People have downloaded your mobile app, great but you’re not making any chips? Well here are a few reasons why, read them, and turn those frown into upside downs.
Mistakes Companies Make when Monetizing Mobile Apps
Mistake one. You decided to go for advertising. But who on earth will click on a mobile ad that will take them to “cheap flights to Rio de Janeiro” – mobile advertising as a whole does not currently work. No one in their right mind will want to go to a new website to spend time looking over A,B,C,D,E when they want the app to give them their info there and now.
Mistake two. App sales. While putting a price tag on your application may seem like a good idea, you’ve got to think, will anyone actually pay for it? As the app developer you think your app is probably better than it really is in actuality, and a 2.99 price tag on it may be too much. Now if you’re app is something like an internet updated timetable for trains on the London Underground, or something that helps hack life and make it a tad bit easier, then great, you can charge, but be sure that the price you’re asking is worth it.
Mistake three. Giving away value added services for free. You sold the app, and now you made a few bucks, great, but that’s a one off sale, and your cash flow is limited to how many people buy your products how many times. Instead of selling the app, give it away and charge for value added services. What do we mean?
Look at TapTap Revenge, a silly guitar hero type music game for the iPhone, some songs are given away for free to the consumer and are typically promotional songs that the record company pays Tapulous to publicize, the consumer wins by recieveing more content, the record company wins by increasing awareness of the new album / artist, and Tapulous wins by getting a few bucks.
But the buck doesn’t stop there, the company also offers the consumer premium content that they have to pay to download, these being known artists and new chart topping songs. The price is equivalent to iTunes, but again, everyone wins.
Again, when we say free we don’t just mean the end user, free may also relate to a B2B service. Say you plug into an augmented reality (AR) app that you download for free as a user, that app should have a strong B2B model where hotels/restaurants/stores can purchase a listings in the AR.
Mistake Four. You business model doesn’t allow you to monetize. More often than you would think people develop applications that simply cannot be monitized, how does this happen. The value proposition is not there, and it has a weak business model. Read all about it here. Always remember, a broken business model is a lot harder to fix when there’s a product, than to think of a good business model and build a product around it.
Mistake Five. You’ve thunk like an engineer and developed for the wrong platform. Every mobile developer I’ve ever spoken to loved Android. It’s open, its flexibile, it’s easy to develop for, it’s based on Linux, and has great overall functionality. Great! but who uses it? Currently the iPhone leads the global bandwith game globally, it’s app store offers the most products and is easily accessible and available, and is currently the market leader.
So, do you develop a pay to pay software product for a platform that is not the industry leader in terms of consumer apps, or do you go for the big market, where you will have more potential clients. The answer seems obvious, yet engineers are developing for the wrong platforms because they think those platforms are better. Was Beta-max a better product than VHS, it sure was, but who won out in the end. VHS. Consumer acceptance is key.
So how do we monetize an application.
Don’t go for advertising, it’s broken. Price your app accordingly, or give it away if you rely of B2B sales. Sell add on/value added services with your app. Think about your ideas business model before devoting resources to it. And finally offer your products to those that can actually drink from them, meaning, high consumer acceptance, and penetration.
A few years ago it was “social networking” before that it was “dot coms” and before that, well… betamax. But jokes aside each new hot technology trend is subject to the same problems when it comes to business model, there are none, so let’s invent one. .
We’re still experiencing the lack of business model in the mobile marketplace – now we’re not referring to the sales of handsets, nor the fees covered by mobile operators, what we’re referring to is mobile application development, and it’s monetization.
We have to remember that the fundamental difference between a mobile phone and a laptop, desktop, netbook, or even the iPad is the way in which they are used. Mobile use is best described as coming in bursts.
You need info, you pull the phone out, look for whatever information you need and put it away. You don’t spend hours surfing the net, you don’t stream last night’s favorite shows, and you definitely don’t edit your excel spreadsheet or write the next chapter in the novel you’ve been working on.
The mobile is a device that is meant for burst use. Even such applications as iPhone games, are used typically in bursts. You’re on the metro, the bus, etc… you’re bored you play a game for ten minutes you put it away.
So what about the business model? Aside from application sales via i.e. the Apple App Store, you’re pretty much in the dark. And even there the majority of applications that people will use are limited to what is “top rated” or “recommended”, individuals simply will not spend hours searching for an app to install on their mobile device. So as you see we have a problem.
Non-Efficient Application Delivery
As previously stated – application delivery is not efficient, and even if you have an amazing application how will you get people to pick it up and try it.
