Monday, January 25, 2010

Mobile ads or in-app purchase - what works best?

Google and Apple sharing the Mobile Ad Cake

Online advertisement is a model that works so well for the web and is the main cash cow for Google there is no doubt that ads based apps will be a logical extension for the mobile world where freeconomy works just so well.

Google acquired admob which is the biggest mobile advertisement network and Apple acquired Quattro Wireless. Both giants paid a substantial amount for the ad companies. Google acquired admob for $750 million. Rumours say that Apple acquired Quattro Wireless for $275 million.
The recent acquisition of Quattro Wireless did shake up the new world where phones become computers and new tablet devices will even increase the need for apps and ads. What Google and Yahoo where on the web is not Google and Apple on the mobile platforms.

A Business Model based on Mobile Advertisement

It's no news that free apps are much more popular than paid apps. Since Apple has recently fixed their in-app purchase model and extended it to free apps many iPhone developers are upselling additional features, content or subscriptions. Other free apps utilise ad networks like admob to make money with ads in their iPhone apps.

It seems like users are not too fuzzed about ads as long as an application stay free and offers a real value. One good example is "Urban Spoon". The iPhone app is free. I get good value out of the app because it has a large user community providing valuable restaurant reviews. The Google ads don't really bother me much because they value I get outweighs the ad annoyance.

So the three key ingredients for a popular iPhone app seem to be:
  1. The app has to be free
  2. The app has to provide value
  3. The app has a loyal user base
Free and value makes the app user-base grow. More users may create more value for crowd-source or social apps. More value for the user keeps them loyal. A loyal and large user base may generate great ad revenue.

Great apps development is expensive

With smart phones taking over the world and thousands of applications to choose from the world of mobile advertisement has changed. Mobile ads are now everywhere because they are a great model to recoup app development costs and create a large user base at the same time.

Developing a great iPhone app will set you back between $60,000 and $200,000. That is a lot of money for a small developer. Assuming that there is no VC funding involved the only way to recover the costs and keep the business going is to make the app popular - quickly as well as getting some money form the user. These two goals are usually not aligned. Quick and popular apps have a low price point or are free. However a free app does not generate any revenues. So many developers followed the model of lite and pro version.

With ad networks from Google (and soon Apple via Quattro) a viable model for developers could be the ad-supported app but...

Do Users Accept Ads?

Sabre Travel Network has surveyed 800 travellers and found that all travellers surveyed are willing to accept advertising with free use of travel applications.

It looks like Urban Spoon users don't mind the ads either.

We had some less encouraging experience with an Android app that servers admob ads. The revenue was very low and we received some negative user feedback. Finally, we decided to remove the ads and at least keep our spot in the Maketplace.

My recommendation is to use ads only in highly popular apps. Small and medium apps do not benefit from ads.

Do Users Accept In-App Purchase?

In-App purchase seem actually to work well. Users seem to have no problem with in-app purchase as long as it is not an annoying upsell. Fortunately, Apple has some measures in place to make in-app purchase a pleasant experience. Apps that abuse in-app purchase and don't comply to Apples guidelines will be rejected.

Personally as a consumer, i love in-app purchase. It gives me a new product when I want one and keeps the app fresh.

Music apps like Looptastic make it so easy to buy additional loop sets.

Games seem to be benefiting a lot from selling new characters or features. Apps like Minigore are really good examples on how to sell in app.

News magazines haven't quite managed to provide in-app purchase successfully. It looks like Media Companies are still completely relying on advertisement income. They should get more creative and explore the in-app purchase feature without upsetting their advertisers.

So, what works best?

I can recommend in-app purchase to any independent developer or small and medium company. If there are valuable things to sell then sell it via in-app purchase. User acceptance is very high and users are willing to spend more money at they point of value.

Revenue via mobile ad serving seem to work only for large app publishers with "must-have" apps.

No comments: