The interesting thing was that none of the panelists had a very satisfying answer. The Qualcomm person cited navigation apps and something called City ID, and had no third app. The app store guy cited search-funded apps (Opera) and apps that are extensions of PC applications (Skype). The Motorola person, who used to work at Palm, cited two cool old Palm OS developers (SplashData and WorldMate, the latter not even available for Motorola's Android phones). And the Yahoo guy talked about Yahoo-enabled websites.
None of them had the sort of answer that the room was looking for -- what categories of smartphone apps are making it, and what are their business models, so other developers will know what to emulate? I started to laugh at the panelists' obvious discomfort, but then I realized that if I'd been on the panel and had been asked the same question, I would have blown it too. I know of a lot of mobile app companies that aren't making steady money, because they send me e-mails asking for ideas, but I don't seem to hear from the raging successes. Also, because I try to focus on what needs to be fixed in the industry, I'm probably guilty of skewing my posts toward what's not working.
So I did some thinking and a bit of research, and here are my three nominations for categories of non-entertainment mobile apps that are making it, and why. Then I'll open it up to your comments -- I have a feeling you'll have much better answers than me.
1. Vertical-market business applications. This was a good category for PDAs ten years ago, and it's a good category for smartphones today. There are dozens of business verticals where information overload, or an excess of written forms, hinder productivity. Find a way to manage that information electronically, and your application quickly pays for itself in increased productivity.
One example is ePocrates, which gives doctors drug reference, dosing, and interaction information. ePocrates has a beautiful business model in which the drug companies pay to get access to the doctors who use it. That helps the company give away its base product. I have to believe there are other verticals where you could create apps that would act as a middleman between suppliers and users.
Another interesting example, which I ran into at a conference recently, is Corrigo. They do work-order management (stuff like managing a mobile workforce and dispatching them to work sites on the fly). I like Corrigo because it makes good use of mobile technology, and scales nicely to multiple vertical markets.
Note that neither Corrigo nor ePocrates is a purely mobile application -- they are business solutions that leverage mobile. That's very typical of the business mobile market. It's not about being mobile for its own sake, it's about solving a business problem and using mobile technology to help do it.
One other cool thing about these businesses is that you can ignore the whole app store hassle and market them directly to the companies. You control your customer relationships, and you can keep 100% of your revenue.
2. PC compatibility applications. Inevitably some people will need to do on a mobile device the same things that they do on a PC -- edit a document, for example, or query a database. There's a solid market for applications to let the user do that. The market isn't enormous (not everyone is crazy enough to edit a spreadsheet on a screen the size of a Post-It note), but the people who need to do that are usually willing to pay for the apps. Or to make their employers pay for the apps. Documents to Go was probably the most successful application on Palm OS, and based on the stats posted by Apple I think it is probably one of the most lucrative non-entertainment apps on iPhone.
Unfortunately, Docs to Go is also a very well-entrenched application, so good luck displacing it. Maybe you can find another category of PC app that needs a mobile counterpart.
3. Brand extenders. There seems to be a steady market for mobile apps that help a major brand interact with its loyal users. A few recent examples:
- -The Gucci app lets a customer get special offers, play with music, and find travel attractions endorsed by Gucci. The company calls it a "luxury lifestyle application."
- -There are four different Nike iPhone apps: a shoe designer, a women's training guide, a football (soccer) training guide, and an Italian soccer league tracking app.
- -The Target store search app lets you find stores, and search for items within the stores (it'll tell you which aisle to look in). (For those of you outside the US, Target is a large chain of discount department stores.)
- -Magic Coke Bottle is a Coke version of the Magic 8-Ball. It's one of three Coke-branded apps.
The business model for this one is simple -- you get hired by the brand (or its marketing agency), they pay you to develop the app, and then they give it away. The more popular smartphones become, the more companies feel obligated to create mobile apps, so this is a growing market for now. (Beware, though -- having an iPhone app is kind of a corporate status symbol right now, like creating a corporate podcast was a couple of years ago. Development activity could drop off when businesses find the next trendy tech fad.)
To create this sort of app, you need to be very skilled at visual design, and you need to be comfortable managing custom development projects. Some developers don't have this sort of project and client management skills, and you can get yourself into a lot of trouble if you sign a contract without understanding what'll really be required to execute on it.
Also, you don't get to change the world creating a shopping app for Brand X. But in the right situation this can be a good way to make money while you work on your own killer app on the side. And if you're not into changing the world, there are companies that have built solid ongoing businesses on custom mobile development.
