The elusive mobile business model

Sep 1, 2009

Experts have identified numerous business models that could work for different segments of the mobile industry. However, too many people still find ways to get it wrong, writes Christopher Backeberg...
Businessweek mobile business model


"If only there were an app that showed media companies how to make money on the iPhone," reads the start of a recent article in the New York Times. "They know they need to have an app for the iPhone, so they create appealing ones loaded with features. Yet it is far from clear how much revenue media apps for the iPhone can produce."

It's difficult to discern a practical business plan, or even any plan at all, behind most of the tens of thousands of apps available from the Apple App Store. As the New York Times notes, developers are trying to devise business models by trial and error. Should they use subscription models or advertising models? Does the app appear likely to generate a continuing revenue stream or is it better suited to a one-time payment model?

It could even be better not to look for any significant revenue from some of the winning apps. Some major media companies treat their apps as promotional tools rather than money-spinners, using them primarily to gain exposure for their brand.

How does one select an appropriate business model (BM), and not just for apps but for any potentially profitable mobile undertaking? It's not a bad idea to begin by dispelling some false notions about mobile marketing.

Myths and misconceptions

iLoop Mobile has summarised some of the mistaken beliefs about strategies and tactics that could be applied to leverage the mobile channel:

* The mobile channel is not effective for marketing: False; the mobile phone has become a significant channel for communications and content
* Mobile is exclusively a youth marketing channel: False; the average age of people who use text messaging is over 30, and increasing numbers of older people are making use of the other benefits that mobile offers
* Mobile marketing is intrusive and unwanted: False; mobile operator regulations and industry best practices are steadily winning ground for opt-in marketing that users actually welcome.
* You need an opt-in database for mobile: False; opt-in experiential marketing and brand interactivity lead to a win-win situation for consumers and brands
* Mobile marketing exploits cutting-edge, sexy technology: False; it's about applying sensible strategies and tactics. It's human, not mechanical. As iLoop says about gimmicky technology: "Just because you can do it doesn't mean you should do it."

How to get it wrong

BMs have to be thought out meticulously from conception to post-launch follow-up. Of course it helps if the BM is being applied to a sensible product.

"Judge not lest ye be judged." OK, we'll step aside and let others pass judgement on some ventures that may defy all attempts to monetise them!

Steven Walling at ReadWrite Enterprise was unimpressed by TwoTweet, a shopping cart service closely integrated with Twitter. It lets customers "reply to buy."

Walling wrote: "Relying on the unstable and insecure platform that is Twitter may be the dumbest business decision you ever make. You can only sell one item at a time with the system. But even for very small businesses, this is a dangerous venture. Allowing access to an ecommerce environment with your social network as an identity provider is a supremely bad idea."

And Daily Technology News was profoundly unmoved by VisionQuest Carfinder, a $20 app that will find your car in a parking lot... but it needs a combination of Blackberry and an in-car Bluetooth device that automatically feeds the GPS coordinates of your car's location into your Blackberry. The writer commented: "I can mark my car's position with all manner of GPS apps," including free ones.

Twelve paths to monetisation

If you do have a product worth selling there are many ways to market it. A few years ago Helen Keegan, MD and founder of UK mobile marketing agency BeepMarketing, identified 12 workable BMs for the mobile industry. These models are still fully valid.

