Tag: economy of scale

Now that it has been tried, tested and vetted, I can discuss Opera Mobile Store’s Subscription Service available exclusively to developers with premium (paid) apps.   A lot of this goes hand in hand with the past few weeks of posts relating to global mobile.

In summary, Opera Mobile Store’s subscription service is an “All You Can Eat” model tested and proven to work in emerging markets.  Our findings indicate that developers generate over times more revenue via our subscription model compared to individual sales in developing markets.   There are a few reasons for that and I will get into them shortly.

The subscription service is carried by Mobile Carriers to offer to their paying mobile users.  We worked with a few early adopters and are now actively expanding our carrier base.  In this regard, both mobile carriers and Opera Mobile Store are constantly engaging to reach more subscribers and to improve the performance of the Subscription Service.

The mobile carriers effectively function as the retailer, Opera Mobile Store is the distributor and the App Developer can be likened to the manufacturer.  Each receives a portion of the sales revenue.   App developer revenue share is based upon the number of their apps downloaded in relation to the total downloads.   Pulling some numbers out of the air – if you had apps that generated 20,000 of 500,000 downloads, you would receive a 4% share of the total developer revenue.  If the total revenue was just $100,000, you would receive $4,000.

Economy of Scale - The first thing that any developer will point out is that the price for each download is lower than what you would get through individual sales.  Yes – but the primary dynamic is Volume, with digital products all revenue accrues to your bottom line and profitability.

Recurring Opportunity – Two points to make here.  First, as this is a subscription service, there is no barrier for subscribers to download and try your premium app.  If they don’t try it this week, they may try it next week.  Second, mobile apps are not just about generating sales, but reaching customers.  So, when customers register their product with you, you then have the means to promote your next release.

Emerging Markets & Price Segmentation – Most premium apps do not sell well in emerging markets because few developers apply to price segmentation.  If you aren’t familiar with this term, please take a look at Wikipedia’s entry on the Big Mac Index.   Companies like McDonalds that do apply to price segmentation sell their products for different prices in different locations taking into consideration a wide range of factors, including purchasing power parity, logistical factors, wages, etc.  So, the Big Mac that sells for roughly $2.30 in Ukraine might sell for nearly $10 in Norway.

Multiple Points of Presence – The more places you are, the greater your reach, the more people are likely to try your app.  Better than this, you will have mobile carriers promoting your apps along with others to all of their customers.

Low Maintenance – Perhaps the best part of the program is that the only thing you need to do is add your product to the service to establish a short-to-medium term recurring revenue.

Offsetting the Paywall – The one thing that I think is best about the subscription service is that you are able to reach paying customers who may not have a credit card, Paypal account, or access to other financial services to purchase your app.  Presently, aside from issues of price segmentation, this is what I believe to be the #1 barrier.  It is a barrier that is gradually coming down, for one, the mobile carrier brings it down for you in this program.

If you would like more information about the Opera Mobile Store Subscription Program – please write us for our PowerPoint Presentation and to talk with a member of our team.

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To follow up on Friday’s article regarding time and economy of scale, there’s one point that’s very important to hit on — “the base price for most apps today is Free.”   In this consideration, I would like to refer again to the Top Ten Mobile App Revenue Models and Determining Mobile Marketing Reach.

If you think trying to monetize your app is difficult today, consider what it will be like in five years.  Nearly 90% of apps are distributed with free downloads.   For additional validation, Forbes just ran an article on this same issue.  It is hard to make money on “free”.  Doh!   Where many developers of these apps are hoping in-app advertising will provide sufficient compensation, consideration of other revenue models is in order because even then most developers are not breaking even.

First and foremost, many developers – large companies, small teams and soloists alike, have a tendency to go it alone – to do everything themselves – fund it, develop it, market it, support it, etc.  Yes, you get to keep 100% of the pie, but in most cases, that’s a very small pie.

To achieve economy of scale, you need a competitive product, a sizable audience and the resources to market and distribute it to that audience.   Preferably, these points are examined prior to beginning any project and equally take into consideration several possible projects.   Most developers engage apps they want vs. what their prospective market wants.   Savvy investors don’t throw their money into the first opportunity that comes their way – they do their research, form a short list and examine which has the greatest potential to generate the best return on their investment.   As a developer, one who wants to be profitable, doing the same is a good idea.

