We expected this was going to open up a new level of engagement … we missed on our usage estimates“– AT&T’s Operations President John Stankey. Rewind back to 2007 when Apple, a complete newbie in the market launched the iPhone. It heralded a first in an industry which had until then been ­dictated and dominated by the whims and fancies of the operator. It was the first device manufacturer to negotiate an exclusive deal for a portion of the revenues. It was a device like no other; it was your phone, your calendar, your video player and much more. At that time, few predicted its true potential. Fast forward three years and users have downloaded over 150000 apps more than 3 billion times and counting!

This truly disruptive device served to differentiate carriers ­between those who carried the iPhone – and those who did not. Device manufacturers and operators have tried to repeatedly emulate the path of Apple in developing an entire ecosystem but have met with limited success. In addition, they now face increasing competition from web players who are aggressively pursuing the mobile space.

The paper seeks to analyze this phenomenon in more detail, ­aiming to answer the question of – how operators could position themselves to continue to play a major revenue generating role in this evolving food chain, and provide an infrastructure framework to support this development. It examines the benefits to different players in the ecosystem and provides recommendations to operators eager to exploit this new landscape.

The new face of innovation

The iPhone was the face of a new wave of ecosystem innovation. This setup had a few distinct features - the presence of a large number of application providers on one side and a large number of consumers on the other. In between was a clever intermediary who provided the platform allowing both parties to interact; for the web that role was played by the ISP. It provided the all important connectivity but was unable to offer much more to enhance its own bottom line.

This new direction of innovation was driven primarily by the device manufacturers, in this case Apple with the operator suffering lower visibility since the user identified himself with the device rather than the service provider. The iTunes store also ­served to wrest a level of consumer control, with the operator participating in the Apple store rather than owning the platform. These two phenomena now seem to be expanding to include players such as Google as a notable example. Here, a major internet player is moving towards controlling point of sale with direct internet sales of its flagship NexusOne phone. In addi­tion, the end customer identifies the device as a ‘Google’ phone rather than that from the device vendor or service provider.