Free or Paid apps?

Just read a very good article from Loïc Le Meur entitled "How much can you really make developing mobile apps?", written two months ago but just came accross it today, so that's why Loïc I can't post a comment anymore on your article.

You are making a very good point here I think, that is that in the "App World", the revenue stream is still for a happy few, and very far from representing the increase so much expected in mobile eCommerce.

Here are the different points I'd like to make on the subject you raised Loïc:

1. It's not a geek contest, but a business you know!!

I don't know why, but many people saw in those stores a chance to break the barriers that exist in the real world (by opposition to the virtual, eCommerce world); that is "hey, I'm going to make a great app, post it, and make revenues because anybody can make good apps", even if I could argue on what is a "good app".

Let's talk about games for example, 2nd category of content on the AppStore according to 148apps.biz, you are competing against large studios who invest few hundred thousand euros on each game, have dedicated studios to make trailers and other videos, dedicated sales and marketing teams in each major Apple markets. Guys, just like on PC, you need to realize that you're on a much different scale, not the same ball park! Would you launch a MMORPG like WoW tomorrow? They also had the early entrants advantage... Even Angry Birds is a one shot, the difficulty is in making it a sustainable business! Angry Birds made 3 million free downloads on Android, let's see how it does at £3 on OVI.

So like in any other business environment, you need to create good products but also market it, and market it as a professional just like the rest of the gaming industry!

There are just two differences:

#1 - You are competing against the rest of the world in one market place... over 40,6K games on the AppStore, that's tough!

# 2 - Viral marketing can be at your advantage: many of those tools are reachable (not expensive) and with a good viral marketing you can overcome part of the difficulties in making your games known to the public, and hence affect Apple's rankings eventually. Especially if you can target local consumers with an app that speak to them more particularly (I don't know, an ap with the best happy hours in pubs for the UK market?)

The only chance an independant, small dev has is to play on the viral part.... I think. And remember, the objective for most people is not just to break-even, but to make it a good business. Of course some hope to be purchased as those days it seems some VC are willing to pay big bucks....!

2. Building apps for others, not a jackpot but an expertise to built a sustainable business around.

The second way of making money with Apps is by creating apps for others; for a company who'd like an app (most of the time free). You want to have your banking done on your mobile, your social stuff, your subway map, find a McDonald store, etc... Consumers are looking for things they know, brands they know, or experience they want to have on their mobile.

More and more obviously chose this path as a business model. True native apps vs. web apps, honestly I don't know but for sure there's a huge room to grow here.

3. Other stores than Apple's AppStore

Loïc, you only mentioned Apple's AppStore and you are right. As of today, it's the only mobile app store which generates direct, published, revenue streams for developpers.

Neither the Android Market Place nor Nokia's OVI store have been able to do that, despite the fact that they have been online for almost a year, with millions of downloads a day, etc.!

So to make direct revenues from Apps, well there's just the AppStore, live with it. Why? Because they are the only who have created an efficient environment where they can take money out of consumers's pockets in a easy way! It took them several years to do so as it started with the iPod back in 2003. So they have years ahead of the whole pack in building's consumers's trust!

Direct consequence for developers focused on paid apps: well, it's iPhone, iPad, iPod Touch and eventually Android...

Related posts:

- "Google Android, Ovi, and the billing issue - why it's still an issue!!"

- "Mobile game publisher Digital Chocolate criticize the "droidful" Android Market"

- "Ovi isn't top of mind for Facebook's Mark Zuckerberg"

4. The "freemium"

The last alternative left is the "freemium" model; which is to distribute a game for free but make revenues indirectly, through advertisement mostly.

I've always been surprised by the optimism in the industry, predicting huge increases in mobile advertisement. To some extent, it's probably true because it's not very developed and there are loads of new smartphones hitting the market.

However I think there are big limitations, especially with all those stores where you need to be really motivated to buy something:

A. Advertisement aiming at making you buy something on your mobile.

That is advertisement for other apps on iPhone or on other platforms. Well, we come back to point #1 above because what else could you buy on your mobile right now, effciently and in a trackable manner? Well, not much. As long as eCommerce on mobile will be limited to apps and contents, the whole business will be restricted somehow (will still big room to grow from current situation of course).

