 "Ccloud adopters")
To go from being non-existent just five years back to being one of the most widely recognised and spoken about industries requires a special something. The applications or app industry has more than its fair share of specials. Poised to double its global revenues by the end of this year to $26 billion and attract 102 billion downloads annually as per Gartner, this industry is fast looking like the proverbial hen that lays the golden eggs.
The numbers tell a story: In 2012, of the total downloads worldwide, 57,331 million were free and only 6,654 million were paid for. In percentage terms, this means that of the total downloads, 89.6 per cent were free as per Gartner. And by 2017, this number is estimated to rise to 94.5 per cent.
This shift in the app consumption pattern, from paid to free, is attributed by industry players to the rising popularity of Android. Apple may be responsible for introducing the word 'app' in our daily lexicon, but Google must be credited for popularising it, at least partly. Analytics firm Flurry that tracks the apps industry writes in one of its blogs, "Conventional wisdom (backed by a variety of non-Flurry surveys) is that Android users tend to be less affluent and less willing to pay for things than iOS users. Does the app pricing data support that theory? Resoundingly. As of April 2013, the average price paid for Android apps (including those where the price was free) was significantly less than for iPhone and iPad apps." The average prices as quoted: $0.06 for Android, $0.19 for iPhone and $0.50 for iPad.
India, with its skew towards Android, will follow in these footsteps. (THE BUSINESS OF APPS)
The proportion of paid app downloads in India is already similar to that of global benchmarks, with 9.6 per cent of Apple App store downloads and 0.5 per cent of Android downloads being paid for, according to Avendus Capital's India Mobile Internet Report. "While we are still an evolving market for apps, over the next 12-18 months, the paid model would be decidedly over for us too," opines Manish Agarwal, CEO, Reliance Entertainment Digital.
How can this fact be then interpreted to explain the workings of the 'app economy', set to be about Rs 2,000 crore in revenue terms by 2016? On one hand, you have the obvious consumer preference for all apps free, if numbers are to be believed. And yet, the revenues are firmly on the growth path. The question then is, where is the money coming from? If the consumer is unwilling to pay for the app, how is the industry making the money?
There isn't one single answer to that question. Within the app economy, developers are faced with various choices with regard to monetising their apps. Some choices are surely gaining more popularity than others as the industry's contours get highlighted better. And the app store owners, mainly Apple and Google, are setting the ground rules.
Paid versus free
Before we try to unravel the app economy, let us classify the app universe first. The three sides of the app triangle are formed by the developer, publisher and the platform. As a developer, one may have an original idea and design one's own app. But one may lack the monetary muscle to back its listing on the app store with requisite marketing dollars to aid discovery of the app. Developers then approach publishers, entering into a revenue sharing agreement with the latter. It may be a straightforward revenue share or certain key performance indices may be set, like X number of downloads, post which the agreement would kick in. These revenues are naturally shared post the platform or app store taking its cut.
Next, what are the options?
First, there are the brand or company apps delivering a service or working as an e-commerce platform (consider the banking, trading, retail and e-tailing players). These are almost always free. Their nature is to engage with the consumer and generate revenue. Next you have social networking apps, which are again mostly free (a few like chat app What's App are paid). Then there are utility, lifestyle and gaming apps. This is where concerns over monetisation surface and the discussion about the 'choices' begins.
So how do I choose?
The simplest one is to be a paid app. The app store will charge a revenue cut of 20-30 per cent for every download. So, if your app is priced at Rs 100, the app store will take Rs 20-30 per download, returning the rest to the developer (technically returning, since the user is paying the app store at the time of the download).
The Avendus report says the average price of a paid app in India is Rs 100. Browse through the app stores and you could find apps priced as high as Rs 600-700 even. These apps come with prices that are simply converted to match their global prices. "When an app is developed in one market, it cannot automatically be replicated in another. There can be legal constraints or even cultural considerations. Only at times when you know that the downloads would possibly not provide the volumes, that you may consider introducing the app as-is, without any tweaks, technical or monetary," says Sunil Chavan, ex-CEO, Metasys Software.
That brings us to the rest of the app universe. The model finding widespread favour is the 'freemium' one, where the customer downloads an ad-supported free app with limited features with the ability to upgrade to the full functionality ad-free app through a paid upgrade. Consider Instagram, the picture sharing app and its allied app universe. Other apps like Instacollage and Instaeffect provide users with additional tools for editing their pictures. These are free apps with banner ads. The only way to get rid of these irritants is to upgrade. Racing game fans could understand the concept better in terms of the light (free) and pro (paid) versions.
