richard cordray license: The Era Of Easy Riches In Mobile Apps Is Over

Earlier this week I sat down with a startup working on an iPad app for news discovery. For several hours the talk revolved around user interface and experience, user acquisition and retention and the difficulty in penetrating a mobile market that is so flooded with apps that individual apps find it almost impossible to stand out. The mobile app industry has grown to mammoth volumes so quickly that even terrific products can't make an impact among the chaos. And without impact, there are no users and without users there is no business model.

This startup is entering a field dominated by the likes of Flipboard, Pulse, Zite, News.me, News360 and several other new aggregation/curation apps. It is going mobile first (tablets specifically) and plans to roll out to the Web next. I looked at the CEO of this startup and asked, very pointedly, ?So what? What makes you think you can cut through all clutter to not only grab my attention, but keep it??

The question was rhetorical and a bit unfair. I was not really talking about his specific product, but about any mobile app getting ready to launch.

Several years ago, the call to action among venture capitalists and startups was to build new products ?mobile first? and for the Web second, if at all. As it becomes increasingly hard to compete in the app market, some people are starting to rethink this strategy.

Rethinking The Mobile First Mantra

Prominent venture capitalist Fred Wilson was one of the first to endorse the mobile first movement, in a blog post in September 2010. Nearly two years later, Wilson has revised his views on the matter in a new blog post called What Has Changed. His new position: ?think mobile first, but do not neglect the Web.?

Wilson notes that only a few apps have done extremely well going mobile only. Wilson quotes Vibhu Norby, co-founder of Everyme and Origami, who lists Instagram (which parlayed its mobile photo sharing app into a huge acquisition by Facebook), Tango, Shazam and, ?maybe 2 or 3 others? as companies that have truly succeeded on a mobile-first basis. Mobile only social network Path might belong on that list, but ?successful? in terms of user acquisition and retention might be a stretch for Path. If we look at success from a gaming standpoint, several mobile game makers have found success, most notably Angry Birds maker Rovio.

Norby continues, ?I use my phone more than anything else. I just don?t think that an entrepreneur who wants a real shot at success should start their business there. The Android and iOS platform set us up to fail by attracting us with the veneer of users, but in reality you are going to fight harder for them than is worthwhile to your business. You certainly need a mobile app to serve your customers and compete, but it should only be part of your strategy and not the whole thing.?

Therein lays the rub. The acceleration of the Mobile Revolution makes developers and entrepreneurs eyes pop and rush to their favorite IDE to build what they believe in their heart of hearts will be the next big thing. Once the design and development work is done, they hit ?publish? for the iOS App Store and Google Play, hope for positive TechCrunch reviews and wait for the users to come rolling in.

And are disappointed. Bitterly.

The Staggering Numbers

Earlier this week, mobile analytics company Flurry reported on the massive growth it sees in the mobile app economy. Flurry tracks 250,000 apps from 85,000 developers, a massive slice of the app industry. In November, Flurry recorded a trillion app events (an event is when someone completes an action within an app, like recording a song). Flurry also recorded 60 billion user sessions (tracked by when a user opens and then closes an app). This data produces the classic ?hockey stick? that charts explosive growth.

Flurry then notes the amount of time people spend with their mobile apps per day in relation with the Web and television. Apps are catching up, Flurry says, with 127 minutes of app usage per day, in comparison with 70 minutes of Web and 168 minutes of TV (I would like to meet some of these people who use apps for more than two hours a day). Gaming dominates mobile usage (one reason Rovio does so well with Angry Birds) followed by social networking then entertainment and utilities.

Developers see these metrics and tell themselves, ?I can build an app and take advantage of all these eyeballs. It will be easy.?

The problem is that Flurry equates this massive growth with opportunity. In reality, this growth can actually make it more difficult for mobile app developers to succeed. The barrier for entry for a significantly successful mobile app has never been higher. There are more than 1.4 million apps between Android?s Google Play and the iOS App Store. Add in another 200,000 or so on between BlackBerry World and the Windows Phone Market and, well, those are staggering numbers. Of course, there are duplicates among and within the app stores (you can find Instagram on both iOS and Android, for instance) but the amount of unique apps vying for attention is immense.

?Mobile and apps are gobbling up the Web and consumer Internet, and that?s where the opportunity is. And the opportunity has never been bigger,? Flurry?s CEO Simon Khalaf notes in the blog post. But Khalaf also notes the very problem plagueing would-be app makers. ?Traffic acquisition is still an art more than a measurable science. No one has defined a set of metrics that the venture industry can use to universally compare the value of one app property to another, and business models on mobile are still new,? Khalaf writes.

