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The Economics of Apps / Slides

Last week, I had the great pleasure to attend Mobile 2.0 Europe in Barcelona. I thought it might be interesting to share the slides of my talk on the “Economics of Apps” there. So here you go…

The Economics of Apps

For those of you who prefer it, I have also published it to Scribd here.

App Store Fragmentation: Vodafone & Android

It’s been looming and was long expected but today Vodafone announced it would embed its Vodafone 360 app store on two Android devices next to Android Market. Vodafone says their store would give partners a richer retailing experience than Android Market – but then they would say that, wouldn’t they?

But cheap puns aside, the move does have some legs: Vodafone uses Qualcomm’s Xiam personalisation engine, which provides recommendations based on user behaviour. They claim – and you may have heard that before in any number of my talks – that recommendations are a much stronger driver than promotions, stronger by a level of 4x to be exact. This ties in with my preachings: nearly 3/4 of all purchasing decisions (not only mobile, all of them!) are made on the recommendation of friends. And, alas, this is where “user behaviour” as the applicable pattern comes short: do I care how many, say, Amazon buyers of Grisham novels are also buying other authors’ crime thrillers? No. Why not? Because I don’t know these people. Do I care what my friends may think I like? You bet! Why? Because they know me and my tastes. Doh!

Anyway, back to Vodafone. They have realised (and, credit to them, admit it!) that a vertical implementation where you only get the full scope of 360 services if you have one of two phones doesn’t work. And, well, that’s somewhat obvious, isn’t it? Or is it a reasonable assumption that all my friends will all of a sudden (and at the same time) exchange their various handsets for a Samsung M1? No, I thought not either.

Vodafone did divulge a little data sniplet that must encourage them though, and that is that 360 customers have a 3x higher ARPU than others. If you look at the above (recommendations, friends, etc), that is not completely surprising. So now the next hurdle is to roll it out across their whole range of handsets. And let’s face it: a simple store won’t cut that on its own. Going cross-platform also means that – depending which handset you fancy – you may find different app stores of differing attraction competing with Vodafone’s own for attention (e.g. does Nokia’s Ovi offering seem to have more traction than, say, Blackberry App World but the latter has – from a publisher’s perspective – vastly superior price levels). All in all pretty sub-optimal, I think.

On a sideline: I will be moderating a panel on “How to Make Money as a Developer” this week at Mobile 2.0 Europe in Barcelona and I will be having the immense pleasure of having two operators on the panel (Orange and Telefonica-O2) as well as Microsoft (representing the OS side). This Vodafone announcement highlights some of the challenges the industry is facing. Interesting times!

Carnival of the Mobilists # 226

This week’s Carnival of the Mobilists is up and running. It features inter alia:

  • a podcast on mobile ticketing;
  • a recap of the M-Publishing event organised by the excellent Camerjam guys (which I so sadly missed due to illness);
  • an interview with Tomi “Rat Hat” Ahonen on LBS and mobile marketing;
  • new research on the growth of mobile data and its impact on the various parts of the value chain;
  • Tomi Ahonen’s take on the iPhone 4
  • and much, much more.

Oh, and they were also good enough to include my (very) recent post on people-centric design. Thank you. 🙂

The carnival is hosted over here and it is – as always really – well worth a read!

People-centric Design Rules!

Apple’s iPhone is only a marketing fad for vain urbanites. True purists go for Android. Those who see the light in volume go for Nokia or Samsung.

All this are points often heard when one dives into the deeper echolons of most mobile tech blog or forum. Engineers throw up their hands because those “American-centric media types” “don’t get it” and only wave their flag for whatever Steve Jobs, turtle neck and all may put up onto the big screens of his church.

I am not American and I am not a media type. And I don’t wear turtle necks (well, not since c. 1989 at least). And yet, I do prefer my iPhone (3G) over my Nexus One. And this despite obvious advantages of the Nexus: better screen, quicker, haptic feedback (yes, Mr Jobs, I do like that), the concept of open source, etc, etc. So why do I stick to the iPhone? Fanboy? Marketing fad? Vain urbanite?

Here’s why: I have been trying to set up my Nexus so it will do what my iPhone does, and I am not talking of playing a fancy game or running some other app that is not (yet) available on Android. I am talking about the two key things I need a phone for (41-year-old non-techie I am), and that is phone calls and e-mail; calendar (with sync) is important, too. For the former I need my address book, and I need it to sync properly. For the latter, I need my (admittedly too many) e-mail accounts set up on my device and syncing properly. As to calendar, wait for it below. Alas, two very different experiences:

  • On the iPhone, you do the following: 1) plug the phone into your computer, 2) answer “yes, please” when iTunes asks you if it should sync contacts and e-mail addresses, 3) get yourself a cup of coffee, 4) walk off.
  • On the Nexus, you’re OK (-ish) if your life evolves around Google. With a Gmail account and associated contacts (and/or calendars), you’re sort of OK. It does all that. Now – shock, horror – I do not actually send all my mail from Gmail and my contacts are mainly dealt with in my address book (take Outlook or whatever you want if you’re a Windows user). And I use iCal and not Google Calendar. And so it starts: there is no desktop application that would help me do this. On a Mac, the phone is not even recognised when you plug it in (and that is a rare thing on a Mac; is this another piece of Apple vs. Google? I don’t know but I doubt it). So you are finding yourself setting everything up by hand! Entering the POP3 and SMTP (or IMAP) server addresses, user names, passwords, etc, etc for seven e-mail accounts is no fun. And (remember I am not a techie) invariably leads to some box checked wrongly here or a typo in a password there and, kawoom, nothing works. I can set up a Google Calendar/iCal sync BUT that will only sync the specific Google Calendar bit between the two, and not any of my other (work, home) calendars. I can sync my address book with Google, so that works. The whole procedure took me the better part of 45 minutes, including lots of corrections and swearing and led to me abandoning a half-configured beauty of an Android phone. Great result.

So why is that?

My answer is: because they design it with engineer-centric design. And that is wrong! Why? Well, because most people are not engineers! An engineer thinks something along the following: I am Google and we love the cloud. Therefore, I will design everything so that it will adhere to that principle and will – in a purist kind of way – design everything in a way that you can beautifully and seamlessly set everything up – if and as long as you use all the wonderful Google services we have. And if you don’t get that, you’re not worthy.

The same works with Nokia: we’re Nokia and we have the best hardware, the best distribution and an incredibly good and powerful plethora of services around it (we did spend time, resource and money after all to become mighty competitors in maps [Navteq], music [Comes with Music], apps [Ovi – and the many iterations before it], etc). I will therefore design everything in a way that I can let this hardware shine as best I can; I mean: we had video calls since 2005, for elk’s sake! And if you are too dumb to configure everything in a proper way and cannot find the destination to where your downloads were stored, you’re not worthy.

Apple looks at things a little differently (and it is not only for the better although, for most people, it is): they provide a tool that brings everything I need over to my phone just like that. Job done. Easy! They will look at whatever tools they need for this. And if it means extending iTunes (which, yes, I know, they had already) to accommodate syncing data other than music and video to something other than a computer, than so be it. In that, they follow their own philosophy as slavishly as the other guys do but they do design it from a people-centric rather than an engineer-centric point of view. And that is why it works so well for people that are not (also) engineers.

They key point is this: Apple does not try (or at least not in your face) to change what people do. If I want to run my e-mail off 5 different domains, then so be it. If I prefer my contacts to sit on my disk rather than in the cloud, that’s fine. They’ll give me tools to facilitate doing what I do already and don’t lecture me on what I have to do to make it work. That this brings about subtle changes in user behaviour is fine: if you convince me gradually that things work better one way rather than another, I might be converted. But to tell me “my way or the highway” does not work! Ever!

The downside is Apple’s control mania, which blocks things (sometimes fairly questionably) because they are (or only might) be out of their control. And this is where Google, Nokia and all the others could score: try to combine things! If you would look at how Apple does things, and then – at the very end – you provide a door (doesn’t have to be a trap door, can be a flashy entry portal) to the innards and machine room of your device, so you can show off whatever you want and open the marvels of technology to those who can and want to handle it – so they can turn their super-smartphone into an uber-super-smartphone. But do leave normal people alone.

In the post-iPhone era, things have changed already (a little): you now get hidden installers (that do not ask you 100 questions on where you want to do what and where and under what penalties and with which risks), you get better interfaces, etc. BUT the default is still engineer-centric and not people-centric. Improve this, and the iPhone killer can be yours!

Image credit: http://www.ntamco.com/main/images/stories/design-is-a-behaviour.jpg

Virtual Goods Boom in 2010!

I stumbled across an interesting piece of intelligence today, which looked at the development of virtual goods in the market place. According to this, median spend on virtual goods by users in North America has climbed a whopping 67% year-on-year to $50 p.a.

Equally interestingly, males are the largest spenders and, broken down by ethnics, Asians (26%) lead Hispanics (20%) by some margin over whites (11%).

So far (sic!), most virtual goods (how many? I don’t know) are purchased from stand-alone web-based games (World of Warcraft anyone?) but 31% had bought items in social networks (that would be the Zyngas and Playfishs of this world) with 29% in “network-based games” (what are they, I wonder). Facebook credits were used by 16% of buyers. Mobile? No word. It’s coming though: do bear in mind that there are 3x more mobile subscribers in the world than Internet users! And, yes, that’s true…

$13m for Idle Screens?

