It’s a story that has been told so many times before. Mobile app developers put so many resources and so much effort into building their product but forget about the whole monetization piece. Or, enterprises shy away from building on the mobile platform because they can’t seem to rationalize the expense versus return. The fact is that, one way or another, mobile needs to be a part of every businesses strategy or it will be its downfall. The question on the tip of everyone’s tongue is how can mobile be used to turn a profit – or at least contribute to something other than the cost centre.
The reality of today’s mobile is that even the big guys haven’t quite figured it out. There is a notion that a mobile strategy is to build something that has the greatest number of users (what I call “user hoarding”) and then, somewhere, miraculously, a path to revenue will appear. This is NOT a revenue strategy, it is a revenue hope and you need to be smarter than that if you are going to embark on a successful launch and follow through with your mobile product.
That is the topic of this epic episode. Scott Plewes, VP of User Experience Design at Ottawa-based Macadamian Technologies, is here to help move more revenue or further your mobile strategy. We explore this by focusing on small user experience and user interface tweaks on the four primary revenue generation tactics in mobile: Freemium, Premium, Advertising and Data. This episode is completely jammed with tips, tactics, gotchas and enhancements you can implement right away to ensure the outcome from your efforts building, deploying, marketing and defending your mobile strategy is worthy of the effort.
Key takeaways from this episode. Click on the link and the video will take you to that clip
Rob: Hello everybody. Welcome to UNTETHER.tv. I’m your host and founder Rob Woodbridge. Revenue is the holy grail for mobile. For app developers around the world there are things that we can do right now that can actually drive better revenue. It is partly about what your app does, it is partly about who you are targeting in your audience, but I guess you could say that there are natural extension, natural ways to actually generate revenue while somebody has the app in front of you and that is all user experience and user interface design.
And we have here today, we’re going to be exploring these four major ways of generating income, the four top ways of generating income in the mobile world. And the UI/UX tweaks that we can make, you can make, every day, in order to drive more revenue through the apps that are already installed on devices. You put a lot of money building it, you put a lot of money into marketing it. Now let’s put a little bit of effort into actually making money from the apps.
Joining me to discuss all four business models is Scott Plewes who is the VP of User Experience Design at Macadamian here in my hometown Ottawa. Scott, welcome. Thank you for doing this, I appreciate your time.
Scott: Oh no problem, Rob. It’s great and I always love having conversations with you.
Rob: Well, this is going to be great. For those people who don’t know about Macadamian could you have the elevator pitch about who Macadamian is before we can get into the meat of this?
Scott: Sure. Macadamian is a software design development company based in Ottawa. As you said, our headquarters are in Ottawa but we office in California too and Eastern Europe. And essentially if you’re a company that creates mobile apps for instance, and you need anything from the initial design ideas through to actually getting it to work, we can provide those services.
Rob: Well, I love it, I love the fact that you’re in Ottawa. I love the fact that you’re a big company doing this for a lot of, a lot of bigger companies, which is really cool. And you’ve learned some great lessons and that’s what we’re going to dive into.
So the app, the business models we’re going to be covering here are freemium, which everybody seems to know. It’s the most popular way of generating an income or at least in theory, the most popular way of generating an income. Advertising, could be banner ads, could be something else we’ll discuss. Premium apps, which are the ones that you actually pay for and, of course, the data that we all collect from this and how to monetize on the data side and generate income from that.
So, were going to dive into this. The very first one which is freemium. This is used by, what? Probably 100 percent, at least 100 percent of people that are out there building applications look at freemium and say, “Well, that’s the easy way to do it. I’ll give away an application for free and then I’m going to turn on hooks inside of the application, rewards, hooks, that will actually drive revenue.” People will pay in these micro- transactions. This is a very popular business model, isn’t it?
Scott: Absolutely. And the challenge with it is your giving away your app away for free. So, in some ways you’re off to a tough start. The, I think there’s a number of keys to success here but I think the big thing is what you’re giving away for free has to have a fantastic user experience and great value. As much as you want to get the money the next round, what your users and customers and so forth care about is what they’re getting for free. And even in super successful freemium apps, most people aren’t paying,
Rob: Yeah, there’s a very, very, very small conversion rate. Like, one of the most successful freemium apps, if you use an example, is Evernote. And they talk about having a 100 million plus users and a 3.5 percent conversion rate. That means they have a 100 million active users and only 3 and a half million of them are actually paying.
Scott: And Evernote’s a fantastic example because they really, I mean, they understand the model. And they talk about this quite openly. It’s a numbers game, like you said. They’ve got so many people using it for free, well, 3.5 percent doesn’t sound like much. 3.5 percent of 100 million sounds like an awful lot, and it is an awful lot. And they understand that it’s getting that initial value and the hooks and then some people are going to love it enough to go to the next level.
Rob: And that is one of the key points here is that you cannot have a product that is hampered or hindered or ruins the experience, or doesn’t demonstrate the true value that the product will actually give the user. If you do that, if you handicap it in any way, people will just abandon it, right?
Scott: Well, absolutely, and think, I mean, to stick with the Evernote example, they have a good search, right, in the free model and it’s enticing you to find the documents you need and allowing you to do that, and you say “Hey, this is a great value.” Then, there’s the hook, right? So, I like using search. Search is helpful for me, but what if I could search within documents?
A small percentage of people are going to go “Wow, I really need that for my job for what I do, for my lifestyle,” whatever it is, and then they’re in. It’s a seamless transition. It’s not I’m selling you something new. I’m selling you something enhanced, which is just an expanded version of what you’re already doing.
It’s a great example of how you entice someone and capitalize on those hooks. [inaudible 00:05:38] too much.
Rob: So, I guess the key…The first step in leveraging freemium to generate revenue is to, aside from the obvious which is build a great product, right?
Rob: But is build something of use that people will come back to every single day, or once or twice or three times a week. We hear so many vanity metrics that are out there around how many downloads the app has had, but what we should be focusing on is really very, very targeted effort on how many times people use it — average daily use, average weekly use, average monthly use — whatever is best for your business.
But, that’s where we should be focusing on and not on the metric of downloads, right?
Scott: Well, absolutely. In the end, usage is all that matters. You can download…I mean a lot of things are downloaded. In fact, it’s a huge number. You might know the percentage. I can’t remember off the top, but there’s a lot of stuff that’s just downloaded and opened once, and that’s it.
