Winner Takes All: App Discoverability, Quality, and the App Economy
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Transcript of Winner Takes All: App Discoverability, Quality, and the App Economy
WINNER TAKES ALL
Eric Benjamin Seufert
LTV > CPI #2
November 20, 2014
Discoverability, Quality, and the App Economy
Freemium Economics
Head of Marketing at Wooga
WHO AM I?
THE INTERNET 10 YEARS AGO
THE INTERNET 10 YEARS AGO
• Marketing provides value only for largest spenders;
THE INTERNET 10 YEARS AGO
• Marketing provides value only for largest spenders;• Returns from market capture highly skewed.
MODELING THE INTERNET
MODELING THE INTERNET
• “All pay auction”: everyone pays, few win;
MODELING THE INTERNET
• “All pay auction”: everyone pays, few win;• Content not monetizable;
MODELING THE INTERNET
• “All pay auction”: everyone pays, few win;• Content not monetizable;• $0 switching costs;
MODELING THE INTERNET
• “All pay auction”: everyone pays, few win;• Content not monetizable;• $0 switching costs;• Content investment => perceived quality;
MODELING THE INTERNET
• “All pay auction”: everyone pays, few win;• Content not monetizable;• $0 switching costs;• Content investment => perceived quality;• Development / marketing costs are sunk.
USER BEHAVIOR• Users choose highest quality sites of which they are
aware;
USER BEHAVIOR• Users choose highest quality sites of which they are
aware;• Users respond to firms’ “bids” for their hits.
USER BEHAVIOR
AWARENESS
QUALITY
NO YES
USER BEHAVIOR
AWARENESS
QUALITY
NO YES
SITE 1
SITE 2
NONE. NO HIT.WINNER:
USER BEHAVIOR
AWARENESS
QUALITY
NO YES
SITE 1
SITE 2
SITE 1.WINNER:
q1
USER BEHAVIOR
AWARENESS
QUALITY
NO YES
SITE 1
SITE 2
SITE 2.WINNER:
q1 q2
USER BEHAVIOR
AWARENESS
QUALITY
NO YES
SITE 1
SITE 2
RANDOM CHOICE.WINNER:
q2
ADVERTISING
ADVERTISING• Firms seek maximum exposure if they choose to
compete;
ADVERTISING• Firms seek maximum exposure if they choose to
compete;• Demand for advertising is price inelastic;
ADVERTISING• Firms seek maximum exposure if they choose to
compete;• Demand for advertising is price inelastic;• As advertising costs increase, likelihood of entry falls;
ADVERTISING• Firms seek maximum exposure if they choose to
compete;• Demand for advertising is price inelastic;• As advertising costs increase, likelihood of entry falls;• Spend positively correlated to gross revenues.
ADVERTISING• Firms seek to beat competitors in terms of quality on
marginal basis (quality investment costs are sunk);
ADVERTISING• Firms seek to beat competitors in terms of quality on
marginal basis (quality investment costs are sunk);• Advertising generates revenue proportional to reach,
so firms seek to maximize advertising spend.
ADVERTISING
QUALITY INVESTMENT
AD
VER
TISI
NG
IN
VES
TMEN
T
ADVERTISING
QUALITY INVESTMENT
AD
VER
TISI
NG
IN
VES
TMEN
T
ADVERTISING ARMS RACE BEGINS
BARRIER TO ENTRY PROHIBITIVELY EXPENSIVE
ADVERTISING
QUALITY INVESTMENT
AD
VER
TISI
NG
IN
VES
TMEN
T
ADVERTISING ARMS RACE BEGINS
BARRIER TO ENTRY PROHIBITIVELY EXPENSIVE M
AR
KET PA
RTIC
IPAN
TS
SO WHERE IS MOBILE?
SO WHERE IS MOBILE?
Top 10 Grossing Chart, US / iPhone, November 20 2014
SO WHERE IS MOBILE?
