Open Source Business Models for Mobile Computing
This article aims to examine and analyze the strategic business models for open-source applications in mobile computing. It should at the end give an insight into how open source publishers such as Android generates revenue through various business models and forms.
The article is divided into 2 parts; part 1 described the general overview of the open-source platform while part 2 will explore the models and approach Android platform operates and run its day-day activities. A little bit of comparison with respect to other open source platform will also be established somehow.
Introduction to Open Source Business Model
A business model describes the set of logic of how an organization creates, delivers and captures revenue. A business model could also be used to give information about the core of a business, which includes what is offered, the strategies, infrastructure, organizational structure policies and the process of operation of a business organization. In general giving a clear picture of a business organization. Therefore a business model is what basically describes a business organizations means or ways to give value to its customers, get the customer to pay for these value and make profits for the organization with these values. Generally, it can be said that anything that involves the day-to-day operation of a business organization is part of the company’s business model.
Chesbrough and Rosenbloom specifies six function of a business model as:
To articulate the value proposition
To identify a market segment
To define the structure of the firm’s value chain
To specify the revenue generation mechanisms
To describe the position of the firm with the value network
To formulate the competitive strategy
How then do open source companies make revenue? It is obvious such business organizations may not be able to make money directly from its proprietary products; it is also untrue that they don’t generate income. Open source business model mostly depend on commercial revenue instead of product revenue. Value added services like system support; system integration tutorials etc. are examples of sources of revenue generation for an open source business. Also the contributors of open source development contribute greatly in the area of research and development thereby saving the organization cost on research and development. Another important point to note is that asides the monetary revenue, an open source business model also allows for self-marketing. Since products are released for free, open source companies with good products are able to generate high reputation, which translates to a huge market share and presence.
Android Business Model
Since the launch of Android in 2007, the business model surrounding the open source platform for smartphones has been ambiguous. Though it is known that Google does not build product around a specified business model, in 2010, the CEO of Goggle Eric Schmidt was questioned if the Android have business model for the Android platform and he said “trust me we do” and also asked if the revenue was enough to support the project and he said “ Trust me that revenue is large enough to pay for all the Android activities and a whole bunch more”.
Google Android operates on an open source business model, and as described in the introduction of a business model section above, they don’t make revenue from products (that is its OS and application). The following section below describes the Android Business Model based on the following functions; customer segment, value proposition, distribution channels, cost structure, revenue streams, customer relationship and partners.
Who are they selling to? Who are they interacting with? From observation, the target customer segment for Google android are; users of cheap devices that would want to add value to such device by using applications, users of other devices but wish to compete with the other platform especially the Apple platform, general business smartphone users and majorly application developers (geeks). Apple is proprietary whereby they use the approach of integrating hardware, software and services for its customer, Google is known to be more open. Being an open source platform, the users are not paying for the platform but this is leveraged in ways like a user serves as a reference for the product. A large number of users help to guarantee their stability in the market. Sherman 2010 reported that “ Android sends out 60,000 units everyday and after four quarters on the market as of February 2010, they had managed to sell 5.4million phones per quarter this is in the same amount of time that the iPhone was first released and sold only 2.3million in its best quarter”. Also, (The NPD Group, 2010) reported that Based on unit sale, Android is second with 28% of the market as against IOS 21%. Therefore it could also be seen that Android customers are basically those who want value for their money. Some benefits of it to the users include; being open source, the products are constantly updated; there is a wide selection of applications that are downloadable and access to Google applications. Android-based devices are also said to be compact and less awkward and complicated to hold and use (Szpren, 2010) it is generally user friendly.
For a developer, Android allows developers access to free source code which allows them to reuse, modify and redistribute for free. Android agreement with developers also allows that product be distributed for free or for a fee there by giving flexibility to the developers to make some money on developed applications. This method encourages many developers to join the platform thereby increasing the number of application supported by Android and overall increase the market presence of the platform.
Although Symbian as reported by Gartner a technology firm, still holds about 41% OS market share, the outlook shows Symbian falling to 30.2% by the end of the year.
As a comparison to user target between Android and Symbian, which is also an open source platform, Android users can access thousands of applications, which increase the user experience rating for mobile users, while Symbian offers or allows for the use of variety of third party applications.
What does Android have to offer? What are the reasons users and developers will choose Android? Basically Android has a proposition to offer instant application search and remote installation, a robust open source platform that can run on non-proprietary hardware, cost free operating system to mobile device manufacturers and a wide eco friendly development environment.
