Shift from free to paid: Consumer demand and revenue opportunities for apps

Transcription

1 Shift from free to paid: Consumer demand and revenue opportunities for apps from Simon Kucher s 2013 Apps and Digital Content Study telecoms & media Andre Weber Kyle Poyar Ellen Kan March 2013

2 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 economy tomorrow: Consumers pay fair prices for valuable apps 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 burning questions: 1) Which apps do consumers want? (pp. 3 5) 2) What will consumers spend on apps? (pp. 6 8) 3) How can the industry turn apps into cash? (pp. 9 10) App makers have muddied the water they surely have trained consumers to expect low prices But we do believe there s a way out. Source: Simon Kucher 2013 Apps and Digital Content Study; Business Insider Intelligence Simon Kucher & Partners Consumer demand and revenue opportunities for apps March

3 1) 1 Which apps do consumers want? Voracious appetite for apps today App downloads by category Tablet and smartphone owners specified how many apps they have downloaded from the following categories: games, publications, social networking, productivity, video, and other Games Publications Social networking Type of device Tablet Smartphone Productivity Video Other Tablet opportunity: Tablet owners download more apps on average (27) than smartphone owners (21) Tablet opportunity for Games: Games developers have the most pricing power as games are far and away the most popular apps Tablet opportunity for Publications: Magazine and newspaper publishers need to figure out how to make money from tablet readership, as publications are the second 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

4 1 Which apps do consumers want? Price or value? Depends on who you ask Top decision driver for app downloads Consumers ranked the single most important factor they weigh when choosing which apps to download 40% 30% 20% 10% 0% Price related Not price related Who are the value consumers?: Half of consumers are not selecting apps based on price. How well do you know who these consumers are and how to reach them? Traditional marketing declines in importance: Recommendations from friends / family drive app downloads much more than 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

5 1 Which apps do consumers want? Freemium apps prove (too) popular among both consumers and app makers Freemium app downloads Consumers specified whether they ve ever downloaded a freemium app, i.e. one that offers free content and either a paid option or in app purchases 69% downloaded a freemium app Best of both worlds?: At their best, freemium apps segment your user base and attract 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 Precarious balancing act: It 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

6 2 What will consumers spend on apps? Hint: It s more than $0. Consumers already paying for apps despite free(mium) alternatives Paid app downloads Consumers specified whether they have already paid for an app on their tablet and/or smartphone. Tablet owners were much more likely to have paid for an app 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Type of device Tablet Smartphone ipad Kindle Fire Android tablet iphone Android phone Blackberry Source: Simon Kucher 2013 Apps and Digital Content Study; WSJ (2012): Paywalls Giving Newspaper Chance at a Comeback Tablet opportunity: If you buy an expensive new TV, you re willing to spend the extra money on premium cable. The same thing is happening with tablets and apps Enter Amazon: Even though Amazon s Kindle Fire sells for a much lower price than other tablets, its owners are just as willing to pay for apps Apps are the old newspapers: Newspapers used to give away online content for free, but today most top papers have a paywall. The result: newspaper stocks skyrocketed in value by 50% to 80% in 2012 Simon Kucher & Partners Consumer demand and revenue opportunities for apps March

7 2 What will consumers spend on apps? App makers can safely charge more than today Perceptions on app prices Consumers selected whether they agree or disagree with the following statement: Given what apps offer, I don t think they re very expensive. 52% of consumers agreed 52% Given what apps offer, I don t think they re very expensive Apps are so cheap that consumers are even willing to admit they re cheap: Few consumers ever admit that a product is not very expensive particularly in the telecoms industry. Yet more than half of consumers said that about apps Segmented strategy: App makers need to find out who these value customers are 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

8 2 What will consumers spend on apps? and most consumers aren t fazed by $1.99 Acceptable price above $1.99 per month for an app When asked what they considered to be an acceptable price for a one month subscription to one of their favorite apps, more than two thirds answered $2 or higher 100% 80% 60% 40% 20% 0% Streaming video app (e.g. Netflix) Game subscription Source: Simon Kucher 2013 Apps and Digital Content Study Magazine app (e.g. Time or People) Newspaper app (e.g. NY Times) Productivity app (e.g. Evernote) $0.99 and $1.99 aren t cliffs to consumers: Conventional wisdom says that apps can t be priced beyond $0.99 or $1.99. But across categories more than two thirds of consumers said they thought $2 or higher per month was acceptable Pricing does not need to be one time : App makers must consider more innovative pricing approaches, such as subscriptions or cross platform bundling. A price of $1.99 per month would bring in up to $24 over the course of a year far more than most apps get today Simon Kucher & Partners Consumer demand and revenue opportunities for apps March

9 3 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 $0.99 The industry was nervous about what would happen to music sales if prices went beyond $0.99 Today, top singles in the store are almost always priced at $1.29* In June 2011 Apple announced its 15 billionth song download, up 7 billion in the two years after changing prices ebooks featured cut rate prices (rarely above $9.99) often drastically below hardcopy prices ebooks used as a hook to sell other products (e.g. ereaders) ebooks now priced on par with print, growing market volume and revenue Despite rulings allowing retailers to discount ebooks, popular titles still command prices beyond $10 Most newspapers gave away access to online content for free, hoping to make the money back through advertising and a larger reader base Nearly all top U.S. newspapers now have an online paywall The result: newspaper stocks 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

10 3 How can the industry turn apps into cash? Revenue management checklist: How you can re orient the app industry Objectives Price model Market segments Revenue streams Price level Information Don ts Let volume and being a top 25 app overwhelm all other business objectives Suppose that pricing is just about the list price or that app pricing is one time Presume that apps have to be mass market in order to be successful Expect advertising to be your only viable revenue generator Launch only as free once you ve established yourself as free, it s very hard to switch Assume a follow the leader pricing strategy is the only or best way to make money Dos Manage for revenue and profit maximization, considering revenue generation at each stage of the product lifecycle Determine the price level in conjunction with the product, bundling options, and price structure Consider more innovative pricing approaches like subscriptions and cross platform bundling Go after premium segments in the market (e.g. enterprise customers) Seek out multiple revenue streams (paid content, advertising, licensing) and target free and paid offerings accordingly If you need to err, err on being priced too high Invest in taking a more structured and scientific approach to understanding consumer willingnessto pay Source: Simon Kucher project experience Simon Kucher & Partners Consumer demand and revenue opportunities for apps March

11 About the study and Simon Kucher and Partners What others are saying Priceless* (William Poundstone) The influence of SKP on the prices we pay for just about everything is as little recognized as it is staggering. The Economist the world s leading pricing consultancy BusinessWeek world leader in giving advice to companies on how to price their products About Simon-Kucher Simon Kucher & Partners is a global consulting firm with 660 professionals in 25 offices worldwide focusing on Smart Profit Growth SM. Founded in 1985, the company has 28 years of experience providing strategy and marketing consulting and is regarded as the world s leading pricing advisor. About the authors Andre Weber is a Partner at Simon Kucher & Partners, New York City. He heads the firm s U.S. Telecoms & Media Competence Center andre.weber@simon kucher.com Kyle Poyar is a Senior Consultant at Simon Kucher & Partners, Boston. kyle.poyar@simon kucher.com Ellen Kan is a Consultant at Simon Kucher &Partners, Boston. ellen.kan@simon kucher.com Simon Kucher & Partners Consumer demand and revenue opportunities for apps March