But what caught our attention were remarks towards the end regarding relationships between content providers and platforms. The article suggests that, as telcos have demanded much higher revenue share than other platform providers, such as Google and Apple, so content owners (and application developers) have migrated away from telcos to OTT application stores. This suggestion is, presumably, based on the well-known 70/30 revenue share model, but it is not universal. By the way, it’s worth noting that YouTube demands 45% of advertising revenue from content, according to the Financial Times.

In any event, this reminded us very much of some research conducted by our old partners Moriana and which we helped present at a couple of conferences in 2009 / 2010. Essentially, Moriana looked at the global net revenue that would accrue to Apple based on a number of factors:

• Estimated number of application downloads
• Known revenue share model
• Estimated average price per download
• Proportion of paid for downloads

It was a fairly simple matter to show that the revenue passed to Apple was a relatively small value in comparison to overall revenue captured from handset, notwithstanding likely future growth. Apple benefits from scale – the mobile market is so fragmented that we thought it unlikely that any one operator or operator group can achieve similar scale. The implication was that it was pointless for telcos to invest in similar platforms and marketplaces in general, as the rewards would probably not justify the investment.

Users would gravitate toward the larger marketplaces – rather like bypassing the corner shop for the shiny hypermarket or mall down the road. You might want people to use the high street butcher instead of the supermarket, but you can’t force everyone to do so.

Ovum suggests that a failure to innovate in terms of business relationships (demanding too high a proportion of revenue, for example) was the real driver that pushed application developers into the Google and Apple communities. The conclusion, however, remains the same: it’s pointless trying to build consumer facing application platforms. They already exist and already have huge, perhaps irreversible traction.

The consumer battle for mobile applications is lost: it’s hard to see any way in which telcos can recapture lost ground. In any event, as Ovum points out, most OTT applications are free – or as next to free as makes no odds, so why would telcos want to scrap over what could only be considered as marginal revenue? However, there are numerous other areas in which telcos can display leadership and leverage their innovation capabilities.

Telcos have to focus on a limited number of things. First, delivering the best network experience possible – for all their customers and, potentially, for OTT partners, if such partnerships can really be made to bear fruit. Providing the best consumer network experience to enable them to enjoy the content, applications and benefits of increased mobile data rates is (or should be) something MNOs can deliver, but which is beyond the control of OTT providers.

Secondly, MNOs need to innovate in terms of tariffs, packages, upgrade and purchasing capabilities, enabled by smart policies and real-time service capabilities. This is a key area – delivering on service promises needs end-to-end capabilities and only MNOs can achieve this.

Thirdly, they need to focus any application innovation efforts on customers that are actually willing to pay – and that means MNC, enterprise and SME users. These customers are willing to pay for service guarantees, additional capabilities and features, because they know their businesses depend on them and they increasingly want to access key business services while mobile.

In the end, it’s not that telcos cannot innovate – they clearly can – but that they may be trying to do too much and failing to focus on what they can more easily deliver. They may have been distracted by OTT activities. Trying to be the best content provider or provide the best consumer applications is a side issue to the real business of making the network function correctly and addressing segments with more potential to generate revenue. The battle for consumer application stores is largely over – what matters is choosing areas in which telcos have a clear advantage and leveraging their innovation to yield competitive advantage. There remain many promising areas in which they can achieve this.