For the user, Android allows the user to control the device i.e. the user dominates the experience of the device. The ability of a user to choose what applications to use rather that a closes system where the decision is being made by either the mobile carrier or the OEM (original equipment manufacturer). Androids openness to its users extends more than just access to data it also offers that applications can be customized or totally replace for instance a user can replace the messaging application with another which could be one that allows only secure messaging through his company server, or a user replaces the photo viewer with another of his choice. Furthermore, Google offers to its Android users a “customer friendly devices” as against Symbian for instance.
Overall user experience on an Android device gives an indication that Android offers its users a great user-friendly environment and satisfaction. As against the Symbian the following are extract from user experience on an Android forum (source: http://androidforums.com/android-lounge/41965-android-vs-symbian-what-differences-pros-cons.html):
“playing a game and listening to music? haha, thats almost impossible for nokia devices.
UI sucks, no proper way to read pdf files, one software called alternate reader is probably the best but even that is so slow, it take 10-15 seconds to move from one page to another. The battery is sooo poor its impossible to use wifi for more than 2 hours without
the device switching itself off and the heating issue is something big”.
“Think of it this way–for everything Symbian makes you jump through hoops and hoops of menus after sub-menus, Android lets you do in one or two long-presses. Unlike Symbian, the little green guy was designed from the start for a touch-based UI, not keypads. Everything is smoother, more efficient, more aesthetically pleasing and technically superior. No more digging through the steaming pile that is the Ovi Store; the Android market has its faults but compared to Ovi, it’s a godsend. Everything related to Google services syncs seamlessly….”.
For developers, Android allows that developers have control over the API on the device. Also as against the Java ME platform of proposition of “write once run anywhere” Android gives its developers the proposition of “write once run everywhere”. When a developer implements a Java standard, the application must be submitted for a compatibility test for every particular brand of device they wish to run the application. This results to a situation whereby an application is solely dependent on devices that support the API. Android uses only a subset of Java ME API, which compiles into something else other than a Java byte code. Therefore because Android is neither Java ME nor SE, it establishes that rigid standardization of Java is not of utmost important in the open source platform.
Android being an open source platform offers developers the basic development tools and SDK for development for free. Plug-ins for Android project development too is available for IDEs likes Eclipse and also available in Linux, Mac and Windows environments. Google also provides to its developers core services such as access to Google Maps for location information, messaging service for peer – to – peer communication, which is not available on platforms such as Symbian. Android offers to its developers a set of low-level APIs for direct access to hardware such as Wi-Fi and Bluetooth that most platforms don not allow.
Lastly, Android offers its developers a considerable good security model that does not permit applications to remotely add new features without the users permission this helps prevent malware and guarantees safety for both the user and the developer
Distribution and marketing are of utmost importance in increasing the market presence of a product or a company and hence increases the profit of the company too and in order to achieve this a company or product has to develop or have a good and an appropriate marketing and distribution model.
Distribution channels are path through which goods and services are transferred form production to consumption (Mercer, 1998).
Android being an open source operating system released by Google and other members of the Open Alliance, have presence in the market via a major channel of Android based devices and other devices that have the capability of web presence. Google have been reported to spread the Android technology by not charging for the provision of Android operating system to anyone that wants it. Android is powered into 34 mobile devices (members of the open alliance) and with a large community of developers that helps improve the functionality and performance of the platform Google has been able to find a high presence in the market of mobile operating system so much that Google has been able to market and distribute Android at a vey high rate so much that the platform now hold about 29% of the mobile market presence. Record indicated that 60,000 android phones are sold each day
Android is distributed to its customers through a variety of channels, which is adopted from the Google company strategy.
Other major area of distribution that is most especially beneficial to the application developers is the Android Market. The Android market gives some level to the developer and even the user in some cases. A developer is required to pay only $ 25 registration fee to publish all his application as against publishing fee of 200 Euros being charged by the Symbian platform. With this a developer is allowed to publish or distribute applications to the end user for free or for a price. The market also allows for user to rate applications the rating is said to be used to determine the products placement on the market with higher products generally given better placement thereby increasing the chance of more distribution for the developer and overall the platform. Overall Android Market gives a considerable high freedom to the developer and application user. At present Android application store is said to be the second largest store with 19,000+ application as against the Symbian Nokia Ovi Store that a total number of 6,000+ applications (Source: Distimo)
Survey results suggest that nearly 60% of all mobile developers recently developed on Android, assuming an equal number of respondents with experience across each major platform.
