(from Forbes, June 20, 2012) The publicity around Facebook’s IPO highlighted the challenge of mobile. Facebook consistently demonstrated accelerated growth in users and profitability up through its S1. Then came the updated first quarter financials where profitability trends turned south despite ever-impressive gains in mobile metrics. Facebook illustrated the New Conundrum: Increased access by mobile users derailed Facebook’s ability to earn revenue from those users. It brought to the forefront of popular press the nagging question lurking in the minds of companies attempting to grow their mobile businesses: How will mobile successfully make money? Can it be monetized at all?
Selling apps is a first step. Today, Apple and Google host robust app stores and others are following suit, such as Amazon and Facebook. The majority of apps offered by Apple are for sale, while most of Google’s are free. The average price for an app today for a smartphone is $3.77, and the app stores take a 30% cut. And apps for tablets generally have a a higher price tag. The other obvious way to make money with apps is to offer “brand” apps to sell their wares as another venue for the existing brand, such as Starbucks and Amazon. Both have had tremendous success in offering apps as a mobile purchasing agent. Starbucks launched its app in January 2011 and, by December, the app was downloaded 26M times and accounted for $110M Starbucks card reloads. Pretty impressive.
However, mobile offers much more potential….and an opportunity to create the new mobile business model…
Where there are eyeballs, revenues are sure to follow. Mary Meeker, Investment Partner at Kleiner Perkins, recently presented at the ‘All Things D’ conference and served up many interesting points. Among them, Mary contended that the previous experience with desktop proved that as user numbers ramp, advertising dollars follow. In 1995, she estimated there were 6M global internet users. These users spent $55M on global internet advertising, resulting in approximately $9 of ad revenue per user. Fast forward to 2011: There were 1.5B global internet users, and over $73B was spent on global internet advertising – a five-fold increase resulting in $49 of ad revenue per user. The correlation: As adoption of the media advances, so follows the ad revenue.
Furthermore, mobile has more going for it than did desktop. First, users have been through tech cycles now, so the experience is not entirely new – just a different venue. Second, each new cycle is more quickly adopted, accepted, and embraced than previous cycles. Third, advertisers and marketers are much more sophisticated and flexible, more willing to be innovative and creative towards working with a new venue.
Mobile grabs and holds user attention. First, consider the experience. Mobile requires more focus to hold, to change content, and to engage. A mobile user is generally not at home or in an office and, thus, there is a greater need to ignore the surrounding noise and focus on the device. Often the user’s goal is to focus on the device, and not the environment, such as when in line, shopping, or on public transportation. Moreover, switching between content on a desktop is easy and requires just typing in a new URL, or clicking on another open browser. In contrast, on a mobile device, every move requires “backing out” of the previous app before selecting a new venue.
Second, consider the data. Flurry Analytics found that in 2011,for the first time, minutes spent on mobile apps surpassed that on the web. Data points to a continuing trend as, also in 2011, for the first time, shipments of smartphones and tablets exceeded those of desktops and notebooks. One can argue that not only is the quantity of time spent on mobile bypassing desktop, but so is the quality of time. Ooyala tested video engagement on various devices and found that mobile viewers have more patience to watch videos on their mobile device than on the desktop. In fact, twice as many mobile viewers, 40%, were likely to watch ¾ of a video compared to desktop viewers. For medium and longer videos, viewers are watching from mobile and tablets. Most videos on desktops are under 3 minutes, while the greatest percentage of videos watched on a tablet are over 10 minutes.
Apps deliver information to users. Mobile users can download apps so information that they are interested in is delivered to them, rather than having to type with big fingers on tiny buttons in a super small search box. So, if one is interested in décor, he/she downloads Houzz; or if one is interested in ski conditions, he/she downloads Ski Report; or MyFitnessPal, to track calorie intake. Users can find the most suitable apps for their topics of interest, and that data is delivered directly to them, as conveniently as a touch of an icon. Apps are a tremendous venue to deliver targeted information because the interest is defined and the user has “opted-in” to receive information, versus search which could potentially be one-off or random. Apps provide the opportunity to engage with a potential customer, rather then simply flash a message.
The obvious limitation with traditional internet advertising (banner ads) on a mobile device is the small screen size. The obvious advantage of mobile is that it is more engaging and targeted, and through certain types of apps, the audience is well defined and open to marketing information. The challenge for marketers is to innovate the format of advertising away from banners and develop toward well-placed demonstrations, introductions or tags, and the opportunity for a direct one-click sale.
Facebook could nail monetizing mobile yet. However, well-defined special interest or special topic apps that have already captured an audience may have the most success in monetizing mobile. Think along the lines of Houzz, Shazam, or Mint.
This article can be found at: http://www.forbes.com/sites/darcytravlos/2012/06/20/making-money-in-mobile/?ss=future-tech