forums are also missing.

OneApp is a bridge technology. OneApp’s value proposition is derived from three marketfacts: smartphones are still too expensive, a zoo of mobile devices which makes it very hardto program one application for all devices, and network bandwidth is limited. All these factorsare likely to be mediated sooner or later. The continuing progress of standardization withinthe realm of software development will increase the degree of reusability of applicationsacross different platforms. At the same time, it is likely that consolidation of platforms willtake place. Thus, it will become easier to deploy an application on multiple devices.Furthermore, the capacities of mobile networks will steadily expand as the mobile businessgrows bigger and bigger. Therefore, OneApp very much has the character of a bridgetechnology. This is very likely to limit the willingness of application developers and networkoperators to invest in OneApp.





3 Strategic Business Impact

3.1 MicrosoftThe benefits for Microsoft are of direct andindirect nature.

Direct revenues for Microsoft will come fromselling licenses for OneApp, in addition toproviding hosting services or cloudinfrastructure. Some additional revenue mightresult from establishing usage fees of somekind for the apps. The scale of these revenuesis too small to make this a sufficient business

rationale for Microsoft.The major benefits for Microsoft are likely to bederived from contributions to Microsoft’stechnology portfolio.

Increasing user base for own service sphere. In the first phase Microsoft willconcentrate on establishing OneApp in themarket. The newly gained user base will helpMicrosoft to drive the reach and popularity ofother Microsoft (premium) services, e.g.Microsoft Messenger.

On the backend side, OneApp is a proof-of-concept for the Microsoft Azure cloudcomputing platform and helps to increaseMicrosoft’s credibility in this new business area.

Complementing and supporting existing efforts to conquer the mobile web. Themobile web continues to grow strongly, andMicrosoft has tried to enter this attractive marketfor some time. The first and most radicalattempt to link the PC and mobile worlds bypushing a lightweight version of Windows onmobile devices has been unsuccessful. In Q2/2009, Windows Mobile had a market share of9% among smartphones, compared to 14% market share for the iPhone platform whichentered the market only recently. Microsoft’s second hope in the mobile web is Silverlight.Silverlight is a cross-platform framework for bringing applications to all kinds of devices,including mobile phones. It is still new to the market and currently is mostly limited toWindows Mobile devices.

The most successful part of Microsoft’s mobile strategy is the mobile use of their webservices – search, email access, etc. Outlook on Windows Mobile is a major part of theirmobile offering for smartphones. The Windows Live Mobile services are really popular onmobile phones, with millions of instant messaging and email users.

Business Impact

Microsoft

+ Increasing user base for own servicesphere.

+ Complementing and supportingMicrosoft’s existing efforts to conquerthe mobile web.

Mobile Phone Manufacturers

+ Increase mobile phone attractivenesswith OneApp.

- Competing with mobile phonemanufacturers’ mobile applicationefforts.

Network Operators

+ Boosting data traffic revenues andincreasing upselling opportunities

+ Enabling application-related businessmodels.

+ Leveraging opportunities from mobilepayment.

Application Developers

+ Yet another development platform,but attractive potential.

+ Business model opportunities fromusage tracking.





Unlike Windows Mobile, Silverlight or the online services, OneApp is positioned in a lesscompetitive environment. Microsoft can use it to build trust in its capabilities and establishpartnerships, which will then help to support its other activities in the mobile world.

3.2 Mobile Phone Manufacturers

Increase mobile phone attractiveness with OneApp. Mobile phone manufacturers cansetup their own OneApp implementations and equip their portfolio of feature phones withthem. Utilizing OneApp’ customizing capabilities, manufacturers can integrate it tightly intothe phone’s user interface.

Thus, at rather little cost, manufacturers could implement an application business aroundtheir feature phone models. Apart from achieving higher average sales prices for theirphones, they could earn some extra revenues from an app store business. As Microsoftprovides the necessary technology stack, the costs for this should be much lower thanbuilding a similar application platform on its own.

On the other hand, the mobile phones that OneApp is targeted at only have a low averageselling price (ASP). Even a small extra cost for the OneApp platform might destroy theprofitability of this low-margin business. In addition, mobile data connectivity is an essentialpart for the functioning of OneApp that is not readily available and cannot be provided by themobile phone manufacturer itself. This means either the user has to take care of it, whichstains the value proposition – or the mobile phone manufacturer has to partner with manylocal network operators, which deteriorates the business case.