Other possibilities
There are a few of other categories of apps that I think could be candidates for inclusion, but in my opinion the jury is still out on them. I'm interested in what you think:
Location. Right now there are several location and direction apps selling well for iPhone, but with Google making directions free on Android, I fear the third party apps are at risk. However, the direction-finding business is a lot trickier than you'd expect (I learned that as a beta-tester for the Dash navigation system, which sometimes tried to get me to make a right turn by telling me to make three consecutive left turns). So we need to wait and see how good Google's directions are. But in the meantime I don't feel comfortable pointing to this as a viable category in the long term. What do you think?
Travel apps. There was once a very nice business in city guides for PDAs, but I get the sense that like many other categories of mobile apps, this one is being sucked into the free app vortex. But I suspect that there may still be a paid market for specialized tools like translation programs, and software that helps executives manage trips. WorldMate is an interesting example -- the base product is free, but if you pay you get special services.
Upgradeware. Speaking of free base products, I think this is the most intriguing possibility in the whole mobile app business today. In the PC world, there are a lot of app companies that manage to build sustainable businesses by giving away a free base product and then charging you for the advanced version (this is how most of Europe gets its antivirus software today, for example). In mobile this model worked well on Palm, but was not available on iPhone because Apple's terms and conditions prohibited a free application from offering in-app conversion to a paid upgrade. Apple just changed those terms.
Rob at Hobbyist Software asked the other day what I thought about the change. I think it's very long overdue, and I'm intensely interested in hearing from developers who have moved to that model. How's it working out for you?
Okay, so that's my list. If you're scheduled to appear on a panel somewhere, you're welcome to quote from it as needed. But now I'd like to throw the discussion open to you. Please post a comment -- What do you think of my list? And what non-entertainment mobile app categories, and business models, are making good money today, and why?
Travel apps are really interesting -- often you most need them in situations where your connectivity isn't very good (slow, nonexistant, or expensive), so making them able to download useful and current information about where you're going is something that people will pay for. On the Palm Pre, there's a free English-to-Spanish dictionary using a web service and a $30 one using a local dictionary. Guess which one would have helped me while I was in Ecuador last week with no CDMA connection and spotty WiFi access.
ReplyDeleteWe're actually doing quite well selling the same sort of software we began selling for mobile devices 12+ years ago. We're not one of those crazy App Store success stories where the company is raking in a million bucks in three weeks, but everyone here gets a check every two weeks and we're all very excited about the future.
ReplyDeleteOur biggest seller is eWallet, which is a secure information manager. In fact our bread and butter here is information management. No matter how times (or devices) change, people still need help managing information and we've made a place in the market by doing this really well.
And the majority of our customers buy the product for personal use - we get business users, but that isn't our core customer base.
If the guys on the panel don't have a handle on who is making steady money I question their expertise. Either that, or all of these folks have stars in their eyes over the blockbusters when they need to take a look at the steady sellers that'll still be there as the years go by.
One thing that's striking in this new iPhone universe is how PIM has been pushed to the sidelines.
ReplyDeleteOS vendors, even Palm, negelect that functionality in favor of shiny stuff. And we don't hear about it as a money maker, but I bet it still is.
I'm afraid that I disagree with your second category. More than just the post-it size screen is working against anyone who wants to use a mobile device for serious document work.
ReplyDeleteI have two very capable mobile devices, a Fuze and BB Bold, and would never use either of them to edit an Office document. I can hardly stand to send a short email on the BB.
I think the basic problem is that we are trying to project typical desktop functions and experiences onto the mobile platform. That doesn't seem like a very wise approach to me when the mobile experience involves such constrained resources: 90% less screen space, two thumbs instead of 10 fingers, etc.
I think the question should not be where is the money now, but rather where will the money be once we figure out what the mobile platform is all about. I think categories that focus on the relationship between the mobile device and a desktop PC are missing the point entirely. The key is in the word "mobile", so I watch with interest the following areas: location-based services, augmented reality, travel (score a point for that one), etc.
Thanks for the comments, folks. This is a good start, and I hope we'll get some more.
ReplyDeleteUnwiredBen wrote:
>>Travel apps are really interesting -- often you most need them in situations where your connectivity isn't very good (slow, nonexistant, or expensive), so making them able to download useful and current information about where you're going is something that people will pay for.
Good point. So that would be an issue of educating users on why they want to pay for an app rather than just using a free web feed of some sort.
