Game over? Insert extra credit to continue

When two incredible things have happened in the mobile phone industry it has given rise to a third. Can the mobile phone operators rise to the challenge or will they let their last chance to make money from apps disappear?

The Nokia Lumia has proved to be an excellent phone. I’d long given up on Windows mobile, in truth I’d been a nay-sayer from the beginning. I’d kept the faith with Nokia but felt like I was a lone voice. The marriage of Nokia and Microsoft seemed as secure as Kim Kardashian and Ashley Cole.

But not only has it worked, it seems like they have a hit on their hands. Reviewers don’t just like the Lumia, they love it. It’s not like the N9, the kind of phone they heap praise on and then say in the last paragraph “but buy an iPhone instead”. I bet the PR company struggles to get review phones back because those lent them are actually using them.

Being a brilliant phone isn’t the Lumia’s trump card. To be honest when it was announced at the start of this year no-one knew that it was going to be any good. Or at least well received. The ace up the sleeve is the deals with operators. The mobile phone networks buy the vast majority of the handsets sold. SIM-free phones are almost unheard of in America. Nokia and Microsoft attacked Apple and Google at their weak points, their disintermediation of the operator. Time was when no operator would tolerate side loading, and downloading through anything other than their own portal was deeply frowned upon. Then Apple came along and made a fortune from apps and it looked like game over for operator content sales. Windows Mobile and Nokia exploited this to give them a bonus life and make their proposition different: operator friendly. At Mobile World Congress Elop and Balmer touted more than 100 operator billing arrangements. You could buy your Windows Mobile apps and pay through your phone bill. A lifeline for the operator content play. And this is why you’d find your a Nokia phone in your phone shop’s stocking this Christmas. The Nokia Windows Phone wasn’t supposed to be a consumer pull proposition – Nokia’s home territory, but operator push. They would buy the phones, offer subsidies and promote them as the upgrade of choice because unlike the Apple and Android offerings there was money in the downloads. All the operators need to do now is not screw it up again.

The operators need to look very carefully at what went wrong with apps before and not do that. There are some things they will cite. The first is the quality of the device. A good phone, where the apps run well makes for happy customers and developers. Then they will cite the quality of the games. Then they will talk about the shopping experience and how well iTunes works. Get these things right and the virtual tills will be ringing.

It’s all looking good. The device we know is great. There is plenty of scope for good apps. Games programmers are egotistical and want their code to shine. Building a rubbish game in java is beneath their art. It’s why most of the good stuff on Android resorts to libraries, outside the Dalvik sandbox. All iPhone games are written in C. It’s also why Blackberry games are so far behind the curve. Compare EA’s Monopoly on the iPhone with that on the Blackberry and they are leagues apart.

Under Windows Mobile there is plenty of scope for great apps on a stunning screen. The tools are good too and no-one is better at courting developers than Microsoft. But it could, and probably will, all go wrong for one simple reason.

Money.

The lesson the operators have not learnt is how to encourage the ecosystem with margin. They should have seen it before iPhone with iMode, the Japanese ecosystem which was booming a decade ago. This did many of the things we consider “wrong” with operator led app stores and yet NTT DoCoMo and the games developers made a fortune. It was so successful, O2 tried to bring it to Europe and commissioned some European iMode phones. Why it failed is the lesson that has to be learned this time around.

Money.

The difference between iMode Japan and iMode Europe was margin. While NTT DoCoMo charges a margin of 18% the European operators charge far more. I worked on a project where the operator wanted 45% and for me to use an aggregator who charged 15% plus £2000 for testing. Any decent app has to cost £10,000 of coders time, so before you factor in overheads and marketing that’s £12,000 that has to be earned to break even. Selling it at £1 a copy you are looking at 30,000 copies. While we broke even the operator made £13,500. The easy way around this is to compromise on the quality of the app. Something like a fart app costs next to nothing to build and so is far less risky. It then re-enforces the operators view that developers are making lots for no effort and their margin is fair. The people who lose out are the users. When Apple came in with a 30% charge for the cost of reaching the market the developers jumped at it. Half the overhead was a massive saving, you could easily afford to put that into better games. It wasn’t the only factor of course but iMode had already demonstrated that it was hugely significant.

So the operators are at a cross-roads. Will they build a model where they charge 15-20% and beat Apple at their own game, or will they meet Apple at 30%, which won’t lure developers away but will ensure the Windows Mobile platform stays in the game as a third way. Or will they persist in charging more than Apple and kill operator billed apps forever?

Simon Rockman blogs about phones for older users and those with impairments at Fuss Free Phones .