How to Thrive in a Saturated Mobile App Economy

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The Smartphone Tipping Point

In the year 2000 Malcolm Gladwell wrote that “Ideas and products and messages and behaviors spread like viruses do.” Negative connotations aside, the adoption of the smartphone has proven this statement to be wildly accurate. Mobile adoption is at an interesting tipping point right now: downloads are still driving the app market, but, as App Annie’s 2016 Forecast demonstrates, in the next few years downloads will plateau as the global population becomes accustomed to their smartphones. Users will leave “exploratory mode” and move into developing “app habits”– an occurrence that will drive usage and revenue as users become more invested in their selected apps.

This deduction was made from the fact that in the United States (a mature market) we are already on the precipice of shifting from the download phase into the usage and revenue phase. However, the global app market is still in the midst of the download phase, a phase that is expected to last through 2020 with the global install base more than doubling. Parenthetically, this massive global smartphone adoption over the next four years will also result in Google Play and other third party Android stores surpassing the iOS App Store.

App Annie's state of mobile app graph

What does this means for product managers, marketers, developers, and customer service reps alike? Adoption is dwindling; it’s all about retention.

App Installs Dwindle; Engagement Reigns

We have a few more golden years of app store downloads; moving forward, though, we will see the market focus on premium features that drive in-app revenue. It’s for this reason that so many mobile leaders are focusing on retention, engagement, and customer care.

Mobile games in particular are emphasizing retention, VIP players, loyalty, and in-app revenue. Zynga, for instance, the maker of Farmville, launched a survey in 2012 asking fans how VIP players should be selected — what criteria should a player meet before leveling up to VIP status? Should it be based on player level, friend nominations, farm cash? And what should being a VIP player bring you? Better customer service, a special badge, VIP discounts? The company was considering two things: how to segment users, and what to give each segment in order to increase retention.

And Zynga is not the only the company to realize product longevity largely depends on figuring out how to reward VIP players and encourage long-term engagement. At this year’s MORE Summit mobile industry leaders from companies as varied as Microsoft, The Match Group, Shyp, and Supercell join Zynga on stage to discuss how their teams are addressing mobile engagement and retention– the two biggest issues facing every vertical of the mobile app ecosystem today.

How Engagement Increases Monetization

However, despite App Annie’s trend forecasts, most mobile games are still aiming to optimize traditional metrics: installs, DAU, number of players, average revenue per paying player, etc. The problem with these traditional metrics is that they’re concentrated on immediate revenue, not long-term business.

As a recent VentureBeat article delineated, “The unintended consequence of this pressure to deliver financial performance is that game teams can over index on generating revenue instead of delivering a better experience for players. For example, to meet short-term financial goals, the general manager of a game could turn up the monetization dials raise and thus grow revenue in a given quarter. However, not only would this revenue growth be short lived, but more important, it would also come at the cost of cannibalizing future quarters’ revenue. Worse, if repeated often, regular turning up of monetization dials could destabilize the in-game economy and cause the eventual implosion of the game.”

The metric we should be measuring for long-term success is “fun”. And fun translates to engagement. In fact, Atul Bagga of Zynga found that the amount that a user is willing to pay per hour is stable across games; what varies is how many hours they are willing to play. Engagement and per-payer monetization are actually negatively correlated, and increasing prices per player not only reduces engagement, but also increases churn (factors that would affect revenue in a later quarter). Essentially, increasing engagement is a long-term business model, while increasing revenue per player is a short-term business model.

Increasing engagement decreases churn; however, while increasing cost per player increases monetization in the short term, it simultaneously increases churn, which ultimately lowers monetization. Clearly, then, games (and other mobile apps) should be emphasizing engagement– getting players to play more hours per day. This is particularly crucial in light of the App Annie forecast, which predicts a plateau of downloads but increase in engagement. If fewer people are installing new apps, churn becomes an even more dangerous phenomenon.

The next four years will bring about the conclusion of the smartphone tipping point: a vast majority of people worldwide will have a mobile device, and be fluent in its usage. To prepare for the demise of the golden age of downloads, it’s time that apps emphasize retention and engagement above all else.

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Published March 10, 2016
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