Wednesday, 4 November 2009

Which mobile apps are making good money?

At a conference the other day, several industry executives were on a panel discussing mobile application stores. There were representatives from Yahoo, Qualcomm, Motorola, and an independent application store. Someone from the audience asked a simple question: "Other than entertainment apps, name three mobile applications that are monetizing well." (In other words, apps that have a good business model and are making good money.)

The interesting thing was that none of the panelists had a very satisfying answer. The Qualcomm person cited navigation apps and something called City ID, and had no third app. The app store guy cited search-funded apps (Opera) and apps that are extensions of PC applications (Skype). The Motorola person, who used to work at Palm, cited two cool old Palm OS developers (SplashData and WorldMate, the latter not even available for Motorola's Android phones). And the Yahoo guy talked about Yahoo-enabled websites.

None of them had the sort of answer that the room was looking for -- what categories of smartphone apps are making it, and what are their business models, so other developers will know what to emulate? I started to laugh at the panelists' obvious discomfort, but then I realized that if I'd been on the panel and had been asked the same question, I would have blown it too. I know of a lot of mobile app companies that aren't making steady money, because they send me e-mails asking for ideas, but I don't seem to hear from the raging successes. Also, because I try to focus on what needs to be fixed in the industry, I'm probably guilty of skewing my posts toward what's not working.

So I did some thinking and a bit of research, and here are my three nominations for categories of non-entertainment mobile apps that are making it, and why. Then I'll open it up to your comments -- I have a feeling you'll have much better answers than me.

1. Vertical-market business applications. This was a good category for PDAs ten years ago, and it's a good category for smartphones today. There are dozens of business verticals where information overload, or an excess of written forms, hinder productivity. Find a way to manage that information electronically, and your application quickly pays for itself in increased productivity.

One example is ePocrates, which gives doctors drug reference, dosing, and interaction information. ePocrates has a beautiful business model in which the drug companies pay to get access to the doctors who use it. That helps the company give away its base product. I have to believe there are other verticals where you could create apps that would act as a middleman between suppliers and users.

Another interesting example, which I ran into at a conference recently, is Corrigo. They do work-order management (stuff like managing a mobile workforce and dispatching them to work sites on the fly). I like Corrigo because it makes good use of mobile technology, and scales nicely to multiple vertical markets.

Note that neither Corrigo nor ePocrates is a purely mobile application -- they are business solutions that leverage mobile. That's very typical of the business mobile market. It's not about being mobile for its own sake, it's about solving a business problem and using mobile technology to help do it.

One other cool thing about these businesses is that you can ignore the whole app store hassle and market them directly to the companies. You control your customer relationships, and you can keep 100% of your revenue.

2. PC compatibility applications. Inevitably some people will need to do on a mobile device the same things that they do on a PC -- edit a document, for example, or query a database. There's a solid market for applications to let the user do that. The market isn't enormous (not everyone is crazy enough to edit a spreadsheet on a screen the size of a Post-It note), but the people who need to do that are usually willing to pay for the apps. Or to make their employers pay for the apps. Documents to Go was probably the most successful application on Palm OS, and based on the stats posted by Apple I think it is probably one of the most lucrative non-entertainment apps on iPhone.

Unfortunately, Docs to Go is also a very well-entrenched application, so good luck displacing it. Maybe you can find another category of PC app that needs a mobile counterpart.

3. Brand extenders. There seems to be a steady market for mobile apps that help a major brand interact with its loyal users. A few recent examples:
  • -The Gucci app lets a customer get special offers, play with music, and find travel attractions endorsed by Gucci. The company calls it a "luxury lifestyle application."
  • -There are four different Nike iPhone apps: a shoe designer, a women's training guide, a football (soccer) training guide, and an Italian soccer league tracking app.
  • -The Target store search app lets you find stores, and search for items within the stores (it'll tell you which aisle to look in). (For those of you outside the US, Target is a large chain of discount department stores.)
  • -Magic Coke Bottle is a Coke version of the Magic 8-Ball. It's one of three Coke-branded apps.
The iPhone is the most popular platform for these apps today, although I expect they'll spread to other smartphone platforms over time.

The business model for this one is simple -- you get hired by the brand (or its marketing agency), they pay you to develop the app, and then they give it away. The more popular smartphones become, the more companies feel obligated to create mobile apps, so this is a growing market for now. (Beware, though -- having an iPhone app is kind of a corporate status symbol right now, like creating a corporate podcast was a couple of years ago. Development activity could drop off when businesses find the next trendy tech fad.)

To create this sort of app, you need to be very skilled at visual design, and you need to be comfortable managing custom development projects. Some developers don't have this sort of project and client management skills, and you can get yourself into a lot of trouble if you sign a contract without understanding what'll really be required to execute on it.

Also, you don't get to change the world creating a shopping app for Brand X. But in the right situation this can be a good way to make money while you work on your own killer app on the side. And if you're not into changing the world, there are companies that have built solid ongoing businesses on custom mobile development.

Other possibilities

There are a few of other categories of apps that I think could be candidates for inclusion, but in my opinion the jury is still out on them. I'm interested in what you think:

Location. Right now there are several location and direction apps selling well for iPhone, but with Google making directions free on Android, I fear the third party apps are at risk. However, the direction-finding business is a lot trickier than you'd expect (I learned that as a beta-tester for the Dash navigation system, which sometimes tried to get me to make a right turn by telling me to make three consecutive left turns). So we need to wait and see how good Google's directions are. But in the meantime I don't feel comfortable pointing to this as a viable category in the long term. What do you think?

Travel apps. There was once a very nice business in city guides for PDAs, but I get the sense that like many other categories of mobile apps, this one is being sucked into the free app vortex. But I suspect that there may still be a paid market for specialized tools like translation programs, and software that helps executives manage trips. WorldMate is an interesting example -- the base product is free, but if you pay you get special services.

Upgradeware. Speaking of free base products, I think this is the most intriguing possibility in the whole mobile app business today. In the PC world, there are a lot of app companies that manage to build sustainable businesses by giving away a free base product and then charging you for the advanced version (this is how most of Europe gets its antivirus software today, for example). In mobile this model worked well on Palm, but was not available on iPhone because Apple's terms and conditions prohibited a free application from offering in-app conversion to a paid upgrade. Apple just changed those terms.

Rob at Hobbyist Software asked the other day what I thought about the change. I think it's very long overdue, and I'm intensely interested in hearing from developers who have moved to that model. How's it working out for you?

Okay, so that's my list. If you're scheduled to appear on a panel somewhere, you're welcome to quote from it as needed. But now I'd like to throw the discussion open to you. Please post a comment -- What do you think of my list? And what non-entertainment mobile app categories, and business models, are making good money today, and why?

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