Examine all possible revenue models – not just in app advertising.  Are there specific businesses or industries that might benefit from your running a survey within your app?  You have the option to approach them to sponsor, promote and/or distribute your app.

Instead of selling your advertising inventory to a network, examine if there are products that you can offer through your app with the potential to get a good conversion and sales commission.   Just an example, if you have an app related to automobiles, maybe there is a car dealership willing to offer you a commission on customers you refer to them.  Or automotive accessories.

This is where determining your market reach can be enormously useful — if 10,000 people in a small geographical area have your app – you have 10,000 possible customers for any product line you want to promote.  The three items to address are negotiating commissions, establishing tracking and developing trust.

Can you conveniently expand upon your app to be part of a broader service package?   This can enable subscriptions on a recurring payment model.  Recurring payments tend to be a very lucrative format gauging from the success of telephone companies, mobile service providers, MMORPG’s, etc.

As an alternative, if you have a really good idea – try it out with on a crowdfunding project.   If your crowdfunding campaign does not go well, that serves as an indication that your app may not perform well, either.   If it does perform and people contribute, you’ve dramatically reduced your exposure to possible loss and possibly even become profitable before your app is released.

Free does not generate economy of scale by itself.   Free is used to help generate “economy of scale” for something that does have a price tag – whether or not it is the end user who is the paying customer.    As with web sites, if you are relying solely upon advertising via your app to generate money for you, you aren’t monetizing your app very well.

If you are creative and technically gifted enough to produce a good app, take a step back and examine your app within the broader context of the industry and people it is designed for.  That’s where you will be better able to find your own economy of scale and reap the rewards for doing so.

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By creating and marketing a mobile app, you are likely wanting to get a return on your investment.    Your ability to realize a good return is subject to two important principles – 1) your ability to compete for other people’s time, and 2) achieve something in the direction of economy of scale.

Time. 

Everyone’s most precious commodity.  You never know how much time you have and regardless how much time you might have, it’s likely never enough.  For however precious it is, it tends to have a very low monetary conversion rate.

Everything competes for people’s time — work, spending time with friends and family, mobile apps, web sites, television shows, books, games, cooking dinner, taking a shower.   Understanding this is crucial to achieving anything.  People can:

  1. waste time doing things they don’t want or need,
  2. spend time to achieve something they want or need,
  3. invest time by doing something that will somehow translate to more “free time”,
  4. buy time by hiring people to do things they want or need.

Consider this a bit of practical philosophy.   When someone plays a game or watches a television show, are they spending time or wasting time?   That can depend upon a lot of things, but one thing is for certain – most people tend to take their entertainment for more seriously than some of the more serious things in life.

The fastest way to get someone to ignore you, your app and everything else you do is to waste their time.

Equally, the fastest way to get others to listen to you is to guarantee that the time they spend with you, your app or anything else you produce is first and foremost, enjoyable – and secondly, in some way useful to their continued enjoyment.   Entertainment need not be isolated to games, it can be part of work, education and living, too.   It is a matter of people liking what they are doing.

Economy of Scale.

Creating an economy of scale is not easy.  It requires being able to consistently produce something in high demand profitably.   Software and mobile apps are by far the easiest kinds of products in which one can hope to achieve an economy of scale.   Concerns over physical materials, packaging, shipping and handling, etc. are or at least can be minimized.

This applies favorably to profit margins… except that where mobile apps are concerned, the supply is so large that the baseline price for most apps these days is “Free”.   In consequence, many developers then rely upon their app’s advertising potential to make their app profitable.  And again, the supply, demand and lifestyle dynamics of mobile apps establishes a high threshold for profitability.  Fundamentally, most mobile app developers are not making money on their apps.

Two core issues are involved as to why.  The first is that an app is not competitive – it gives users little reason not to do something else.  The second is that the app is competitive, but not being marketed.  Anyway it is sliced, the profitability of an app, the capacity for it to achieve economy of scale is tied to one of these two things.  Not competitive and/or Not marketed.

Understanding this, you can use the Mobile App Developer Guide to look at specific reasons and options to resolve these two top level indicators.  While signing off for now, I intend to develop these points further.

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