Mobile Apps, Mobile Ads, and Revenue Generation Models – Exploring a Way Forward

The introduction of Mobile handheld devices such as Smartphone and subsequently Tablets has been the most disruptive technology innovations of the last decade. A lot of credit goes to iPhone, iPad and iOS to bring these devices and technology into mainstream and forcing players like Google, Microsoft, Samsung and others to catch up and come up with a parallel world of Android and other mobile OS.

The mobile platform is proving disruptive for a lot of businesses that were / are thriving in the desktop / laptop and internet / web era. Some of biggest names in this business are Facebook, Google, Twitter, Microsoft, and Amazon. The mobile platform brings with it its own challenges and opportunities for these existing businesses to rethink and revamp their business model not just to grow but to sustain and survive in the future. It is not doubt an exciting time since any new invention has the intrinsic effect of levelling or resetting the field to allow others to innovate and lead in the future.

A lot is being said and a lot is being done to adapt to the mobile platform and find ways to grow and sustain in this new world. The aim of this article is to recap some of the key points and at the same time try and come up with fresh thoughts and ideas to find a way forward.

Although the mobile platform impacts almost all businesses as named above and especially the ones whose core domain is web, but the ones who will be greater and immediately impacted are the social networking / social media sites or applications. In this article I will focus on Facebook as an example but the same should hold true for other companies as well.

First let’s recap what is already been said and done,

  • Facebook is the world’s largest social networking site. It recently announced they have 1 billion active users and they have also started generating decent revenue through web advertisement. There is no doubt Facebook is a huge success story.
  • Facebook, however is now turning pretty fast into a mobile application company.  The company mentions they now have 600 million users accessing Facebook on the mobile device.
  • It is not difficult to understand or prophesise that in the near future almost all of Facebook users will be accessing Facebook only through mobile devices. The reason being its format and primary usage is best suited to mobile device access and there is no strong reason to access it from a desktop or laptop or even tablets for that matter. I for one strictly access Facebook only on my Smartphone from last one year or so. I don’t feel the need to ever access Facebook on the laptop even when I am in front of my laptop the whole day.
  • The immediate reaction and a problem stems that Facebook is now demoted from being a large scale web dominating company to one of the million mobile app products and companies.
  • Another big problem Facebook is facing is finding ways to monetize on the mobile platform. It is an open knowledge that Facebook app and its registration and usage are free. At the same time mobile devices is not the best platform for displaying large amount of ads which has been the primary source of revenue and strength for these companies in the web world.
  • Facebook definitely have anticipated and acknowledged these major hurdles and the investors have reciprocated by devaluing its market worth to half.
  • Facebook has been taking a lot of active steps to overcome this and some of them are,
    • Introducing ‘Gifts’ business model
    • Highlighted or promoted posts
    • Sponsored Links / Pages
    • As of now these steps do not seem sufficient to take Facebook to great heights in terms of its ability to generate huge revenues given its dominance in the social networking field.
    • Facebook has indicated they will be exploring Search, Ecommerce, and Registration data to find ways to monetize in the future. I find it difficult to foresee these strategies working out since all of them have similar basic challenges on mobile platform and which is to find a way to monetize. Ecommerce is still fine but it will be digressing from what Facebook is about.

Lets us now look at what other companies are doing to monetize on the Mobile platform,

  • There is no doubt Facebook will become a pure play mobile app company pretty soon. It will sooner or later have to forego the revenues it generates through web based ads on the desktop / laptop.
  • Let us compare Facebook with another successful company in the mobile app space – Rovio, the creator of Angry Birds game series. Rovio similar to Facebook enjoys a huge audience of around 200 million active users and is currently valued at 10 Billion dollars. Facebook is currently valued at 50 Billion dollars.
  • Both these companies are definitely in different domain and with different business model. Rovio charges its users to download and use the app. In addition it is generating revenue using its brand and diversifying into other areas like theme parks, accessories, etc.
  • Facebook has its own advantages of being a sticky and addictive product which I am sure is being used and accessed much more than the Angry Birds.
  • My point is I feel at the given moment both these companies seem to be overvalued with no clear insights or strategy on the revenue model for the future.
  • On bold assumption can be made here – maybe there are limits on how much revenue you can generate on mobile devices through the mobile app model.
  • Another big problem with the model of charging for mobile apps is the revenue cut given to Apple and Google stores which is around 30%. In all fairness this figure is extremely high and I am pretty sure this will be brought down to somewhere in the range of <5% in the future.
  • The mobile ad platform, in-app purchase, and the subscription models also have severe limits on the revenue generation opportunities for app developers. There definitely has to be more flexible and innovative ways and opportunities to monetize in the mobile ecosystem.