B. Traditional advertisement, by people like Nike, American Airlines, etc...

This will grow for sure; but how easy will it be to get those large advertisers on your app ? Good idea (if not done already): create an agency to do this link between the myriad of small dev who alltogether can do great results, and the few large advertisers willing to pay for mobile ads!

Any other thoughts are welcome!

Data Crunch: the big threat for mobile eCommerce

Credit: foodshare.net

While every body is getting excited over the new mobile devices that shall make our life so much easier (and fun); with great applications and great true web browsing, sharing experience on social medias, etc... there are recent news that didn't attract so much attention, but have a HUGE potential impact on all this.

Whether you're using an iPhone, a Samsung Galaxy S, a Tablet (Apple, Samsung, Dell, etc) or even a laptop with 3G USB dongle; all those mobile devices consume data!! And they consume a lot of data!

There's also wi-fi, but except when you use them at home, those devices are by definition mobile, and chances of finding a free wi-fi connection you can connect on in few seconds wherever you are, well, they are pretty slim unless you spend your time in your favorite coffee-shop that happens to have free wi-fi (and where you're not sharing the connection with the other 20 guys around you).

The issue: data consumption is exploding!

With declining ARPU on voice declining fast, all operators (or almost) went into the data segment to get back on the growth curve. It took off with 3G as well as with USB dongles. And it's working great for them. It's actually working too well! The smartphones and the tablets are totally exploding data consumption as shown by several reports, to a point where data consumption has surpassed voice consumption already!

• Validas showing an "overall growth in average monthly wireless data consumption at a rate of 464 percent  from Q1 2009 through Q2 2010"
• Nielsen sees a 230% YoY growth for the same period
• Coda Research Consultancy quoted in TechCrunch, predicts data traffic to rise 40-fold by the next 5 years, or a  117 percent compound annual growth rate; most of the traffic (68.5%) coming from video
• Abiresearch finds an annual compound rate (from 2009 to 2015) of 42% and 55% in Western Europe and North America respectively;
• A nice study from Finnish firm Zokem showing that 50% of data usage on smartphones are comign from apps, the other 50% from the web browser.

When you understand that smartphones roughly represent 30% (at best) of mobile phones in most advanced markets, and when you see their sales roaring, you understand why those firms make such predictions (even if they vary quite a bit).

But  also surprising, what many analysis do not highlight, is Cisco's findings that majority of data traffic (70%) will come from laptops and other mobile-ready devices (tablets?)

Source: Cisco

Now any normal person would think: wow, this is great!!! Well, not everyone...

A question of capacity and investment

While all operators see in this trend a great news for their data revenues, which have soared along with its usage; they also see a threat, very short terms, in a sense that, well... they don't have the network infrastructures to withstand such high data demands!!

What mobile operators face, and thus consumers as well, is saturated networks, dropped calls, long connexion time. To cope with this, operators have to invest huge amounts in servers and infrastructures; but it won't be enough and it's most of all impacting their profit margins.

The short to mid term solution is the 4G or "LTE".  Apparently Verizon will announce today at the CTIA its launch of the first American LTE network in the 30 NFL cities (read more here). AT&T has announced mid September launching commercial LTE by mid 2011. I won't argue on the technical aspect of the evolution of the network, but it seems that LTE is the direction most operators are taking.

Now you would say, why hasn't 4G been implemented before or why isn't it implemented at larger scale. I haven't honestly investigated deep in into this, but putting the following 2 information together, you have an aswer, about AT&T (from their press releases):

• "The company is spending $700 million in capital expenditures on LTE this year and "will go far beyond that" in 2011, Stankey said.
• "During the first quarter of 2010, AT&T’s mobile data revenue was up nearly $1 billion, surging $947 million to $4.1 billion, up 29.8 percent over last year’s Q1. AT&T says its wireless data revenues have nearly doubled over the past two years."

So on one side they are investing $700 to upgrade the networks, and $4.1 billion in revenues on data just in Q1 (still growing); which will also probably increase again with tiered pricing.