Marc wrote:
>>We're actually doing quite well selling the same sort of software we began selling for mobile devices 12+ years ago. We're not one of those crazy App Store success stories where the company is raking in a million bucks in three weeks, but everyone here gets a check every two weeks and we're all very excited about the future.
Ahhh, Ilium Software. Cool! Thanks for posting, Marc, and congratulations on your success.
>>Our biggest seller is eWallet, which is a secure information manager. In fact our bread and butter here is information management. No matter how times (or devices) change, people still need help managing information and we've made a place in the market by doing this really well.
How are you coping with price pressure in the App Store? The story I hear from a lot of developers is that there's a general trend toward 99 cents or free. Are you finding that you can maintain your pricing?
>>If the guys on the panel don't have a handle on who is making steady money I question their expertise. Either that, or all of these folks have stars in their eyes over the blockbusters when they need to take a look at the steady sellers that'll still be there as the years go by.
;-) I think it was more of the latter. Keep in mind that when the VCs announced those huge investment funds for mobile app companies, that created an expectation that we were about to see a bunch of blockbuster mobile app companies created.
Sivan M. wrote:
>>One thing that's striking in this new iPhone universe is how PIM has been pushed to the sidelines. OS vendors, even Palm, neglect that functionality in favor of shiny stuff.
Actually, I think the Pre does a lot of PIM tasks very nicely. But you're right that they don't talk about it much.
gadgetjunkie wrote:
>>I'm afraid that I disagree with your second category. More than just the post-it size screen is working against anyone who wants to use a mobile device for serious document work.
Hey, I didn't say it's a usage that I really like. But there definitely is an audience for it, and that's what developers want to know.
>>I think the question should not be where is the money now, but rather where will the money be once we figure out what the mobile platform is all about.
Good point.
>>location-based services, augmented reality, travel (score a point for that one)
Fair enough, but my question is how a developer will make money in those areas. There are lots of hot mobile app categories, but many of them are not generating a ton of revenue for developers.
I thought Travel applications are making good money apart from the entertainment applications. It gives us the flexibility to know the time schedule, conveyance for the route and many more Information.
ReplyDeleteI think you nailed the three categories I've seen doing well. Congrats to Illium, by the way. I don't see a lot of companies doing well there. Even AppCubby, who was early to iPhone, is making less than hobbyist revenues with his collection of information management apps.
ReplyDeleteI think your point about vertical-market business apps is particularly important. They are not mobile-centric. They use mobile for the pieces they need. The unstated comment here is that they aren't making money on the mobile devices. They are selling a service or desktop/enterprise software where mobile is a piece of the offering.
This is a difficult question. At the Sprint Open Developers conference last month, Steve Elfman picked out the business model as the main issue facing mobile app developers.
ReplyDeleteWho pays for the app (subscriber or upstream advertiser)?
What are the price points?
Is there sufficient margin to justify the investment?
One other major problem: Which platform(s) to support?
Still a lot of work to be done here to establish a viable ecosystem (as opposed to individual successes).
Elia wrote:
ReplyDelete>>vertical-market business apps ....are not mobile-centric. They use mobile for the pieces they need.
I wonder if there isn't a lesson in that for consumer app developers as well. If you think about the most successful consumer app categories (other than games), many of them have back end components that make them more than just mobile apps. That's certainly true of navigation apps, and I think it's also true of the more successful travel apps like WorldMate...
Stephen said:
>>At the Sprint Open Developers conference last month, Steve Elfman picked out the business model as the main issue facing mobile app developers.
Yeah, that's the popular meme now at a lot of conferences, and the stuff you hear privately is often even more negative/frustrated. It's one of the reasons why I wanted to write this post -- things aren't quite as gloomy as a lot of people think.
>>One other major problem: Which platform(s) to support?
In the long run, it has to be web apps. I was obviously wrong about the timing when I called that one a while back, but the endpoint is still very clear.
But that doesn't help small developers who need to make decisions now. It's kind of like telling a farmer there will be a torrential rainstorm sometime in the next five growing seasons.
"How are you coping with price pressure in the App Store? The story I hear from a lot of developers is that there's a general trend toward 99 cents or free. Are you finding that you can maintain your pricing?"
ReplyDeleteAlthough customers are still willing to pay for good software, there is a lot of price pressure. And the iPhone market model is bleeding over to other platforms so it's pressure across the board for mobile device applications.
We're going to have to make some changes (everyone is), but we're working on some creative solutions that I think will both meet the demands of the market while making sure we can meet our business needs as well. It's definitely a challenge, however!
