Groundbreaking application industry research on the future of the ecosystem
16
State of the Industry: APPS A DM2PRO and Quattro Wireless Collaboration, December 2009 Quattro Wireless Corporate Headquarters 100 Fifth Avenue Waltham, MA 02451 781 209 4030 Sales Headquarters 594 Broadway, Suite 206 New York, NY 10012 646 367 2175 Additional offices in Chicago, Dallas, Los Angeles and San Francisco. A groundbreaking study on the current strategies and future plans of more than 600 major advertisers, agencies, publishers and social and mobile application developers
Transcript
State of the Industry: APPS
A DM2PRO and Quattro Wireless Collaboration, December 2009
Sales Headquarters 594 Broadway, Suite 206 New York, NY 10012 646 367 2175
Additional offices in Chicago, Dallas, Los Angeles and San Francisco.
A groundbreaking study on the current strategies and future plans of more than 600 major advertisers, agencies, publishers and social and mobile application developers
State of the Industry: APPS
Page 2 www.quattrowireless.com
EXECUTIVE SUMMARY
The rise of social applications and multi-function mobile devices have dramatically changed the marketing landscape over the past two years. Marketers have been forced to address new business models and marketplaces, as consumers increasingly shifted their media time from traditional to digital channels.
This research study, previewed by DM2PRO.com and Quattro Wireless at the digiday:APPS summit in Los Angeles on December 10, 2009, is the first in-depth look at the entire social and mobile application ecosystem. The full slide deck is available at DM2PRO.com.
This report will mainly focus on mobile platforms, as overall the study found that investment in social applications will remain flat, while mobile investment will grow significantly.
As the mobile landscape continues to evolve, this data provides an essential window into where the industry stands today and where it is headed:
• More than half of the advertisers and agencies surveyed did not develop a mobile or social app in 2009, but 65% plan to develop mobile apps in 2010, with iPhone being the clear winner in terms of intended platform of choice at 91% (followed by Android at 39%, RIM at 33%). For those that do have apps today, Facebook apps lead iPhone apps by about 12%. One-third expect their budgets to increase by more than 75% in 2010 – some by greater than 200%.
• For the smaller number of publishers who have already developed apps, the inverse of advertisers’ social-to-mobile app preference is true: iPhone leads Facebook in terms of the platforms they plan to develop for. More than 35% of publishers say that even in today’s challenging economic times, they expect their mobile app-related revenues to increase by more than 50% in 2010.
• Social-only developers focus mainly on Facebook (74%), but 90% of this group are going mobile in 2010, with 75% working on iPhone apps and 55% on RIM.
Considering that more than half the total advertising respondents represent agencies (n = 130), presumably with multiple clients, the number of branded mobile applications entering the market next year should be substantial.
METHODOLOGY
DM2 Media and Quattro Wireless used their extensive customer lists to conduct an online survey of ad agency, advertiser, media and app developer executives in November and December 2009.
DM2Media holds conferences for digital media and marketing pros on a variety of media-transforming technologies, including mobile and social networks and applications, and publishes the digiday:DAILY free e-newsletter and DM2PRO.com paid content resource. More than 30,000 interactive industry professionals read digiday:DAILY, or have attended conferences, a majority of these serving in various executive marketing positions for brands or agencies, with approximately a third in publishing-related media posts.
Quattro Wireless serves these markets, along with the application developer community. Some of these developers serve publishers, brands or advertisers, but the majority are independent entrepreneurs.
State of the Industry: APPS
Page 3 www.quattrowireless.com
Together, these advertisers/agencies, developers and publishers comprise an ecosystem whose attitudes will impact the growth of the apps marketplace in 2010. Each sector was examined for mobile app market direction. Of the more than 600 respondents, 236 were developers, 125 were publishers, 130 were agencies and 114 were brand or direct marketers.
Among developers, the overwhelming portion – 83% – were entrepreneurs (developers who build apps as a business), 9.6% work for agencies with multiple clients, 5% worked for publishers, and only 2.2% were advertiser or client-side developers.
Of the 100+ publishers, 88% were content publishers, with around 6% each representing social networks or portals.
FINDINGS
ADVERTISER/AGENCY
Asked whether they develop mobile or social apps, a small majority of respondents said “no.” But 65% of those who haven’t yet taken the plunge say they plan to develop mobile apps in 2010. Of those, 91% plan to develop for iPhone, 39% for Android and a third for RIM.
IPHONE AND RIM LEAD CURRENT DEVELOPMENT
Among those who have developed mobile applications, advertisers and agencies rank iPhone at a 95% preference, but put RIM over Android at 44% vs. 33%. (There’s clearly overlap.) Palm trails in both experienced and aspiring cohorts at 19% and 15% respectively.
