In previous articles I’ve discussed the three dimensions upon which a customer pays: cash, time/attention and privacy.  As we’re seeing with Facebook and Google’s problems, society is starting to realize the value of privacy – businesses of all sizes should be even more concerned.  Google has caused significant market disruption using a very old business model of ad-support – this business model can be traced back to Egyptian / Babylonian times with sponsored tablets (not the iPad type), more recently classified adverts in the Times newspaper from a few hundred years ago, and of course today those creepy (according to the Australian Government) little text boxes advertising something you’d rather not click on.

The ad-sponsored model is very effective in disrupting many industries, enabling web service providers to come in and shake up industries from OS (Chrome OS / Android) through enterprise applications (Google Apps) and telecoms (Google Voice), to advertising and newspapers.  But nothing in life is for free, in the ad-sponsored model people pay in time / attention and privacy rather than in cash.

Operators have a business model based around the customer paying in cash, and its quite a big industry at $2T per year.  There’s an important psychology around what happens when someone pays cash for a service even if its only a few pennies, they develop expectations.  When things do not work, or are a pain to use because of annoying advertising they complain.  So an operator’s business model based on the customer pays is great ($2T per year), but it is also at risk from disruptive business models (ad-sponsored), and its limited in practice on how far it can extend into ad-support.

So getting to the point of this article, third party application / API business models for consumer; note I’m not focused on the enterprise or B2C segments, that’s another story.  Over the past couple of years I’ve been trying to persuade operators that their business model provides them with a unique opportunity to attract developers that can not be copied by the web service providers.  That is when an application stimulates revenue earning traffic the operator “shares the love,” say 5%; that’s potentially billions of dollars for developers, this wipes out anything the web service providers can offer.  So there’s no need to charge for most APIs, and in any case all the APIs offered by Google/Android, Apple/iPhone/iPad, RIM and Nokia/Symbian are for free.  So there’s simply no way operators can charge for most APIs without looking silly, the purpose of APIs is to simply to make applications easier to use.

There’s a critical point we need to consider about the importance of third party applications / content: they are value added services which have caused the terminal decline in ring-tones and games sold from operators’ portals as operators have simply not responded to the change in customers’ behavior.  It will not be long before the VAS of SMS and voice are also under attack from these third party applications.

To date no operator has adopted this approach of “sharing the love” with developers and not charging for most APIs – its not an alien concept as they do “share the love” with resellers.  Instead they continue to nickel and dime developers with API charges and reject any notion of sharing the love, hence a fundamental advantage is lost.  The clock is ticking on when third party VAS move on from ring-tones and games to something juicier.