Let us now discuss few things related to mobile advertisement revenue model which is the most crucial and puzzling piece for now,

  • I don’t see mobile advertisement in its current format and rates as being a viable model for app developers to generate huge revenues equivalent to the desktop counterparts.
  • Mobile ads shouldn’t be seen in the same light as web / desktop ads. The fundamental differences are the limited amount of real estate and the intrusive nature of ads on mobile devices.
  • My strong opinion is there has to be a shift in the way ads are displayed on the mobile and the price advertisers pay for it. There can be no generalization for this model and it has to be strictly case by case basic depending on the location of display and the popularity of the app.
  • Mobile ads can be considered somewhere in between Television ads and Web / Desktop ads. While they are definitely not as media rich or detailed as TV ads, they are definitely more intrusive and attention grabbing than desktop ads.
  • Banner ads hovering on the top or bottom part of a mobile app is a strict no-no and a big turn-off. You cannot share space with the mobile app which already has limited real estate to start with.
  • Bottom line, let’s face it – users hate ads… Be it on Web or Television or on Mobile. Ads are intrusive, period! With the latest television sets providing recording facility, I never view a broadcasted program at the given schedule.  I record the program and view it after 1 hour, so I can skip all the ads and view the program uninterrupted. Television ads are going to become a thing of the past in the near future unless someone comes up with a smarter format.
  • I hate using mobile apps that have an ad banner on the top or bottom. There is not a single app with ads that I use regularly. The ones that I use regularly do not have ads.
  • On bold assumption can be made here – maybe digital advertisement are a thing of the past and are bleeding a slow death. There is a need for a new model for advertisement in the new digital age of mobile platform and recorded television programs.

Since we are talking about social networking / media apps and specifically Facebook, it is important to talk a bit about monetizing and privacy concerns.

  • I would say, privacy be damned. Yes, if users expect to use a service for free, which they enjoy using and given the freedom of choice, then they should be giving a damn about privacy (of course within reasonable and legal limits)
  • Facebook should definitely make it clear to users in their agreement that they can and will use all the content posted / shared by anyone on their site / app for advertisement purpose. They should also of course mention the ways in which they will be using that information. I am sure it will have negligible impact on the user base accessing Facebook. People are not stupid and they know how the world works and they are fine with the tradeoffs.
  • At the same time the users should have an option to go for an ad-free app or opt for privacy by paying a reasonable fee.

Having said that, let us come back to Facebook and explore various ways in which it can possibly generate huge revenues which would justify its phenomenal billion plus user base and an addictive social networking platform.

Mobile Advertisement (Frontend)

  • The current paradigm on the web-desktop pioneered by Google and followed by others is to keep the homepage (most valuable real estate) clean of ads and to support the content through non-intrusive clean ads. This no doubt works best in desktop scenario. For the mobile app era, this needs to change.
  • Consider a mega event like Olympics or Oscars being telecast and having a billion plus users glued to the television screen. The ad slots sell out for a phenomenal price for these events. Consider Facebook having billion active users and accessing the mobile app let’s say at least 3 times a day which gives it 3 billion hits per day. If Facebook were to show a full screen banner ad for say 3 to 5 seconds every time the user launches the app, then the advertisers for this slot should / could be charged a phenomenal price.
  • What’s wrong in showing a full screen ad at the launch of an application? Nothing! On a mobile platform where real estate is the king and with an opportunity to display direct-in-your-face-intrusive-ad, I don’t see anything wrong in exploiting it. Doesn’t TV shows and movies have intrusive ads just before something big and important is about to be telecast?
  • Consider a Samsung or an Apple launching its flagship product and wanting to book this slot… consider a new mega budget movie about to release and wanting this slot… consider a big car company launching a new car model..
  • Facebook currently shows sponsored pages that are intermittently scattered along with the user feed. I think this is a great model and Facebook should be charging, again a very very high price for this.. I don’t know if they do.
  • The price the advertisers should be paying for these mobile ads should be very high in case of Facebook given its high penetration and reach.
  • The best way to derive a price for this is to have an auction / bidding process. Let the advertisers themselves decide how much they are willing to pay for a full screen banner ad that pops up every time a billion plus user launches Facebook app in a particular day. I wouldn’t be surprised if it reaches a 7 dollar digit for a one day ad.
  • Of course there are many more ways to monetize by having ads targeted to specific user base depending on interests, geography, sex, age group, ethnicity etc.