Rob: Yes. Over 90 percent of the applications in the world, yeah.
Scott: There you go, right. So you could be enormously successful by having all these people download, but if you don’t have that great user experience, if you don’t have something that people care enough to use and come back to and see the value, then you’re dead in the water.
To your point, it’s not only about the fact that hey, I can use it. I can see how I could use it more, and there’s the freemium model to the upgrade. Hey, I could see how I could extend what I’m already doing to just do more of it, or differently, or in a complementary way, or something like that.
I mean Dropbox is a great, super-simple example. I just need more stuff.
Scott: What could be, my Dropbox cabinet’s not big enough. Essentially, what could be a simpler model that I get what Dropbox is and now that I get to, that I need to drop more stuff in my box.
Rob: It is often that simple, and I think that there are two currencies that we’re working with here. There’s the currency of the user’s time, which in a freemium model is very important, right? So that’s the initial sell, to make it part of their pattern, of their habits, of their day, or their week, depending.
And then the second one is those important hooks, as you said, that allow the user willingly to pay you, right? You never want to force people to pay you on anything. You never want too soon or late. There’s a natural balance of use, and then somebody’s willingness to pay.
The first step is getting them to use it, and then the second step is getting them to pay. So, what are some ways we can make that conversion, close that gap, between use and pay?
Scott: Well, so I think the main ones that we’ve already talked about, right? The big conversion. It’s funny, you said it in a way. The conversion is that you don’t even feel like it’s a conversion. Right?
Scott: You’re just extending what you’re already doing, and I think that’s the biggest key. Introducing a new feature and saying, “Hey, isn’t it great?” is so much harder than saying, “Why don’t we build upon what you’re already doing?”
Because I don’t really have to… again going back to Dropbox and Evernote, I really don’t have to think very hard to imagine what value you’re adding. I’m already putting stuff in my Dropbox, so now I can put more. I’m already searching, now I can search more.
So, the conversion almost just becomes, oh, it’s the thing I fill in a field so I can just keep going with my task, right? It’s so simple, and there’s really almost no selling. It’s so much pull from the user, because they’re looking for it. Quite frankly, you know you’re a success when they’re saying, “Could I get more search? Could I get more capacity?” rather than you’re selling to them.
Rob: So, it’s an interesting balance I find. You’ve got to be able to find that sweet spot where’s there is very low friction and a willingness to just say yes to buying. My guess is that it comes from quite a bit of research and analytics. It’s customers asking. Whenever you have a huge customer base, it’s customer’s asking you for deeper search, for example, or OCR, Optical Character Recognition, in terms of Evernote.
But, it’s also about the way that pricing is the balance between the painful price, by which we all have a threshold of pain when it comes to price. Like, ooh, I’m never going to pay that, no matter what, I can’t pay that. But that’s why games at $0.99 work, and that’s why add-ons and virtual goods at that price range work. And it’s interesting with Evernote is that they pay on a yearly basis, and it seems so insignificant, 40 bucks a year, right?
Rob: That’s got to be part of the strategy for converting.
Scott: Yeah, and, again, it’s the numbers game. I mean 40 bucks a year isn’t much, but when you have 3.5 million people, it’s pretty good.
Rob: Yeah, it’s a good business.
Scott: So, yeah. And I think you’ve made this point before when we’ve chatted that the kind of mental threshold for mobility that anything is set pretty low, right? It’s not like the mindset we had when you and I went and bought boxed software. Remember that? Nonexistent.
Rob: I’m not that old. I don’t remember those days.
Scott: Oh, yeah.
Rob: Yes. Sixty dollars for a game and 200 bucks for Microsoft Office.
Scott: Yeah. That’s what you paid for Office, and you just can’t imagine that now, right? Well, you can’t imagine getting it in a box. That’s tough, but yeah. And in mobility that model just doesn’t exist. It’s the click for free or a quick little seamless download or upgrade or whatever you want to call it.
Rob: Easy transaction. What about the things that people shouldn’t be doing? Why don’t people convert, and what can we do to avoid the challenge, avoid mistakes that will push them right out?
Scott: Yeah. So one of the things, of course, is once they want to buy, you need to make that buying pretty simple. You have to just design. And, honestly, now we know how to make buying online, whether it’s mobile or a smart-phone, tablet website, you should be able to design that pretty well. That’s been designed enough, but you still see things that are onerous, people make mistakes, they don’t get feedback when something’s correct, you got to go get some obscure number that you don’t know what it is.
Don’t make it painful for them. They want to give you their money, but abandonment rates are still atrociously high on websites and other places where you do the buying experience. So once you’ve got them, if you’ve got the value proposition, which is really what we’ve been talking about, now make my experience of buying simple. If you already have my credit card number and account, don’t ask for it again. Please fill in my fields. All that simple stuff we know, right? Just execute them.
Rob: So just make this a seamless, one-button, kind of one-click, if you coin the Amazon term, one-click opportunity to actually buy from you. And is there an opportune time? Do you promote things? How do you make sure that people know that there’s a for-pay version if they’re staying in the freemium side?
Scott: So it’s interesting. So one thing you don’t do it in the middle of when they’re doing something else, the worse thing you could do with user experiences because I was in middle of a task and, basically, imagine you’re in the middle of taking money out of your bank and someone walks in front of you and says, “Do you want some new bank services?” “No, I want to finish getting my money out of my bank.” So don’t stick it in the middle. And you still see that. Amazingly, people interrupt, advertise in the middle of task.
The other thing is, when you get in communities, the communities advertise for you. People know. If you look at Evernote, they hide almost their premium rates. It’s up there somewhere in the corner saying, “Hey, get premium,” because they trust in their experience, trust word of mouth, and no doubt there are times where they advertise and explicitly, but it’s pretty subtle.
If you’re super successful, people will find out, and we do have all the nature of social and so forth that helps out. So if there’s one thing I think that’s important when you’re running your business is that this app is part of your business. You look at a bank, for instance, that gives away the app, but that’s because the service is a necessary part of the business to entice people in other ways to get money.
So you may be giving a pure free app, and it may make total sense for it to be free because what you’re actually doing is pulling people in with that app. The Krispy Kreme example’s our favorite one, we’ve talked about this, where they gave away a free app that tells when the doughnuts are coming out, and you can figure out, “Hey, I’m a half a mile away from a hot doughnut.” It’s because they sell doughnuts. The app is just like a billboard that’s moving with you in front of you saying, “Hey, turn here.” So, it’s okay to just have free sometimes. Sometimes you don’t have to convert in a software sense. You convert in some other service. They go buy donuts.