1. Ad funded content: offer extra air time, free ring tones, games or some other incentive in exchange for the customer agreeing to accept mobile advertising
2. Mobile advertising: Site owners who use the services of agencies such as AdMob can make money by offering pay-per-click advertising from their sites without having to find advertisers themselves
3. Sponsored SMS: Offer ad space below the directory enquiries text messages at a low cost per thousand. Keegan noted that this isn't highly effective because there is no obvious targeting
4. Sell your list: Selling your database to any willing buyer is a mucky business. Keegan said: "There are lots of data protection hoops to jump through - and rightly so. If you've structured your terms and conditions properly you'll have permission to send messages on behalf of third parties, but that the data can't leave your hands"
5. Branded content: Tying in a trusted brand may seem to imply greater sales potential but this doesn't automatically follow. Some content creators pay a burdensome licensing fee or sign away revenue for the privilege of using the brand name, and the brand owner may not add any marketing support
6. Sponsored content: Find a big brand sponsor to fund your app, or whatever, and you may get to ride on the sponsor's marketing
7. Off-the-page promotion: A revenue share deal in which the content company pays the publisher for each customer acquired
8. Subscription model: Offer a service for a fixed regular fee. "If you get it right, it's a very profitable way to monetise your business," Keegan commented
9. Wholesale: Syndication of your content or product to a network operator, media owner, content aggregator or app store. Be aware that the extended value chain reduces your profits
10. Retail: Going direct to consumer (d2c) requires building your brand and trust. You're responsible for the marketing and distribution
11. Don't have a business model: Huh? Well, there are successful Internet businesses that didn't have a BM when they started, and it could also happen in mobile - but Keegan warns that the successes will be few and the failures will be many

It doesn't end there. For even more, Stephen N. Ulanoski, former senior VP and GM - Telematics Solutions, GE Capital, will include the “data as a service” business model in his presentation at MetaPlaces09.

That's a sampling of BMs for the industry in general. What of the options for specific segments?

Making money from apps

Del Daix wrote in the San Jose Media Industry Examiner: "First, choose a mobile application development platform. Don't get yourself locked down.

"What type of mobile app? Games are always on top of the list of apps people are downloading, followed closely by professional tools and helpful local tools."

Daix has some sage advice about going where the current market is thronging: "Write an app Apple will like, a way of using their phone nobody thought of before."

According to Daix the most difficult step in any marketing plan is creating awareness of your offering. She says: "Aim to get your app featured at the top of the list in the app store. A featured app is guaranteed a tenfold increase in download rate." Of course this may be much easier said than done.

One of the most critical steps in the BM is deciding on a price for your product - or if you should even charge for it! According to Daix, the most common approach evident in the Apple App Store is "free app today, let's see tomorrow." When the app starts taking off, you may start charging users for premium services or a subscription. For games, with their shorter lifetime, an upfront payment is more common.

Four models for operators

An Advertisement-based Platform Business Model for Mobile Operators is a serious academic paper but it is not overly technical and may be well worth downloading. Its authors describe four BMs for networks, including one that hasn't seriously started yet.

* Telco-centric model: As followed by the Vodafone Live! platform. "It places the majority of roles within a real-life stakeholder, the telecom carrier, which acts as portal provider, service aggregator, network operator and platform operator"
* Device-centric model: For example, the iPhone. The main service platform is incorporated in or tied together with the mobile device
* Aggregator-centric model: Favoured by Facebook Mobile. This BM expands on the concept of using a service portal to disclose services - the service aggregator takes over the role of portal provider, independently of the mobile network operator
* Service-centric model: This is still largely a theoretical model for now, based partly on plans and models surrounding Google's Open Social initiative in offering APIs for social networking applications

Morgan Gillis, executive director, LiMo, will be speaking at MetaPlaces09 on the best models to provide operator-centric services.

Monetising a mobile site

Briefly, mobiForge suggests there are two primary ways that Internet advertising can help with a mobile web site:

* Driving traffic to your site with paid-for ads or keywords on other sites and search engines
* Embedding ads on your own site to monetise traffic from your own users

mobiForge adds that AdMob, the biggie of mobile advertising, follows the second of these two routes by using a revenue model based on cost-per-click.

To sum up...

According to Rebecca Wettemann, VP at Nucleus Research, a compelling BM for mobile technology relies on identifying the key benefits of the product or service, then deploying it to ensure maximum returns.

Wettemann elaborates: "Instead of a lengthy laundry list of 20 to 30 benefits, focus on the two or three most important gains you hope to achieve. These include increased productivity, reduction in administrative or communication costs, and improved efficiencies."

She adds that you need to assess the project by "breadth" (how many people will be helped by the application) and "repeatability" (frequency of application use). This approach is aimed at maximising the benefits, not minimising your costs.

Business models and mobile marketing topics will come under scrutiny at MetaPlaces09.

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