App Discoverability, Quality, and the App Economy

1. WINNER TAKES ALL
Discoverability, Quality, and the App Economy
Eric Benjamin Seufert
LTV > CPI #2
November 20, 2014

2. WHO AM I?
Freemium Economics
Head of Marketing at Wooga

3. THE INTERNET 10
YEARS AGO

4. THE INTERNET 10
YEARS AGO
• Marketing provides value only for largest spenders;

5. THE INTERNET 10
YEARS AGO
• Marketing provides value only for largest spenders;
• Returns from market capture highly skewed.

6. MODELING THE
INTERNET

7. MODELING THE
INTERNET
• “All pay auction”: everyone pays, few win;

8. MODELING THE
INTERNET
• “All pay auction”: everyone pays, few win;
• Content not monetizable;

9. MODELING THE
INTERNET
• “All pay auction”: everyone pays, few win;
• Content not monetizable;
• $0 switching costs;

10. MODELING THE
INTERNET
• “All pay auction”: everyone pays, few win;
• Content not monetizable;
• $0 switching costs;
• Content investment => perceived quality;

11. MODELING THE
INTERNET
• “All pay auction”: everyone pays, few win;
• Content not monetizable;
• $0 switching costs;
• Content investment => perceived quality;
• Development / marketing costs are sunk.

12. USER BEHAVIOR
• Users choose highest quality sites of which they are
aware;

13. USER BEHAVIOR
• Users choose highest quality sites of which they are
aware;
• Users respond to firms’ “bids” for their hits.

14. USER BEHAVIOR
AWARENESS
QUALITY
NO YES

15. USER BEHAVIOR
AWARENESS
QUALITY
NO YES
SITE 1
SITE 2
WINNER: NONE. NO HIT.

16. USER BEHAVIOR
AWARENESS
QUALITY
NO YES
SITE 1
SITE 2
q1
WINNER: SITE 1.

17. USER BEHAVIOR
AWARENESS
QUALITY
NO YES
SITE 1
SITE 2
q1 q2
WINNER: SITE 2.

18. USER BEHAVIOR
AWARENESS
QUALITY
NO YES
SITE 1
SITE 2
q2
WINNER: RANDOM CHOICE.

19. ADVERTISING

20. ADVERTISING
• Firms seek maximum exposure if they choose to
compete;

21. ADVERTISING
• Firms seek maximum exposure if they choose to
compete;
• Demand for advertising is price inelastic;

22. ADVERTISING
• Firms seek maximum exposure if they choose to
compete;
• Demand for advertising is price inelastic;
• As advertising costs increase, likelihood of entry falls;

23. ADVERTISING
• Firms seek maximum exposure if they choose to
compete;
• Demand for advertising is price inelastic;
• As advertising costs increase, likelihood of entry falls;
• Spend positively correlated to gross revenues.

24. ADVERTISING
• Firms seek to beat competitors in terms of quality on
marginal basis (quality investment costs are sunk);

25. ADVERTISING
• Firms seek to beat competitors in terms of quality on
marginal basis (quality investment costs are sunk);
• Advertising generates revenue proportional to reach,
so firms seek to maximize advertising spend.

26. ADVERTISING
QUALITY INVESTMENT
ADVERTISING INVESTMENT

27. ADVERTISING
QUALITY INVESTMENT
ADVERTISING INVESTMENT
ADVERTISING
ARMS RACE
BEGINS
BARRIER TO ENTRY
PROHIBITIVELY
EXPENSIVE

28. ADVERTISING
QUALITY INVESTMENT
ADVERTISING INVESTMENT
ADVERTISING
ARMS RACE
BEGINS
BARRIER TO ENTRY
PROHIBITIVELY
EXPENSIVE
MARKET PARTICIPANTS

29. SO WHERE IS MOBILE?

30. SO WHERE IS MOBILE?
Top 10 Grossing Chart, US / iPhone, November 20 2014

31. SO WHERE IS MOBILE?
Top 10 Grossing Chart, US / iPhone, November 20 2014

32. SO WHERE IS MOBILE?
• Clash of Clans and Candy Crush
Saga have dominated Top Grossing
1 & 2 positions for 2 years;
Top 10 Grossing Chart, US / iPhone, November 20 2014

33. SO WHERE IS MOBILE?
• Clash of Clans and Candy Crush
Saga have dominated Top Grossing
1 & 2 positions for 2 years;
• 8 of Top 10 grossing apps are
games;
Top 10 Grossing Chart, US / iPhone, November 20 2014

34. SO WHERE IS MOBILE?
• Clash of Clans and Candy Crush
Saga have dominated Top Grossing
1 & 2 positions for 2 years;
• 8 of Top 10 grossing apps are
games;
Top 10 Grossing Chart, US / iPhone, November 20 2014
T10 Grossing Dates of first publish:

