Although the near-insatiable demand for mobile applications has helped line the pockets of developers and content distributors, thus far, it has generated very little revenue for service providers. In fact, consumers' addiction to mobile applications has so far provided nothing but trouble for service providers, who are dealing with greater cost and capacity challenges than at any previous time.

With the market for mobile applications only expected to get bigger, the time is now for service providers to get in the game, partner with developers and begin utilizing their application programming interfaces (APIs) as a product development tool. Sitting on the sidelines and watching others take advantage of the mobile app market is no longer an option.

Service providers can employ a number of new strategies to carve out a larger percentage of mobile data revenues, which are expected to exceed $550 billion by 2015. Several of these strategies were laid out in a recent Alcatel-Lucent (News - Alert) (ALU) white paper, Monetizing Mobile Applications.

Alcatel-Lucent believes that the real key for service providers looking to get in the app game is to open up their APIs and publish their network assets for trusted app developers. This can help cut their app development cycle from as long as 18 months to as short as six weeks. Opening up APIs can also help entice developers to jump onboard and create more diverse and robust applications.

In addition, service providers should build a new ecosystem for apps with internal developers, strategic partners and independent app makers in mind, says ALU.

There are three key areas where APIs can be used for monetization:

• Head: Refers to high-value internal apps and services that either address the mass market or a niche market. The intent for the head will be to maximize return on investment.
• Shoulder: Refers to applications that allow network providers and their trusted partners to address vertical industry opportunities. The shoulder will help service providers move up the value chain. 
• Long Tail: Addresses mass market applications by making network capabilities easily accessible for independent Web, mobile and “widget” developers. The long tail provides opportunities to expand into other markets.

Alcatel-Lucent stresses that all mobile applications are not created equal, and that there are large differences between the revenue that can be created from the head, the shoulder and the long tail. This is why service providers should concentrate their initial efforts on internal app developers, then strategic partners, followed by long tail developers.

"The majority of revenue is going to come from apps built by internal developers and by strategic partners in key verticals," says Alcatel. It is also safer to first monetize apps internally and with trusted partners.

The Head

Monetizing the head through internal apps like multi-screen video and new mobile commerce services can be done in a variety of ways. Service providers can offer them as part of a bundle package – where consumers can combine them as part of a more expensive data plan – or through subscription services. The latter option works better for niche applications.

Yet another option is a two-sided business model where the service provider and a partner offer co-branded content through either of the two aforementioned plans.

The Shoulder

One successful way of tapping into the app market is by engaging with strategic partners to offer their customers value-added services. This can help service providers move up the value chain and create additional revenue.

To accomplish this goal, service providers need to streamline their development process. Ways to do this include deploying a software-as-a-service infrastructure to reduce development time and speed innovation; eliminating custom development to reduce costs and create greater efficiencies; and employing a wide range of business models, from pay-per-use and tiered user volume to flat monthly fees.

The Long Tail

Independent developers may not provide the same revenue generating opportunities as internal developers, but they are still crucial to any app store. Third-party apps attract new customers and create new value by bringing users closer to higher margin apps.

The key to monetizing the long tail is a low-touch strategy that stresses simplicity, flexibility and speed. To attract third party developers, service providers need easy-to-use, standardized APIs, says Alcatel. Creating simple usage-based pricing models and crystal-clear documentation are also helpful ways to attract third-party developers.

Alcatel-Lucent's Application Enablement Strategy provides network service providers with all the tools to build an app ecosystem, implement new business models and reach new markets.

Beecher Tuttle is a TMCnet contributor. He has extensive experience writing and editing for print publications and online news websites. He has specialized in a variety of industries, including health care technology, politics and education. To read more of his articles, please visit his columnist page.

Edited by Peter Bernstein