According to Kundan Kumar, director, AdStuck Consulting, a developer of apps and software on augmented reality, if an app gets about a lakh downloads and chooses the banner advertising option, the developer can easily make around Rs 2,000-3,000 for each download every month. If you choose to load up the app with feature-rich, video ads, you stand to make around Rs 50-70 per view. This model is similar to the way video advertisements on YouTube work. Only if a viewer sees the entire ad, will the advertiser pay YouTube. The rules are more flexible for apps. One may work out terms with advertisers, ascertaining a minimum view time. Like, say, the user must view the advertisement for at least five seconds.
To circumvent this user apprehension with regard to viewing advertising, there is a carrot you can dangle in the form of incentivised advertising. Agarwal of Reliance gives the example of a game it is developing, Real Steel World Robot Boxing. "If the user is unwilling to pay for an upgrade, we will give him the option of viewing an advertisement. And for viewing it, he will be given a certain number of coins to be used for the upgrade." He adds that this is a fairly common trend internationally and will work just as well in the Indian market.
The revenue generated via advertising is also shared with the app stores. Apple and Google have their own ad networks, iAds and AdMob respectively. These networks connect advertisers (brands/companies) with publishers (app developers) selling inventory space (banner advertisements in apps). Additionally, app developers can sign up with independent ad networks like InMobi, Komli and Vserv to attract operating system-agnostic advertising.
The alternative to the 'freemium' model is, you keep the initial download free and as the user gets hooked - the word to better explain the user's state of mind would be 'addicted' - ask him to pay for higher levels. Even some of the features may be withheld in the lower levels and the complete experience may be unlocked only in the higher levels.
A model to consider would also be to charge differently for versions across devices. Like keep the mobile one free and charge for the tablet or desktop version. As Chavan of Metasys Software says, at some point the user is bound to get tired of the smaller screen and move to a larger one.
And then you have the in-app purchases. Remember Farmville on Facebook that made farmers out of avid city dwellers, who bought goats and cows zealously for their virtual farms? Those goats and cows are the equivalent of in-app purchases. Consider the current rage, Candy Crush, the jelly bursting game. You can download it for free and play till you exhaust your five lives. Post that, you must either purchase additional 'lives' or undergo the excruciatingly painful few hours, while your 'lives' get refilled. This is just one example, of course. The in-app purchases could come in many forms, coins, points or even create online-offline synergies like Angry Birds did, linking purchase of in-game coupons to be exchanged for offline merchandise. The biggest incentive for opting for the in-app purchases is being able to bypass the revenue sharing clause with the app store.
So, if the app is free and uses in-app purchases, what is the incentive for the app store to list it? Why would they still welcome a non-money making app into their fold? Simply because of the numbers. We live in an app-world where it no longer matters if as an app-store you got something special. It is more important to ensure that you got everything that competition has. A fundamental rule of marketing really.
And as Kumar says, apps are also indicative of the shortcomings of the mobile handsets in a way. Take the example of the torch app that was quite popular for Apple iPhone users until a couple of months back. In the latest OS upgrade, the iOS 7, Apple finally introduced a torch feature at the click of a button, making all those app downloads redundant. As an app developer you may be giving the phone manufacturers cues on what next, albeit unknowingly.
VANTAGE POINT
Early cloud adopters outshine peers
In addition, IBM's research found that leading organisations are looking to the cloud to differentiate them from their competitors. In fact, they are 136 per cent more likely to use cloud to reinvent customer relationships. By 2017, the public cloud services market is predicted to exceed $244 billion. Companies are looking to capitalise on this fast growing opportunity around the cloud for business transformation. The venture capital community is also keenly watching cloud technology startups. The cloud has made the start-up business model more accessible to people with smaller budgets while transforming the level of productivity and accelerating innovation - keys for VCs working to decide where to place their next big bets.
Collaborate for breakthrough innovation
According to the survey, collaboration has become the most important elements of successful innovation today. The top innovators plan to collaborate more with a more diverse set of stakeholders over the next three years.
The survey also finds that the most aggressive innovators are more likely to use structured management approaches to innovation in order to speed the process. The innovative companies are investing in both formal accountability for innovation within individual business units and separate facilities in certain markets dedicated to making innovation happen. Both fast and disciplined, these approaches reward failure, and as a result encourage creativity. This structured approach tend to have a more rigorous selection process and fund fewer, higher-value projects so that time and resources are not wasted.
