A $300bn Market for Telco-APIs

How much of the opportunity will mobile network operators capture? 

The business opportunity to access mobile network capabilities via application programming interfaces (APIs was one of the top stories at MWC 2024. Valued at $300 billion by McKinsey, the management consultancy, the scale of opportunity positions APIs as a vehicle to move the industry’s revenue dial materially.

However, the opportunity will be complex to realize. From this GSMA webinar, it was evident that business model and monetization frameworks are a work in progress. In addition, market realization depends on a multi-party service delivery chain; critical elements to the telco API ecosystem reside outside of mobile network operators’ (MNOs) control. Finally, the mobile industry’s focus on API monetization and revenues puts the sector at risk of overlooking wider considerations and key market-development levers. 

Telco API Market Opportunity

Go back a year to MWC 2023 which is when the GSMA launched its Open Gateway initiative. The initiative set out to give developers access to a range of universal network APIs. One stated benefit from providing a single, standardized point of entry into a network is to lower the barrier to creating more compelling mobile experiences. In the MWC 2024 update, the initial scope of these APIs includes subscriber identity, location, network quality, mobile edge cloud, and payments capabilities. 

The $300bn headline figure that was used to quantify the telco API opportunity represents the upper end of a $100-300bn range that covers connectivity- and edge-computing-related revenues. This forecast is expected to materialize over a five-to-seven-year period with a composition by industry vertical as illustrated below.

The majority of the projected opportunity applies to media and entertainment applications as well as a combination of vertical sector applications that typically feature in IoT application domains. The size and composition of these data points are important to grasp if the industry is to target the maximal opportunity. McKinsey also estimated that the APIs themselves will amount to an additional $10 billion to $30 billion in mobile operator revenues. 

Business Model and Service Delivery Chain 

According to McKinsey, one of the first challenges the industry faces stems from the current market structure. AS things stand, MNOs might relinquish up to two-thirds of the value potential to other ecosystem participants. The following simplified representation of the telco API ecosystem illustrates the mobile operator challenge. It shows the north-south APIs, the focus of the initial APIs released, being exposed to channel partners and on to consumer and enterprise customers.

The benefits arising from innovative use cases, consumer convenience, and business efficiency gains, for example, are weighted to the end users in the form of consumer surplus and services provided by developers, enterprises, and service enabling channel partners. The process of converting value generated in the customer base and channels to market depends on external intermediaries to reach the MNOs. 

APIs are a technical enabler to capitalize on these opportunities. Mobile operators can amplify the potential of these APIs by making it easy to access and apply them. Since end-users want dependable and mass-market solutions, market making will inevitably take MNOs beyond the telco-to-techno journey. 

Mobile operators also need to pursue a strategy of massive scale. It will not be enough for a few operators to cultivate this market opportunity, setting out a relatively small prize for application developers to chase. A better outcome would see telco-API capabilities becoming universal and appealing to a wider base of developers and users. While the GSMA’s first crop of APIs focuses on consumer applications, future extensions are likely to service enterprise needs and IoT use cases which exhibit quite different requirements. Compared to an individual’s smartphone, for example, IoT devices are deployed in batches and will call for APIs that can handle remote management of constrained devices and group handling. IoT devices that are constrained in terms of processing power and storage memory can also benefit from offloading processing activities to network functions. This expands the scope of API opportunities for MNOs to offer. 

In addition to standardizing APIs in the north-south direction (up-and-down the service delivery chain), universality would also take the form of a horizontal capability. In effect, the industry could reposition its role to providing a multi-sided, horizontal platform for the API-enabled economy through standardized interoperability in the east-west direction. The GSMA published guidelines on this topic after MWC 2023 but seems not to have featured the horizontal API capabilities in its 2024 promotions. 

Industry APIs or Cross-Industry Platform? 

McKinsey’s telco API market study proposes a roadmap for industry change to capitalize on API revenue opportunities. Might there be another way to approach the market if the emphasis shifts from APIs to a horizontal, cross-industry platform? The field of platform strategy provides a few pointers, beginning with this definition of value creation in platform businesses. Value creation results from dynamic interactions between different resources, components, processes, and autonomous actors, most of which reside outside the focus of a platform provider and its hierarchy of control. This description applies to the simplified ecosystem illustrated above. 

According to research from the World Economic Forum (WEF), the first pointer in making a platform business model work is the concept of the inverted firm. This arises in situations where a platform organization seeks to grow and orchestrate external resources. It involves harnessing external resources and labor to shift production from inside the firm to outside it. One challenge is to switch from managing vertical integration to open orchestration. Another is the shift from managing resources under a telco manager’s control to resources that their eco-system partners must volunteer. 

A second pointer applies to ecosystem governance because of the importance of convincing partners that they are engaging with an open architecture with rules designed to facilitate interactions. A rise in the number of interactions is proof that the platform is being used. It also indicates that network effects will drive platform scale which increases a system’s appeal to users and developers. 

The third pointer applies to the relative prioritization of revenue monetization over value creation strategies. According to the WEF study, the emphasis should begin with ideas to create and share value. Too early the emphasis on revenue generation puts friction into initiatives intended to drive third-party engagement because, without that external engagement, a platform has no value to monetize. 

With considerable technical and testing work completed, the GSMA’s Open Gateway participants are in the initial stages of developing the telco-API market. There is more to do in terms of experimentation, market testing and strategic market development. Framing the challenge with a ’big-picture’ perspective will be critical for the industry to evolve beyond its telco-connectivity business model. It will determine whether success is shaped by digital platform strategies and results measured in the hundreds of billions of dollars.