The app economy is incredibly top heavy - the biggest and brightest taking the lion?s share of revenue. Research firm Canalys reports that the top 25 app developers in the United States account for nearly 50% of all revenue. Most of those are gaming companies like Zynga, Electronic Arts, Disney, Rovio and Glu. Games accounted for 145 of the top 300 apps in the iOS App Store and 116 of the top 300 in Google Play. This covers only app sales and not necessarily advertising revenue or in-app purchases, but it makes sense that games dominate the app economy. Flurry?s data supports this, with 43% of time spent on mobile apps being some form of gaming. Flurry?s analysis from July shows that 32% of revenue for apps on iOS and Android go to the top 100 apps.

The paid download economy for mobile apps is likely to be in the vicinity of $10 billion in 2012. That's big enough that the long tail of the app economy can make money - but with anywhere from 32% to 50% of revenue going to only a handful of app makers, the chances of big success in the long tail (where 99% of apps live) is slim.

Wilson also notes that the cycle inherent to gaining users in the mobile first world is difficult to master on any type of large scale.

?? [D]istribution is much harder on mobile than web and we see a lot of mobile first startups getting stuck in the transition from successful product to large user base. strong product market fit is no longer enough to get to a large user base. you need to master the ?download app, use app, keep using app, put it on your home screen? flow and that is a hard one to master,? Wilson wrote.

Mobile First Or Multi-Channel From The Start?

The problem with the mobile first approach is user acquisition and retention in the face of immense volume. Even the best built, most beautiful apps will fail if their creators cannot rustle up enough eyeballs.

So, we come back to the original question: Do you build for mobile first from the beginning or do you build for multi-channel distribution knowing that it might take more time to get the service off the ground? A mobile-first approach implies that, for a significant period early in your apps life, it will be mobile only. And that can be a problem.

To a certain extent, it depends on what you are building. Games are much easier to make mobile because they are self-contained units specific to the device they were downloaded on. Yes, it would be nice if I could pause a game of Angry Birds and move from my tablet to my PC and pick up at exactly the point I left off, but this is not really necessary. WIth a news app or a social network or a photo app or a music app, users very much want to move from their smartphone or tablet to their computer and back again with as much ease as possible. For every Instagram that survives the mobile-only world, there are startups like Path where mobile only might be one of its biggest detriments.

Norby gets to the heart of the mobile-only conundrum: It's much easier to get new users on board a service on the Web than on a mobile device.

?? [T]he experience of signing up for a service is superior in every way. Typing is easier. Sign-up with OAuth is faster. Tab to the next field. Provide marketing alongside sign-up as encouragement. Auto-fill information is a feature in every browser. The open eco-system of the web and 20 years of innovation has solved many of the most difficult parts of onboarding. With mobile, that kind of innovation is lagging significantly behind because we create apps at the leisure of two companies, neither of which have a great incentive to help free app makers succeed,? Norby wrote.

Developers need to think of more than just the product they are creatiing. ?Will it work on Android? iOS? Windows Phone?? is an important question, but it's secondary to ?What do I need to do to turn this into a viable business??

That business question is often lost among excited developers building a great app. Ironically, it is one reasonswe end up shedding tears for all the crappy startups that can?t raise any more money. It is not enough to build a great app, throw it into the celestial ether, maybe do some press outreach and marketing and hope for success. There are too many startups building apps, not businesses.

Mobile apps that come to the fight with the appropriate tools in place give themselves the best chance of success. That means a website to easily onboard mobile users and give them information, a plan for marketing that offers a chance to reach the top lists on the app stores, and a consistent message to the press and consumers.

Sound like a lot of work? It is a lot of work. It takes time, money and patience - on top of everything that goes into creating the app itself.

The era of easy riches in the mobile app economy is over. The first movers have consolidated their positions. Sure, there are still a few lucky stories (like this Dental Surgery app that came out of nowhere) or outliers that fall into success without the requisite groundwork - but they are increasingly rare.

That doesn't mean the mobile market still doesn't offer immense potential for riches. And designing a business with a mobile-first mentality is definitely the way to go. But make no mistake, rising above the noise with a mobile-only product is getting harder and harder - no matter how good the app may be.

Top image courtesy of Shutterstock.