WHEN RORY DONOVAN went to college last fall, his father, AT&T chief technology officer John Donovan, wanted to check up on him. Sure enough, there was an app for that. Donovan and his network even helped popularize it. FamilyMap is a tracking service on Donovan's smartphone that shows the real-time locations of everyone on his family plan. Now, if Rory is out late at a party, Donovan can call him up. "I say, 'What are you doing?' He usually says he's going home," Donovan says, chuckling.
FamilyMap is one of AT&T's 10 most popular apps — and a key part of Donovan's effort to hang onto customers who might be tempted to flee to Verizon, now that AT&T has lost exclusive rights to the iPhone. It was those iPhone sales that had helped AT&T dethrone Verizon, last January, as America's largest carrier — which means its victory may be short lived if the company can't find a new way to please the fickle phone crowd. The challenge is to transform "from a telephone company to a technology company," Donovan says. And the first step is to create a new wave of apps to secure customer loyalty.
AT&T hopes its apps are unique in two significant ways. First, its very best apps won't just be found in traditional app stores like Apple's or Amazon's. Instead, they'll also be built into the menu screens of many new smartphones, or offered as a highlighted special on AT&T's home page. That's because most of these apps will exploit AT&T's network — rather than being device specific, they're network specific. For instance, with FamilyMap, Donovan didn't have to wait for the app to download to his phone; he simply clicked a button on-screen and instantly activated the service, which costs between $9.99 and $14.99 per month. And as long as the folks he's tracking on FamilyMap are on AT&T's net, it doesn't matter what phone they carry.
The second way AT&T hopes to distinguish itself is by creating great relationships with app developers. Donovan understands startups from his years protecting them as EVP of web-commerce security company VeriSign. When he joined AT&T in 2008, he knew that success in the appiverse hinged on spotting new ideas and bringing them to market quickly. Then, developers might flock AT&T's way, giving the network first shot at the next Angry Birds or Foursquare. "If we just keep having things first, first, first, then the first trip people will make is into our stores," he says.
So Donovan created his own version of a Silicon Valley incubator. First, he tapped assistant VP Sanjay Macwan to head an internal tech council that thinks up ways to make the company more nimble. As a result, last year, the company held 150 "speed dates" — essentially 15-minute fast-pitch sessions with VC-backed businesses. He also launched a crowdsourcing network inside the company, dubbed TIP, or the Innovation Pipeline. More than 35,000 of the company's 265,000 global employees are active. Retail store clerks and middle managers can offer up app ideas and meet collaborators willing to help refine them. The best are tapped for funding, with everyone getting a share of the eventual profits. Additionally, Donovan spent $70 million on three new innovation centers in Palo Alto; Plano, Texas; and Ra'anana, Israel, where new partners and AT&T techs work side by side to speed development. And the company has invested in tools to make life easier for developers: Two outfits — Apigee and Sencha — are launching an AT&T-specific mobile development API and a service developer kit, respectively. Donovan says that it used to take two years to bring a new idea to market, versus just six months now.
Developers like the change. "They went to market fast," says Location Labs CEO Tasso Roumeliotis, whose company created FamilyMap. "We launched at warp speed." Says Matt Murphy of VC firm Kleiner Perkins: "Before it was us pushing to get meetings; now it's them pulling us in."
AT&T now has 55 projects in the works with developers. And sometimes it even seeks out ready-made plug-ins: In April, it partnered with a startup called Placecast to launch ShopAlerts, a text-based coupon notification service that sends deals to subscribers when they are within range of retailers like Kmart or other stores offering HP or SC Johnson products. Later this year, AT&T will launch GeoCast, which powers, among other things, a game in which players chuck virtual water balloons at each other by beaming close-range signals from handset to handset. GeoCast is not just a time waster; the company hopes to market the core technology to emergency responders who could build a virtual map of victim locations after an earthquake. (Imagine "Your rescue. Delivered" — if you're on the network.) Also forthcoming is SmartCell, a service that will do away with company execs carrying multiple phone holsters by syncing two phone lines — your work and personal service — to a single handset. And then there's the app every AT&T subscriber will want — it helps you decipher your bill!
That might not seem like much compared with the 350,000-plus offerings at Apple's App Store. And it's not as if Verizon is idly standing by. Its own innovation center, in Waltham, Massachusetts, is focused on forging all kinds of mobile connections, including those to vehicles, medical devices, and home appliances. In March 2010, Verizon launched V Cast, its Android-only marketplace, with a veritable highlight reel of fun stuff.
Donovan's gambit isn't to corner the ever-changing app market. Instead, he's betting developers will like the way AT&T makes it easy for them to blend advances in geo-location or cloud development into products that easily reach its 97.5 million wireless subscribers — no matter the device. "Will they make a lot of money on this? Probably not," says Mark Beccue, an analyst with ABI Research. Still, he applauds the effort to create a "playground" for developers. "People will say, 'I like my carrier because it does this,' " Beccue says. "That stickiness is powerful."
At the start of this year, some analysts foresaw serious trouble for AT&T, now that Verizon could sell the iPhone. For instance, Todd Rethemeier at Hudson Square Research projected that AT&T would lose 3.5 million subscribers in 2011. But when AT&T delivered first-quarter earnings in April, it upset those predictions: The company added 2 million subscribers and sold 5.5 million smartphones — including 3.6 million iPhones. All in all, it seems that Donovan's plan is on the right track. Even though he won't release the number of users who interact with AT&T's exclusive apps, he says that the people who do aren't leaving. And he hopes that bundling those services together will have the same effect across all the company's platforms. Later this year, for example, FamilyMap will be viewable on TV through AT&T's U-verse television system. Get ready, Rory. That could be some kind of reality television.
A version of this article appeared in the June 2011 issue of Fast Company magazine.