HTML5 – A second lifeline for operators in the mobile app ecosystem

Facebook’s recent launch of its App Center is a clear sign that the social networking giant is pulling no stops in its strategy to dominate the mobile web and fend off rivals Google and Apple. Hot on the heels of its much-hyped IPO, the HTML5-based app store is one of the many recent moves that Facebook has made to position itself as a key player in the emerging web platform.

Among other things, the acquisition of Instagram earlier in April is a subtle but good example of how Facebook is hedging its future on HTML5. Instagram actually started off in 2010 as a mobile check-in application called Burbn that was built using HTML5 technology. HTML5 was relatively unknown in those days but the founders wanted Burbn to be accessible across all standard mobile browsers and not just for specific OS platforms.

While Burbn and HTML5 were ahead of their time, Facebook knew that in the long term, Instagram’s expertise around building apps using open web standards would be a big catalyst in their plans to offer new services to their more than 900 million users. In addition to Instagram, Facebook also beefed up their mobile development team through their recent acquisitions of Strobe and Pieceable, both start-ups with deep expertise in HTML5 and web-apps.

Certainly, a device and platform agnostic apps ecosystem will be critical for Facebook as it faces increasing pressure to drive up its revenues to justify its US$104billion valuation (as of 18 May 2012). Much of this additional revenue is expected to come from its increasingly important mobile channel, making it more difficult for Facebook to share significant revenues with other partners including telecom operators who will once again be disintermediated from the value chain.

HTML5 – Brewing Growth Opportunity

Facebook is not the only company that has HTML5 high on its agenda. In the past year, HTML5 has gained significant interest from both small and big players as it promises to push the capabilities of web applications and make them as engaging and as integrated with the device as native applications do.

IDC believes that HTML5 will “move to center stage in 2012” with more pure mobile browser apps and hybrid apps (which integrate both native code and HTML5) being introduced into the market. In a recent IDC survey, a resounding 79% of developers said they plan to integrate HTML5 into the mobile apps they build this year. According to ABI Research, more than 2.1 billion mobile devices will have HTML5 browsers by 2016, up from just 109 million in 2010. This is an impressive figure, considering that HTML5 as a technology is still evolving and the official standards as defined by the World Wide Web Consortium (W3C) will only be complete in 2014.

In fact, with the proliferation of devices supporting HTML5, Juniper Research noted that the traditional app store models may face the prospect of erosion in the longer term as HTML5 emerges as the de-facto standard for browser-based apps models. In addition, the closer integration between browser-based apps and handsets will mean that the advantage that native apps have is reduced.

The following are some other advantages that browser-based apps have over native apps:

1. Lower Development Costs - Developers do not need to create multiple versions of the same app for different OS platforms, thus allowing them to reduce development and deployment costs significantly.
2. Broader Audience – Being platform-agnostic, browser-based apps are more compelling as it offers developers a wider distribution base and therefore provide more opportunities for monetization.
3. Higher Margins – The distribution of browser-based apps over the open web allows publishers to bypass the 30% revenue share typically imposed by the app stores.

More interestingly, traditional media players have also started deploying and investing into HTML5. In June last year, Financial Times (FT) launched an HTML5 web app that provides users with access to news content across multiple devices via a single login. The web app was so successful that within the first three months of its launch, the number of users accessing FT’s content on the web app exceeded those using the iOS app. With all these developments, there is definitely a paradigm shift in how different players are pursuing opportunities in this new platform and beginning to recognise the benefits of producing applications and content using HTML5.

Getting back into the value chain

From an operator’s perspective, the emergence of HTML5 as a new platform presents several interesting opportunities as they attempt to get back into the mobile app value chain. One of the key drivers for operators pursuing HTML5 is that they can distribute apps directly to their subscribers without going through Apple or Android.  While still in its early stages, HTML5 can also potentially be a game-changer for operators in emerging markets as it acts as an enabler for mobile internet on low-cost smartphones and feature phones.

Earlier this year, AT&T announced a series of HTML5-related initiatives as part of its efforts to boost innovation and collaboration with app developers. Among other things, the company introduced the new AT&T API platform that allows developers to easily incorporate AT&T services (such as Voice, SMS, MMS) into their applications. Other APIs that will enable music, contacts storage, message management, speech and other features will be made available later this year.

