How do you make money in a market where everyone expects your products to be free?
The web generation is full of free loaders. We grew up getting our music for free from Napster, ripping movies with BitTorrent and using free social networking tools like Facebook. We expect our content now and we want it for free. This is the environment people are facing when developing a business plan for the mobile web. Daunting task, but don’t despair their are a few business models you can pursue.
The first and most obvious venue to sell your applications would be in an app store. App stores provide a powerful outlet to sell device specific, native applications. When you post your application in a store you can either make it available for free or charge a fee. If you charge a fee, expect to have 30% cut of whatever profit you make selling from their store. This may seem like a big cut, but it is very reasonable considering the exposure and credibility you receive in the marketplace. As the Apple’s over 4 billion downloads has proven, if the content and experience is good, people will be willing to pay.
Side Note: While app stores serve as great marketplaces, keep in mind native applications themselves have some setbacks. Developing unique native applications for multiple platforms takes more time and money. I would recommend looking into developing a single mobile web application and using a program like PhoneGap to convert it for iPhone, Android, Symbian, Palm and Blackberry.
If your content is really good, then people might be willing to subscription fee to “upgrade” to premium version of your app. This model is often coupled with an advertising model. For example, Grooveshark, a popular free music library give you the option to remove ads if you upgrade to the “VIP Pass”. Hulu is also toying around with the idea of providing a premium subscription option to compliment it’s ad revenue. I know what you are thinking, I would never pay for something I could get for free! But what if that subscription allowed you to watch more recent episodes of your favorite shows, on demand, with fewer commercials and from the comfort of your own device? Then you might be willing to fork over the cash.
The true power of mobile devices, is that they provide their users with contextual information relative to their current needs and location. This is a wet dream for advertisers because they can reach out to you when and where you are most likely to make a purchasing decision. Now, to burst you bubble, recent studies have found ad revenue is not as profitable as selling applications (see above slide show). This is due to the is a significant drop off in the usage of applications after the initial purchase (people have short attention spans, I like to call it App ADD). In order to be compete with the revenue generated from a paid app, you would need to “bombard” the user with ads. Even larger companies like Hulu are having a difficult time supporting themselves purely on ad revenue. They have found themselves lengthening the duration of ads on their site. I wouldn’t rule out ad revenue as an option, but you would need to rethink a new system because the traditional system alone is a rough route.
The concept of selling imaginary, intangible goods online may seem like a crazy business model, but in fact they make up the bulk of revenue from in the social gaming industry. FarmVille, a Facebook game application (and soon to be mobile app), has over 82 million players worldwide and is a great example of this model. This farm simulation game is free, but also gives you the option to purchase farm “cash” and “coins” using real money. FYI, FarmVille was bought out by EA Games for 400 million dollars last year. The social gaming industry brought in 1 Billion dollars in 2009 and is predicted to bring in more than 4 billion by 2013 (Reuters). If you can design the next hit game, you might be able to turn a good profit by selling virtual goods.
It is estimated that by 2015 the mobile web will have more subscribers than the desktop web (Morgan Stanley). This mass exodus to mobile means we need to modify the way we conduct business on the internet. Does this mean the mobile web is destined to be cluttered with mini banners? I hope not. Businesses will more likely use a hybrid of some of the business models listed in this article, as well as some new ones. I can’t wait to see what new approaches people discover to profit in this growing industry.