Overall, while offerings from mobile phone manufacturers are feasible, the obstacles arehigh and we do not expect many of them to come to market, if at all.

Competing with mobile phone manufacturers’ mobile application efforts. All largemobile phone manufacturers already offer, or plan to offer, mobile applications for theirphones.

Nokia, currently top dog in most emerging markets concerning mobile handset sales, isdriving its Ovi platform to the market. With a production of around a million phones per day,Nokia can quickly reach a large user group. As of now, Nokia is mainly addressingsmartphones, but given the huge market potential of feature phones in emerging markets itseems only a matter of time for Nokia to extend its efforts towards bringing mobileapplications to less capable phones. Nokia has already started to develop applicationsfocussing on the emerging markets’ requirements (e.g. Nokia Money). Moreover, Nokia justrecently announced its claim to quickly become the world’s biggest entertainment medianetwork. This is a strong indicator for Nokia’s intention to extend its Ovi offering extensively.

Further competition can be expected from Google with its efforts to bring Android to themasses. As for Nokia the same rationale holds true for Google: they probably will not wait forthe world to buy smartphones but rather adapt their operating system to run on featurephones. Samsung and LG have announced to launch app stores for their phones as well.





Until now Apple has been the most successful manufacturer by tackling the mobile appsdomain with its famous AppStore, which hit the 3 billion download mark in January 2010 4.Apple can be expected not to compete with OneApp as it will most probably stick with the

high end phone segment.

3.3 Network operators

Boosting data traffic revenues and increasing upselling opportunities. OneAppincreases the number of customers that are technically able to use mobile applicationswithout requiring large hardware investments on the user side. By offering suitable datatariffs for OneApp, network operators can try to ”upgrade” voice-only customers to mobileapp users and thus increase their data revenues. The risk of cannibalizing higher-valueservices is small, as the OneApp user experience will stay limited compared to smartphone-

based offerings. On the contrary: once customers got used to mobile apps and haveexperienced the value proposition, they are good candidates for upselling them to higher-valued data services with more bandwidth and a smarter end-user device.

Enabling application-related business models. The most presumable revenue model forOneApp will charge the user for a set of apps and the data traffic. However, the settingallows for many business model variants. Apps could be sold for one-time fees in a sort ofapp store. This business model is particularly suitable for all kinds of fun apps that do notneed much network connectivity, if any at all. The cloud component also allows controllingthe actual app usage a lot better than it is possible with client-only apps. This enables time-and volume-based charging. If implemented cleverly, marketing has a wide range of optionsto generate money.

Leveraging opportunities from mobile payment. Many apps in OneApp will require billingof some kind. Here the network operator, keeping the customer contact, can take theattractive role of a broker. In emerging countries, cashless payments apps are particularlyattractive for network operators. They promise high turnovers and good margins. At thesame time, they have a high customer benefit due to the underdeveloped bankinginfrastructure. Consequently, a mobile wallet is already part of the current mibli offer.

4 Source: Apple press release (http://www.apple.com/pr/library/2010/01/05appstore.html, January 5th, 2010)





3.4 Application Developers

Yet another development platform, but attractive potential. Even now, manydevelopment platforms are out there vying for developer attention. Application programmerswill scrutinize OneApp for its business potential.

In terms of customers, this is large. OneApp taps a high potential of new customers whichcan hardly be reached by any other platform. The downside is that these customers areprobably not willing to pay as much as users of smartphone offerings. Still, it should bepossible to earn some money by porting popular apps to OneApp.

Business model opportunities from usage tracking. The cloud component of OneAppallows for accurate usage tracking. Application developers can use this to ask for usage-based fees for their app. One example is replacing text messaging by advanced instantmessaging (including multimedia) and putting it into the context of a social network likeFacebook. Charging could then still be usage-based (per message or month of usage),thereby replacing revenues from text messaging.

Usage analytics opens some more opportunities, since it can also be used for targetedadvertising. Also, developers can get feedback on the usage of their apps and make themeven more attractive.