According to reports of comScore, the percentage of the smart phones that are running Google’s Android have increased in the recent past from 2% to 10% which is as a result of the expansion in its distribution channel in the world market (Paley, 2006) this advancement used by goggle has helped bring a lot of profit to the company.
Lastly it is important to add a distribution channel for Android is where the network operator is involved in the distribution of the platform, network operators do not support to distribute the Symbian platform usually because the applications don’t use their bandwidth and revenue are not generated from them.
Cost structure defines the cost associated with a production of goods and services and how they are distributed throughout the production process. A cost structure is not restricted only to the finances utilized in the process it also considers the use of any type of resources that is used along the way such as labor, utilities, back end cost marketing etc.
Google’s cost of running the Android business is less than its competitors a lot less that allows Google do a lot more than its competitors. Google has constantly reduced its cost of running the Android business by running the business online and that is what makes Google powerful. Thanks to this low cost structure Google has subsidized the marketing of Android to a degree that even those platform that exist before it cannot match. An example to simply illustrate this fact is a TV advertisement of a HTC mobile device for instance; the mobile operators paying to run the advert are not just selling the operator or the device they are also selling Google Android. Also with Google’s reputation and the multitude of developers it means they can ride on the wing of low cost marketing if any. Therefore because of the above described web presence the cost associate with Android are cost on research and development which is minimized to the barest minimum level due to the number of developers on the platform as an open source platform the developers take care of the bulk of the research and development as the platform is opened to developers to improve. Therefore the major cost to run Android would be the cost of platform development and maintenance and maintaining the market and by selling ads based on the parent company model its able to make more than enough revenue to successfully maintain the market while the Symbian platform the cost structure lies between the cost of cloud services that the Symbian infrastructure rely on. Symbian foundation claims to be saving by using cloud service rather than owning their own infrastructure as oppose to Android that relies on the Google cloud services. Symbian foundation spends about $5000 a year on the whole team as oppose to owning its own infrastructure which is most likely to cost up to $50,000 to install and a yearly running cost of $10,000.
A company’s revenue is defined as the total amount of value in monetary terms realized by the company for goods sold or services rendered over a given period of time. It includes sales, interest increase and usually this is a result of the total income valued before expenditure cost is subtracted. While it is true that open source businesses do not necessarily make money directly from products most of them do make money from services. They mostly rely on services such as system integration, upgrade, support etc. as their stream of revenue. Also the financial stream strength of an open source business lies in its ability to market itself.
Google does not make any form of revenue from licensing of Android but have its revenue stream from variety of sources. Because Android is an open source platform, codes are available for use for anyone to run a mobile device at this point it is free but Google is not all that a cheerful giver!
Google’s revenue stream includes registration fee from individual developer. An Android developer is required to register to be able to distribute his product through the Android market. This is a one off payment of $25 registration fee and Google say they charge this fee to encourage higher quality products on the market.
Another revenue stream of the Android platform is the commission for sold application. Although giving such leverage to allow developers distribute their application for free and for a price but with a restriction of developers wanting to charge for an application using the specified payment processor “Google checkout”. Once a develop meets the condition, then they may begin to make revenue for themselves on applications they develop but a “transaction fee” of 30% is chargers on the sales price which is claimed is apportioned payment processor “Google check-out” and if one exist an Authorized carrier. So in my opinion a 30% on every sold application is not a bad revenue source at all since its benefits both the platform and the developer it encourages more developers to join the community and hence increase the revenue generated from the stream for both.
Lastly Google generates revenue via the Android platform from the “pay –per – click” advertising model. Using the mobile user to use the search engine on its mobile platform and through the pre installed applications. How does dis work? Also referred to as “cost – per – click” this is a method where companies pay a particular source (this case Google) to advertise for them. Payment is then charged per click either through the website or the application. In 2010 at a conference held by Google to brief investors, journalist and analysts on its financials in the third quarter of the year, it is reported that Google’s non- core business like You Tube, display advertising and mobile, Google pulled in an incredible $7,29bn in the third quarter of 2010 where Google’s Android mobile operating system helps bring in $1 billion revenue a year (Source: Android Pulling In $1 Billion Revenue This Year www.thenextweb.com). In his word, the GEO of Goggle Eric Schmidt “Android is much bigger than I could ever have hoped for. Android become a hugely profitable business for us. Search on mobile will eventually exceed that of PCs…….”
