Livewire

The new App economy has created a gold rush in which everyone (ISVs and individual “mom and pop” developers) is looking to cash in. Today, there are hundreds of thousands of Apps developed by thousands of developers. The success of an application and its ability to make money in this new gold rush depends on 2 factors – adoption and customer experience differentiation.

Gone are the days when any app at random can make it to the top! As these App markets become more crowded, only the best, high quality apps that create more engagement and greater utility (or a pass time) value will eventually succeed. In my previous post, I shared my perspectives on what makes a winning recipe for an application to create differentiation, drive higher session times and longer life time as well as increase adoption.

As developers work to create apps with more functionality, more depth, and more utility, thereby driving user engagement and adoption, they need ways to monetize their App and make it worth their effort. The price of the App alone does not determine the money developers make. Consumers are still undecided about paying an “upfront cost” for an App and we see higher adoption rates for free/low-cost Apps. This being said, in order to drive more downloads and increase the revenues, we see that developers have started spending money in marketing the App or offering periodic discounts on the cost of the app.   

I wanted to share my thoughts on a few models that developers could adopt to capitalize on this gold rush. We are already seeing good traction with these models and some early adopters have been successful and have made strides with free/low-cost apps as well.

• Ad-supported App model – We have seen developers leaning towards this model more over the past 1 year. iPhone and Android Apps have already created enough traffic for Ad requests from Ad networks like AdMob and Mobclix. Some of the Apps leveraging this model have created revenues more than some of their paid counterparts. Though the per App revenues may be smaller compared to paid counterparts, this model can really help developers provide their Apps at a very low cost or for free there by attracting more downloads. This model can prove to be highly sucessful with the continued use of the apps (or the life time value per user) which will in turn depend on the engagement quotient of the app.
• Micro-Transactions Model – Imagine playing a game and you are 1 level from finish line and the only way to get to the next level is by defeating the mafia villain who stands between you and the next level. You wish if only you had that magic weapon that has the power to make your opponent disappear. Would you be interested in buying that weapon at that moment for 10 cents? I think you will!! Since gamers are intensely focused and actively involved in the gaming experience, developers should look at leveraging these “impulse buy” situations. If such innovations can be pursued, the basic game can be distributed free of cost to drive adoption and revenues can be achieved through these micro-transactions for the users to purchase additional features or to move to additional levels. This model can apply to apps in other categories beyond games as well. To support these in-app payments, billing and settlement models were a challenge earlier. But recently some of these App Stores have enabled developers to adopt this model as well.
• Promoting downloads through Viral Marketing – Developers can incorporate viral marketing and recommendation features in their apps to capitalize on the power of social networks and propel download and adoption. These viral features can be incorporated at a generic application level or at a individual feature level (something like "did you know this", "I used this feature" type of communication with user’s network). The power of social networks can increase awareness about the apps without the developer having to spend marketing dollars.

The success for developers in this new App Store economy will purely depend on innovative adoption of these additional monetization models. Developers can create a mix of revenue streams for their Apps through a combination of one or more of the above models in addition to the traditional download pricing model.  

What are your thoughts?

Posted by Sandeep Chandrasekar Seshadri at 08:42 AM | Permalink | Comments (0) | TrackBacks (0)

Smart phone market share is growing faster than ever before. Since iPhone was introduced, there has been a sudden surge in Smart phone adoption. Every Smart Phone maker is now trying to compete with Apple’s iPhone and it’s App Store. Mobile Application Stores, though not a new concept, kicked off with renewed vigor since the introduction of Apple’s App store which has already seen 2 billion downloads just a little more than a year since launch.

I have written in this blog before about the growing consumer demand for mobile applications and the potential these App Marketplaces have for Operators and OEMs alike. Since then, selling mobile applications on devices (and attracting and crowd sourcing these applications from independent developers) has now become the primary battleground for operators and OEMs, who are all racing to catch up with the success of iPhone’s App Store. With the advent of these App stores (not to mention Independent players like Handango who have also created device or operator independent App Stores), the entire mobile industry is being reshaped and there are a variety of channels for the developers to reach out to the consumers to sell their applications. Like some called it, a new App Economy has born!!

But where are we headed with all this? I believe this proliferation of App Stores is more of a cause for concern than it is to feel good about.

From a Consumer Standpoint

This growing number of App stores will cause a lot of confusion. Where does one go for the Applications? Should the user go to his Carrier’s App store on the device or the one provided by the Device maker? Or, should one go off-deck to independent storefronts like Handango?