I think a hidden danger of the new pricing model, however, is sustainability. Aside from the "staying in business when sales of a 99 cent app drop off" issue, if more application stores move toward Apple's "All Upgrades Are Free" model, this could make it tough for PIM makers to pay for updates. It isn't like games where you just release "Part II." Games are fine as a one shot - PIMs need ongoing maintenance.
I am trying to start a mobile development company and the model we wish to use will try to split an app into two flavors.
ReplyDeleteThe basic application will be a phone-based applet. This model will charge a small fee for downloading the application. The idea is that we do not need to pay for any ongoing infrastructure costs.
The second portion will be a premium service extension to the product that might have infrastructure (storage, server side sub-services, etc..). This model will involve a monthly fee. We will try to get the mobile operator involved to perform most of the bill collection tasks for us (of course for a fee).
Our plan is to get the basic applet out there at low enough cost to garner interest and usage. Once we have some usability numbers we can gauge if the premium service will be successful in any given market.
@Michael: "In the long run, it has to be web apps."
ReplyDeleteThere are still huge fragmentation issues here. Handsets in the field today have a variety of different browsers with casual adherence to standards.
I have been hearing that there will be standards for rendering in mobile browsers for many years and it seems that by the time it will happen, the handset market will have converged on supporting the full web.
Also consider that many mobile operators are implementing transcoding engines to squash the web down to fit mobile devices. This has played havoc with web application providers.
To say nothing of the business model problem!
With all due respect, Steven, I think that's a very limited view of "web apps." You are right -- running apps out of the browser is fraught with problems, and probably will be for a long time. But developing mobile apps (read: native) that use web technologies will be there much sooner, I think.
ReplyDeleteI was asked and wrote an article on the topic for Read Write Web that was posted yesterday. A link is here:
http://www.readwriteweb.com/archives/one_mobile_app_for_multiple_platforms_a_reality.php
Operator services could be in revenue generating apps categories. Operators in Middle East, Asia-Pacific and partly in Europe have more community and brand power on subscribers than US operators. (subjective comment, please correct me if you think reverse)
ReplyDeleteOur customers are big operator groups and local application software houses who serves local operators. We are developing Smartface Platform to address fragmentation problem for developers.
I think there is a pyramid of revenue for app developers; at the top operator apps, then media, enterprise level apps and end-user apps.
The more app developers go down in the pyramid, the less revenue they are making.
I think you made a good list. I think location is a lost cause. The Google marketing machine (and soon Microsoft with Bing will have to do it as well) will consume it. The only way to stay ahead will be to differentiate from the lowest common denominator that the giants offer. Will people be willing to pay a premium for that? In the mainstream consumer space, doubtful. In the vertical business markets - maybe... But any company in this space will need to keep moving and be mindful of the giants. Consider utilities vendors for OSes - Symantec and McAfee realized their core products could be eclipsed at any time. Similarly, fat margins for Tom-Tom and Garmin in the consumer space are done.
ReplyDeleteTravel is a possibility but not a broad market. Lonely Planet is already experimenting with mobile clients which is smart - why lug around a book if you can pull down what you need as you need it? To UnwiredBen's point - being able to pull down in advance what you need (assumption of limited connectivity) is good and necessary. I liked Tom-Tom's navigation software for this reason - maps were stored on my Treo - no network needed once downloaded!
I think you've missed an important future class of apps - books and online books! Though Palm was an early leader here, IIRC more people now read books on iPhone than they do on a Kindle - even though it uses the exact same service through Amazon. Amazon got into the eReader business because they wanted to seed the online book market - though it may change, they don't care about the reader. Similarly, I would think that online book sellers wouldn't care about the client - why wouldn't they leverage open server APIs and let individual developers do the heavy lifting of porting them to the fragmented mobile OS market?
Similarly, music and video could become a similar situation if mobile remains fragmented - why does Amazon care if they create a client to download MP3s? Their real strength is their backend servers/services, and their relationships with the content providers - creating a client to manage the user online buying experience (at least for smaller mobile platforms) is a low priority for them at best.
In any case, it's an exciting time for mobile - much like the dawn of microPCs. Lots of different business models, players, etc, and the future is very wide open.
Very good comments, folks.
ReplyDeleteMarc wrote:
>>I think a hidden danger of the new pricing model, however, is sustainability. Aside from the "staying in business when sales of a 99 cent app drop off" issue, if more application stores move toward Apple's "All Upgrades Are Free" model, this could make it tough for PIM makers to pay for updates.
