Pedro Ripper's blog post was featured
Monetizing Mobile Apps: Why the Next Billion Users Won’t Be Like the Last
The face of the global smartphone market is changing. According to research by eMarketer, the number of worldwide smartphone users passed the 1 billion milestone in 2012. By the end of 2014 -- just two years after attracting the first billion users -- that number will nearly double.Yet the dynamics of this second billion are far different that those of the first. If app developers and marketers wish to profit from the next gigantic global customer base, they need to understand how it selects, pays for and uses apps. It’s going to be a very different game indeed.Differences In Emerging MarketsAffordability and usage patterns are not homogenous through the economic strata. What works among more affluent “early adopters” in developed nations does not translate to less-wealthy -- yet still very enthusiastic -- consumers in less-developed countries.There’s money to be made. But app makers must understand the market realities.While smartphone ownership is increasingly common in developing nations like the BRIC (Brazil, Russia, India and China) cohort, usage characteristics are far different than those in North America and Europe.Outside of the Western nations, cellular contracts are virtually non-existent. In fact, it’s not unusual to find people carrying the latest Android devices, but without voice or data service lasting more than a few days. That’s because most consumers around the world prepay in cash for mobile services.In most regions and for the vast majority of smartphone owners, credit card penetration is very low. Almost 100% of the next billion mobile users are on prepaid plans -- a stark contrast to the first billion who are mostly post-paid. The typical scenario is for a user to stop by a drugstore or newsstand, give the cashier money, and “top off” his or her wireless account with service for anywhere from a few days to a week or two.Other dynamics are at play in BRIC and similar countries. In the modest Android devices that pre-dominate, by a wide margin, over Apple iPhones, available onboard memory is very limited. Moreover, users download a lot of free apps but very seldom do they pay for premium digital content or make in-app purchases. App Annie Index – Market Q1 2014 statistics bear this out: for Q1 of 2014, the United States was the only country to outperform Brazil, Russia, South Korea and India in the number of apps downloaded on Google Play. Yet in terms of app revenue on Google Play over the same period, the top 5 countries (in order) are Japan, United States, South Korea, Germany and the United Kingdom. Brazil, Russia and India don’t even make the list.How You Must AdaptSo how do you penetrate this huge and high-growth new market? App developers and marketers can be very successful, but adaptations in monetization strategies are in order:Shrink download size. In developing countries, connectivity is still expensive. Most users rely on free WiFi or low-speed 2G and scarce 3G coverage. To overcome this, consider creating smaller versions of titles, or incremental downloads. Many game developers, for example, make Levels 1 and 2 available first, with the opportunity to download higher levels later as you go.Seek out data-free app stores. Some carriers pre-load app stores onto phones that offer downloads with no data usage fees.Localize. While it may seem obvious to translate text into the local language, additional steps may be needed. In China for example, a “co-production” model is not uncommon, whereby a local distribution partner will actually change the look and feel of the app with localized themes and music.Subscription bundling. For marketers of premium apps, listing in a subscription-based store can increase trial and overcome the initial cost barrier, since users see much greater value for their money.Low-ticket/high-volume. Again, it’s important to keep in mind the “pay-as-you-go” mindset with which most users are comfortable. A low subscription fee, based on shorter daily or weekly cycles (in contrast with the more standard and costly monthly fee) is not an issue in regions where end users are used to topping-off their accounts.Look to local carriers. Since the wide majority of theses users have no access to any form of electronic payment, carriers are increasingly seeing the value in partnering with specialized local app stores to leverage their distribution and pre-paid billing capabilities. Over 75% of app revenue in China, for example, comes from carrier billing and carrier branded app Stores.Distribution Models Are EvolvingWhile the Apple App Store and Google Play dominate app distribution in the U.S., things are different in other countries where the credit card payment model simply doesn’t work. In China there are over 200 app stores, although a consolidation is currently underway. Qihoo 360, Wandoujia, 91 Mobile, UCWeb, Baidu and carrier China Mobile’s app store are emerging as the leading players addressing the current and future needs of this immensely populated country.Wandoujia, with over 300 million users, has attracted major Western app titles like Line, Flipboard, Evernote and Path. China Mobile, as well as China Telecom and China Unicom, account for the vast majority of carrier billing benefiting the Chinese app developer market, valued last year at $1.3 billion (USD) by Beijing-based app developer CocoaChina.Brazilian smartphone users, for their part, currently look to Google Play for their app downloads. Nearly all of these, however, are free apps. Developers wishing to adapt their revenue models to make money are embracing the prepaid model through Brazil’s mobile carriers.Bemobi is a good example of these emerging new app stores. Initially focusing on Brazil’s 250 million mobile subscribers, Bemobi is partnering with local mobile carriers such as Oi (one of the largest players in Brazil) by offering apps from Electronic Arts, Nuance’s Swype, Chillingo, Wunderlist, AVG, Runtastic, Herocraft and HalfBrick, among many others. Bemobi’s carrier-based, prepaid subscription model makes it easy for developers of premium apps to gain a foothold in Brazil, prompt data-free downloads, and realize recurring revenue through a usage-based formula.Western developers are just beginning to understand the nuances necessary to meet the gigantic global market for smartphone apps. The world has been getting smaller for years -- but with the rush to smartphone penetration, the industry stands at the threshold of a true commerce explosion. By jumping to nearly 2 billion users in the next 12 months, we’re entering a new phase. And just think: only 5.13 billion more to go.Pedro Ripper is the CEO of Rio de Janeiro-based Bemobi.See More