One of the most common reactions that “mobile experts” have when new converts start waxing poetic about the iPhone is that the iPhone is just a niche device. “It’s only really popular in the US, you need to start thinking about the billions of devices out there in the market” is something I hear pretty frequently. Especially from people at Nokia. They love to talk raw numbers of handsets, cause that’s the leverage they have. And when someone starts saying things like “think about the bigger market” and “address the global audience” it just seems politically incorrect to disagree with them. I mean, it’s gotta be a small-minded move to think about just the US right?
I’ve made that argument over and over again actually, so I’m intimately familiar with it. It sounds so good, and it gives you a warm fuzzy feeling for thinking expansively. And of course some of the top level numbers seem to support that being a good idea. Hell yea, there are billions of cell phones out there in the world. Why bother going after a market of 7 million when there are billions out there!! Crazy right? So allow me to explain why it makes sense. Cause the entrenched mobile market is in some real danger here, getting actively blindsided by new devices and market models. Fingers in their ears. Vehemently denying that anything has really changed.
The first and foremost is this misconception about addressable audience. People throw around the 3 billion number quite a bit, cause that’s the number of cell phones out there. But that’s not your market size. Spend some time with venture capital guys and you’ll eventually catch them joking with each other about the prototypical entrepreneur who walks into their office and claims their market is “everyone with a television” or “everyone who wears shoes” – breathlessly exclaiming that if they just “capture 1% of the market in the first year they can make 10 billion dollars!!!” It’s pretty ridiculous to think that just because there are X of something out in the market, that your potential market size is X.
First of all not everyone with one product automatically wants a complementary product. Even if it’s a great complementary product. Second of all your market size isn’t just an installed base, it’s installed base and ability to reach the customers who make up that installed base. If you have a small number of customers who are easy to reach sometimes that’s better than a large number of customers who it’s difficult to get to. Don’t take my word for it, read some Steve Blank and let him explain it. A few years ago the only option was to reach a localized audience for high cost, or a global audience for high cost. The decision was pretty easy, go for the larger audience. But now you can reach localized audiences for a much lower initial outlay, so there’s a real decision to be made. I don’t think it’s a done deal to be always going after the global market.
There’s also the need to make money. This was a common topic of conversation at Mobile 2.0 this year again. Sure, emerging markets hold a ton of potential. But how do you make money off addressing them? They’re relatively hard to directly monetize. You can make your application so that it’s relevant and usable by people in Africa and China, but if you’re looking to sell it for a few dollars you cut a bunch of volume out of those markets. So you take the millions of people in those markets and reduce it down to the number of people able and willing to pay a few dollars for an application. I have no idea what the percentages would be, but there isn’t too much disposable income floating around there. There’s an associated cost to the application developer in setting up and maintaining payment systems in different areas. And don’t tell me that going through a third party payment provider allows you to address a global audience cause that’s a lie. I’ve worked on it, and there’s customization to be done for different markets no matter who you use. So don’t even try that one any more, I’m officially calling bullshit on it.
The common answer to that is to monetize through advertising. Awesome. That’s a very engineer friendly answer to the problem. It’s true, most problems can be solved by adding an additional layer of abstraction. Unfortunately someone eventually has to make money, and in this case the additional layer of abstraction just hides the problem instead of reducing it. The reason that advertisers advertise is so that they can make money off the audience. If you weren’t able to make money selling to users why should other advertisers be able to? Sure, there are plenty of cases where the diversity of offerings from an advertising network allows for monetization of an audience where a single seller couldn’t. But if the underlying problem is that the audience doesn’t have money to begin with that changes nothing. The value of an advertising audience is the size of the audience multiplied by the average amount of capital you can extract from a member of that audience. It doesn’t matter how large the audience is, anything times zero is always zero.
And there’s the problem of, you know, actually making your application work globally. Another common theme from the conference again this year was context and making applications use the unique features of being mobile. Mobile isn’t just about taking the desktop web or application and jamming it onto a small screen. You need to build on the unique capabilities of handsets and mobile networks. Unfortunately there’s very little global thinking about how to make that happen. We had a panel of folks at Mobile 2.0 talking about their developer programs, handset manufacturers and carriers/operators. They were talking about how they’re helping developers build for their devices and networks. Seems nice on the surface, but that’s not how things should work. Take development for PCs as a model. If I was looking to develop for PCs and had to join Dell’s developer program to get into about developing for Dells, and then Gateway’s developer program to make my app work on Gateway, and then Toshiba to make my app work on Toshibas – and then have to worry about differences between Comcast and Savis and Internap at the network level. Nothing would ever get done. But when I asked folks working on these program about what they’re doing to provide base consistency so that mobile development could work like PC development I mostly got confused reactions.
So why develop specifically for the iPhone? Omar actually summed it up extremely well at the Mobile Web Wars event a while ago. The iPhone has a full ecosystem. It might be small right now, and it might seem like we’re just exchanging multiple overbearing overlords or a single overbearing overlord. But the iPhone is that juicy segment where development is consistent (cause it’s one OS and one device), there’s a way to reach audience directly (via the AppStore if you can get on there), and the user primarily are in affluent areas where advertisers are looking to spend dollars (and part of a great distinct demographic for the most part on top of that). So fricking start paying attention people. You can’t dismiss the iPhone cause the overall numbers are small (unless you’re a VC, then you can continue to poo-poo the small overall market size all you want, that I’m not going to argue against). The specific numbers are compelling. People are still making noise about the iPhone cause it works.
Of course, this doesn’t change the fact that I’m a bleeding heart mobile booster. And that I would love few things more than to have a real global market for mobile solutions that application developers could actually address. It’s going to take some different thinking however. If you can’t make money from directly selling to customers in emerging markets, and collectively they don’t yet make a compelling audience for media plays, what do you do? Well you could let those users create value and skim some off the collective. Take the Amazon Mechanical Turk as an example. Think of it as a way to do micro-outsourcing. Mob4Hire in particular is applying this to mobile already, with a crowdsourced system for doing mobile application testing in areas where it’s normally difficult to get access to different handsets on particular networks. Fantastic.
I’m also a believer that the best people to build solutions for emerging markets is the people in those markets. That’s the idea behind efforts like FabLab and (though not everyone believes it) One Laptop Per Child. Folks living in developed areas normally aren’t familiar with the particular constraints and challenges that go along with living in these other areas. The best way to service them isn’t to do product development in the traditional sense, but to provide hackable systems that allow users in these areas to tailor what they get to the situations they have to deal with. That’s one of the reasons I hold out a lot of hope still for the Linux based mobility efforts, particularly Android, to help these markets move themselves through the progression so that people stop thinking of them as low yield media targets.
Overall though I think it’s kind of ridiculous for folks inside of mobile to be crapping all over “the iPhone hype” while doing little to nothing to help move mobility as a whole into a state where us application developers really can start to address a global audience.