One of the most critical elements of AT&T’s platform is that it will allow developers to add in-app payment capabilities that will make it easy for developers to monetise their applications through the AT&T bill. On the consumer front, AT&T is also opening an AppCenter app store on Android phones to make it easy for users to discover and purchase HTML5 web apps.

Telefonica has taken the deployment of HTML5 a step further by collaborating with Mozilla to develop a HTML5-based OS platform for feature phones called the Open Web Device (OWD). By leveraging on the capabilities of HTML5 and open web standards, Telefonica believes that the platform can offer significant advantages in terms of development costs and will therefore enable the company to offer entry-level devices with smartphone-like capabilities at a much lower price point.

Given its strong presence in LATAM where feature phones still dominate the market, it makes sense for Telefonica to target this group of users and offer feature-rich applications and content that was previously available only on high-end smartphones. Adopting such a strategy will help an operator like Telefonica increase revenues in the lower-end market segment as users get accustomed to new services and consume more content.

Laying the building blocks of the new app ecosystem

Telefonica’s HTML5 strategy will probably be echoed by operators in emerging markets as they try to address the needs of the next wave of mobile internet users. Although it will take some time for the market to evolve, operators looking to gain a first mover advantage should start exploring the different capabilities they need, as well as understanding the benefits they can reap from this fast-developing technology. These include:

• Leveraging on customer analytics to enhance user experience – With the wealth of information that they have on their customers, operators are actually well positioned to influence a user’s app discovery process. Operators can augment the customer profile data with mobile browser traffic to provide recommendations content relevant to the user. This will address a current issue in the crowded app market where discovering apps has become more difficult.
• Providing a seamless Integrated Billing- With HTML5, operators can potentially offer secure direct-to-bill payments for mobile app purchases, which is especially relevant in emerging countries where credit card penetration is relatively low. Operators can also look at using these payment mechanisms to target specific segments such as the fast-growing mobile gaming space where in-app transactions are becoming common play in most markets.

What are the challenges for operators pursuing HTML5?

While there has been a lot of interest in HTML5 by different players in the ecosystem, it will still take a few more years before we see mass adoption of web apps by end consumers. Even though web apps are already supported on iOS and Android devices, mobile users are still accustomed to downloading native apps from the traditional app stores. As such, operators pursuing HTML5 need to clearly differentiate their offerings beyond just an alternative for existing native apps.

Given the emergence of low-cost Android smartphones in developing countries, the proposition of having an HTML5-based OS platform on feature phones (in the case of Telefonica’s Open Web Device) may be less compelling if there are only marginal price differences between the two of them. As technology and handset capabilities evolve, the lines between what is defined as a feature phone and low-cost smartphone will be blurred. The window of opportunity will therefore be small and operators need to act quickly if they wish to integrate HTML5 capabilities onto feature phones.

Another challenge in operators pursuing HTML5 as a new platform lies in the complexity of the apps ecosystem. Operators need to have a well defined end-to-end process within the organization, from product development, billing and marketing right through to the delivery of the product. Given that HTML5 is still in its early days, operators also need to adopt some level of flexibility and autonomy to test this new platform.

Conclusion

The true potential of HTML5 as an enabler for mobile internet on feature phones or low-cost smartphones is yet to be seen. Nonetheless, operators should start looking at how they can leverage HTML5 to offer new services, applications and content to the currently underserved emerging markets. Rather than going at it alone, operators should also consider forming strategic partnerships and collaborate with other stakeholders in the value chain so as to make the proposition for the HTML5 platform more compelling.

Ultimately, for operators, it’s really about owning the space and positioning themselves firmly back into the value chain. While it’s still early days, HTML5 can potentially solve the problem of device fragmentation and put operators in a better position to compete against players like Apple, Google and Facebook who will continue to encroach into the telecoms domain and look to own the customers on their respective platforms.

REFERENCES & SOURCES

1. Mobile Application Business Models – ABI Research
2. HTML5 for Mobile Devices and Tablets – ABI Research
3. Mobile App Stores, Future Business Models & Ecosystem Analysis –  Juniper Research
4. AT&T announces API Platform – AT&T
5. Telefónica and Mozilla pioneer first Open Web Devices – Telefonica
6. Mobile Developer Survey – IDC / Appcelerator
7. HTML5 – A great mobile internet catalyst – Momac
8. The App Frenzy, just a short-lived fad – AT Kearney
9. HTML5 – The path to cross-platform mobile development – Accenture

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