Rob: That is a very important observation simply because freemium could be, the mobile piece of this, it could be just the front end to your actual business, right? So, it’s a way to entice, attract new customers, bring new revenue into your existing business through the mobile channel and that means free- is always the app and -mium is your actual business, right?
Scott: Yeah, or and there are companies that put in huge back-end systems into companies that are millions and millions of dollars and basically, you know what, the app is free. The mobile app they’ll design it, give it away for free, because it’s just a way to entice companies to buy all the back-end stuff where they make the money.
Rob: Very important lessons here so that freemium can be literally converting in-digital, in the app like Evernote. It can mean converting exactly as we talked about just a second ago which is from the application into additional services, hardware sales, software sales, services sales, like a bank or Krispy Kreme. But the important thing is understanding what deserves to be on the front end on free and what needs to be on the back-end with a service charge or fee. But there is opportunity out there in order to be able to drive more revenue through freemium if it’s done right.
Scott: Absolutely, in fact I’m actually feeling like a Krispy Kreme donut right now just talking about it. There really effective, those guys.
Rob: Scott, the second business model we’re going to be looking at is advertising. The is the most ubiquitous form, or attempt at revenue in mobile today. Everybody says we’ll just slap and ad on it and we’re going to go make a million bucks through advertising. And I hearken it back to the olden days of Google ads and Google AdWords where everybody was making a lot of money and today that might not be the case but it is still the most prominent form of revenue generation out there on mobile. What do you think of advertising then?
Scott: It’s a tough game.
Rob: To say the least, right?
Scott: And it’s tough, being a user experience guy, it’s tough because advertising by its nature, of course, is almost for sure going to interrupt or annoy the user or the majority of you users. I mean, let’s face it, even super successful advertisements have low click-through rates so you’re degrading the experience potentially for a lot of people. That being said, for a business, of course, there’s a place for it. And you can and some people do use advertising successfully and make money and integrate it into the user experience.
Rob: They do. There’s hope out there, right? Because the volume of users you need in order to get a paltry click through, in order to generate a substantial enough info to warrant the effort in building the app, we’re talking about millions of users at any given time, right? Because the click through rate and the payout. That’s the advertising reality. But there are some companies that have been very successful and I’d like to kind of explore this because there are ways that we as app developers can go out there and make money through this. We just have to be smart about it. What are some of the ways that we can do this thing?
Scott: So, so if I hearken back…
Rob: Hearken back, we’re going back to the olden days.
Scott: …back to our last conversation on freemium apps, I would argue the most successful advertising app is one that you don’t even know it, right? So I would argue Krispy Kreme actually gets you to download an application that is one big advertising app. It basically says, “Donuts are ready, donuts are ready, donuts are ready.” That’s an advertising app.
If you can’t quite be that clever and disguise your advertising app as a freemium and you do it for the more traditional model. I think the ones that I see that tend to work are videos partly because the when part of it, and we’ve talked about this before. You know, it’s not just about where, people are, “Where should I put the banner?” and stuff. It’s more about the timing because you don’t want to interrupt your users task and degrade from their experience. So, video allows you to do that better.
Rob: It does. And, I mean there’s an expectation. I’m not a big fan of video, especially long form, not long form, but 30 second ads before a video. You know, that’s not mobile first, it’s re- purposing content I understand that. But, I mean, we have a very short attention span on mobile and it’s 8 or 9 seconds tops. So, you can start to think about this. But for me, really, it’s about reward.
Where you, with mobile advertising, if you reward somebody for doing something that stays out of there way that doesn’t interrupt the experience and then at the end of the experience, it’s kind of, serendipity. Every once in awhile, something pops up and says, “Hey! Thanks for doing that. You get this, if you click here.” Right? I’m a big fan of that, where it’s serendipitous reward, non-interruptive.
Scott: Yup. So you get the reward, or you get the opportunity. I mean, for that small amount of people at the end where they’re advertising the coolest car that was ever built, that is an opportunity for some people. And if you do . . . your point is you don’t want the four-minute video. That’ll kill them, right? YouTube, they’re the big guys, and they do it well, right? They let you skip the ad. They give you 15 seconds or less. They don’t do it every video. It’s interrupting every once in a while. When we’ve worked with our clients, we’ve used similar models to that.
And it’s really key that you’re using some sort of information that’s context-dependent, like demographics. We’ve used that a lot with clients. Who’s looking at the video they came to watch, and then are these the type of people who are going to go on a family vacation, right? In which case, of course, show the Disney vacation, or something. It’s really key to get the demographics. And of course, as you’ve pointed out before, location can be another context one that’s really useful.
Rob: I’ve seen some unique opportunities here. Advertisers trying to look at new ways to drive activity through mobile. And we’ve all heard of this company called Nuance out there, who’s actually building a talking ad. Now, I want your opinion on this. It’s an ad literally that is like a game. It’s an interactive experience, like Siri on the iPhone, where you talk to the ad, it talks to you, it asks you questions, you answer with voice communication, and then it walks you through whatever. A form that you have to fill out. It walks you through something. And at the end, it’s an advertisement. It’s an engaging advertisement. Does that strike you as a viable way for companies to engage in mobile advertising like this?
Scott: So I think it’s viable. It’s risky. So here’s the great viable part. Any great design in software is really, in a way, mimicking what you do with people, right? The reason you give feedback when you hit something wrong on a button when you’re using software and say, “Hey, don’t do that,” is because that’s what we’re used to dealing with people.
Rob: [buzzer noise]
Scott: They give you all . . . yeah, if you’re saying something wrong. Or, “Hey, you did that right,” or, “This is what’s happening.” So in fact, user experience is this big dialogue you’re having with your software. Because we evolved to communicate.
If you can actually engage someone in a dialogue and the software is intelligent enough to guide you down that path, and you want to go down that journey, it’s absolutely brilliant, right, if you can do it. The tricky part is, of course, it’s matching a human being is a tall task when it comes to that kind of guide.
Rob: Yeah. We’ve all seen that with examples in Siri, and there’s an entire . . .