Taiwanese handset maker and Android maven HTC has bought French idle-screen specialists Abaxia for $13m (or so industry sources say). Abaxia says it increases ARPU

by putting services at a zero-click distance to the user and pushing services directly to the front screen.

Think push notifications to a J2ME feature phone. Abaxia works with carriers and OEM to optimize the interface across multiple devices from different suppliers, which seems an apparent benefit to carriers as it will allow them to make their on-device brand communication consistent throughout the handsets available through them. That an OEM should then buy the company could therefore surprise…

And as to the use of idle screens? Hm, I am not totally convinced: an idle screen is, well, idle. I may be tempted to jump to it if an app sends me something from a friend (because, hey, it’s a friend in need) but I am not sure if the same attention can be garnered from the latest and greatest service offer from your operator. This is however what Abaxia claims it excels in. According to its website, the company helps

to drive not only data revenue but […] to recover failing voice ARPU and secure advertising ARPU.

And here, well, show me the money. I have yet to see a convincing solution for this, and I am not sure if an attempt to capture the idle screen is the way to go.

However, when it comes to interface improvements, it might just work. So all might not be lost. And, in any event, congratulations to the teams at Abaxia and HTC!

Book Review: “Delivering Happiness”

This is (slightly) off-topic as it looks at a new book written by a guy who has come to fame not in the mobile but “only” in the online world (or click-and-mortar as would be more accurate). But it is a book that will give everyone who has to deal with value chains, investors and people (vendors, customers, employees) a couple of interesting insights on how it can (also) be done.

The book, of which I received an advance free copy (which I was told I needed to disclose here), is by Tony Hsieh, the iconic CEO of Zappos, and it is called – unsurprising to anyone who has ever heard im talk – “Delivering Happiness”. It is available for sale from today.

The book has two very distinct parts. The first one gives you an interesting and humorous account of the journeys of an entrepreneur – all the way from a worm farm when ickle Tony was 8, via LinkExchange, which he managed to sell to Microsoft for $265m, through the start, near-death and eventual exit with Zappos, which sold to Amazon when it was valued at some $1.2bn on the day of closing.

Part 2 could be termed the introduction to the Church of Hsieh. Tony is famous for preaching the importance of happy employees in order to run a good business, and there is many an example from the world of Zappos that raises eyebrows elsewhere in the corporate world (to pay new employees $2,000 should they leave within X weeks being one of them). Most of it comes from one of the 10 core values Zappos set itself, namely the “be fun and a little weird”, and I find it almost insulting to judge a company or its policies by random examples alone.

At the very least, the book shows you that there is much more to it than the wacky ideas of a driven entrepreneur (and I’ll get to more in a moment). If you take, for instance, the story of the $2,000 leaving-bonus and look into it a little deeper, some very sound thinking reveals itself:

The idea is that people should only stay if they really feel aligned to Zappos’ vision and principles and the idea is that only people whose mindset is a real fit will not be tempted enough not to take it; it also shows a lot of respect to the nature and common sense of their employees: if the job [and the company] is really that good, $2,000 is very little! According to the book, less than 1% take the cheque.

So what do you get from that? 1) employees that should be a better fit than average, and 2) reduced recruitment cost. The first part is invaluable whenever you run a business that has customers (so, always) because employees that fit with your culture and vision should be better enabled to communicate this – internally and externally, which helps the business. The second part is self-explanatory.

The relentless focus on company culture is as awe-inspiring as it must be spooky to some. And it is, arguably, amongst the reasons for their sale to Amazon (or so VentureBeat interprets this part from the book). Sequoia pocketed $248m on $48m investment and were keen to liquidate (and, according to Hsieh, his board was not entirely convinced of “Tony’s social experiments”).

One should however not forget over this that Zappos operating principles are based on hard-nosed facts (from vendor relations, logistics, finance, employees to customer relations), and the “secret sauce” might then indeed be the company culture (Tony Hsieh is of course not the first one to propagate this). If he tried to take things too far is beyond me to say but I would say that a company that strives to make its customers, vendors and employees happy is not following a necessarily wrong path – even under cold-nosed corporate standards:

  • Happy customers will help you by coming back to you (low retention costs and follow-on revenue) and by recommending you to their friends (low acquisition costs and incremental revenue);
  • Happy vendors will be more likely to accommodate your requirements as to your stock (lower cost of supply), delivery schedules, etc, etc.;
  • Happy employees reduce your employee churn and will – arguably – provide for higher productivity of the company as such (lower operating cost).

It is, in short, a very worthwhile book to read. And if you read it with the right glasses on, you will be able to look through what might sound like the preachings of Hsieh to find some real benefits for your own company (whether it exists already or is in the formation stages in your mind only and whether it is mobile, online or good old brick and mortar). If you are then still a believer, check over here for more…

And if you want to buy it?

Buy “Delivering Happiness” here

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