The following is a guest contributed post by Elad Natanson, founder of Appnext.
Despite all the naysayers challenging the revenue potential of applications, if you look at historical data, apps are becoming more and more valuable.
After Facebook announced their acquisition of WhatsApp, noted mobile analyst and Andreesson Horowitz partner Benedict Evans tweeted the following:
In comparing Flickr’s $35 million acquisition price in March 2005 and YouTube’s $1.65 billion acquisition price in October 2006 (an acquisition which was heavily criticized because of the revenue model and legal issues facing YouTube) with WhatsApp’s $19 billion price tag, it’s clear that applications are the next computing platform.
So how can app developers make their applications valuable? By focusing on users, stickiness and lifetime user value.
From eyeballs in the late 90s, the Internet has always been a ‘Numbers game’. Sure, they say that size doesn’t matter, but online, it does. One needs to present qualitative metrics – like ‘time spent’, ‘recurring visits’, ‘visits / week’ – alongside the quantitative metrics.
But more important than net users is the user growth trend. An app must show that it has continuous growth. This can be achieved through a user acquisition ramp-up approach which begins small and gradually expands. Adding a viral marketing component which encourages users to invite friends to install the app in exchange for unlocking desirable content or functionality will also help the app user base sustain growth.
As important as users are, successful applications are the ones which users visit again and again. That’s why stickiness is actually more important than users, because an app with few users which is sticky will grow its user base, while an app with lots of users which isn’t sticky… is in trouble.
Apps need to be developed to be sticky. The content they provide must be the kind of content users will want to engage with repeatedly. Do you give your users a reason to visit your application on a regular basis? Here are some tested methods for making your app stickier:
- Adding notifications for users
- Incorporating easy-to-share info and results via Twitter, Facebook, LinkedIn, etc.
- Making it easy to find friends / contacts who also use your app
- Eliminating any friction points in your app that might make it more difficult to download, sign-up, use / play, invite friends, etc. through testing and Q&A
- Rewarding users for progressing through the app OR other achievements
- Enabling personalization of your app
- Incorporating gamification throughout your app
- Cultivating a community for your app’s users
- Using a social login like Facebook Connect (according to research from Gigya, access via a standard login can result in visits which last 50% longer)
To understand app stickiness, you need to make sure that you have the tools in place to measure the metrics which determine stickiness, including engaging metrics like time spent in app, app visits and frequency of app visits, daily and monthly active users, as well as app revenue metrics like average revenue per user.
Ultimately, the real value of having a sticky app is that it will increase the User Lifetime Value (LTV).
User Lifetime Value:
Increasing User LTV begins with recruiting the right users. And finding the right users means analyzing the sources of users and the average revenue in order to determine which user acquisition targets generate the greatest User LTV. Though other user sources might generate more downloads and installs and greater player engagement, the sources which generate the greatest User LTV should be the focus of user acquisition marketing.
Once you know which user sources are the most profitable, you should next focus on user retention – retaining the most profitable users. Tactics which will help retain users include the timely release of new content, notifications and gamification tactics like free virtual goods, or other premium content. Understanding user retention rates – at a daily, weekly and monthly level – will help you forecast revenue and enable determining user acquisition budgets.
The most profitable apps are usually the ones which offer multiple sources of revenue. Users download apps for different reasons and have different needs, and will therefore take advantage of different marketing opportunities. To maximize User LTV, a blended app revenue stream approach is recommended, including subscriptions and premium content acquisition, in-app purchases, virtual goods, mobile ads, and cross promotions just to name a few.
Though most apps won’t exit with a $19 billion acquisition, more and more apps are finding their way to profitability through smart app and in-app marketing.