Rob: There are websites that focus on that. It’s very interesting, though, that relationship building, the interaction side of things, is that it’s not natural to have a pop-up banner advertisement in front of you during the times when you’re doing a task, or during any time on the Web. It’s not a natural thing.
Rob: We’ve taken it from text ads, basically newspaper ads and magazine ads, onto the web in banner ad format, and then we’re trying to squish those into a smaller screen, and we wonder why they’re not effective. Are there any strategies we can use to make those effective? Because I know people just default to them, and there’s got to be something that they can do.
Scott: Well, you can minimize how ineffective they are sometimes. There’s a . . .
Rob: But that’s the same thing, right?
Scott: It is. It is. Because you’re already just looking for that small click-through rate, right? So some of the principles that did apply on the big screen still apply on the small screen. I mean, a good generic rule for websites is if you’re going to advertise to people . . . and advertising, don’t forget, isn’t just the banner ads. It’s some sort of teaser for . . . there’s some information functionality or content over here that you might be interested in, right?
The rule of thumb for websites: home page, because that’s where I may be making a bunch of choices, maybe to get information. But maybe that’s my opportunity to go buy something, or lead me somewhere that would buy something. So the landing or equivalent of the landing page, that’s where you probably want the hook. When someone’s engaged in a task, forget it. You’re just going to annoy them.
Rob: Yeah. So don’t . . . when they’re putting a task in their to-do list app, don’t put a little banner ad to distract them from that. It’ll take them away. The other side of it that we’ve seen is . . . a buzzword around certainly mobile advertising is context. And so contextually relevant ads, location-based ads, or location-based marketing. This can be effective as well, given a circumference or a geofence where people can actually engage right away with that ad. It’s relevant to their surroundings or time of day. Right?
Scott: Yep. Well, and your restaurant one was a great example. It’s funny if we go back to the Krispy Kreme one and rethink about it as an advertisement, which it really is, that’s what they’ve done. Right?
Scott: They’ve got you to download an app that you don’t think is an advertisement and it is. And then when you’re close enough, it tells you you’re a mile away from the doughnuts. Right? So that, yeah, the location, because there’s some key parts of data that are easily available. You know the allow, don’t allow, my location. Right. Location is a great one that tells you about context. There’s other things that people try and get at sometimes, like contacts. Which are a little harder to get at. You probably shouldn’t be going after, at least not without permission. But there’s readily available information that you can use.
Rob: Yeah, we’ve seen a lot of success. A lot of success with quick serve restaurants. Or fast food restaurants. And contextually relevant or location-based ads. And you go to a dense part of the city like Times Square, advertisement it is premium everywhere around you. But if you look around very closely, people aren’t looking up there anymore. They’re looking down at their screens.
Rob: So by hitting them at the right moment, like at about 11:45 on a Tuesday afternoon, or Tuesday morning, with a Kentucky Fried Chicken or a KFC ad or a McDonald’s ad at that moment might trigger, and some of these conversion rates are very high for contextually relevant location-based ads in a certain time frame. I think that there’s an opportunity there. But not every app fits that bill. And not every app has the user base to be able to drive that kind of revenue.
Scott: Yeah, you have to have a large user base. The time example’s a great one. Because there is lunchtime. There is dinnertime. There is a, I’ve been at the bar all night and munchies time.
Rob: [Chorma’s]. That’s right.
Scott: Yeah. Chorma time. So and because you have that data available and you’re right, because people are looking at their phone instead of around, which is kind of mind boggling. But you know it’s true. And they’re texting their buddies and so forth and checking things. The opportunity is several fold.
Rob: All right. What about some design challenges? We know there are design challenges with this. But here’s a perfect example. Tell me if you hear this all the time, because I hear it all the time, is that, hey, we built an app. Now we want to put ads in it. You hear that and as an UX/UI guy, what do you do? Do you cringe when you hear that? Because there’s got to be a process for bringing ads in and it doesn’t happen at the end.
Scott: No, it’s like every other. I do a lot of cringing actually when it comes to design. But it’s like any other part of it. Because you’ve defined it as part of the, essentially, the functional requirements up front. Say what does this application do? Part of what it does is it provides advertising information. And so you should be designing it at the exact same time you’re thinking about all the other functionality.
So when we design, we go through story boards. We put up mock-ups. We do all that stuff. You should have mock-ups and story boards with advertising built in sometimes. So your example of the restaurant one, I mean you create a scenario, and you say what would it look like. And you say, okay, when do we pop it up. What do we tell them? Where do we allow them to click? What’s the product and all that kind of stuff? So designing it in from the beginning is huge because putting it on top, like any other aspect of design, it’s almost guaranteed failure.
Rob: I totally agree. My favorite example is this company called kiip.com. Two i’s, K-I-I-P. And what these guys do is they sell the marketing experience. Right. So it’s a very unique opportunity where, say you have a fitness application. You work out a lot and you have a fitness application. And the way that kiip works is that at the end of your workout, you’ve logged your workout. And when you hit submit on the workout, sometimes you’ll get a reward. And Pepsi has a brand of Dasani which is their water. And they wanted to work with kiip on the fitness side and on the fitness moment.
So at the very end of your workout, sometimes you hit submit. I’ve done my workout. I’m about to go to the door and you get a little pop-up that says, hey, put in your email address here for a 20 percent discount on your next bottle of Dasani. And they own that moment. And that to me is serendipitous, beautiful marketing. And it is using the advertising revenue model to be able to drive good, good relevant customers to Pepsi or Coke.
Scott: And they’ve piggybacked on something that’s a super successful app. Right. So fitness apps are very popular. I’m sure you know some of them. And it’s amazing what they, get your workouts in, suggested workouts, you can track stuff. It’s great, of course, because I carry my phone to when I go to the gym or something like that. And you know a lot about the user, right? You know a lot about the people leaving them gym when they’re finished their workout, and so forth. And so absolutely. You’re given the context, and so your timing and your ad can be smart, and it’s going to drive the response rate way up, because you’re not just shooting in the dark. You’re shooting with context.
Rob: And you’re leveraging somebody else’s . . . I love that. You’re leveraging somebody else’s audience. So say you do . . . like, I track what I eat through an application.
Rob: And then what if you, after a certain number of inputs, you start to then understand what I eat, and then you can make recipe recommendations, tie in with a local grocer, and make sure that you can have a seamless process to go and buy those groceries from that grocer with a discount, right? That is effective advertising, isn’t it?
