Tag Archives: smartphones

Monetizing Mobile the “Micro SaaS” Way

25 Aug

In June, I wrote a post about the  staggering growth of Android lately, especially in emerging markets.  And yet, despite this growth, Android doesn’t monetize nearly as well as Apple’s iOS platform:

iOS vs Android - Downloads vs. Revenue

The monetization gap is understandable given the huge difference in price points between the iPhone and the hundreds of Android devices.  Unlocked, the iPhone is the most expensive smartphone on the market.  There’s one device and the only option is storage  (and color).  In contrast, the cheapest Android can be had for <$50.  The vast majority of new smartphone users coming online in emerging markets are from the lower and middle income groups, many of whom are accessing the web for the first time ever.  They can’t afford a $1000 device, which is what an iPhone can sell for unlocked.

This helps explain the monetization gap among other reasons (Android fragmentation, etc.)  And it poses a problem for developers trying to make money from the millions of Android users in emerging markets.  Mobile advertising really isn’t an effective strategy since ad markets are nascent – extremely small in aggregate size and much less productive (i.e., lower CPMs).   And even on iPhone or in developed markets, ads can worsen the user experience and are tough to make money off of unless you have huge numbers of users or a highly valuable audience.  So ad-supported isn’t a viable model.

What about paid app models?  There are problems here as well.  For the lower end of the market, willingness to spend just isn’t there.  It’s hard enough to get someone to spend a few dollars upfront on a paid app download in developed markets, let alone in a market where a user might only be earning $5-10k a year, maybe less.  So charging upfront doesn’t work well.

So what’s the solution?  I think WhatsApp has figured out an interesting model.  A user can use the service for free for a year, but after 12 months has to pay a flat $1 per year to continue using the app.  It’s a sort of “micro SaaS” model.  You get a 12-month free trial period and then have to pay an annual upfront fee to subscribe to the service.

WhatsApp has a very strong network effect, so the likelihood that someone who’s used the service for a year and whose friends are all using the service will balk after a year at paying $1 to continue subscribing is low.

At a $1 per year, WhatsApp is reasonably priced for any user that’s able to afford even a cheap Android device.  A basic SMS plan will easily cost as much as WhatsApp charges for a year and will also be volume capped.  It’s a good value.

The downside of this model is that it really only works at large scale.  Having 10m users paying you $1 a year isn’t a venture-scale business (though very interesting if you can bootstrap).  At 300m, which is Whatsapp’s latest user count, this is a sweet business (see image below via Statista).  And, as I wrote last week, Messaging happens to be “one of the two killer apps on the smartphone,” so it has huge addressable reach.

chartoftheday_1341_Whatsapp_Reaches_300_Million_Active_Users_b

There’s also some risk that the service is challenged by free services that don’t ever charge for users to subscribe and look to advertising, freemium, or in-app purchases for monetization.  At a $1 subscription, there’s really no sunk cost and there’s no technical challenges around switching as there might be in an enterprise SaaS.  There is a huge switching barrier though in the network effect, so I think fears of WhatsApp displacement are overblown (not to mention the fact that it’s a simple, reliable, very well-designed product).

I’m not saying this model is for everyone.  Mobile ads, mobile commerce, and in-app purchases work extremely well in some cases, especially in developed markets.  But I’d like to see more services experiment with the “Micro SaaS” approach and would love to hear thoughts on other categories that are suitable.

The Third Wave Opportunity on Mobile

19 Aug

There’s really two sets of major players on mobile.  The first is historically desktop-focused companies where their pageviews started on the desktop and are now shifting rapidly to mobile as the share of time spent by users switches from the desktop to smartphones and tablets.  This includes services like Groupon, Google Maps, Yelp, Dropbox, Facebook, Twitter, eBay, Fab, Digg, Huffington Post, Gmail, Linkedin, Amazon, Skype, Salesforce, Kayak, TripAdvisor, and a whole host of others.  The second group is companies who started on mobile and don’t make sense without it.  Evernote, Uber, Prezi, WhatsApp, most mobile games, Roambi in the enterprise, and others are in this category.   