In comparison to another open source platform Symbian, its sole revenue streams are royalty, partnership and consulting. Symbian does not sell its operating system to mobile device manufacturers, but receives a royalty on each phone based on Symbian OS shipped by licensees. From Symbian OS v.7.0 onwards the royalty has been set at $7.25 per unit for the first 2 million unit shipped by a licensee and $5 per unit thereafter. This model seem good and owing to the fact that they still control the mobile market then it is a very good source of revenue. The effect to this is that record shows a drop in the market presence of Symbian, which means a drop in revenue for them. Also Symbian relies on revenue from consultation. Symbian undertakes consultancy activities to assist licensees implement Symbian OS in new handsets as such receives revenue to cover costs.
Lastly Symbian derives revenue from training activities, partner activities including the Symbian Platinum Partner Program and trade shows (source: www.allaboutsymbian.com).
Customer Relationship is the strategy or methodology and tools in which businesses manages its customers, client and prospective clients and customers. The goal is to attract new customers or users, keep the one you already have, persuade those that have left to come back (letting them know you are better) and at the same time minimize what is spent on marketing and customer service.
Since mobile open source businesses are very much dependent on device manufactures, developers and end users it is important for them to choose or have the right customer relationship model to enable them achieve the above stated reasons why customer relationship is important.
Android uses the following strategy to keep its customers and developers, events, blogs and forums SDK and Developer tools and Support.
Android customer support is basically distributed across board. It is a strategy I will term as “every man for himself”. For Android all product technical support is provided by the manufacturer of the product except for products sold under the smartphone expert brand. Although most of these products come with a support manual, which is published on the manufacture site and as well, comes in the packaging of the product itself. Asides that support is also offer to a certain level of common problems and solution on the products frequently asked question page. Also developers don’t only have to deliver good applications, they must also offer support for their product. Android makes it the sole responsibility of a developer to be responsible for the support and maintenance of their product and any complaints about the product. Developer contact information is displayed in each application detail page in the market and made available to users for customer support purposes. With a condition to down rate products for free products and up to fine of $10 for sold product, a developer is provides to the customer a good customer service.
Android provide support for the developers through a forum where developers developing Android applications using Android SDK get help with troubleshooting applications, advice on implementation and methodologies for improving application speed and user experiences. In this forum, there is a list of commonly asked questions and answers and this list is regularly updated. The Android developer site also provides information to developers where all pervious discussions across all groups, documentations and blogs are encompassed in the site. There are also a number of mailing lists powered by Google Groups that is available for discussing Android application development. Android provides to its developers the Android Market Help Forum, which is a forum where developers can ask questions or report issues relating to Android Market
Lastly Android provides technical Resources such as sample codes, Articles and tutorials to its developers. Therefore the customer relationship adopted by Android is such that Android provides support to the manufactures on issues relating the operating system and to the developers on applications; developers and device manufactures then provide support for customers (end user).
Nokia provides technical support at all level for device manufacturer, developer and customer. For the device manufacturer they offer service known as consulting to assist licensees implement Symbian OS in new handsets but this doesn’t come for free it comes with a fee. With an open growing platform like Android device manufactures will move to operating on such platform. For developers, Forum Nokia technical Support offers technical expertise to mobile developers during the application development process. It is designed to solve a specific problem or answer technical question with a fee of 170 euros per support and even a no money back guarantee if there is no solution for the support case. Such an approach will discourage developers from developing on such platform.
Business partner is defined as “a commercial entity with which another commercial entity has some form of alliance” . This alliance is usually formed to enable more benefits for the companies coming together beneficial purposes like to gain more market presence, to offer each other services that they do not offer but need to improve each others businesses. Open source companies usually because of the need to save cost most especially need to form partnership with different stakeholders in order to improve productivity and a successful running of the organization. The major partners of the Android platform are the original equipment manufacture OEMs (device manufacturer). The 34 open alliance members help contribute to the presence of the platform because Android is available to them for free thereby helping promote both the platform developer and the device manufacturer. This type of partnership is a mutual one that benefits all that are involved. Other partners include the mobile operators and the development community. It has be observed that the partnership based between Android and various mobile operators is increasing as the market presence of the platform is growing. Because of this growth more operators are willing to open up their platform for Android to run on and since Android give out of the 30% charge on every paid application to the operator, it has become a good revenue stream for this operators. Android also partners with developers, as they are the key to the development of the platform. They are the key to research and development of the platform and also add “life” to the platform with development of applications. This partnership in overall helps save cost for the platform and at the same time generates a source of revenue for the developers.
Symbian another open source platform majorly has its partnership with device manufactures and the developer community. Unlike android Symbian relationship with its partners is more rigid as device manufactures have to pay royalty on every device that the platform supports. Also the developers pay for services such as technical support and application publishing fee.