Frequently the two issues get tossed into the same basket when talking about mobile applications in particular. The most obvious reason for grouping the two together is that the main driver of both for most businesses is the app store. Getting top placement in the charts on the app store is seen as the holy grail of distribution, driving much larger numbers for most folks than any other technique. Plus the main source of income for most developers is directly selling their app to users through iTunes.
Even with that simple arrangement there is a degree of complexity to take into account though, mostly in the form of pricing. A high priced item is generally a higher margin item for the developer, but will also normally shift few units. Sometimes lowering the price so that you can get additional purchases will give you the extra lift you need to get into the charts, and the volume you sell will more than make up for the lower margins. It’s a very error prone process, because there’s so little hard data about individual applications available to the public. And even when you do have hard data it’s pretty hard to replicate previous successes because the marketplace is evolving rapidly.
Then there are a few hacks you can use to segment the two functions. The most common is having a free or low cost ‘lite’ version of the app and charging for enhanced functionality either via in-app purchases or having another version of the app with a different price. This allows the lower cost version to hopefully make it up into the charts for you and serve as a marketing function, while being able to keep the price of the full version at a point where the margins are a bit thicker without losing out completely on the exposure the app store itself can get you. The other option is to offer the main app for free and use some kind of in-app purchasing for segments of functionality or content, the so called freemium business model.
Then there’s advertising and affiliate programs. The success of advertising and affiliate programs is majorly a function of how large your audience is. The number of users your app has. And (just as important!) how often they use your app. It’s not very useful to try to advertise with a generic network in an app that’s been downloaded 3 million times, but only has 30 thousand active users on any given day. However the success of an advertising or affiliate program is also a function of how strongly segmented your audience is. For instance if you have 1 million users from all age groups and all walks of life, you might not have the kind of audience you would be able to find eager advertisers for. However, if you have 500 thousand users, all of who live in the San Francisco Bay Area, have indicated in some way that they’re at an auditorium or concert venue in the last week, and tend to be in the 18 to 25 age group – you could probably find someone looking to reach those people.
This is where the fundamental tension comes from. If you setup your app to do well getting directly sold through the app store (broadly appealing, low cost) you normally have to tilt things in the direction of that being your major monetization route. If you raise the price to where you can make decent money off the initial sale you’re normally also cutting the audience side down and limiting the scope of the advertising and affiliate programs you can run. Same thing with more directly targeting your app. If you make the app more specific and compelling to a smaller group of users, you can raise the price. But if you raise the price you usually also cut down volume.
This isn’t to say that you can’t come up with a targeted app that you can sell at a decent price, but also yields a good audience for advertising and affiliate programs. After all that’s what magazines do. They’ve managed to charge for buying the issue off the newsstand, but also take advertising money from companies who want a presence in that issue. However, I frequently hear the options expressed as either/or by app developers. They feel if they charge for the app they shouldn’t be running advertising. I understand where that sentiment comes from, but it’s not the way most other areas of business operate. I wish my cable provider didn’t run advertising in exchange for my paying for the service, but unfortunately that’s not the case.
Our first panel discussion at Mobile 2.0 developer day is going to explore a bunch of these issues, in addition to some talk about alternative distribution models I’m sure. Peter from Rovio is going to weigh in on how Angry Birds has managed to hold the #1 paid app in the app store for just about every region. They’ve sold more than 6.5 million of the paid application to date. Chris Dury from GetJar is also going to be present, he had some fantastic commentary at a recent Mobile Monday when he summarized the options available to developers as get featured, get targeted, or get viral. Sean from Flurry is going to be weighing in not just on the AppCircle system they have setup for promotion and monetization in-app, but also bring some numbers to the conversation from the huge base of info Flurry collects on the analytics side. Jahanzeb from iTeleport is going to represent the targeted side of the house, discussing how their app makes more than $1k a day without ever appearing in any charts at all. And finally Raj Singh is there to moderate, he’s worked with big companies, startups, and frequently his own efforts to find novel distribution and monetization models for consumer mobile apps and services.
If you want to join us at Mobile 2.0 use the promo code ‘friends’ for a 20% discount off the normal ticket price. Hope to see you there!