Could the personal choice of mobile phone by those in our survey impact app development? More than half of advertiser or agency respondents – 52% – use an iPhone, while 38.5% use a RIM device. Only 13% have an Android phone. Obviously, some have more than one.
There are marked differences among advertisers, developers and publishers about the future of Android. The advertiser/agency group was less optimistic about Android’s ability to meet or surpass iPhone’s market reach. When asked how long this might take, half the respondents (of an admittedly small set – 42 total) said it either “wouldn’t happen” or would take five years or more.
That doesn’t mean that advertisers won’t develop for Android as the platform’s popularity increases, so long as the user demographic is a good fit for advertisers’ campaign aims.
While reach was the primary reason cited for developing for both iPhone and RIM, when asked about their target universe for apps (“How many mobile downloads would be minimally acceptable to you in considering whether to develop a mobile application?”), more than half said, “A few thousand is fine; we’re highly targeted,” and another 27% said “50K-100K.”
WHY BUILD APPS? ENGAGEMENT LEADS
The vast majority (nearly 70%) of app-savvy respondents in the advertising community develop both mobile and social apps. Only 10.5% do only mobile apps; 20% do just social. Many of these developers overlap, so we can determine why they prefer one platform over another:
Engagement leads as the top reason why either format is selected, followed by sharing potential in the case of social apps and tied with audience targeting for mobile. Both rank high in branding potential, but persistence and creative control stand out as key reasons why a campaign
Won't happen, 38.1%
Six months, 2.4% One year,
19.0%
Two years, 21.4%
Three years, 7.1%
Five years or more,
11.9%
How long do you think it will take for Android to meet or surpass iPhone reach?
might call for a mobile rather than a social app. Mobile lags social in perceived reach. The only “other” response specified: “Buzz.”
MOBILE INVESTMENT TO GROW
The top third of the market (agencies and advertisers who have used mobile apps) expect their mobile apps investment to rise by more than 75% – some by more than 200%. More than three times as many reported plans to spend $500,000 or more in 2010 than did for 2009.
The most important factors for spend increase are: a bigger bump in the size of the apps market, client demand and greater standardization.
15%
15%
15%5%10%
5%
8%
10%
10%3%3%
Specifically, next year I expect our total budget for MOBILE apps (development and
promotion) to increase by: Base: Advertisers or Agencies Who Have Used Apps
The study shows that competition in the app stores will grow significantly in 2010. However, many advertisers and agencies are limiting their success by not investing in promoting their apps; more than a third spent less than 5% of their app budget on promotion in 2009. To stand out in 2010, they will need to follow the example of the 15% that invest more than 60% of their budget on promotion.
What is clear is that they’re not relying on the different app stores to do their promotion for them – ranking in the app store fell above only “we don’t promote” as a selection for app pros. In order, their promotions preferences from “most” to "least" effective or “n/a”: online advertising, mobile advertising (network buy), mobile advertising (direct buy), PR Agency, traditional advertising, carrier-paid placement, rely on the app store index, and “we don’t promote our own apps, we only sponsor others.” Other promotional means: social media and promoting in other apps.
When choosing a network to help them promote their apps, advertisers and agencies care more about targeting capability than reach. In order of preference (high preference ranked a “one”), targeting capability was followed by reach, ease of use, ability to re-target and transparency (pre- and post-download).
4%
33%
7%
18%
10%
5%
5%
4%5%
10%
0% 3%
As a percent of your company's total spending on mobile apps, how much is
spent on promoting them (vs. development)?
Base: Advertisers or Agencies who have used Mobile Apps
As for what makes an app successful for this group, engagement, user feedback and the number of times the app was downloaded or shared rank highest.
CPG AND RETAIL LEAD FOR INVOLVEMENT IN APPS; B2B AND PHARMA LAG
Brands that are most and least engaged in mobile apps were determined by asking advertisers and agencies who didn’t yet employ them what brand categories they represented (these would thus be the “least” engaged) and apps pros were asked what categories they represent.
Almost 18% of advertisers and agencies noted that mobile apps “over delivered” or “succeeded beyond their wildest expectations,” with 73.8% having met expectations.
So, what would induce the reluctant to develop mobile apps? There’s a list for that. In order of response: “Need to wait ‘till the ROI is better quantified,” “Money’s tight; sticking with the tried and true,” “Mobile platform is too fractured,” “Can’t think of any good application,” “Too confusing, don’t understand it,” “Can’t find a good developer,” “We’ve invested too much money in our regular Website,” “Eventually the whole Web will be mobile anyway,” “the communities we target aren’t mobile,” and “afraid of what happens with the consumer takes control” – plus 33 write-in answers! Predominant among the write-ins was some version of “we’re going to do it next year.”