Scott: Yeah. And it gets to the . . . we’re going to talk about this another time around. Gathering data to learn about your users, right? So a lot of context is really about what environment is your user in, how are they behaving and so forth, and how can I use that to have them use my application more. Or in this case, use kind of a functionality of the application, which is the advertisement part of it, right? Good advertisement is taking me to some content or functionality that actually I care about. It may or may not be inside the application, of course.
Rob: All right, Scott. The third piece of this puzzle, the third largest, the third most populous way to make revenue in mobile is through premium apps. This may have been the original, right?
Rob: This was the one where you actually paid upfront, whether it was a buck or two or three. The traditional software model, where you paid before you actually got to use it. And this was dominant, because iOS didn’t have free versions. They didn’t have trials.
Rob: Now it’s a little bit different. But back in the day, there were companies who were making a ton of money through the premium app model, weren’t there?
Scott: Right. Absolutely. And now, of course, it’s really tough because of the ubiquity of the free apps. The one area that’s still quite successful, and this is games, of course. Still, then, there’s a lot of free games, naturally. But if you look at who are the top ones, whether it’s Android or iOS, it’s a list of games. There’s a few differences in there, but yeah, it’s a big gaming area.
Rob: It is 100 percent games and utilities. And utilities around productivity.
Rob: As well as . . . I use utilities for streaming video in my house from different devices to different devices. But those are highly niche, highly specialized, and often cost quite a bit, in relative terms to the average app cost. I mean, they’re not $.99 apps. I’ve spent $5 or $6 on games and $20 on applications, right?
Scott: Yeah. And it tends to be almost like an upgrade feeling. I mean, we talked before, and you mentioned kind of about upgraded emails. Even if you look at some of the less expensive ones. Like there’s a quite popular one called Camera+. Plus with a plus sign, right? And it’s not that expensive. But it’s interesting, it’s kind of almost like the freemium model, in the sense that, hey, I understand the camera, and it’s the free thing. And what you’re doing is you’re saying, I’m going to pay for an enhanced camera. Enhanced functions. Right? When you think the email, same sort of thing. I already know what email does, right? And when you talk about other ones that are productivity, it’s often sinking into an existing system, right? So I’m kind of upgrading, in some form or another, something I already do.
Rob: Well, I use Camera+, and I was one of the . . . it’s the best $2 I’ve ever spent, and it’s probably the best $2 that the three or four million other people that have bought it have ever spent. And then you do the math on that. Just calculate that for a second.
Rob: That’s $6 to $8 million. It’s a two-person team that runs that, at least they used to. And now what they do, it’s a perfect example of this, is that they have filters, and they have a color reduction, or eye . . .
Scott: Get rid of the red eye stuff.
Rob: They have filters, and red eye reduction. And those cost me $.99 now.
Rob: So there’s a continuous stream, right? It was a premium app with a freemium model built in behind it. And premium is a quarter of all the revenue that’s generated. 24 percent of the revenue that’s generated in apps out there. And that is a perfect example of an application that has embraced this model and said, “You know what? We’re not free. We’re not the camera. You’ve already tested the camera. You know that there are limitations in it. Here is a much better camera for a small, small, small price.” And I gladly pay for that. It’s one of the apps that I use instead of the native application on my iPhone.
Rob: I’m doing that more and more. Are there other examples that we’re seeing of these apps that you’ve used, maybe, that have converted you from a free alternative? Because it is so competitive out there. It’s so hard to find the things that you love. But people still plunk money down on these things.
Scott: So actually, just to go back to Camera+ for a second, because it’s such a great example.
Scott: And the idea of the freemium model and premium model, while we talk about them differently, in both cases, you’ve got a camera, just like you said, and you’re upgrading to get a better camera. Free app . . . and you know what? The camera you’re upgrading is pretty good. It does a lot of stuff. So you’ve already got a good experience with your camera. If you probably thought that you couldn’t do anything with your camera, I would bet that it would be harder to actually upgrade, right? To get people into Camera+, because they already hate the camera that’s on the phone.
It’s also, the other thing about it, it is easily understandable, right? You’re not creating . . . people do, in offices, get used to complicated [inaudible 00:36:20], right? But if you’re going to download an app, 99 percent of the time, I have got to understand what it is in an instant. It’s not hard when you look at the features on Camera+ to understand what the value is in those. Other ones that I’ve seen, there are popular ones around taxes, for instance, right? So you understand quickly what it’s going to do for you and why you’d want it. If you have to think about it, forget it.
Rob: So most apps, I believe, are on this thing that I call the race to zero, right? Especially premium applications. I mean, freemium starts at zero and then goes up, which is a great thing.
Rob: Premium apps start at a price, and then what ends up happening is it eventually falls down to free, right? That is exactly what happens. So the importance of a premium application is really in the first four or five days around launch, right? That is when you’re going to make the most money. You are going to ride high on the charts. You are going to generate . . . if your product is good, and we’re assuming that it is . . . and if it isn’t, you should call Macadamian to make sure that they can help you make a good product out of this, and make sure that it’s functional. But we assume that it’s good.
So you launch the product, and people are going to buy the product. And you’re going to go up the charts. So this is the perfect thing. But as quickly as you go up those charts, you start to fall down. I call that the trough of despair, right? When you’re at the peak and you’re like, “Yes, we’ve done something!” And then it just starts to plummet off, and it’s a steep fall. Most app developers then look at the price, and say, “Look, if I drop it from $1.99 to $.99, I’ll get a second lift.”
And it usually happens right. Now, you cut your revenue in half, but you get another lift, and you get exposed to more people, and you make some more money. But then eventually, very quickly, you start to fall again. The second trough of despair. It’s even more depressing than the first one. And then you are left with absolutely nothing.
So four weeks, five weeks, six weeks down the road, you’re relegated to the dustbin. The has-been app. You’ve turned the price to zero, and then you’ve turned your attention to a brand-new application. So all of the effort, sometimes 16, 18, 24 weeks of development, goes into four, five, six weeks of as much revenue as you can generate. This is on average for the applications. But almost 90 percent of them relegated to the dustbin, back down to zero, on to the next app. It’s a very, very, very hard cycle.
And that is what I look at and think, there is pain there when it comes to premium. It’s not easy, as you said, Scott. Not easy.
Scott: No, it’s pain. And I think it goes to the . . . you have an implicit . . . well, pretty explicit business model, actually, there, right? You’re not packaging a whole bunch of services. You’re not selling your company. You’re giving a dessert, right?