Top 10 Grossing Chart, US / iPhone, November 20 2014
SO WHERE IS MOBILE?• Clash of Clans and Candy Crush
Saga have dominated Top Grossing 1 & 2 positions for 2 years;
Top 10 Grossing Chart, US / iPhone, November 20 2014
SO WHERE IS MOBILE?• Clash of Clans and Candy Crush
Saga have dominated Top Grossing 1 & 2 positions for 2 years;
• 8 of Top 10 grossing apps are games;
Top 10 Grossing Chart, US / iPhone, November 20 2014
SO WHERE IS MOBILE?• Clash of Clans and Candy Crush
Saga have dominated Top Grossing 1 & 2 positions for 2 years;
• 8 of Top 10 grossing apps are games;
Top 10 Grossing Chart, US / iPhone, November 20 2014
T10 Grossing Dates of first publish:
SO WHERE IS MOBILE?• Clash of Clans and Candy Crush
Saga have dominated Top Grossing 1 & 2 positions for 2 years;
• 8 of Top 10 grossing apps are games;
Top 10 Grossing Chart, US / iPhone, November 20 2014
T10 Grossing Dates of first publish:2014: 1
SO WHERE IS MOBILE?• Clash of Clans and Candy Crush
Saga have dominated Top Grossing 1 & 2 positions for 2 years;
• 8 of Top 10 grossing apps are games;
Top 10 Grossing Chart, US / iPhone, November 20 2014
T10 Grossing Dates of first publish:2014: 12013: 2
SO WHERE IS MOBILE?• Clash of Clans and Candy Crush
Saga have dominated Top Grossing 1 & 2 positions for 2 years;
• 8 of Top 10 grossing apps are games;
Top 10 Grossing Chart, US / iPhone, November 20 2014
T10 Grossing Dates of first publish:2014: 12013: 2<=2012: 7
SO WHERE IS MOBILE?• Four companies own apps that
generate 70% of the unique visitors to the Top 25 mobile apps*
*http://mobiledevmemo.com/the-problem-with-app-store-distribution-in-3-charts/
SO WHERE IS MOBILE?• Most smartphone
owners download 0 new apps per month*
*http://mobiledevmemo.com/the-problem-with-app-store-distribution-in-3-charts/
SO WHERE IS MOBILE?• Nearly half of all time spent in
mobile apps is devoted to users’ single favorite apps*
*http://mobiledevmemo.com/the-problem-with-app-store-distribution-in-3-charts/
MOBILE IS WINNER TAKES ALL
MOBILE IS WINNER TAKES ALL
• $0 switching costs;
MOBILE IS WINNER TAKES ALL
• $0 switching costs;• Returns highly skewed;
MOBILE IS WINNER TAKES ALL
• $0 switching costs;• Returns highly skewed;• Marketing arms race, sunk development costs.
MOBILE IS WINNER TAKES ALL
App store discovery is not “broken”…
MOBILE IS WINNER TAKES ALL
App store discovery is not “broken”…
…the App Store was designed to be like this.
HOW DO YOU WIN?
HOW DO YOU WIN?
Higher Quality and / or Better Discovery
BUT WHAT ABOUT _?
Handful of examples of viral breakouts:
BUT WHAT ABOUT _?
Handful of examples of viral breakouts:
BUT WHAT ABOUT _?
Handful of examples of viral breakouts:
BUT WHAT ABOUT _?
Handful of examples of viral breakouts:
BUT WHAT ABOUT _?
Handful of examples of viral breakouts:
BUT WHAT ABOUT _?
High novelty factor.
BUT WHAT ABOUT _?
High novelty factor.Target teen / young adult demographic.
BUT WHAT ABOUT _?
High novelty factor.Target teen / young adult demographic.Heavily subsidized launches through press / platform featuring.
BUT WHAT ABOUT _?
Betting on virality is not the best strategy!
BUT WHAT ABOUT _?
- Dev costs are sunk (if virality doesn’t work, you lose it all!).
Betting on virality is not the best strategy!
BUT WHAT ABOUT _?
- Dev costs are sunk (if virality doesn’t work, you lose it all!).
- And virality isn’t defensible (your competitors can be viral, too!).
Betting on virality is not the best strategy!
BUT WHAT ABOUT _?
- Dev costs are sunk (if virality doesn’t work, you lose it all!).
- And virality isn’t defensible (your competitors can be viral, too!).
- And novelty apps are easily replicated.
Betting on virality is not the best strategy!
HOW DO YOU WIN?
Discoverability:
HOW DO YOU WIN?
Discoverability:- Spend more than your competitors, more
effectively;
HOW DO YOU WIN?
Quality:
HOW DO YOU WIN?
Quality:- Better / less contrived monetization tactics.
THANKS
@eric_seufertMobileDevMemo.com
REFERENCES• Adamic, L.A. and B.A. Huberman, 2000, “The Nature of Markets in the World Wide
Web,” Quarterly Journal of Electronic Commerce, 1, 5–12.• Aumann, E. and W. Leininger, 1996, “Asymmetric All-Pay Auctions with Incomplete
Information: The Two-Player Case,” Games and Economic Behavior, 14(1), 1–18.• Hand, JRM, 2003, “Profits Losses and the Non-linear Pricing of Internet Stocks,” in
J. Hand and B. Lev, eds., Intangible Assets: Value, Measures, and Risk, New York: Oxford University Press, 248 – 268.
• Noe and Parker, 2005, “Winner Take All: Competition, Strategy, and the Structure of Returns in the Internet Economy,” Journal of Economics & Management Strategy, 141 – 264.