1.19
1.31
1.31
1.46
1.49
1.70
1.83
1.91
1.96
2.00
2.06
2.09
0.00 0.50 1.00 1.50 2.00 2.50
Engagement (time spent) …
User feedback
Number of times the app …
Monthly average users
Brand impact
Impact on product sales
Click-throughs to Web site
Traffic to advertiser's Web …
Sales of the app itself
Honestly, we DON'T …
Ranking in App Store
List building (opt ins)
How do you measure the effectiveness of a mobile app? Rate the following options in
their importance to you. Base: Advertisers or Agencies Who Have Used Mobile Apps
Developers generally fall into two groups – those who work for themselves, and those who work for an advertiser, agency or publisher. Each of these develop mobile apps, social apps or both. The largest, and most interesting group within the study, were entrepreneurial app developers building apps as a business. This group was questioned in depth to determine how they monetize their apps (consumer sale, advertising or both), and how they promote them.
As a group, nearly 75% of developer respondents develop for just mobile platforms, while another 25% focus on both mobile and social apps. Only 1% of developers polled do strictly social apps, making investment comparisons difficult.
On the whole, more than 83%, would be classified as entrepreneurs (“develop apps as a business”). As with agency/advertiser respondents as a whole, the iPhone leads for personal use (51%), but a large number of Androids are also at hand (33%).
There were only 20 “social only” developers in our set, for whom Facebook continues to lead, with 74% of respondents saying they produce 75-100% of their apps
Developers: What mobile phone do you employ for personal use?
State of the Industry: APPS
Page 9 www.quattrowireless.com
for this platform. A third of respondents never bother with MySpace, and only 14% of respondents have ever developed an app for LinkedIn. Some 90% of these developers say they intend to add mobile to their portfolio in the coming year. Of those, 75% plan to develop for iPhone, 55% for RIM and 30% for Android.
DIRECT SALES + ADVERTISING: MOST USE BOTH
Nearly 150 developers told us they develop apps as a business. Of these, the largest number – 55% – monetize their apps either with advertising or through sale. Some 27% only sell apps directly to consumers, and around 18% are only ad supported.
DEVELOPERS WHO ONLY SELL APPS: SALES TO INCREASE IN 2010 BY 50+%
Of those who just sell apps to consumers, 69% are priced in the $1-$5 range per download. More than half (54%) say it takes between one week and six weeks to develop a successful app; 46% say longer.
One of the most interesting responses from this group was the value they assigned to results. User feedback was deemed as slightly more important than total revenue and number of downloads, which all impact the fourth-most important measure, ranking in the app store.
When looking to 2010, the same number of these developers expect sales revenue increases of greater than 100% as expect no change; 38% looked for increases of greater than 50%. Their own spending is expected to rise modestly: For 2009 the largest percent (52%) fell into the <$50K spending category, while for 2010 that number falls to 44%, and the number of developers looking to invest between $500K and $1MM is likely to double. Nearly 54% expect no change in spending.
Surprisingly, for those that monetize apps only through sales, the majority spend little on promoting them; 69% spend less than 5% of their total budgets on promoting their apps to an audience (half of those spend nothing at all). For those that are spending (and likely driving their apps higher in the rankings), most use a mobile ad network to help them promote their apps. Reach, revenue, and cost-per-download are the top three reasons for selecting a network.
DEVELOPERS WHO MONETIZE BY SALES OR ADVERTISING: 25-50% REVENUE GROWTH
Among those who include advertising as a revenue strategy, iPhone is the preferred platform for 76.4%, but Android makes a strong second-place showing at 57%. This group says that just shy of a quarter of their apps are free/ad-supported (24.3%), while nearly 50% are sold (48.6%.) Like those developers who only sell apps, the majority of these are priced at between $1 and $5.
Nearly 64% say the average time spent making an app is between a month and six weeks.
Ad-savvy apps developers favor the iPhone for their personal phone (76%). But 57% say they own an Android phone. More than a third (36.5%) say Android could pull even or ahead of the iPhone in overall market popularity in two years.
In measuring effectiveness, the need for reach in order to better monetize via ad sales pushes distribution even with sales, followed by monthly average users and engagement, with user feedback and app store ranking close behind.
Developers have higher expectations for distribution of a successful app than advertisers, with the largest group (39.4%) setting a goal of between 50K and 100K downloads for mobile apps.
