We had a great discussion in the morning at Appnation, big thanks to the panel for participating and Drew and company for making it happen. The point of the panel was to try to distill a few concrete principles and lessons for folks trying to make sense of the environment, as well as call attention to anything that requires caution. Everyone was really bullish about the current environment, but there were definitely some interesting points to pull out.
One of the first areas that always pops up for me when we talk macro level trends is mobile is advertising. Mostly cause I was wrapped up in AdMob early on, but I’ve also been involved in the previous iterations of online advertising (early banner ad plays back in the mid 90s, Overture back when it was called Goto, and RSS advertising). There’s currently a big disjoin in the understanding of mobile advertising because the health of the system differs depending who you ask.
If you ask someone at a mobile ad network how things are going, they are genuinely happy. They’re making more money than ever. However, if you talk to the people doing the advertising they’re generally unhappy. Cost of acquisition is really high and they have trouble getting value out of the users they’re able to drive. For the publishers they’re making less and less off their inventory cause there’s so much supply side surplus. So generally folks are left confused, cause they see numbers for the industry as a whole saying mobile ads are generating a ton of money – but the folks trying to make a living off running those ads are having a tougher and tougher time.
That’s the first shift to take notice of. At one point it was possible to put out an app for free, get a decent amount of sticky users, and make a pretty good chunk of money just running ads from a network. That doesn’t work any more. The folks who are actually pulling in significant money from advertising have setup custom arrangements because they have some unique traits to their traffic. And for the rest of the folks out there, because there are so many more apps out there also running ads, even if you generate a huge amount of views it’s increasingly difficult to break even.
Mobile advertising as a whole needs a lot of work to deliver on the promise of the medium. There are some great folks out there working on making that happen, so I’m sure it will change eventually. But in the meantime don’t get caught on the wrong side of the trend.
The second major area of discussion was around games and in-app purchases. This is one area of the mobile app store environment that consistently generates money. There are some nice repeatable models being run in mobile games. Should those of us not doing games try to borrow a page from the games folks and attempt to put together models that shadow the successes?
Definitely, there’s a lot to be learned from what’s working in gaming. However, most folks tend to hop right to “game mechanics” as the major takeaway. Trying to slap some level/badging system on top of an existing system doesn’t really drive any benefit. The pieces that we should be pulling out of the gaming world are the attention to user funnels, where to put your monetization events, and how to break down your offerings. The result of paying attention to those metrics generated the game mechanics and virtual goods based system that’s become the norm in games. Outside of games the same principles generate systems like Dropbox. The takeaway is replicate the process used to distill the model, not the model itself.
The third big area of discussion was the online/offline models. The folks like HotelTonight and GigWalk and TaskRabbit. They’re models where a lot of the value to the business is created outside of mobile, but mobile has provided them with a channel that wouldn’t have been possible (or as effective) via desktops. Most of us agreed that this is one of the most interesting areas. The folks working in these spaces are pulling in a lot of new value to the system, and they’re likely to end up with more robust businesses less at risk from platform changes.
However, the models here are just starting to shake themselves out. There’s lot of infrastructure to these services that hasn’t yet been packaged and replicated. Payments is probably the most obvious area, where payments for offline goods stands in stark contrast to the in-app purchase systems available through the stores. But as we see more instances of the model there will definitely be additional areas where common tools and services could help.
There are two real takeaways from the online/offline models. The first is that if you’re looking at a model like this you should put your major focus on solving a problem and figuring out how mobile helps you address the problem most effectively. The contrast being starting with the technology and existing systems and working backward to a solution. The second is that there are some huge opportunities in doing infrastructure for these kinds of models. They’re hard to do, and “messy” cause they tend to have to deal with nasty real world problems. A lot of the problems we’ve been tackling at Churn Labs recently fall into the online/offline category, and a few of them have really knocked us for a loop. But there’s obviously a lot of value you can capture if you can pull a system together.
Actually, there was a lot more we talked about. And some great tidbits like Rich calling out that lots of the interesting “enterprise” stuff in mobile, like Dropbox and Evernote, are things that are used in the enterprise but not sold to the enterprise. But it’s getting late and I have a whole lot of programming to do tomorrow.