Making Money On Mobile Services: There’s An App For That

It seems like such a great path to riches. Write an app, post it on the various marketplaces for mobile software, sit back and watch the money flow in.Since the GSMA, the industry association representing some 800 mobile operators around the globe, launched App Planet at Mobile World Congress in 2010, developer interest in the mobile market has exploded. Last year more than 40,000 attendees, including 12,000 developers, flocked to App Planet during the exhibition in Barcelona. And the numbers could be higher at this year’s exhibition, which takes place February 27-March 1.

Little wonder. Revenues from apps downloaded over mobile networks are predicted to grow at a compound annual growth rate of between 50% and nearly 60% between now and 2016,  generating more than $25 billion, according to tech consultancy Informa.  But with the sheer number of apps clamouring for attention, and the fragmentation of platforms, how does a developer attract attention or even make money? And what’s in it for the providers of the app marketplaces?

Enter Getjar, a start-up founded in Vilnius, Lithuania, which has so far raised $42 million in venture capital from backers which include Accel Partners and Tiger Global Management. Flying in the face of conventional wisdom, Getjar offers premium apps for free across a number of mobile platforms.  “We’re a paid discovery service,” says chief executive and founder Ilja Laurs. Instead of consumers paying to download apps, developers bid to have their apps featured, and only pay once the user downloads the app, making it a particularly good channel for app developers whose revenue depends on in-app sales or in-app advertising.

Now Getjar is planning to offer another innovative way of luring both customers and developers. On February 23rd, Getjar is announcing a loyalty program that rewards active users with a virtual currency called Getjar Gold Coins.

How does it work? The more apps downloaded by consumers on GetJar, the more “gold coins” earned. The virtual currency can be used to buy premium apps and virtual goods without exchanging any physical money. For example, a consumer earns a certain number of coins for downloading a typically-free app like Skype, Twitter or YouTube, but earns more for downloading premium apps (which are typically paid for in other stores), and receives the largest number of coins for downloading the Getjar store app itself.

This encourages users to spend more time with apps they download from Getjar, and download more apps, thereby generating more income for Getjar. Getjar takes a cut of the virtual currency that is less than the 70/30 split mandated on the Apple Store.

The February Getjar Gold Coin announcement is an offshoot of a program rolled out last August which gave consumers free premium content that they would normally have to pay for on other app stores, including Sega’s ChuChu Rocket and Gameloft’s Popular Asphalt 6 game.

Getjar started in a completely different space: it originally provided a platform for developers to test their apps. It then moved into building white-label app stores for third parties such as mobile operators. Says Laurs: “Two years ago, everybody wanted an app store. There was high demand; we launched 50 app stores, but the ROI is just not there, so we moved away from signing new players.”

The apps market continues, of course, to be dominated by Google and Apple. That is why players like Getjar have to try harder.

That said, in the case of Apple, the bulk of its revenues are generated from hardware sales, while sales from software are by comparison small. In the first quarter of this year, Apple’s total revenue was over $46 billion, of which software sales were just $844 million; the rest was hardware.

Given that Apple has topped 15 billion downloads since the App Store launched in 2008, that figure seems modest.

However, generating revenues isn’t the point of the Apple Store, says Jamie Moss of Informa. Consider Apple’s figures from the first quarter of 2011: Total revenues for the first quarter of last year were $26.7 billion, which grew to $46.3 billion in the same quarter this year. However, software revenues barely grew at all, from $786 million last year to $844 million this year.

Amazon’s app store, which opened in March 2011, also exists to drive hardware sales, as it followed the launch of its  Android tablet, the Kindle Fire.

 Then there is Google’s Android platform. In December, Google said that it had hit 10 billion downloads from the Android Market, which had also launched in 2008. Google claims that its growth rate is one billion app downloads a month. It doesn’t separate out revenues from software sales, but the point of its app store is different from Apple’s.

Google currently sells almost no hardware, bar its faltering foray into the laptop market with its Chromebook and mobile handsets. Google makes its money from advertising. Android is Google’s grab for consumers’ eyes on their mobile screens, and the Android Market exists to extend its reach in the mobile space.

App stores are also an extension of branding, particularly in the case of stores provided by mobile operators. With hundreds of tariffs on hundreds of handsets competing for attention, an app store can be a differentiator to help the carrier stand out to consumers. For example, on Valentine’s Day, 3, the UK mobile operator, tweeted a link to its app store highlighting “great apps for Valentine’s Day.” This is part of a wider strategy of customer acquisition and retention, where the promise of future revenues outweighs any immediate income from app sales.

But are app stores the future?  There’s a bit of a backlash against the fragmentation of platforms and the increasing perception that curated app stores such as Apple’s are walled gardens Developers have begun to experiment with HTML5 apps to free themselves from app store restrictions.

The Financial Times was one of the first to take its app out of the Apple App Store in order to bypass Apple's landgrab on revenues and metrics. The FT removed its native iOS app from the App Store and instead created a web app which, according to FT.com managing director Rob Grimshaw, has been successful in generating traffic for the FT.

HTML5 could be the way forward. It’s a return to the more generic, less device-focused paradigm of the open web, which many would see as a good thing.  It might also be a blessing for Android developers, who have to work across a huge range of handsets and versions of the operating system.

For the user, the open web remains free. But the user experience often declines, as a generic web app doesn’t leverage the specific benefits of a device: sensors, screen resolutions, haptics, etc. At the moment, it seems that users are prepared to pay for that richer, device-specific experience through apps.

If the app market grows as forecast, all sorts of wider questions about walled gardens, restricted experiences and who owns the metrics and revenues come into play. This next decade is likely to see an interesting tussle between open and ownership.

 

For more of Kate's articles see her blog.

 

 

 

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