4 Conclusion and Recommended Action

Taking all considerations into account, OneApp is a promising enabler to reach yet untappedmarket potentials. It offers a number of opportunities and strategic options for the differentplayers involved. But despite its potential, a success of OneApp cannot be taken for grantedyet. Ultimately, two things will be viable for Microsoft to thrive with OneApp: Microsoft’sOneApp value proposition and the required ecosystem. One open question is if OneApp willever get enough scale. This effect is self-energizing – once a certain number of applicationdevelopers, network operators and potentially mobile phone manufacturers have adoptedthe platform, it becomes more attractive for others to join. This, however, makes a predictionvery hard. All potentially involved players, namely the mobile phone manufacturers, networkoperators and application developers, should carefully evaluate if and how they can benefitin the OneApp game.

Network operators: Network operators in emerging countries should closely follow themarket uptake of the first OneApp implementations. They should evaluate their customerbase and research which apps (delivered out-of-the-box, or self-programmed) could be soldat which price. This should quickly give an overview about profit potentials. In particular largenetwork operators in emerging countries (in particular in India and China) should evaluate aOneApp implementation early. They can most easily profit from OneApp even if a worldwidesuccess fails to appear. Network operators in developed countries should start with a high-level business case that weighs the cost of an implementation against the additional revenuepotentials generated by OneApp. In addition to evaluating potential killer apps (e.g.Facebook access), an important factor in the business case must be the upselling potentialto smartphone-based mobile app services.

Mobile Phone Manufacturers: Mobile phone manufacturers can gain from OneApp bydifferentiating their midrange devices in the market. As margins in this business are low, costof the implementation is critical. In particular, mobile phone manufacturers which do not havea strong application platform of their own should consider the potential benefits of anOneApp implementation in terms of cost and resulting user experience. Large mobile phonemanufacturers, such as Nokia, should continue their strategy of offering their own applicationplatforms. They should check whether the delivery model of applications via cloud servicesholds its promises, and think about copying it for their applications. Another option would bebuying a startup with a similar offering (e.g. Snaptu)

Application Developers: The attractiveness of OneApp for application developers stillremains vague. A lot depends on the cooperation models between Microsoft, the involvedlocal carriers (or network operators) and the application developers. Application developersneed to direct their attention to the business details of OneApp and trying to answerquestions, such as who will decide on the set of apps offered through OneApp in a specificmarket? Will apps be sold to customers, or offered as part of a monthly subscription model?Who will participate, and to which extent, when OneApp revenues are split? In all likelihoodapplication developers will not be able to offer their apps on their own account in an appshop. Therefore, they should focus on developing universal apps that are not heavily boundto a specific cultural or regional background. This would increase chances to place the appsinto multiple network operators’ OneApp offerings and markets.




6 The Company

We make ICT strategies work

Detecon is a consulting company which unites classic management consulting with a highlevel of technology expertise.

Our company's history is proof of this: Detecon International is the product of the merger ofthe management and IT consulting company Diebold, founded in 1954, and thetelecommunications consultancy Detecon, founded in 1977. Our services focus onconsulting and implementation solutions which are derived from the use of information andcommunications technology (ICT). All around the globe, clients from virtually all industriesprofit from our holistic know-how in questions of strategy and organizational design and inthe use of state-of-the-art technologies.

Detecon’s know-how bundles the knowledge from the successful conclusion of managementand ICT projects in more than 160 countries. We are represented globally by subsidiaries,affiliates, and project offices. Detecon is a subsidiary of T-Systems International, thebusiness customer brand of Deutsche Telekom. In our capacity as consultants, we are ableto benefit from the infrastructure of a global player spanning our planet.

Know-how and hands-on expertise

The rapid development of information and telecommunications technologies has anincreasingly significant influence on the strategies of companies as well as on the processeswithin an organization. The subsequent complex adaptations affect business models andcorporate structures, not only technological applications.

Our services for ICT management encompass classic strategy and organization consultingas well as the planning and implementation of highly complex, technological ICTarchitectures and applications. We are independent of manufacturers and obligated solely toour client's success.

Detecon International GmbHOberkasselerstr. 2

53227 BonnTelefon: +49 228 700 0

E-Mail: [email protected]: www.detecon.com

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