August 12, 2009


By Lai Kok Fung, BuzzCity CEO

Mobile companies are placing their bets now on whether applications or browsers will be the cornerstone of your mobile experience. Discussion within the industry is intense as carriers, developers, phone makers and internet giants like Google and Microsoft vie for market share and a spot at the top of your mobile speed dial list.
Most of the media – and indeed, industry – focus so far has been on applications, though, fueled by the popularity of Apple's App Store. Since launching one year ago in July 2008, consumers have downloaded more than 1.5 billion applications from Apple's store. Apple advertises that there are apps for everything -- games, recipes, photo editors and more. Apple takes a cut from every sale, but from its perspective, the App Store doesn't need to turn a profit – as long as it provides another reason for consumers to purchase iPhones.

Developers love the App Store. The iPhone platform provides great developer support and has proven itself to be a good commercial channel for end users.

Afraid of being left out, carriers and other phone manufacturers – including LG, O2, Nokia, RIM (BlackBerry) and Vodafone -- have opened their own App Stores. Digital media companies are also getting into the act by serving ads that appear inside applications, potentially giving a revenue stream to the makers of free apps. For example:

  • Google has launched a beta product for serving ads to mobile applications, Google AdSense.
Yet, there is a fundamental misconception here. Applications are not media. They are not mobile websites that generate sufficient traffic to warrant advertisements.

Application developers have two possible sources of income: ad revenue and consumer receipts. Most free applications are not viewed enough times to generate significant ad receipts:

  • AdMob served advertisements to 2300 mobile applications in May.
  • More than half of these apps (54%) had fewer than 1000 users.
  • Assume that each user sees 10 ads per month and that the going ad rate is US$1 – 2 per thousand views , the application is likely generating about US$10-20 per month in ad revenue.
In addition, consumers spend less than ten minutes using a free downloaded application. They use the free apps about 20 times on average, then get bored and look for something else, according to a Greystripe survey conducted in the first quarter of the year.

Defining coherent ad units for applications meanwhile is a nightmare. How do you measure or verify the number of times that a user views an ad? Picture for a moment a mobile game. Players move up and down the screen; an ad might be embedded in the picture, but how often is it in the frame of view - and for how long? The fallback option is to simply use the most common internet ad unit – banners – which in turn likely click to a mobile website. The user experience is far from ideal -- clicking the banner takes the user out of the application and launches a browser -- so it's not surprising that many users hate ads in their applications and games. (Here's a post that describes how to remove annoying ads from mobile games.)

This brings us to the topic of consumer receipts. For many, this simply means, more downloads, more money. But as there are many makes of cell phones and a variety of platforms, this also means re-tooling applications for the different phones out there. So, many developers tend to focus on a few platforms to improve distribution so that their products are downloaded -- and bought -- more often. In many cases, this distribution is further supported by some form of try-n-buy package.

So while in session ads are unlikely to work for applications, a clearer path to monetization may be through consumer receipts.

However, as developers of ad-supported mobile media properties, our services need to support a wide audience. Despite the reported growth of apps stores, information and entertainment consumed on mobile devices are primarily supported by the mobile browser. Even as we continue to enhance our services to advertisers, we are unlikely to develop tools (SDKs) to deliver ads on smartphone applications.

Our sentiments are echoed elsewhere; even Google is "not rich enough to support individual smartphones," according to Vic Gundotra, Google Engineering VP. "What we clearly see happening, " Gundotra told the Mobilebeat conference in San Francisco “is a move to incredibly powerful browsers. Many, many applications can be delivered through the browser and what that does for our costs is stunning."

For us the answer is also clear. Consumers will overwhelmingly access the mobile internet using the browser that comes pre-installed on their phone. The mobile internet is media. The app stores themselves are media, but the applications are not.