Mobile App Monetization has been the holy grail for most app developers so far. Until last year, the monetization strategy involved selling apps in the app store or providing free apps and generating revenue through advertisements in the app. Things are beginning to change this year, according to a recent survey of developers conducted by Appcelerator & IDC.

Given the sheer size of the iOS and Android market places, that comes with the app discovery and usage issues, and the size of the user bases for both these platforms, developers are shifting their strategies from acquiring new users to keeping their existing users happy. As you can see from the graph above, the app store sales model is seeing a significant decline this year while advertising is almost flat. Some new monetization strategies are starting to emerge or gain traction.

In-app purchases seem to be the foremost of the new strategies for most developers and is on par with the app store sales. Subscription based models are also being considered but I foresee that they might not become as big. Unfortunately, the subscription model has got a bad rap with the struggles of the newspaper and magazine publishing industry. Also, the users have become used to buying only what they want or need, even if in the long run they end up spending more than a subscription service.

Mobile commerce will have its coming out party this year. By all accounts, it is appearing that this holiday season could be the biggest so far in terms of mobile commerce sales. eBay has upped their 2011 mobile sales forecast by 25% to $5 Billion after they reported 32% growth in Q3 YoY. We will see that trend with other retailers as well.

Brand Loyalty and coupons are other alternatives that have growing mind-share amongst developers but I don’t see them as a stand-alone monetization strategies. Rather, developers will combine these strategies to extend the user loyalty while implementing other strategies to acquire new users.

Finally, there is an emerging NFC based strategy which could be the future. However, it is early days given that there is only 1 NFC-capable device in the market as of this writing. As more NFC capable devices become available in 2012 and beyond, we will see further refinements of the monetization strategies that leverage NFC become prevalent.

Note: This article is part of series of articles on the Mobile App Development. You can read other articles in this series here.

The popularity and adoption of mobile apps has skyrocketed over the last few years. Moreover, customers are willing to pay for these apps as evidenced by the $5 billion in mobile app revenue in 2010 and estimated $15 billion revenue in 2011. Development of a mobile app is a great opportunity for  your company to engage with customers as well as market to them. But the first step before you dive into this world is planning your strategy and honest evaluation of what it takes to build a successful app.

The most critical decision at the start of any app development process is to decide which platform(s) to target. You can read more on this topic in my previous blog post on Platform Selection. Once you have figured out which platform to develop for, here are the key 10 questions to help determine  strengths and highlight areas where they could use my help.

1. Do we build or do we buy? This is a very important question to ask. Most companies do not have resources or expertise to build all that is needed to get the mobile app launched. We have to really figure out what our core strengths are that we can leverage to build these apps.
2. Where do we start? First impressions are important not only for people, but also for apps. With between 30-50 apps on their smartphones, users tend to have shorter attention span. So, if our app is not going to grab their attention and keep providing useful information or features, users will stop using our app. A good app should be easy to use, useful, and provide a positive experience.
3. Where do we go from here? It is not enough to just have a good start, we need to continue building on the momentum that we gained from our first successful launch. Our product roadmap should be building not only features but also looking at the platform marketshare in order to account for changes. It should also consider new features being added to the various platforms that our app could leverage.
4. How quickly can we get there? While our initial release might take long, however, the subsequent release cycles should be of shorter duration. Given the fast moving nature of this market, a long app development cycle would be a deal breaker. We should be able to leverage Agile Development Methodology to achieve short release cycles
5. How do we react to customer feedback and feature requests? Customer feedback and our response to those feedback can make or break not only our app but also our business. So, incorporating the feedback quickly and efficiently is key for a successful app. Of course, these needs to be balanced out against our current Product Roadmap. Utilizing some of the Lean Startup principles will help us here.
6. What are our competitors doing? Users have numerous choices for product or service that we provide. So, we need to evaluate our competitors and make sure we are keeping up with the market place. This will have direct and immediate impact on our product roadmap. This will also help us differentiate ourselves from the rest of the pack especially when app discovery is such a big challenge given over 500K apps in iOS App Store and over 275K apps in the Android market place.
7. How are we going to distribute and market it? This is a big marketing question that will impact technical decisions. Depending on our platform choices we may have one or more marketplaces to distribute our app. Given the discoverablilty issue mentioned above, how and where we market our product as well as how effective our distribution will have a huge impact on some of the features we can include in our product.
8. How much are we going to charge? This is an important business decision as that is going to be our revenue generator. For example, if we are going to use a freemium model, then we need to plan our product feature set that would be useful in both the free and premium versions. Alternatively, if our app is free and ad-supported, then we need to ensure that we have a high fill rate and relevant ads so that we can improve our CPM over time.
9. How are we going to support users on un-supported platforms? While our mobile apps will be used by several users on the targeted platforms, we need to make sure that we do not alienate our potential user base on platforms not currently supported. We also need to periodically evaluate demand for apps on these currently un-supported platforms and decide if we want to support any of those platform or are we willing to give up on a wider market share so that we can focus on growing our market share on the currently targeted platforms.
10. What is the total cost of ownership? App development costs have come done significantly. So, while we can get the app developed cheaply, we need to consider other costs like post-deployment support, maintenance and upgrade costs, marketing costs, to name a few,  to truly understand how much it is going to cost us to develop, maintain and market the app.