So  the short terms solution is implementing tiered pricing. This means that "true unlimited data plans" are over, and now mobile operators will implement various data plans for different data usage; with main goal to limit the data usage and to keep their profit margins while still investing in necessary infrastructure.

Many operators have already done it:

• Orange France; most of their "unlimited" data plans are in fact capped (need to read the small print)
•  AT&T - Read article of FierceCIO, June 2010
• Verizon - Read article of intomobile.com, September 2010
• O2 UK - Read article of mobilegetspersonal.com, June 2010
• etc.

Now it's true that most consumers, yet, only consume small amounts (below 2 GB per month) and that the data plans are more meant to limit heavy users. For example, in Cnet's article (July), they wrote:

"Those most affected by the change are the 3 percent of customers who AT&T says are using 40 percent of the network assets. These are heavy data users. It will also likely affect iPad users and customers who want to use their iPhone or smartphone as a modem to connect to the Internet wirelessly."

Basically, early adopters of new technologies will be penalized; at least that's what they say, and this represents only a small portion of consumers.

Bottom line: a constrained mobile eCommerce environment!

On one side, operators are giving up the "all you can eat", but on the other side they are all going to launch soon the LTE which will solve many capacity issues (apparently)...

But what worries me most is that the depth of usage of true mobile Internet, in an unrestricted way, is not yet for tomorrow. It's no secret that eCommerce really exploded when Internet connection got cheaper, unlimited and fast (ADSL, fixed monthly plan where you can consume without any limitations).

With all new devices, new usage, new applications, all Internet (and thus data) dependant, if mobile operators are to curb Internet usage, well, it will necessarily slow down its true adoption as a full eCommerce / information space. If usage is increasing, it's because there's simply more people with a decent device being to connect; not because most consumers (will) consider their mobile devices as a their prime Internet device; which is the direction it's taking.

To me, it thus sounds like there's a dichotomy between what the industry is pushing us to use (devices, content, etc), and data consumption limitations.... 

Let's hope that this is just a temporary situation.

An opportunity though...

As in any environment, when constraints are set, there are always smart people developing situations to go around this.

So short term, I would really monitor companies offering services allowing to decrease data needed to send/receive data. We're talking data encryption, video standards, etc.

It makes sense! When gaz consumption is increasing and you want to limit it, either you increase  taxes to limit its consumption; either you build cars more fuel efficient. All manufacturers have chosen the latter solution; so why isn't the mobile industry doing the same?

Interesting articles

• "The Wireless Data Crunch" Torronto's Globe and Mail; June 2nd 2010 
• " Mobile video traffic: Alleviating the capacity crunch" FierceWireless, July 6th, 2010
• "The Mobile Bandwidth Crunch: Strategies for the Next Decade", Wireless Week, August 20th, 2010
• " Is 4G Better Than 3G?", Discovery News, March 30th, 2010

Mobile OS war; Nokia's symbian losing 2 major supporters

In past few days, 2 major phone manufacturers, i.e. SonyEricsson (Sept 24th) and Samsung (Oct 1st); have announced that they will not longer support Symbian.

Per se it's not so surprising since SE is really struggling and Samsung has developped its Bada; and both are fully supporting Android!

But it's a serious drawback to Nokia who bought all remaining shares of Symbian in 2008 for €264 million; and looking at the competition coming, even opened the sources of Symbian back in February; hoping for more OEM and developers to use it.

While all the other manufacturers are leveraging the shared experience of Android and also developing their own OS for some markets; this leaves Nokia pertty much alone here. Can Symbian compete against Android in terms of speed of innovation and implementation; for the mass market? The worlds "speed" and "mass market" are critical here; especially since Android phones are starting to compete against Nokia's stronghold: the cheap phones in developing countries.

About the MeeGo, which is the continuation of the Maemo (remember the N900, one of Nokia's biggest failures); are consumers going to wait for it for long (nothing about this at recent Nokia World 2010)? Time is, as always, a critical factor.

But what is truly behind the OS war?

- Ability to innovate and bring those innovations to market, fast.

- Ability to attract developers; as we know that content is a key element of the smartphone business.

Something to follow very close!