• Different User Experiences: All these App Stores have a different user experiences in terms of App discovery, purchase, download and billing. Choices are good but not too much of them!! The success of these App Stores will now depend on the user experience and the richness and variety of the applications they bring to the consumers.
• Different Catalogs and Price Points: The same (kind of) Apps are priced differently in different App Stores. Some Apps are available in one but not in the other. As a user if I am used to certain applications, will I get the same applications when I switch my Carrier or Device (running on a completely different OS platform). Not sure. Even if I get it, probably I may end up paying a different price than that I had paid for it in the previous App Store.

From a Developer Standpoint

There is a growing dilemma amongst developers in terms of which OS platforms and which App Stores they need to target for building their Apps. There are too many App Stores and a wide variety of OS platforms that they need to build towards. Fairly larger companies have resources to invest in and support multiple platforms and App Stores for their applications. However, smaller companies or the true independent developers cannot afford that. This tends to drive away their loyal fan following when their fans switch their carriers or devices.   

• Different Levels of Maturity: The natural path the developers ought to take is that of the App Store that gives them a larger base of consumers for them to take their Apps to. But each App Store is in different stages of maturity. Even though Apple’s App Store currently has the largest target base and is totally matured, other App Stores that have launched more recently has the potential to grow bigger due to the already wide spread device base or customer base they own (ex: Nokia Ovi Store or a Verizon Wireless VCAST App Store). More over, with matured App Stores, the developers will need to compete with more number of Apps than the newer ones. But can they be assured of quicker success if they go behind newer ones?
• Different Operational models: Most of these App stores have different operational models in terms of the revenue split, application distribution, settlement processes and also in terms of the reporting mechanisms. Adding to the complexity is the fact that some of these App Stores are targeted at a wide variety of devices (unlike Apple’s App Store which only targets 2 devices – iPods and iPhones).
• Need for adequate information: Even the download numbers reported by different App Stores can be misleading to the developers. They need to be cognizant of App Store’s ratio of Paid vs Free Apps and how much of Paid Apps (which means revenues) contribute to these download numbers that are reported.

This proliferation of Application Marketplaces is risking the creation of a major fragmentation in the Mobile Applications space. This phenomenon also runs the risk of pushing Operators more towards becoming “data pipes” than before.

Is this phenomenon doing more bad than good? Is this fragmentation risking the whole business model? Is there a need for the Operators and OEMs to come together to create a “common” platform for a “unified” App Store”?

I would like to hear your thoughts.

Posted by Sandeep Chandrasekar Seshadri at 07:36 AM | Permalink | Comments (6) | TrackBacks (0)

The Application Marketplace phenomenon has spread like wild fire since the introduction of Apple’s App Store. Since then, it has caught the attention of almost every OEM and Operator who has launched (or in the process of launching) App Marketplaces. All the App Stores, together, now have hundreds of thousands of Apps developed by thousands of developers.

However differentiating your application from amongst thousands of other applications and catching the attention of the user to download and use the application is not an easy task. Winning or missing the cut in the crowded App Stores depends on a variety of factors.

Recently a team of developers from Infosys participated in a contest to develop an iPhone application for GAP INC. and won the “People’s Choice Award” from among 400+ applications submitted. Tom Kaneshige recently wrote an article about the winning entries on CIO.com titled “Five Qualities of a Great iPhone App” - an interesting summary of lessons learnt from this Gap Application contest. I wanted to reiterate upon some of the points from this article as well as add my perspectives about what makes a winning recipe for a successful application:

• Keeping it simple but intuitive: Creating a differentiated UI experience and a good visual design is at the top of the mind for any developer. Often times, an overly designed UI results in the experience becoming non-intuitive. The steeper the learning curve is, the less the probability for the users to come back.  Keeping the visual design appealing but at the same time developing the UI in a way users get it right the first time is a very important factor determining the success of the app.
• Build upon Native features and behaviors:  This again goes back to the intuitiveness and learnability of the application. Utilizing the native behaviors of the phone to build the features and experience is very important. For example, an iPhone app utilizing a cover-flow (instead of a grid view) and a pinch (instead of a zoom in/out button) makes it easy for a user.
• Giving a Personalized experience: Any user can vouch for the fact that amongst hundreds of Apps they download; only a few apps are used almost on regular basis. And if you see these most used apps, they build upon a basic human need or they become a part of an essential day-to-day activity. For example, the virtual trial room in the Gap4Me application builds upon on the basic human need of having to see how a dress I select looks on me.
• Making it an engaging experience with a rich feature set: A rich set of features to engage the users truly determines that “differentiated” experience. A lot of apps just provide either too less a feature set or too much of features packaged into one. Striking the right balance and packaging an application with a rich-feature set that really fits well within the usage context of that application is a highly successful recipe for an Application.

http://www.youtube.com/watch?v=A_rDLFC6z8E

Posted by Sandeep Chandrasekar Seshadri at 07:14 AM | Permalink | Comments (0) | TrackBacks (0)