One of the better ways is to have bloggers review your apps, if they like them, the next level of users who are 1st adopters will try those applications out, if they like them, they will use them, and they will publicize them. And when speaking of publicizing, it’s imperative that you implement a facebook API into this application.
Why? Well since everyone and their mother is now on Facebook, what better way to get free publicity than through status updates.
What is the application’s Value?
It’s one thing if the application in question augments the use of a current product, i.e. TripIt, LinkedIn, Imdb.com but it’s a whole other ballgame when you’re developing a new product from scratch. Meaning, the value to the user of the application has to be there.
The Bad: An example of a bad execution is VoiceFree, the application basically allows you to post audio messages to your friends on facebook. But why on earth would anyone want that. It’s quicker to go to facebook mobile, and post a quick message to a friend than to record something, and then have someone listen to it. After all, we read quicker than we speak, and mobile information delivery needs to be
Quick
Instant
Provide what you’re looking for
Does this app do it? The short answer is no. What is it’s value? Not much albeit being a nifty idea. But nifty ideas don’t always make good business sense.
The Good: On the other hand you have another app, bump – that allows you to exchange contact information by simply bumping your phones together. This app’s value is clear from the onset, and it’s a great little app, that all truth be told should be included in the iPhone OS. Yet, how do they monetize? By offering 3rd parties access to their technology, PayPal for example uses bump technology in their application which allows users to send money to each other by bumping their phones together.
Great application, clear value proposition, great execution.
Think about it
When thinking about development of any product, be it mobile, internet, physical, you always have to consider what value it will offer the customer, simply devoting resources to a great idea is for the most part an exercise in futility if you don’t know how you’ll monetize it, be it today, or tomorrow. At the end of the day, what really differentiates the mobile platform is it’s delivery, and use, remember it’s busts, but aside from that, a product is a product and needs to have a business model behind it.
In 2002, Joan Magretta published a very interesting article in the Harvard Business Review titled “Why Business Models Matter”, this was right after the internet bubble burst and your everyday investor was keen to stay away from anything and everything that could in any such way be associated with the dot com boom, the term “business model” was one of these and the sheer sight of a “business model” ran shivers down people’s spines.
However, Joan made a very good observation, this was that a “good business model begins with the insight into human motivations and ends in a rich stream of profits”, and whether dot com companies were here to stay, one could not disagree with the fact that human motivation will lead to some form of behaviour, in this – one that leads to purchases. Which is in the end a business model.
Telling a Good Story
Creating a business model is like telling a story. Take the example of J.C. Fargo, the president of AmEx who in 1982 during a European vacation identified the need for the travelers cheque.
The story associated with the business model was easy peasy for customers to grasp. For a small fee, the traveler could buy a secured against theft product that was convenient as it was widely accepted. On the other side of the table, AmEx was a trusted name, and businesses happily accepted the cheques, as more businesses accepted the cheques, and more individuals used them, more businesses would subscribe as not to stand on the sidelines and get in the game.
As for AmEx, well, we don’t have to go into details, but surely the equivalents of an interest free loan from customers and the nearly risk free nature of the business (customers always paid in cash), made this one of AmEx better business ideas.
But what’s all this have to do with business models? It’s simple really, a business model represents a better way of conducting something, improving on the current alternatives, it may offer value to a group of customers, or it may revolutionize processes until someone else revolutionizes those processes. In the end it tells a story about how something can be done better than it is now.
Doing the Math: The Numbers Test
Does it add up? Are your profits more than your losses? What is your burn rate? How long until you’re out of the red? Will my customers buy my product or service? Changing something and making it better is one thing, there have been millions of Euros, Dollars, Pounds, Yen or whatever currency you’d like to use, thrown at project that were simply put unsellable. These projects had great technologies behind them, they were innovators in their fields, they were new and something truly special, but they flopped.
Why? Because no one bought them, many were simply too expensive, i.e. various online grocers who’d bet that consumers would pay more for the same jar of jam if it could be delivered to their home, or in the 1980’s when Sears decided it would give its customers the option to purchase financial products. Why anyone would purchase an investment to add into their portfolio while shopping around for a car tire is beyond me, but hey, the exec’s thought it’d work. It didnt.
The moral of all this is basically, 1. Tell a good story, see if there’s a need and reason to develop a product or service you’re thinking about developing, who will your customers be, and will everyone involved benefit, and 2. will it be profitable based on a series of critical what-if assumptions focused on your business and product.
