The Brand is the Bundle: Strategies for the Mobile Ecosystem

Abstract:     
The current mobile ecosystem is best understood in terms of a monopolistic competition model, characterised by heterogeneous producers providing a range of differentiated products for consumers with heterogeneous preferences. Product differentiation offers producers some market power, ultimately constrained by imperfect substitutes from rivals and the threat of market entry. To achieve their goals, consumers require a mixture of products from the network, handset and application domains. Reduced search and other transaction costs are a demand-side benefit of product bundling. Producers in this market have high fixed costs and low marginal costs. High fixed costs discourage entry, which increases the market power of producers. Low marginal costs and uncorrelated customer preferences across products for individual consumers encourage producers to expand their sales using supply-side bundling. Thus there are strong supply and demand side benefits from product bundling. We argue that producers will compete in terms of differentiated bundles combining network, handset and application features, with branding as the essential strategy for bundle differentiation. Successful business strategies will require direct access to customers and information about their specific preferences. For illustration, we look at the currently apparent strategies of Google, Apple and Nokia. The mobile ecosystem is complex but not unique. Strong parallels can be drawn between the mobile ecosystem and the television ecosystem. Google appears to be following a "free to air" strategy and Apple a "pay TV" strategy in bundle differentiation. Television manufacturers are largely undifferentiated and have little market power: this may be the fate of handset manufacturers and network operators who are comparatively powerless to withstand the evolutionary development of the mobile ecosystem.

Number of Pages in PDF File: 22

Keywords: Business Ecosystem, Platform, Monopolistic Competition, Product Bundling, Heterogeneous Demand, Business Strategies, Mobile Telephony, Mobile Applications, Branding, Price Discrimination

JEL Classification: O31,O32,O33

Accepted Paper Series