A sense of déjà vu

08/19/10

In the mid-90s, when the web was in its infancy, the entrepreneurs of the time made a big mistake. They focused on the wrong metric for their business: the number of new users in a given period. These startups raised large amounts of cash, but instead of focusing on the value provided by their product or on the user experience, they engaged in a spending spree to acquire users, or “eyeballs,” as we used to call it. I was there to see this model implode, and don’t want to see history repeated in the mobile app environment.

Every conceivable method of getting eyeballs was explored, often at great cost. For example, a startup called Epidemic Marketing spent a million bucks on a Super Bowl TV commercial that lasted 30 seconds, for the sole purpose of gaining traffic and registrations. The rationale was, “Let’s get users and we’ll have time later to figure out how to monetize them. Worst case scenario, we’ll generate advertising revenues which we know are higher when your user base is bigger.” With such a lack of actionable foresight on the part of the business, the only folks who ultimately profited were TV networks, the billboards on Highway 101 in the Bay Area, and the portals of the time: Yahoo, AOL and MSN. Similar, and worse, cautionary tales abound of good ventures gone bust because their founders hadn’t secured sustainable monetization avenues before the subsequent sharp decline in advertising spending.

The same flawed logic is currently being applied to the mobile app market, with nearly all discussion centered around number of downloads. The current mindset (one we’re hoping to change) follows the previous pattern: the only way to get your app discovered is to gain a spot in the top charts, but in order to get there you need to exploit any possible way to get users to download your app, at any price. Mobile app publishers are spending hard-won money on advertising and pay-for-performance offers (aka cost per downloads), squandering real dollars to get their FREE apps downloaded just to climb an increasingly competitive ladder to the top of the charts. The metric du jour seems to be “download velocity,” but not nearly enough thought is given to the question of what happens next. The current crop of bright young entrepreneurs (most too young even to have witnessed the previous bust) needs to look to the past to improve upon the future.

Mobile app publishers must get serious about monetization—making money rather than spending it needlessly. With few exceptions, publishers need to find ways to generate revenue on a per-user basis that is higher than the cost of acquiring those users. This is the only way to build a sustainable business and separate yourself from the competition, thus giving you more leeway to acquire (profitable) customers. Shortsighted publishers run the risk of falling into the same trap as their web predecessors. The solution is: replace the metric of ‘download velocity’ with “Revenue per User,” to start. Fortunately, there are plenty of best practices that were built on the web of yesterday to help the mobile app publishers of today. Future posts will delve into conversion marketing lessons from the web in greater detail, but the key notion is to understand what your users want, and then cater to them in a way that links user engagement to recurring revenues.

Until then….

Michael Oiknine

CEO – Apsalar, Inc.

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