Shift from free to paid: Consumer demand and revenue opportunities for apps - Insights from Simon Kucher's 2013 Apps and Digital Content Study
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Shift from free to paid:
Consumer demand and revenue opportunities for apps
Insights from Simon‐Kucher’s 2013 Apps and Digital Content Study
telecoms & media
Andre Weber
Kyle Poyar
Ellen Kan
March 2013
Executive summary
App economy today: Lots of value, little revenue
Smartphone owners commonly spend $1,000 or more each year for mobile
telephony (devices, data, voice), but just $30 on one of their main sources of
value – the apps!
Most insiders blame this lack of cash on the consumers. Two of the most
entrenched myths about consumers are a variation on the following:
Myth: “Consumers only want free (or ‘freemium’) apps”
Myth: “If consumers do pay to use an app, it’s at most $0.99 or $1.99”
App makers have muddied the water – they surely have trained consumers
to expect low prices. This applies to both initial app downloads and
subsequent in‐app purchases. But we do believe there’s a way out.
“ App makers have muddied the
App economy tomorrow: Consumers pay fair prices for valuable apps water – they surely have
Simon‐Kucher’s survey of 1,000 mobile consumers refutes these myths and
charts a path forward for app makers. This report answers three of your trained consumers to expect
burning questions: low prices… But we do believe
1) Which apps do consumers want? (pp. 3‐5) there’s a way out.”
2) What will consumers spend on apps? (pp. 6‐8)
3) How can the industry turn apps into cash? (pp. 9‐10)
Source: Simon‐Kucher 2013 Apps and Digital Content Study; Business Insider Intelligence
Simon‐Kucher & Partners | Consumer demand and revenue opportunities for apps| March 2013 21)
1 Which apps do consumers want?
Voracious appetite for apps today Insights
• Tablet opportunity:
App downloads by category Tablet owners download more
Tablet and smartphone owners specified how many apps they have downloaded from the apps on average (27) than
following categories: games, publications, social networking, productivity, video, and
other smartphone owners (21)
10 • Tablet opportunity for Games:
Type of device Games developers have the
Tablet Smartphone
8 most pricing power as games
are far and away the most
6 popular apps
• Tablet opportunity for
4
Publications: Magazine and
newspaper publishers need to
2
figure out how to make money
from tablet readership, as
0
Games Publications Social Productivity Video Other
publications are the second
networking most popular app category on
tablets
Source: Simon‐Kucher 2013 Apps and Digital Content Study
Simon‐Kucher & Partners | Consumer demand and revenue opportunities for apps| March 2013 31 Which apps do consumers want?
Price or value? Depends on who you ask… Insights
• Who are the “value”
Top decision driver for app downloads consumers?: Half of
Consumers ranked the single most important factor they weigh when choosing which apps consumers are not selecting
to download
apps based on price. How well
40% do you know who these
consumers are and how to
Price‐related
30% Not price‐related reach them?
• Traditional marketing declines
20% in importance:
Recommendations from
10% friends / family drive app
downloads much more than
0% advertising alone, which
confirms that app makers must
take a 2.0 approach to
marketing (e.g. content
marketing, social media)
Source: Simon‐Kucher 2013 Apps and Digital Content Study
Simon‐Kucher & Partners | Consumer demand and revenue opportunities for apps| March 2013 41 Which apps do consumers want?
Freemium apps prove (too) popular among both Insights
consumers and app makers • Best of both worlds?: At their
Freemium app downloads best, freemium apps segment
Consumers specified whether they’ve ever downloaded a ‘freemium’ app, i.e. one that your user base and attract
offers free content and either a paid option or in‐app purchases
both “price” and “value”
customers
• Default strategy = Good
strategy?: 77% of the top 100
grossing mobile apps use a
freemium pricing model, such
as in‐game virtual currencies
69%
downloaded a • Precarious balancing act: It
freemium app takes a long time to upgrade
free users to the paid product.
App makers need to strike a
better balance between free
vs. paid offerings
Source: Simon‐Kucher 2013 Apps and Digital Content Study; Distimo (2011): “Mobile Gaming Trends: Popularity, Pricing and Monetization”; Wall Street Journal (2012): “When Freemium Fails”
Simon‐Kucher & Partners | Consumer demand and revenue opportunities for apps| March 2013 52 What will consumers spend on apps?
Hint: It’s more than $0. Consumers already paying Insights
for apps despite free(mium) alternatives • Tablet opportunity: If you buy
Paid app downloads an expensive new TV, you’re
Consumers specified whether they have already paid for an app on their tablet willing to spend the extra
and/or smartphone. Tablet owners were much more likely to have paid for an app
money on premium cable. The
90%
Type of device same thing is happening with
80% Tablet Smartphone tablets and apps
70%
• Enter Amazon: Even though
60% Amazon’s Kindle Fire sells for a
50% much lower price than other
tablets, its owners are just as
40%
willing to pay for apps
30%
• Apps are the old newspapers:
20%
Newspapers used to give away
10% online content for free, but
0% today most top papers have a
iPad Kindle Fire Android tablet iPhone Android phone Blackberry paywall. The result: newspaper
stocks skyrocketed in value by
Source: Simon‐Kucher 2013 Apps and Digital Content Study; WSJ (2012): “Paywalls Giving Newspaper Chance at a Comeback”
50% to 80% in 2012
Simon‐Kucher & Partners | Consumer demand and revenue opportunities for apps| March 2013 62 What will consumers spend on apps?