What’s interesting is that in terms of pure reach, the traditional desktop companies are really dominating.  The first wave of adoption of mobile apps has benefited strong desktop brands whose services make as much sense or are stronger even on mobile.   Check any smartphone n the US and you’re likely to see some mix of Facebook, Yelp, Google Maps, and Twitter apps to name a few.  Perhaps this shouldn’t be surprising since these are some of the most popular services globally.  And as mobile increases as a percentage of online time spent and as total hours spent online increases because of mobile, you’d expect these services to benefit.   

The next wave of adoption is of mobile-first services.  For some companies like Evernote and Whatsapp, the boat has already sailed in this regard.  For others, there’s huge headroom for adoption.  I’d also argue that there should be a whole slew of services built from the ground up for mobile that we haven’t seen yet.  This is the “third wave opportunity” for mobile apps.  

Gaming and Messaging have been the two killer apps on the smartphone, the former in terms of total time spent and the latter in terms of frequency.  After these, your traditional desktop services like Gmail and Facebook consume a ton of time.  And then you have your set of mobile-first services like Uber that aren’t in the Gaming or Messaging categories.  That last category is growing rapidly and should see many new players emerge.  

There are new ways of re-imagining everything we do on the Web, but for mobile.  For instance, Prezi is re-imagining how you create and view PowerPoint-like presentations on the iPad, and Roambi is reimagining Business Intelligence for mobile. 

In particular, I think there’s a whole host of enterprise applications that can be rebuilt from the ground up for smartphones and/or tablets.  CRM, corporate chat clients, time sheeting, meeting management, conference dial in, and Excel/spreadsheeting are a few examples of generalized apps that need to be rebuilt for smartphones and tablets.  

I also think there’s a whole slew of vertical-specific apps that are ripe for the taking.  Hospital management, big law firms, personal financial advising, hotel management, auto dealers, financial traders, and many other areas have a need for specialized mobile apps.  

In some cases, the incumbent, traditional desktop players will get their act together when it comes to mobile and continue to dominate.  In other areas, these players will either be too late to the opportunity or might lack the ability to, whether because of organization issues, a lack of talent, or something else.  

If I was investing in or looking to start  a company, I’d be looking for these third wave opportunities, especially in areas where the incumbents aren’t equipped to capitalize on the opportunity.  

Driven by Android, the Tablet Market in India is Exploding

25 Jun

Image

I wrote a post last week on what’s driving smartphone/Android adoption in emerging markets.  I wrote mostly about smartphones and largely ignored the tablet market.

And like clockwork, IDC just released a report on the tablet market in India.  In short:

  • The tablet market is booming as “shipments soared to 2.66 million in 2012, a mammoth 901 percent year-on-year growth from 2011…”;
  • It’s dominated by Android with Apple having <10% of the market;
  • Low-cost (<$250), 7″ tablets are vast majority of share;
  • Local players like Micromax and Karbonn and cheap Chinese imports are winning even though Samsung has the largest market share.  Note: local players still use contract manufacturing in China, but they’re Indian brands.

This article has a nice rundown of the report and quick summary from IDC here.

I wouldn’t expect any major changes to Android/non-Apple dominance in the near future.  Apple simply can’t compete on price in a market where most consumers can’t shell out hundreds of dollars for even an iPad mini.

Also, as with the smartphone market, I’d expect spending on cheap Android tablets in India to continue to grow rapidly.  Prices will continue to decline, there’s several government initiatives aimed at growing tablet access, and you have Reliance’s 4G rollout coming soon.  Expect Reliance 4G rollout to pair a cheap Android tablet with affordable data plans and bundled content/services.

The next really interesting question that needs to be answered is what killer apps and services are going to be built on top of all of these tablet and smartphone devices, especially in India.  And can they figure out a way to make money in a market where non-text, non-search mobile advertising is extremely low in $ terms and where consumers willingness to spend is low.

I think WhatsApp is the first app to really take advantage of the Android adoption trend in emerging markets like India, and it’s also showing the way in terms of how to monetize price-sensitive users at scale.  More on this soon.

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