When Apple introduced the App Store ten years ago, it became apparent to anyone paying attention that it was going to eat the network carriers’ lunch. Up until then, the carriers ruled the mobile ecosystem, providing the pipes, content, and services consumers were looking for. Carriers offered their own stores to download ringtones, themes, apps, and games. But Apple didn’t work with carriers (save for the iPhone exclusivity deal) because it didn’t need to. Its revolutionary iPhone and app ecosystem were clearly the future, and carriers were playing Apple’s game now.
Carriers, then, were relegated to their worst fear: becoming “dumb pipes” that simply delivered content to its customers instead of controlling it all. At first, many didn’t see what a huge paradigm shift the Apple App Store was for the mobile industry. “Apple runs its App Store in a closed environment, not sharing the revenue with AT&T. Since the average monthly phone bill for an iPhone user is $95.34 and the average bill for other users is $59.59, AT&T probably isn’t too worried about this,” wrote James Quintana Pearce for GigaOm in 2009.
Those who underestimated the power of the App Store didn’t understand that not only did users need to go to the App Store to find apps and content, but Apple managed to turn it into a destination that consumers wanted to visit. iPhone users constantly peruse the App Store to find apps that can unlock more potential for their smartphones. The simple, universal value proposition? Whatever you want your iPhone to do, there’s an app for that.
Even as the App Store accelerated into this brave new future, the carriers remained in neutral. While networks still wanted to dictate user experience by throttling access (an approach initially defeated by net neutrality), Apple saw the wisdom of instead focusing on the end products of content and apps, rather than the pipe. Today, carriers would love to be content makers as well as content distributors: T-Mobile bundles unlimited Netflix streaming into their service, and Sprint gives Hulu away. We’ve also seen former ISPs snap up media companies, like Verizon’s purchase of Yahoo and Comcast merging with NBC Universal.
But this wasn’t yet the case in 2012. “Customers at large only want one thing: a dumb pipe,” wrote Trevor Gilbert for Pando. “The argument is that carriers have a responsibility to carry data to and fro, with no interference, just like energy and water utilities.” The “connectivity as a basic service” mantra Gilbert refers to caught on, though the idea of mobility as a public utility has yet to take root in most parts of the world.
Either way, a wave of OTT content and services, in-app transactions, P2P payments, and mobile shopping soon began to eat away at carriers’ market territory. Just three years after the App Store launched, the global telecom industry was losing 4.5% ARPU per year to apps like Skype, WhatsApp, and Facebook Messenger, much to the benefit of consumers.
Still, the networks fought back by exploring new ways to work with their rivals. Both Apple and Google Play support carrier billing as an option. “Additionally, many top social, gaming, and security segment brands have started to use carrier billing,” wrote Gerri Kodres of Fortumo in an op-ed for LightReading.com.
Today, while the networks’ share of the mobile pie is growing from carrier billing, streaming services, mobile payments, and digital wallet top-ups, they still lag behind. As a result, the elimination of net neutrality is core to their strategy to take back control and remain relevant.
Even in the midst of the just-approved Time Warner merger, which will cement the company’s footprint in the crucial realm of mobile content, AT&T is reporting consolidated revenues of $38 billion, up 13x from when the App Store came to be. The Sprint and T-Mobile merger promises them fierce competition with Verizon digging in as well. Comparatively, in the same time frame, the App Store has run from zero in 2009 to about $7 billion in 2010 to about $60 billion in 2017 (about 2x Google Play).
That said, is it really fair to still apply the “dumb” label to networks today? Have the world’s largest carriers actually been reduced to the dumb pipes consumers wanted? Perhaps not—the argument is getting tougher to make from the consumer point of view. The combination of relaxed anti-competition regulation and the death of net neutrality has huge implications for the mobile ecosystem and beyond. With networks consolidating power via acquisitions of media companies and prioritizing their own services at will, consumers may soon be faced with a mobile industry that must bow to the power of carriers.
Companies like Alphabet (Google’s parent company) and Netflix are at risk of having their services throttled in the near future. Networks have proven time and time again that if they can bully companies into paying to play, they will. Alphabet likely saw this threat coming—it has created its own “dumb pipes”: Google Fiber and Project Fi, though they are still far from becoming a threat to US carriers.
So no, carriers are no longer the “dumb pipes” consumers hoped they would be. They’ve now begun morphing into the giant monopolies of old and if they continue going unchecked, it could lead to a dearth of innovation that will affect a multitude of industries for years to come.
“One sad note though is how much the world of video is increasingly closed to startups,” writes Danny Crichton for TechCrunch. “When companies like Netflix, which today closed with a market cap of almost $158 billion, can’t necessarily get enough negotiating power to ensure that consumers have direct access to them, no startup can ever hope to compete.”
While the App Store may have wrestled away control from carriers over the last decade, we’re at a point now where the carriers are more powerful than ever. And that’s not something Apple can save us from this time.
About Katie Jansen
Katie is Chief Marketing Officer at AppLovin, a comprehensive platform where app developers of all sizes can connect with their ideal consumers and get discovered. Business Insider named Katie one of the most powerful women in mobile advertising in 2014 and 2015.
Before joining AppLovin, Katie founded the boutique marketing agency Igniting Solutions and is a board member today while it continues operation. Prior to founding Igniting Solutions, Katie was VP of Marketing at PlayFirst, a mobile gaming publisher acquired by Glu in May of 2014.
In addition to her work at AppLovin, Katie is an advocate for women in tech and workplace equality. She serves as marketing adviser to organizations including Women 2.0 and Women in Wireless, and mentors other women in tech. Katie also works with organizations such as No Kid Hungry and Restoration Missions.