Both app sales and app ad revenue are expected to grow in 2010. More than 18% of respondents expect an increase of more than 100% in revenue from each category. The largest number of respondents expects an increase in ad revenue of between 25 and 50%.
8.3%
22.2%
56.9%
76.4%
0.0% 25.0% 50.0% 75.0% 100.0%
Palm
RIM / BlackBerry
Android
iPhone
For what MOBILE platforms do you develop?Base: Developers Who Sell Apps &/or Ads
Networks and intermediaries are both key players for the sales of the ad space within apps. Nearly 55% employ a mediator like AdWhirl or MobClix to sell their advertising. Nearly one third (32%) use a network. Only 8% have their own internal ad sales force; 6% use an outside sales agent.
Revenue, reach and eCPC lead as reasons to select a network to place advertising in ad-supported apps.
While double the number of developers will have budgets of between $200K and $500K and between $500K and $1MM respectively on apps development and promotion, the largest number of developers still have budgets of less than $50K. Some 24% of individual developers predict no change in budgets for 2010, but the top third (30%) will see their budgets rise by more than 50%.
An even faster ramp up in audience, client demand and better distribution through apps networks are all seen as more important than standardization, search, tools or connectivity/bandwidth as market growth agents.
7.0% 10.0%1.4% 0.0%9.9% 10.0%
15.5% 18.6%
15.5% 5.7%
15.5% 20.0%
8.5% 8.6%
8.5% 8.6%
18.3% 18.6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
App Sales App Ad Revenue
By what percent do you anticipate each revenue category to grow in 2010?
When promoting their apps, the most effective tool is judged to be placement in the index:
However, there is not much effort put forth to impact that ranking: 57% of apps developers who support their apps by sales or advertising spend less than 5% of their budgets on promotion. The highest spending level cited was 30-40%. Less than half use a network to promote their apps; more than half of those use only one. Reach, at 71%, was the single most important factor cited in selecting a network to help promote app sales or distribution.
Conversely, the largest number of developers who support their apps through advertising alone (40%) say they spend 5-10% of their total apps budgets on promotion.
While more than half of these developers put their total 2009 and 2010 budgets at less than $50,000, nearly 36% of this group looks for app ad revenues to increase more than 100%. All but one respondent put revenue increases at greater than 10% in 2010.
The majority of developers were satisfied with their mobile ad-supported apps: only 23.5% weren’t satisfied.
PUBLISHERS
More than 100 publishers participated in the study. Of these 64% have developed mobile and/or social apps (78) and about half have developed mobile apps (53).
iPhone leads even Facebook as the platform for which most publishers have developed apps (87%); close to half of these have also developed for RIM or Android.
.
9%
13%
16%
21%
27%
27%
40%
46%
61%
0% 10%20%30%40%50%60%70%
Ability to use Flash to create cross-platform apps
More control over the user experience
Better connectivity (true 3G)
Better tools / easier to build apps
More standardization between mobile interfaces
Better mobile search (improved discoverability)
Better distribution (i.e. apps networks)
Client demand
Increase in mobile use by our target audience
In your opinion, what one or two circumstances would most positively affect your total MOBILE APPS budget next year:
Publishers who’ve developed both associate social apps with sharing potential and audience targeting. They choose mobile primarily for branding potential, persistence and click-through (which ranked higher on mobile than social). They have high expectations for their social applications, with the largest group (34.6%) expecting 100K-500K in reach, nearly 29% looking for 50K-100K users, and more than 20% expecting more than one million.
To develop mobile apps, most (60%%) rely on outside developers, with a little over a third (37%) having in-house developer resources.
More than half (52%) say their apps are ad supported and an additional 39% derive revenue from both advertising and app sales. Just over 21% of publisher apps are sold. One quarter of them are used to drive traffic to another platform that is monetized.
Overall, mobile app ad revenues are just a tiny portion of total revenues for publishers, whose main revenue sources include print media, online and mobile sites; 75% say they represent less than 5% of total revenue. Still, a small number of publishers make more than half their total revenues off mobile app advertising.
7%
9%
9%
28%
39%
44%
48%
87%
0% 20% 40% 60% 80% 100%
MySpace
PALM
Other discrete community
Our own community platform
Android
RIM
Facebook
iPhone
For which environment was this / (were these) application(s) designed
(check all that apply): Base: Publishers Who Have Developed APPS
More than half of mobile app publishers earning revenue from advertising sell the ads with their own internal sales force; 27% employ a network, and 10% each use either an outside sales agent or other intermediary like AdWhirl or MobClix. About 20% each employ 1, 2 or more than three networks.