App makers can safely charge more than today… Insights
• Apps are so cheap that
Perceptions on app prices consumers are even willing to
Consumers selected whether they agree or disagree with the following statement: “Given admit they’re cheap: Few
what apps offer, I don’t think they’re very expensive.” 52% of consumers agreed
consumers ever admit that a
product is not very expensive
– particularly in the telecoms
industry. Yet more than half of
consumers said that about
52% apps
“Given what • Segmented strategy: App
apps offer, I
don’t think makers need to find out who
they’re very these “value” customers are
expensive” and start asking them for a
higher price given the value
apps drive for mobile devices
Source: Simon‐Kucher 2013 Apps and Digital Content Study
Simon‐Kucher & Partners | Consumer demand and revenue opportunities for apps| March 2013 72 What will consumers spend on apps?
…and most consumers aren’t fazed by $1.99 Insights
• $0.99 and $1.99 aren’t “cliffs”
Acceptable price above $1.99 per month for an app to consumers: Conventional
When asked what they considered to be an acceptable price for a one month subscription wisdom says that apps can’t be
to one of their favorite apps, more than two‐thirds answered $2 or higher
priced beyond $0.99 or $1.99.
100% But across categories more
than two‐thirds of consumers
80% said they thought $2 or higher
per month was “acceptable”
60% • Pricing does not need to be
“one time”: App makers must
40% consider more innovative
pricing approaches, such as
20% subscriptions or cross‐platform
bundling. A price of $1.99 per
0% month would bring in up to
Streaming Game Magazine app Newspaper app Productivity
video app (e.g. subscription (e.g. Time or (e.g. NY Times) app (e.g. $24 over the course of a year –
Netflix) People) Evernote) far more than most apps get
today
Source: Simon‐Kucher 2013 Apps and Digital Content Study
Simon‐Kucher & Partners | Consumer demand and revenue opportunities for apps| March 2013 83 How can the industry turn apps into cash?
The good news: You can learn from other industries
that have changed digital price expectations
Industry What used to happen What happens today
• Standard price of iTunes singles was • Today, top singles in the store are
$0.99 almost always priced at $1.29*
• The industry was nervous about what • In June 2011 Apple announced its 15
would happen to music sales if prices billionth song download, up 7 billion in
went beyond $0.99 the two years after changing prices
• eBooks featured cut‐rate prices (rarely • eBooks now priced on par with print,
above $9.99) often drastically below growing market volume and revenue
hardcopy prices • Despite rulings allowing retailers to
• eBooks used as a hook to sell other discount eBooks, popular titles still
products (e.g. eReaders) command prices beyond $10
• Most newspapers gave away access to • Nearly all top U.S. newspapers now
online content for free, hoping to make have an online paywall
the money back through advertising • The result: newspaper stocks
and a larger reader base skyrocketed in value by 50% to 80% in
2012
*Search on October 4, 2012 revealed all of the top 10 singles were priced at $1.29, for instance
Source: Digital Music News (2011): “Apple Has Now Sold 15 Billion iTunes Songs…”; New York Times (2012): “E‐Book Price War Has Yet to Arrive”;
Wall Street Journal (2012): “Paywalls Giving Newspaper Chance at a Comeback”
Simon‐Kucher & Partners | Consumer demand and revenue opportunities for apps| March 2013 93 How can the industry turn apps into cash?
Revenue management checklist: How you can re‐orient the app industry
Don’ts Dos
Objectives • Let volume and being a top 25 app overwhelm • Manage for revenue and profit maximization,
all other business objectives considering revenue generation at each stage of
the product lifecycle
Price model • Suppose that pricing is just about the list price • Determine the price level in conjunction with the
or that app pricing is “one time” product, bundling options, and price structure
• Consider more innovative pricing approaches like
subscriptions and cross‐platform bundling
Market • Presume that apps have to be mass market • Go after premium segments in the market (e.g.
segments in order to be successful enterprise customers)
Revenue • Expect advertising to be your only viable • Seek out multiple revenue streams (paid content,
streams revenue generator advertising, licensing) and target free and paid
offerings accordingly
Price level • Launch only as free ‐ once you’ve established • If you need to err, err on being priced too high
yourself as free, it’s very hard to switch
Information • Assume a ‘follow the leader’ pricing strategy • Invest in taking a more structured and scientific
is the only or best way to make money approach to understanding consumer willingness‐
to‐pay
Source: Simon‐Kucher project experience
Simon‐Kucher & Partners | Consumer demand and revenue opportunities for apps| March 2013 10About the study and Simon‐Kucher and Partners
What others are saying About Simon-Kucher
Simon‐Kucher & Partners is a global consulting firm with 660 professionals in 25
Priceless* offices worldwide focusing on Smart Profit GrowthSM. Founded in 1985, the
company has 28 years of experience providing strategy and marketing consulting
(William Poundstone)
and is regarded as the world’s leading pricing advisor.
“The influence of SKP on the prices we
pay for just about everything is as little
recognized as it is staggering.” About the authors
Andre Weber is a Partner at Simon‐Kucher & Partners, New York
The City. He heads the firm’s U.S. Telecoms & Media Competence
Economist Center
email: andre.weber@simon‐kucher.com
“…the world’s leading
pricing consultancy…” Kyle Poyar is a Senior Consultant at Simon‐Kucher & Partners,
Boston.
email: kyle.poyar@simon‐kucher.com
BusinessWeek
Ellen Kan is a Consultant at
“…world leader in giving advice to Simon‐Kucher & Partners, Boston.
companies on how to price their
email: ellen.kan@simon‐kucher.com
products…”
Simon‐Kucher & Partners | Consumer demand and revenue opportunities for apps| March 2013 11You can also read