Here is a slideshare deck on this topic that you can download for your use.

Hopefully this has given you a good start on what all you need to consider to go from an idea to app in the marketplace. Feel free to leave your comments and questions below.

Anyone endeavoring to develop a modestly successful mobile application has some tough decisions to make before even writing a single line of code. From platform to pricing model to functionality to distribution to marketing. In this series of blog posts we will explore the various factors that we need to consider in order to develop a successful mobile application. The first post in this series talks about the various platforms available and the pros and cons of each. This post will specifically focus on development of native applications for smartphone. For a discussion on native vs mobile web (HTML5) apps, click here.

I was recently talking to a large multinational bank on how they manage their mobile apps development. They told me that currently they have apps on 9 different platforms. Given that they are a large multinational with plenty of resources, they can support so many platforms. However, for average startup, individual developer or a small business, a more realistic number may be 1 or 2, given the resource constraints. So, how do we decide on which platforms to support?

Assuming that you are developing for the US market, the most recent Neilsen report indicates that 40% of the mobile phone market in US is penetrated by smartphones. Of those 40%, the dominant platform is Android with 40% followed by Apple iOS with 28%, RIM Blackberry with 19%, Microsoft Windows Mobile (6.5 and below) at 7%, Microsoft Windows Phone 7 at 1% and other OS (webOS, Meego, Symbian, etc) at 5%. Based on these statistics and leaving aside other factors of the reducing market share of Blackberry and good reviews of the Windows Phone, etc, it would be a good bet to start developing an app on one of the top three platforms.

Next, let’s look at some of the pros and cons of the top 3 app platforms:

Android:

Pros:

• Dominant OS on Smartphones in US with 40% share.
• Open source platform (?).
• Fastest growing market place with 275K+ apps and over 6 billion apps downloaded worldwide (per AndroLib) .
• Royalty (30%) for paid apps and in-app purchases published on Android Marketplace.
• Immediate deployment to Marketplace.
• Higher average price point for paid apps at $4.57 (see infographic below).
• Strong developer network leveraging Java and C.

Cons:

• Huge device fragmentation with differing screen sizes and other hardware.
• Huge OS version fragmentation with 51% devices still on Froyo (version 2.2) and 30% on Gingerbread (ver 2.3.3 or 2.3.4) and remaining split across Cupcake (versions 1.5)  thru Honeycomb (ver. 3.2.x).
• 60% of apps downloaded from Android Marketplace are free apps.

Apple iOS:

Pros:

• The leading app store with nearly 500K apps and over 15 billion apps downloaded since 2008.
• Strong customer base with 200 million users.
• Good developer network with established APIs.
• Same app can run on iPhones, iTouches, & iPads.
• Minimal device fragmentation.
• 71% of apps downloaded are paid apps.

Cons:

• 2 weeks lead time to deploy to App Store.
• 30% royalty for both App Store and in-app purchases.
• Lowest average price point for the top 100 paid apps (see infographic below).
• Smaller market size than Android in terms of devices.

Blackberry:

Pros:

• Solid presence in enterprises.
• Robust device management features.
• Highest average price point for the top 100 paid apps (see infographic below).

Cons:

• High price floor for paid apps ($2.99 at Tier 2 – paid apps).
• Small number of apps (~25000+ in the App World) with 1 billion downloads.
• Losing market share.