Revenue leads as the main reason for selecting a network, followed by reach. Publishers care more than any other group examined so far about both targeting and the types of advertisers associated with a particular network.
As for revenue increases in 2010, an equal number of publisher respondents expect no increase as expect revenues to more than double. The largest group (20.4%) pegs their increase at between 5% and 10%. More than 72% of participating publishers said they expect their investment in mobile apps to increase as a result of their experience so far; only 5.6% expected a budget decrease.
Because most mobile publishers monetize through advertising, they mirror the concerns of advertisers and agencies in rating the value of success criteria: engagement tops the list, followed by monthly average users and brand impact. (“Time to market” was the only write-in metric.) Unlike developers who rely on sales, user feedback was a lagging value.
1.35
1.77
1.97
2.10
2.10
2.25
2.33
2.54
2.75
2.83
0 1 2 3
Revenue
Reach
Targeting capabilityTypes of
advertisers
Ease of use
eCPC
Customer service
Types of ad units
Self-service optionCreative services
Please RATE the following criteria to you in choosing a mobile ad network to
help you monetize your apps (1 = Most Important and 5 = Least Important)
Finally, nearly 75% of publishers rated their experience with mobile apps as satisfactory or better.
Publishers who haven’t developed apps are waiting for the ROI to be better quantified (40%) and say money is tight (37%). Increase in mobile apps use by their target audience, more standardization among platforms, better tools to build apps and better distribution all lead the list of reasons impeding their mobile development.
Yet, with all these challenges, nearly 65% say they intend to create an app in 2010. Of these, 91% will develop for the iPhone, 39% for Android and 33% for RIM. They don’t advertise in mobile applications (72%), saying it’s not their target market, and also cite insufficient reach or lack of knowing where to start. More than half of the 44 publishers who do advertise in apps (55%) do so by means of an ad network, typically just one. Their highest ranked criterion for selecting such a network is targeting capability (38%).
CONCLUSIONS: IN A CROWDED APP MARKET, PROMOTION BECOMES ESSENTIAL
As successful as mobile apps have been for top-tier developers, advertisers and publishers, they’re about to experience even more explosive growth. More than half of every non-participating cohort in the study will invest in mobile apps in 2010, with the overwhelming majority of these for the iPhone.
For those developing ad-supported apps which depend on reach, many are turning to mobile ad networks and intermediaries, like Quattro Wireless, who have the expertise and scale to convert their impressions into dollars.
The keys to success for all players – whether the goal is turning impressions into revenue or building a brand through engagement – are to drive downloads in a crowded marketplace and provide an experience that leads to repeat usage and positive user feedback. With the majority of those offering apps spending less than $1 out of every $5 on promotion, there is a huge opportunity for those who do invest to get “discovered.” Mobile advertising through an ad network media buy was noted as one of the most effective methods of promotion.
1.19
1.21
1.34
1.35
1.62
1.74
1.77
1.86
2.00
2.04
2.25
2.88
0 1 2 3 4
Engagement (time spent) within the app
Monthly average users
Brand impact
Number of times the app was downloaded or shared
Ad revenue
Ranking in App Store
User feedback
Sales of the app itself
Traffic to our Web site
Click-throughs to a Web site
Opt ins for List Building
Honestly, we DON'T measure results
Please rate these mobile application results in their importance to you
Quattro Wireless is the leading global mobile advertising company, empowering advertisers and publishers to reach and engage their target audiences across mobile web, application and video platforms with unrivaled precision, transparency and ROI. Employing Q ElevationTM dynamic targeting technology to optimize every impression, the company’s ad serving, tracking and analytics platform and global network of sites and applications (many exclusive) deliver superior results. Leading companies including P&G, Ford, NetFlix, Time Inc., Visa, Disney and the NFL partner with Quattro Wireless because the company has turned the art of engaging and converting mobile audiences into a repeatable science. You can learn more at www.quattrowireless.com, and follow us on twitter @intheq.
ABOUT DM2PRO.COM
Parent DM2Media produces a range of niche conferences on cutting-edge topics for digital media and marketing professionals. We focus on the areas where technology and innovative services are infusing rapid change. Apps are one such area, and DM2Events.com initiated a focus on Apps in August with its first digiday:APPS conference. This was followed by a second event Dec. 10 in Los Angeles where these survey results were previewed. A video of Lynn Tornabene, CMO of Quattro Wireless, presenting the results is available, along with the full slide deck at DM2PRO.com. The member site, repository to this and several other state of the industry surveys, plus case studies, awards and interviews, and more than 100 videos from the digiday conferences, is $20/month to join.