Mobile Advertisement (Backend)

  • I think the real shift that we will get to see in the future is turning the digital advertisement model upside down on its head. The current model is to display ads to the users along with the content they are consuming. With the advent of mobile platform and its strength and effectiveness of capturing the entire demographic and personal data of the user, I think there is a great chance of exploring a completely different backend model of advertisement.
  • Instead of bringing the ads to the users in the frontend, Facebook should try a different approach of bringing the data to the advertisers in the backend.
  • Facebook captures tons of data related to user preferences, choices, likes / dislikes, trending topics / keywords, sharing etc which of course contains a wealth of information aggregated and classified as per user demographics. With proper analytics Facebook should be able to monetize on this by selling this information to interested advertisers or parties.
  • Let’s say a company has one of its product pages on Facebook. Facebook can sell the demographic break-up of the ‘likes’ received for the product page to the company so they can focus their sales strategies with the given data. Facebook can sell demographic data for let’s say a particular keyword – ‘Smartphone’ or ‘tablet’ to the advertisers who are interested in knowing this.
  • There can be a lot of possibilities to do with this data if Facebook were to focus on this. I am sure advertisers would be willing to buy this information for a decent price. Again, the way to go should be an auction / bidding model to monetize.

Free vs. Paid Content App Model

  • Now this is where it gets interesting. I can see the only way forward on mobile platform is to start charging the users for a particular service or content.
  • If you see this is a norm in almost all industries then why can’t it be applied to the mobile platform? Television channel providers charge for the content, Mobile service providers charge for their service, books / magazines charge for subscriptions, basically everyone charges for their services in all spheres of life. There is nothing called Free Lunch after all!
  • Google had changed the model for web-desktop delivery where they did not charge users but charged advertisers for ad display and all others followed the suit. They did that because this model worked very well on the desktop since it had ample real estate to accommodate both content as well as ads. If you change the platform and now if you do not have that much space there is no point in carrying the legacy ad based model and trying to fit in the mobile platform. Instead you need to change the model.
  • Yes, people are used to free service model for accessing web content and you never know how they will react if you start charging them immediately. But the idea is to experiment with various models, take the initiative and risks, and provide a subtle and gradual transformation to make it work. Facebook has the opportunity to be first amongst them and lead the way.
  • This would also mean the mobile app ecosystem has to change and Apple and Google needs to lead the way here. It is definitely in their interest as well to do so since they want the app developers to be hugely successful for their own business to flourish. There should be more flexible options and ways through which the app developers can start charging for the content and monetize.
  • Imagine if we have very advanced and integrated payment mechanisms built into the Mobile Platform through which the users can efficiently pay small amounts for services they prefer to buy or consume.
  • Let us hypothetically assume Facebook has a paid model app in addition to a free app. The Free app will support ads and not have any privacy restrictions or agreements with the users. Facebook will be free to use any user information as they deem necessary to generate revenue. In the free app Facebook can limit the usage of the app to let’s say showing only last 100 news feed, having at the most 200 connections, being able to post / share at the most 50 updates in a day etc. Most of the users would be happy to use the Free App and would have that choice. This will also help keep the competition at bay.
  • For premium users Facebook can offer a paid app model. Let’s say they charge $10 a month and the payment can happen in the background once the user has subscribed to the model. The paid app will be free of any ads and with no restrictions whatsoever to the amount of information shared or consumed. Additionally Facebook might offer a privacy agreement where they do not share or use any information for these users.
  • Of course this is just a simple example of how paid model can work and one can work out a lot of variations to come up with a decent and robust yet a flexible version.
  • The mobile ecosystem should be capable of accommodating miniscule payment transactions and which could be as low as few cents for a particular service or duration. It goes without saying a major chunk of these payments should be received by the app developers and not the mobile ecosystem providers.
  • Sooner or later we will have to move towards this model on the mobile platform. In my opinion, this seems to be the only logical way forward…

Well, these are just some of my preliminary thoughts. Please feel free to share your thoughts, ideas, comments, feedback, criticism…

One thought on “Mobile Apps, Mobile Ads, and Revenue Generation Models – Exploring a Way Forward

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s