There are a number of ways developers and publishers of mobile applications can earn revenue, including everything from ads and subscriptions to virtual goods and advertising. But which models work? And can you make "real" money using these methods?
Leading application developers and content players from the industry shared their experiences on the topic on a panel this afternoon at the Open Mobile Summit in San Francisco.
Discussing the changing business models in today's app economy were Playdom CFO Christa Quarles, Flirtomatic CEO Mark Curtis, Zong CEO David Marcus and BOKU Founder Ron Hirson. The panel was moderated by John Malloy, co-founder at BlueRun Ventures.
Business Models: Paid Apps are Passé
Mobile is more than downloads, said Malloy, starting today's session. The app economy extends beyond that - it includes things like virtual goods, subscriptions, customer support initiatives and more. Playdom's Quarles added that a key part piece to today's app economy was what she called "frictionless billing systems," that is, systems that allow her company to easily and effectively monetize a user's engagement and excitement.
Marcus agreed with this, saying that the paid app model is no longer the only business model available to app publishers today - freemium models involving virtual goods or subscriptions are now an emerging trend. And Hirson said that another method of monetization is the free to paid model, meaning you can give away your app for free to generate initial interest then move to a paid app later on.
Another main topic discussed by the panelists were the challenges involving app discoverability. Quarles said it's very difficult to play the rankings game, referring to maintaining a high presence on the iTunes App Store's "top apps" charts. Apple wants to keep this strangehold on app discovery, she said, which is limiting the innovations that could be had around search.
Curtis then talked about how apps using an end user's contact list can aid in an app's discoverability by allowing personal recommendations from one user to the next. However, he noted, on the mobile phone people are even more sensitive about having their address book accessed.
Quarles shared some details on Playdom's monetization initiatives, and mentioned that advertising is less than 5% of their revenue, she said. The company is focused on its virtual goods ecosystem and creating engagement lock-in. It's also working on using in-app advertising systems without becoming, as she said, too "schlocky." Also of interest, Quarles shared that every time Playdom added a new payment partner to their supported list, it would see an incremental increase in revenue.
The conversation then delved into transitioning from virtual goods to physical ones. Marcus talked about the possibilities for expanding mobile payments to physical goods here in the U.S. He had a somewhat negative view of the potential here, saying that he's not buying into the belief that we will put expensive physical goods on a phone bill anytime soon (i.e subscription billing) simply because the carriers aren't ready yet. There will be mobile payments, but not on that scale, he said. Hirson agreed, saying we're a long way off from buying big-screen TVs with our mobile phones.
On Building Sustainable App Businesses
How do you build a sustainable business when two-thirds of apps are deleted 20 days after download, Malloy asked the panelists. You have to build compelling apps, of course, said Curtis. But you also have to have a contact point for the customer like an email address or a telephone number so you can come back to them at some point and tell them that things have changed, that there are new features to check out, etc..
Quarles said Playdom was investing in virtual goods, but that those investments won't pay off by 2012. That's when they'll reach 15%-20% of revenue for the company. In the meantime, the company focuses on ?perfecting the time-based engagement loops to continually re-engage users and have them returning to the company's games.
Marcus said that in-app purchases are just beginning and it will change the very economics of selling an app.
There are other ways to monetize with virtual goods besides games, Hirson added. For example, BOKU users can buy e-cards using their service or they can buy premium documents from Scribd, for example. These are digital goods, not physical ones, but it's still virtual payments.
Gifts and unlock features are other examples of virtual goods, added Marcus.
The Number of App Stores
What impact are all the app stores going to have on the payments landscape, asked Malloy. Quarles responded with the question: "What is an app store, but a search engine?" And of course, she explained, enabling more search and discovery is beneficial for everyone. Hirson agreed somewhat, mentioning sites like independent app store GetJar and the carrier app stores. But at some point it could become too confusing, he said.
One solution discussed that could help counter the fragmentation on the developer side was turning to the mobile Web and using standard Web technologies to build apps. The mobile Web is going to be biggest platform out there in five years time, said Marcus. Curtis said that he wished that would happen now, and not five years from now because complexity is such a major issue today.