Rob: That’s a good way of putting it.
Scott: And the person’s just, “Oh yeah, this is a great app!” And then it’s gone. We’re on to the next thing. And it’s probably the toughest one to win at, because in a way, I mean, businesses thrive and survive because of value propositions that have legs, right? And by definition, almost, if we’re doing that, the value proposition doesn’t have legs, right? And there’s nothing to build on.
Rob: What are some of the examples of some of the . . . We talked about Camera+. Camera+ is a perfect example. The app you get on the phone is an adequate camera. They managed to succeed, and drive great millions of dollars in revenue through this model. So are there certain characteristics that we should be looking at in these apps for an app, if you’re thinking of building or if you’re thinking of charging for it? Like, is there a checklist that we can run through very quickly that says, “This is what works. These are the apps that should be premium. These over here, not so much.”
So one thing as we already talked about that, I get what this thing is right away. There’s a clear utility to this right, something that allows me to do something I couldn’t do before. Right, and you said premium is the old model well you know.
Rob: It worked.
Scott: The old software model right. I bought things that had utility that I could not do otherwise and that’s still true.
Scott: It’s got to be simple in terms of all the things that go around the user experience besides using it. So installing it, upgrading it, if I need to, getting support, etcetera. Fortunately a lot of the stuff is a lot easier than it used to be. I mean downloading it and installing it has thankfully been made pretty simple by marketplace and the [stores]. I think those are key things.
And the other thing I’d say that’s true for these things, you kind of said it implicitly to people, it’s very clearly focused, right. It’s focused in terms of, because no app is successful that’s bloated in features in mobility. We’ve had this conversation so many times, right. You can’t just give a millions things out and hope it’s going to work. You’ve got to be very focused and understand your users, understand their context and understand the value. Somewhere in there is the magic that pushes you over, and usually its pushing you over from something your already familiar with like the Camera+.
Rob: So astute those are great examples and I love the fact that in order to be successful when it comes to building and application like this, you also have think about the context with which it’s being used in. And I’m talking about small screen, like a smartphone versus tablet. So an on-the-go experience versus a leaned-back experience. And numbers suggest this, that when you’re in a hurry you spend less money. When you’re sitting back and relaxing, you spend more money.
So the opportunity is to tailor the application for the experience that you want. And don’t just assume that whatever you do on the iPhone or the smartphone will work on a tablet the same way. They are drastically different experiences. Any insight that we can talk about that, the difference between the two and how we can extract as much revenue which is what it is about. If you’re in this model from both platforms?
Scott: Yes I think those are great examples of the difference in experience between . . . you’re just going to remember two things about the difference between tablets and smartphones for instance is less space and less time right. I spend more time on the tablet than on a phone, partly because partly because I’m interrupted partly because of the nature of how I interact with it.
There is literally less space right. I can’t stuff as much functionality and information on there. And to your point right, there’s a natural transition or model people make on you know what less space, less time, less money right. More space, more time, more money, right. It’s just driven in that’s there’s a relation between that and value and what I’m willing to spend. So you should probably, potentially at least could charge more for your iPad or android or BlackBerry whatever your using for your tablet than you could for a smartphone.
Rob: Scott, the next one were going to attack here is data. This is so big. Opportunities are so huge when it comes to data and there are so many facets of data when it comes to the mobile world that I don’t know really where to begin because this is such a rich emerging market that all of a sudden is upon us. Because all of a sudden there are five billion connected devices that we carry in our pockets around the world wherever we go and there all collecting data. And somebody must have just woken up one day and said, “Oh my god, we have so much data, we can make a ton of money”. And then they started moving down this path and data is, I think, the Holy Grail for mobile revenue, isn’t? It’s just huge.
Scott: It is huge. The biggest thing about data to remember I think, not the biggest thing, a big thing to remember is, remember your grade at an 11 chemistry teacher something taught you when you did an experiment, you have to have a purpose and the methods and the data, which you gather, and then you make a conclusion, right?
So if you are collecting data, all that stuff you learned in grade 11 or 12 chemistry or physics still makes sense. You can’t just collect a whole bunch of data and hope you’re going to have a great conclusion and make money, right? You really have to be smart about why am I collecting, what am I going to do with the data.
The amazing thing about it is the, in experimental terms, the N is so large. My sample size is huge. So there’s the big opening for opportunity.
Rob: There has never been a time like this, where you can actually reach . . . as you said, the sample size, a huge subset of a population. Not only in one local area, not only in one country, but multiple countries, and be able to sample this across, just because they carry these devices. That is one of the aspects that I am so interested in.
The other side of it is this emerging market of wearable technology. Because you think that we’re collecting enough data right now, or too much data, from the phone that we have in our pocket. But my goodness, these things, always on connected devices, whether it’s strapped to your wrist, you’re wearing it as eyeglasses, or you’re wearing it as a shirt, or even a baby’s onesie, the data is flowing through, and there are massive opportunities in order to be able to crunch it.
But to your point, you’ve got to know what you’re collecting and why you’re collecting it, or else it’s just a pile of numbers.
Scott: Yeah. And user experience, a thing that’s always been true is that it’s about understanding an insight of your users or customers. And data can help you get information about understanding an insight of your customers and what they’re doing, but you just have to be smart about it when you do it.
Rob: Why don’t we break this down, because it is so big, and we’ve already bitten off too much that we can chew in a short period of time? But if we were to look at the enterprise, large companies and how they can use it inside. And then we’ll bring up some examples about how the large enterprises or small enterprises can leverage data from their customers to better serve their customers. Is that a good way to do this?
Scott: Sure. So it’s a really simple . . . we’ve worked with clients on HR apps, for instance, right? And an HR app should be helping your human resources. Not in a punitive way, but in a, hey, let’s actually help these guys. Simple things to track are what information are people asking for all the time, right? And then if you’re designing it, how do you put that information at the top?
Or, now here’s the bigger thing, right? How do I change my system so actually, you know what, why is everyone asking how vacation pay works, or stuff like that? Apparently we don’t explain it very well, right? So you can learn things that help throughout the entire system.
Businesses . . . I mean, there’s only a few ways to make money. One of them is operational efficiency, right? And you can gather data on how people operate and what they’re asking, where they get stuck, and that sort of thing that allows you to become more efficient. And it’s not about the people. It’s about setting up the system to serve the people, rather than the other way around.
