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Microsoft Gives Telefónica an Apps Edge

Ray Le Maistre
LR Mobile News Analysis
Ray Le Maistre, Editor-in-chief

Telefónica SA (NYSE: TEF) has teamed up with Microsoft Corp. (Nasdaq: MSFT) to offer 6 million .NET applications developers what they believe is an easy and affordable route to the international operator's mobile customer base. (See Telefonica, Microsoft Team Up.)

The partnership, if successful, could create a de facto model for operator/developer relationships as all parties in the chain -- Telefónica, Microsoft, the developers and the mobile customers -- stand to gain in some way. And it's clear, from developers that attended a press conference in London this morning, that the model proposed by Telefónica and Microsoft is a significant improvement on previous efforts from the telecom sector.

Here's how it works. Telefónica's BlueVia unit provides .NET developers with a software development kit (SDK) optimized for use with Microsoft’s Visual Studio development environment and the software giant's Azure cloud services platform. That SDK includes application programming interfaces (APIs) to Telefónica's network resources (currently its messaging platforms). This allows developers to build applications that utilize the mobile giant's network capabilities, as Telefónica outlined in February when it unveiled its BlueVia initiative. (See Telefonica Shows Developers the Money .)

For its part, Microsoft provides .NET development support and, if an application is accepted by Telefónica, hosts the application on its Azure cloud services platform for a recurring entry-level fee that grows only if the applications becomes successful and requires more capacity and support. Microsoft also provides additional support for developers targeting Windows Mobile-based devices and other Microsoft platforms, such as the Xbox, though the applications can be developed for use on multiple mobile device platforms.

For the developers, life is made as simple and easy as possible, with the prospect of recurring revenues if an application becomes successful. There are no up-front costs to use the BlueVia SDK; Instead the two parties forge a revenue-sharing deal that results in the developer taking, for example, 10 percent of any messaging-related revenues generated by the use of the service.

So as a service becomes more popular, Telefónica and the developer both see their revenues grow. Microsoft also benefits from popular services, as while the cost to the developer for being hosted on Microsoft's Azure cloud services platform starts at a low entry point, it grows as an application becomes more popular and requires more capacity to meet demand.

The idea is to encourage developers to create new services that utilize Telefónica's network capabilities, rather than developing a one-time application that is paid for and downloaded once. By building an application that, for example, makes use of the operator's text messaging platform -- such as the secure, location-based taxi-booking service in London called Taxistop -- revenues for both the operator and developer grow each time the application is used.

To date, the perception of telcos by the developers has been "very negative," noted the head of BlueVia José Valles, because the developers have been treated as potential sources of revenue (through charges for use of SDKs). This model, he said, is different, as it treats developers as partners for new revenue growth.

Currently, applications developed through this partnership can be offered by Telefónica's mobile operations in Spain, the U.K., Mexico and Argentina, covering about 80 million mobile subscribers in total. By the end of the year, the BlueVia team, which built its SDK and exposes its network assets using a service delivery platform developed with Huawei, aims to have extended that to Telefónica's nine largest markets that serve more than 200 million mobile users.

Of course, any applications developed will be available only to Telefónica customers, therefore making it a limited market. And the benefits of this partnership are targeted specifically at .NET developers. Microsoft says it's prepared to host applications developed using other platforms such as Java, though this sounded more like lip service than an olive branch.

Why this matters
Despite its limitations, the basis of this partnership could prove groundbreaking in the ongoing development of relationships between mobile operators and application developers.

According to developers that have already made use of the BlueVia and Microsoft assets, Telefónica is leading the way in terms of providing an attractive environment for the applications community, because it's not demanding money up front for access to its network resource APIs. In addition, this model provides the potential for recurring revenues rather than one-time payments for application downloads.

For Telefónica it provides extended access to the developer community and the opportunity to cultivate a reputation as a company that's looking to work with and help developers rather than exploit them. And if the model works, it could lead to data service growth and customer "stickiness."

For Microsoft it's an opportunity to get even closer to Telefónica and to further develop its Azure platform in terms of use and revenues. It's also an opportunity to enhance its reputation among the telecom operator community. BlueVia's Valles told Light Reading that Microsoft's Communications Sector team had been "very easy to work with. It has changed. Microsoft has lost the arrogance it used to have."

And for the mobile market in general it may point the way toward a model that can help operators engage more quickly with developers following years of frustration.

For more
Operators have been trying to figure out how to broker a meaningful relationship with applications developers for some time.

— Ray Le Maistre, International Managing Editor, Light Reading

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User Rank: Light Beer
12/5/2012 | 5:09:17 PM
re: Microsoft Gives Telefónica an Apps Edge

A comment worth remembering... even if it does only pertain to Microsoft's Communications Sector.

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