The good news: Billions of smartphones and trillions of sensors mean huge opportunity for app developers everywhere on the planet, moving the growth of the app marketplace into over-drive. Latest numbers from tech research firm Vision Mobile reckon the App Economy is powered by nearly 5 million developers worldwide, a number it expects to grow by about 800,000 this year.
The not-so-good news: the increased activity and excitement around apps has impacted the average cost per install (CPI), causing the cost of user acquisition to rise through the roof.
Mobile games-only ad platform Chartboost observes CPIs have risen from $1.59 in December 2013 to $2.08 in December 2014, due in part to aggressive holiday bidding. Meanwhile, app marketing technology provider Fiksu reports the costs associated with retaining a “loyal user” – that is, someone who opens an app three times or more – is a metric that has jumped to $2.74 April 2015, up from $2.10 in December 2014. Overall, CPIs stand at $2.13 (as of April 2015) up from $1.17 in December 2014.
To make matters worse, app discovery is ‘still’ broken.
It’s no secret that app store search engines are flawed, unable to expose users to apps outside of the charts and top categories. And, since users can’t download apps they don’t know exist in the first place; chances are your app will remain virtually invisible unless you do something about it.
This is where ‘pay to play’ has some merits, as long as you are aware of its limitations.
Yes, you can boost your user acquisition through spending to reach top chart positions. (Although, the new focus on editorial content in the App Store Games section may mean a change of tactic for games developers, at least.) However, even being featured or chosen as the ‘app of the week’ can be an empty victory if you don’t have the resources to reinvest rapidly in user acquisition to maintain your top-notch spot in the charts.
That’s where the real problems can start.
App developers and companies are caught in the middle, squeezed by user acquisition costs and pressured to deploy other tactics to increase visibility among their target users.
A knee-jerk reaction for app companies with VC backing might be to tap those funds to market their app, or simply make the improvements they think will see their app fly high in the charts, not end on the heap.
However, it’s also an approach that is a cause for rising concern among VCs, who worry as app startups throw money (their money) at campaigns in hopes of hitting it big. Heavy investment into user acquisition before LTVs are known and understood is a risky business. No wonder investors argue (and quite correctly) that is would be better for both parties if startups could use working capital, not venture funding, to achieve this.
If only it was that easy.
In reality, the lag time between making a sale and getting paid by the app store can be up to 60 days, or more. That’s an eternity in the mobile world — and a critical period that can see high-flyer apps end up on the heap.
This is the fate that met iDrated, an iPhone app that let users monitor their hydration levels released as a portfolio piece by Locassa, an app development company in the U.K.
Smart investments in clever user acquisition campaigns literally paid dividends, allowing the app to rise from the lower end of the app store to take the number one paid spot in the UK Apple App Store in June 2014 after a 6 day campaign.
But the triumph was short lived because the company, unable to unleash its earned revenues to double-down on user acquisition in order to maintain momentum, was forced to watch as its winning app dropped from number one to take a slot somewhere in the 500s within just one week. Revenues were also hit, plummeting a whopping 96% within the same period.
Interestingly, Simon Lee, who heads up Locassa, tells me that losing all that potential revenue wasn’t the worst thing that happened to the app. It was missing out on the chance to replicate this success across app stores in larger markets such as the U.S. and Japan, where returns can be 10 to 15 times what they are in the U.K.
As Simon puts it: Spending on user acquisition is always essential to take an app to the next level, “but there is never more value to your marketing spend than when your app is on a roll.”
Spending when an app is moving up the charts goes a long way — unfortunately, Simon says, the opposite is also true. “It’s all about keeping the momentum and maximizing what you can achieve on a budget. Miss a step, and let spending on your app peter out, and you will need a substantial budget, much more than startups generally have, to get back to where you were.”
This is also the key takeaway in recent internal research conducted by Priori Data , a mobile application market analytics company, and Pollen VC, a company positioning itself in the center of the app ecosystem to help app developers accelerate the growth of their business by giving them faster access to their earned revenue.
The research —based on an examination of 40 free-to-play and 40 paid iOS games featured at launch in the App Store since July of this year — shows that both daily downloads and revenues for app developers post-feature fizzle out within a matter of weeks.
In fact, findings (reported in Techcrunch) show that on average, daily revenues post-feature fell by more than 75% within 30 days and then by more than 85% after 60 days. In one case, a successful paid app plummeted from daily revenues of $60,085 to $1,899 in just 35 days. A freemium app saw a similar drastic decline, dropping from $14,783 to $662 in the same period.
Read between the lines, and (as Pollen VC founder Martin Macmillan puts it) “what was a high tide of app revenues can reduce to a trickle within 60 days as startups run out of steam waiting for the check.”
It’s why Pollen VC, a new breed of financial services company focused on the digital economy, is stepping up to bridge what it calls “the funding gap.” By taking a feed directly from the central billing system of an app store, Pollen VC accesses the app sales information and data that allows it to advance developers 95% of the total revenue they have earned in app sales and in-app purchases every seven days.
App developers can also choose to reinvest 100% of their daily revenues directly into paid advertising campaigns to reach and acquire new users. (In practice, developers have access to the Pollen VC dashboard where they can add credit to their different ad networks accounts on a daily basis based on their accrued app store sales, having complete control of their UA spend.)
It used to be that app developers, in a race against the clock to unlock to boost app visibility and accelerate growth, could either use their venture funding, run up their credit card or simply wait and watch as their high tide of sales reduces to a trickle. New business models like Pollen VC introduce a new option into the equation, allowing app developers to advance their business, not put it on hold.
Peggy Anne Salz, named a Top 30 Mobile Marketing Influencer, is the chief analyst and founder of MobileGroove, a top 50 ranked destination providing analysis, custom research and strategic content marketing to the global mobile industry, and mentoring and consulting to tech startups. Her most recent book, Apponomics: The Insider’s Guide To A Billion Dollar App Business (InMobi, 2014) provides actionable insights into how companies can market and monetize their apps.