Ahhh, good point. I think this is one of the dangers of selling productivity apps on a game-dominated store.
Thanks very much for sharing your info. I hope it was helpful to other developers.
James Grimm wrote:
>>The basic application will be a phone-based applet. This model will charge a small fee for downloading the application. The idea is that we do not need to pay for any ongoing infrastructure costs. The second portion will be a premium service extension to the product that might have infrastructure (storage, server side sub-services, etc..). This model will involve a monthly fee. We will try to get the mobile operator involved to perform most of the bill collection tasks for us (of course for a fee).
Thanks for the info. Please let me know how it works out. Billing through the operators is still a tricky (and expensive) proposition in most cases. I like the idea of using an applet to prove demand, but I wonder if making that first applet free might help you get more customers into the funnel.
Stephen wrote:
>>There are still huge fragmentation issues here. Handsets in the field today have a variety of different browsers with casual adherence to standards. I have been hearing that there will be standards for rendering in mobile browsers for many years and it seems that by the time it will happen, the handset market will have converged on supporting the full web.
Yes, my point exactly. The trick is defining how long "in the long run" will actually be.
>>Also consider that many mobile operators are implementing transcoding engines to squash the web down to fit mobile devices. This has played havoc with web application providers.
I hope that sort of disruptive transcoding is on the way out.
Israfil wrote:
>>Operator services could be in revenue generating apps categories.
Agreed, especially for feature phone users. I plan to do a post on this.
>>Operators in Middle East, Asia-Pacific and partly in Europe have more community and brand power on subscribers than US operators. (subjective comment, please correct me if you think reverse)
I don't necessarily disagree, but I think probably the best way to describe it would be to say that the operator relationship is different in various parts of the world.
>>The more app developers go down in the pyramid, the less revenue they are making.
Extremely interesting point. I think that one does vary by country.
Anonymous wrote:
>>I think you've missed an important future class of apps - books and online books! ....Similarly, music and video could become a similar situation if mobile remains fragmented - why does Amazon care if they create a client to download MP3s?
Very good points. I was thinking of content as being a separate category from apps.
I think there is an interesting question of scale here when you ask what apps are making good money.
ReplyDeleteI keep reading about developers who make a hit app that does great for a bit, then they form a company, get a bunch of venture capital and act surprised when they are unable to come up with the stream of hits required to pay the salaries and investors of an organisation.
It's tough to come up with a hit - and a lot of it comes down to luck. Like hit pop songs, the lifetime of your hit is often very short. As in music, very few folks have repeated hits.
Having said that - I'm making good money. That is, my apps make enough for me to support one full-time developer (myself) and occasional contractors to do the work that I can't.
My suspicion is that there will be very few market opportunities to support bigger plays. As in Palm, Mac, (and windows?) there will be room for a few big players like Docs to Go or VMWare - but mostly the market consists of thousands of pretty small niches which are only big enough to support small companies with modest ambitions.
If you want to be big, then you need some way to defend your turf. You need something that stops smaller developers from offering your product more cheaply. Here are some ways I can think of to defend a profitable segment:
Data access: ePocrates has the relationships with the medical companies and their data. Navigation companies have expensive mapping data.
Complexity: It really would be tough to replicate the complexity of docs to go (though open source software like open office presumably reduces that barrier). I can't think of many other areas that have software which is complex enough that a rockstar solo developer won't be able to emulate it in a year or so.
Exclusive relationships: If you have the exclusive right to sell train time data, or to link to facebook in some way.
Scale/Networking effect: First movers might be able to build a scale and defend themselves with a networking effect.
I'm sure there are other ways (but not a huge number).
If you don't have something like this - then I think you will either stay fairly small, or face competition that will make you fairly small before too long. Sure the first guy who did iFart or gun sounds made a pile of cash for a while - but pretty soon there were a billion cheap or free competitors...
The fact is that it is getting easier to build powerful apps, and there are lots of developers with the skills to do so. So, the market errodes away excessive margins...
Outstanding comment, Rob. I think you hit several nails on the head.
ReplyDeleteI think there will be a need for smart agents, a sort of electronic secretary that is aware of where you are, what you are doing and what you have to do next. This app can help you by filtering information,alerting etc....
ReplyDeleteGreat article Michael. Great comments guys. All the stuff you describe mostly affects developed markets i.e. 1st world countries. I don't think the same apps would do well in Africa for example.
ReplyDeleteAny ideas on what apps can do well in emerging markets?