So that’s a great internal use that we’ve seen. And honestly, I think we’re just glimpsing that.
Rob: No, we definitely, definitely haven’t started. It’s funny how people think about the enterprise, and they automatically think to punitive things, like, “Jack Welch, we’re going to fire the bottom 15 percent, because we track you on your phone and we know you’re not in the office.”
Rob: I don’t think that that’s what we’re talking about here.
Rob: At least we’re not quite there yet. But there are things that are almost immediate that you can leverage data from. Like, you know that if it’s 11:00 and you’re a salesperson, it’s 11:00, and you’re in an airport on a Tuesday, then anything that you’re buying with your credit card is going to be an expense, obviously, for your business, right?
Rob: And the same thing about your mileage. If you’re driving on a Tuesday at 2:00 in the afternoon and you are a salesperson, based on the role that you’re doing . . . there are ways to make that intuitive internally so that everything gets processed faster, that there’s less overhead or headaches for your employees, right? Those things, are, I think, low-hanging fruit, wouldn’t you say?
Scott: Absolutely. It’s all about . . . we’ve talked about, we’re used to a context so many times, right? And you’re observing the context of the person you’re responding to, and you’re saying, “Because I know you’re behaving this way . . . ” I mean, that’s what data is. It’s saying, “This is how you’re behaving,” or at least, “We’re inferring you’re behaving a certain way,” right? We know you go to this one page all the time, so we think we can infer what’s going on.
One thing that you sometimes might want to follow up on is actually talking to a few people to see if they’re actually behaving that way. You gave that great example. We were talking the other day about [Bump], right? And . . . I think it was Bump that they cut out a bunch of features, right?
Rob: Yes. Yes.
Scott: In their release, right, when they went from 2.0 to 3.0, or whatever it was. And it was very bright. What they did was they actually looked at what people are using and not using. And I’m sure they did an excellent job. But when you’re doing that in general, you also want to double-check, because if they’re not using it just because you designed it badly, that’s a different reason than not using it because it’s not of value.
But data can give you the insight, at least, that, hey, this feature isn’t being used. Maybe we need to redesign it, or maybe it’s just not that valuable.
Rob: Now, with Bump, it was a perfect example, is that they started off . . . Bump is one of the top 10 apps of all time in iOS, and it is quite literally, you bring two phones together, and it’s the bumping motion, and the movement motion, that transfers your contact information. Your business cards. And that’s what they set out to do. And they went . . . version 2 and beyond went so far off the rails, they decided to do so many different things. And then they realized that 90 percent of the use of the product was the original use. 90 percent. So on version 3, they stripped out all the stuff that wasn’t being used and they went back to the original mantra. They just made it much better, and it was all because of usage user data.
So there has to be a few other examples about how enterprises, big companies, are using what we call big data to actually make a little bit more money, or help us as consumers move along the buy decision a little bit more. Do you have any other ones of those, Scott?
Scott: Well, I mean, some of it’s a bit speculative, because by their nature, these guys will, of course, hide a bit of what they’re . . .
Rob: Deny, deny, deny, hide, right?
Scott: . . . their data, right? One thing that was known even before this, of course, is airline companies were smart about tracking where people flew and things like that, and then they would offer you a package. If you’re always going to the West Coast, and you’re always going to Vegas and San Francisco, then why not offer this guy a package?
Now, that was even before we were carrying around smartphones and these little data trackers, whether we’re wearing them or carrying them. So now they know your location and what you’re doing, and I know that you’re going to board San Francisco flight because you just got a ticket. What else do I know about you? And you can start to combine that stuff.
So you can start to see even something as simple as location data, combining it with other existing data, how you can start to leverage this information to push opportunities to people.
Rob: The airport is such a perfect example of this. There’s an entire battle happening now with airport merchants. You know the stores that you scream by as you’re late for your flight?
Rob: But they are trying to, it’s their business to attract your business into their doors.
Rob: So now you add that layer on top of this, right? So couponing and discounts based on destination and time abroad. And then you bring in the duty-free shops. And you’ve got this ecosystem all around data that is a little bit smarter, right? So it says you’ve only been in the US, or you’ve only been in Canada for 48 hours, and you’re only allowed this one bottle. And it does all that, and then marketing happens as a result of that knowledge. And it’s all data-driven, right? I mean, that’s an awesome future. Frightening, a little bit, about how much data is being exchanged, but it is an awesome future. We’ve all used . . .
Rob: Go ahead.
Scott: Well, I was just going to say, you said the frightening part. I can’t remember the movie. There’s a Tom Cruise movie where he’s walking by billboards, and they’re talking to him, because they recognize who he is. Who his character is. So they give something very specific to him that they’re suggesting. And, I mean, we’re getting a glimpse of that, because basically the data is about, we kind of know who you are and what you’re doing and what you like, so we’re going to target something very specific to you. And that’s really what data’s about. Whether it’s helpful, which hopefully most of the time it is, or whether it’s . . . people argue it’s sometimes a bit underhanded.
Rob: Well, it’s underhanded . . . I mean, we see this online in the web world with retargeting of ads based on your history of where you’ve been.
Rob: So if you’ve ever been to a website, and then you notice all of a sudden the banner ads are from that website.
Scott: Yeah. Yeah.
Rob: But it’s to keep them in your view much longer.
Rob: But if you were at, say, the Pokemon website for your kids, and then you’re seeing Pokemon, it doesn’t do you any good anymore, because that’s not an interest. So the problem with mobile is there’s no such thing as the mobile cookie yet.
Rob: So data, the thread of data, is important only if you can share, right?
Rob: And if you can’t, it’s in isolation. And then you don’t get the Tom Cruise walking through the airport.
But one of the things that I . . . and a great experience, from a consumer standpoint, is the app Ways, right? It was just bought by Google recently for a lot of money. And it’s a GPS. But what they do, they have this little bit of intelligence. Like, if you ski every Sunday — which we do — it understands that at 11:00 on Sunday morning when I launch Ways, I’m going skiing, so it automatically puts up the information, right? It puts up the route and the directions. My preferential direction. I don’t have to choose anything. It just does it.
Rob: And then you start to think about the data that’s layered on top of that. The ski hill knows that I’m coming, there’s restaurants along the path and then that kind of data changes the experience from one of, the ski hill is the destination to, there’s opportunity along the way for detours. And I think that there’s, this is a fascinating time just because of data.