And if after all that, you’ve still got a green light. Well… then it’s time to think about scalability and strategy.
Scalability should be at the very heart of your business model. But what it is? In the formal definition it’s the ability for a business to accept increased volume without impacting the contribution margin (Contribution margin= revenue – variable costs).
Simply meaning that your variable costs should not have a negative affect on your contribution margin, or ideally no effect at all.
The problem with scalability however is not whether or not the business is scalable in itself, you see most businesses will have a scalability range. This is the area where as your revenues increase & your costs shrink, however, no business is infinitely scalable and here’s where you need to start thinking about your business model and your scalable range.
The scalable range, is the level of scalability, meaning that the cost of each incremental dollar must be going down. For the above example, the company’s scalable range is 11.000, another company however may have a scalable range of 20.000, or 4.000.000.
The higher your scalable range, the happier the investor will be in your product, and the quicker you’ll in all likelihood be able to get funding. However, it’s important to remember that there is no such thing as an infinitely scalable business.
However, that does not mean that after a business passes the scalable range threshold it is doomed to fail. At this point it’s important for the founders, board, directors, etc… to sit and analyze the business model.
– Why is it that we are not scalable? What is causing our costs to increase for each additional euro earned?
A good method of identifying this it to follow the KISS (Keep it Simple Stupid) method, meaning that is anyone in the value chain cannot simply explain what it is their job entails you’ve identified your problem, the same can go for what it is that the business does. If someone on the value chain cannot easily explain what the business does, you’ve identified your problem.
Now KISS is not ideal, scalability issues may arise from anything as trivial as paying overtime to your employees to running additional maintenance on your machines, but it is a good place to start. All the same, if you do encounter problems with scalability, try to step out of the circle and see where the problem lies, and ask colleagues, friends, etc… to see if they can’t identify the root of the problem.
With that good luck, and remember the more scalable a business is the more it will appeal to investors. In the end it all comes down to Ockham’s Razor
If you’re basing your entire business model on advertising, bin it, it will get you nowhere. Especially if your business falls within the boundaries of a mobile / web business. Why?
How shall we count the ways.
Supply & Demand – With the prevalence of Google’sAdSense on even your grandma’s blog, advertisers are just not willing to pay big bucks for most keywords. Sure you can get a list of high paying ones and try to develop a site for that, but your target market will also be so miniscule that your traffic will make a blip on the radar, and then how much fun can it be to write about “Mesothelioma Lawyers in San Diego” or “Endowment Selling”. Remember, in the web world – Quality Content is King. It’s the differentiating factor between a site that grows and a site that stays stagnant. Same that goes AdSense goes for AdMob, except that on Mobile devices people are even less likely to click through, due to the basic nature of phones. People use apps for one specific task, then close them. i.e. I’m not signing up to flickr when translating something from Catalan to English.
Savvy Individuals – Perhaps savvy is the wrong word here, but do you yourself click on ads when visiting websites, or do you simply pass over them as if they were empty space? Reckon it’s the latter, and just like you, so’s the rest of the wider internet community. And while in a perfect world we’d like to think the opposite, it’s just not the case, even when it comes to mobile applications, see above ref.
Dedicated Ad-Space – Sites that typically rank in the 1000+ range on Alexa can charge between €30-40 CPM. Mind you these guys tend to have dedicated sales teams going after advertisers, and have information on their users that goes far and beyond what you can access with Analytics -Age, Sex, Annual Income, all the stuff that warrants a high CPM. If you want to star playing with the big boys get your traffic to their level 1st, and if you can, by all means best of luck.
It’s Inefficient – Chris Anderson editor-in-chief of Wired Magazine wrote in the WSJ said this better than I ever could. “The standard business model for Web companies that don’t actually have a business model is advertising. A popular service will have lots of users, and a few ads on the side will pay the bills. Two problems have emerged with that model: the price of online ads and click-through rates. Facebook is an amazingly popular service, but it also an amazingly ineffective advertising platform. Even if you could figure out what the right ad to serve next to a high-school girl’s party pictures might be, she and her friends probably won’t click on it. No wonder Facebook applications get less than $1 per 1,000 views (compared to around $20 on big media Web sites).” You can read the article here.
Notwithstanding there are some things that you can do to augment your income from online advertising revenues, such as placement, colour coding, etc… etc… and as a supplementary revenue channel it can cover some operational costs but don’t bet your bottom dollar on it, and don’t try and raise money with it as your main revenue source. You need to have a value proposition that is actually viable, mobile or net, or for that matter with any business.