35. SO WHERE IS MOBILE?
• Clash of Clans and Candy Crush
Saga have dominated Top Grossing
1 & 2 positions for 2 years;
• 8 of Top 10 grossing apps are
games;
Top 10 Grossing Chart, US / iPhone, November 20 2014
T10 Grossing Dates of first publish:
2014: 1

36. SO WHERE IS MOBILE?
• Clash of Clans and Candy Crush
Saga have dominated Top Grossing
1 & 2 positions for 2 years;
• 8 of Top 10 grossing apps are
games;
Top 10 Grossing Chart, US / iPhone, November 20 2014
T10 Grossing Dates of first publish:
2014: 1
2013: 2

37. SO WHERE IS MOBILE?
• Clash of Clans and Candy Crush
Saga have dominated Top Grossing
1 & 2 positions for 2 years;
• 8 of Top 10 grossing apps are
games;
Top 10 Grossing Chart, US / iPhone, November 20 2014
T10 Grossing Dates of first publish:
2014: 1
2013: 2
<=2012: 7

38. SO WHERE IS MOBILE?
• Four companies own apps that
generate 70% of the unique visitors
to the Top 25 mobile apps*
*http://mobiledevmemo.com/the-problem-with-app-store-distribution-in-3-charts/

39. SO WHERE IS MOBILE?
• Most smartphone
owners download 0
new apps per
month*
*http://mobiledevmemo.com/the-problem-with-app-store-distribution-in-3-charts/

40. SO WHERE IS MOBILE?
• Nearly half of all time spent in
mobile apps is devoted to
users’ single favorite apps*
*http://mobiledevmemo.com/the-problem-with-app-store-distribution-in-3-charts/

41. MOBILE IS WINNER
TAKES ALL

42. MOBILE IS WINNER
TAKES ALL
• $0 switching costs;

43. MOBILE IS WINNER
TAKES ALL
• $0 switching costs;
• Returns highly skewed;

44. MOBILE IS WINNER
TAKES ALL
• $0 switching costs;
• Returns highly skewed;
• Marketing arms race, sunk development costs.

45. MOBILE IS WINNER
TAKES ALL
App store discovery is not “broken”…

46. MOBILE IS WINNER
TAKES ALL
App store discovery is not “broken”…
…the App Store was designed to be like this.

47. HOW DO YOU WIN?

48. HOW DO YOU WIN?
Higher Quality and / or Better Discovery

49. BUT WHAT ABOUT _?
Handful of examples of viral breakouts:

50. BUT WHAT ABOUT _?
Handful of examples of viral breakouts:

51. BUT WHAT ABOUT _?
Handful of examples of viral breakouts:

52. BUT WHAT ABOUT _?
Handful of examples of viral breakouts:

53. BUT WHAT ABOUT _?
Handful of examples of viral breakouts:

54. BUT WHAT ABOUT _?
High novelty factor.

55. BUT WHAT ABOUT _?
High novelty factor.
Target teen / young adult demographic.

56. BUT WHAT ABOUT _?
High novelty factor.
Target teen / young adult demographic.
Heavily subsidized launches through press / platform
featuring.

57. BUT WHAT ABOUT _?
Betting on virality is not the best strategy!

58. BUT WHAT ABOUT _?
Betting on virality is not the best strategy!
- Dev costs are sunk (if virality doesn’t work, you
lose it all!).

59. BUT WHAT ABOUT _?
Betting on virality is not the best strategy!
- Dev costs are sunk (if virality doesn’t work, you
lose it all!).
- And virality isn’t defensible (your competitors can
be viral, too!).

60. BUT WHAT ABOUT _?
Betting on virality is not the best strategy!
- Dev costs are sunk (if virality doesn’t work, you
lose it all!).
- And virality isn’t defensible (your competitors can
be viral, too!).
- And novelty apps are easily replicated.

61. HOW DO YOU WIN?
Discoverability:

62. HOW DO YOU WIN?
Discoverability:
- Spend more than your competitors, more
effectively;

63. HOW DO YOU WIN?
Quality:

64. HOW DO YOU WIN?
Quality:
- Better / less contrived monetization tactics.

65. THANKS
@eric_seufert
MobileDevMemo.com

66. REFERENCES
• Adamic, L.A. and B.A. Huberman, 2000, “The Nature of Markets in the World Wide
Web,” Quarterly Journal of Electronic Commerce, 1, 5–12.
• Aumann, E. and W. Leininger, 1996, “Asymmetric All-Pay Auctions with Incomplete
Information: The Two-Player Case,” Games and Economic Behavior, 14(1), 1–18.
• Hand, JRM, 2003, “Profits Losses and the Non-linear Pricing of Internet Stocks,” in
J. Hand and B. Lev, eds., Intangible Assets: Value, Measures, and Risk, New York:
Oxford University Press, 248 – 268.
• Noe and Parker, 2005, “Winner Take All: Competition, Strategy, and the Structure
of Returns in the Internet Economy,” Journal of Economics & Management
Strategy, 141 – 264.