Scott: Absolutely, and actually we’re working with a company I have to be careful what we say but it’s…
Rob: It’s okay. Nobody’s listening.
Scott: It’s really about leveraging, that’s leveraging your behavior, right? And it’s looking at applications you’re using in a generic sense and leveraging your behavior and making some suggestions, right? And in a way, what, that’s, I mean, in a way that’s a suggestion to you that’s really good, right? My suggestion is you probably would like to have the route, right? Well, yes. 99 percent of the time that’s right because this is what I do.
And that’s what data is. Data is insight into your behavior and preferences. So, how do I behave, what might I want which is, all good user experience research actually is about that, right? What are people’s preferences? What are their actual behaviors? And then you get something that matches.
Rob: And I think that that’s the key thing is that there has be a value or else it does become creepy. Like creepy, creepy, creepy. The opportunity here is, and you know one of the biggest ways to leverage data is we’ve talked a little bit about the wearables, and the ability to put on a shirt that has sensors that give you the metrics for your body, right? I mean, this is a self- tracking generation that is happening and we know that that’s going to emerge. And trends are going to be there. And there’s always that hope that because I’m wearing a shirt that has sensors in it and is tied to my iPhone or my smartphone it will be, it will let me know when I’m on the fringe of having a heart attack, right?
Scott: Yeah, yeah.
Rob: And it will call 911 for me right away and the ambulance will be here before I have my heart attack. And we’re not quite there. But there is opportunity when it comes to doing a certain amount of research when it comes to how people are using product. And I think that’s really where the benefit is right now, which is, look, you want to reengage your customer base you want to reengage your app users, you have to leverage the data that you’re collecting to be able to really specifically target the things that are important to them to be able to bring them back into the fold. That is the key to revenue is to make them come back many, many, many times.
And I think that that is the perfect first use of data. Find out what people are using, how they’re using it, how they want to use it, and then start to implement those things in your mobile application and your mobile world.
Scott: Absolutely. And it’s nice to think there’s the creepy stuff potentially, but it’s nice to think about the altruistic things too, like the medical ones. How can you use data to help someone who has been in the hospital and is coming out and they’re on a fitness routine or a certain diet, how can you help them with learning what to do better at tracking whether it’s their calories they’re burning, or their pulse or their blood sugar level.
So, there are many good uses of data that potentially connects, for instance, a patient with a doctor. And then, this could be a business proposition too. If I’m building that software, and I’m allowing the patient and doctor to connect without the patient driving all the way to see the doctor, then all of the sudden I’ve got a way that will save the hospital and medical community money because people are getting less sick, it’s preventative, the cost is less. So, there’s altruistic, societal benefits that can come from this data. It’s not just about selling you something.
Rob: I really, really, really wholeheartedly believe in that. And if you’ve ever looked at the way that health care is done right now, it should be a simple question like how long will I be in this kind of pain when I did this, like broke an arm or something like that? Or, they don’t really know, but if they took the aggregate of all the data and they put a sensor in everybody’s cast, they would be able to leverage that data to some good use. And you’d be able to get an answer, right? You’d be able to know how your bone is healing, and humidity and the pressure in there. Like there’s so much that can be done. The challenge with data is that people are fearful about giving up too much data.
Rob: And what that data is obviously, as we’ve seen many times over in the last couple of years, what that data is being used for. Used against you? For good or for bad. Like the talk of insurance companies, limiting or increasing your rates because you smoke or you drink, right?
Scott: Yup. Yeah.
Rob: So, there’s a balance here with big data, and to your point at the very beginning, you have to know what to collect and why you’re collecting it. Data spoils. And if you ever get caught with too much data, you’ve had a breach in your network, somebody’s hacked you and that data comes out that you’ve been collecting it, that is more detrimental than anything you can imagine when it comes to your business longevity. So, it’s caution.
Scott: Yeah, and there are huge ethical issues around data. And, I mean, I’m not wise enough to solve those but I certainly know that there are things people need to be aware of and I think we’re all obligated to be thinking of.
Rob: Yeah, inherently we know what those are. It’s the thing that you hope that never happens with your data. And that’s the boundary that you have. But all that to say. When you look at this, we are in the very early stages of this massive opportunity which is data. And using data to better your customer experience, better your product experience, better your internal processes and simplify them if you’re in a business. And also, hey, you know what, trigger new revenue opportunities as a result of this data, find the trends in the data but you have to be very clear about what you’re looking for and why you’re looking for it. Data is awesome.
Scott: It is.
Rob: What can I say? Those are the models. We know that this is a massive opportunity. We know mobile is obviously pulling. We’re not pushing anymore when it comes to revenue. A huge number, a number that just came out in North America that says over 10 percent of all digital commerce is coming from mobile now. There is a huge opportunity around that and you owe it to yourself, your business, your customers, your relationships, your employees to be embracing this, or else you might get passed. And it’s very important.
I hope we’ve demonstrated with these four examples, how important mobile is and how important it is to turn revenue on in mobile simple because the user base is shifting over there and we all know that.
So, thank you Scott for doing this, I appreciate your time. Man, insight has been great. Examples are awesome. I love this conversation. Probably could spend weeks talking about this stuff. Seems like we have maybe, I don’t know. But, thank you for doing this and where should we be sending people for more information about you and Macadamian.
Scott: The easiest thing to do is just go to our website, macadamian.com. You can actually find me there if you want to talk to me. And I’m sure there’s a picture or something to click on, or phone numbers there and to your point we love this. We not only do it because it’s business, we do it because we love it. People are excited about working on this stuff. So, if you want to come to a place where people just love doing this and then want a partnership, just like you and I love talking about it, we’ve got people who actually love doing it.
Rob: What? People love doing? Yeah.
Rob: It is contagious, well go to Macadamian.com. Just like the nut. You know, one of the unique things about Macadamian in their Ottawa office is that they’ve named all of their boardrooms after different kinds of nuts. It’s like, it’s nutty. [inaudible 01:02:32] Sorry, Scott.
Scott: That’s so sad [inaudible 01:02:37].
Rob: It’s so sad. I had nothing better that was it. That was it. That was it. Scott, thank you so much for doing this. I really appreciate your time and we’ll see you next time on UNTETHER.tv. Thanks, Scott.
Scott: Thank you. Bye.