Here is a bit outdated but great infographic  created by WebPage FX on the various app stores  that put some of the points above succinctly:

(Via GottaBeMobile.com)

When mobile phones first started out, they could do few things well: make calls and send text messages. If you wanted to get data, you were out of luck. Then came the mobile web with text only display. Slowly, 8-bit images were added for adds.That was the status quo for a while, sure the graphics and displays got better, but still not the best user experience. However, mobile web was the only game in town. With the advent of smartphones, specifically, iPhones, all that changed. Now, phones could have apps on them and these apps were powerful. They not only had better graphics, they also leveraged other applications and hardware like camera, accelerometer, GPS, etc. The user experience became better as the apps could pull data from the internet to provide users with up to the minute information.

Now, mobile web is fighting back by leveraging HTML5. HTML5 sites can now provide rich user experience that is consistent across disparate devices, irrespective of the device OS. So that, the site has the same user interaction whether you access it on iOS or Andriod or Blackberry or Windows 7 based devices. HTML5 also allows mobile web to learn a new trick by accessing device hardware like camera, GPS and accelerometer in the same way as the device-resident apps. As this article on PCWorld mentions:

HTML5 is appealing to developers and businesses because it can be used to build Web apps that target all mobile platforms at once. This is more cost-effective and less labor-intensive than building different native apps for iOS, Android and Windows Phone.

It also allows developers and publishers to circumnavigate the 30 percent commission charged by Apple and Google for selling apps through their app stores. Furthermore, Apple also takes a 30 percent cut on subscriptions sold through the App Store. Both cuts could be obviated with HTML5-based apps, the report pointed out.

HTML5 can have major impact on apps business model both for Apple and Google. It is beginning to show in the amount of time users are spending on Mobile Web as opposed to device native apps as this chart from Flurry shows

Also, as Darrell Etherington wrote over at GigaOm yesterday, the apps Vs HTML5 war is just getting started. It is a war that will play out over the next few years. HTML5 has fired the first salvo and the impact is slowly being felt. Now it is apps turn to return fire. Both camps have powerful allies and most of the major players have foot in both (think Apple, Microsoft, Google with their OS and HTML5 supporting browsers). As such they end up fighting themselves if this war continues.

However, there is a third way which will let the two live harmoniously. We are starting to see the first of the hybrid applications which leverage the strengths of HTML5 and the user interaction of the native apps. Facebook app is a good example of this where the the native app displays portions of information in an embedded web browser using HTML5. At the recent Dreamforce event, Salesforce.com showed off the HTML5 based Chatter mobile app. But more importantly, they acknowledged that the hybrid apps are the future and therefore they have starting integrating HTML5 with their native apps too through the touch.salesforce.com platform. These are but a few examples. Companies are beginning to see the benefits of building these hybrid apps and they are able to leverage the hardware features of these devices using open source tools like PhoneGap and other third party frameworks like Sencha Touch.

So, as companies begin to realize the benefits of HTML5 and also some of the downside of having to maintain native apps for each platform separately, we will see the hybrid apps becoming more common and thus there will be a compromise in this war between native apps and mobile web.

This week at CTIA, Verizon announced plans to provide mobile payment options for enterprise customers in partnership with  Charge Anywhere, LLC. This by itself is not big news. After all, mobile carriers in Asia and Europe have been providing this service for years now. AT&T too has similar options available.

There are scores of startups that are addressing this space including Obopay, mFoundry, MPayment, to name a few. Even established companies like PayPal, Sybase and Google have ventured into this arena. But where are the banks? Why aren’t any of them providing these options or partnering with the carriers to provide this service.

There is a common belief that carriers and banks are at loggerheads about mobile payments. There is a reason for that. Banks and carriers cannot agree on who owns the transaction. Carriers say they own the transaction as it happens on their network and they bill the customers. But the bank say they own the customers as the banks have the customers’ money and they provide the secure transaction processing. Neither wants to encroach on the other’s turf especially since regulatory oversight for carriers and technology investments for the banks would be killer. So, they are at an impasse and until it is resolved, banks will be shut out of a market that is forecasted to be worth $25.2 billion in 2013 by Research & Markets.

Banks  are not giving up easy. They are introducing m-wallets and other options to garner a share of this market. But those efforts are not going to take off in the face of a simple solution like charging to the cell phone. Clearly, banks need to change their tactics in order to get a larger piece of the pie. They need to take a back seat to the carriers by letting them own the customers and bill them, while the banks provide solutions to process the transaction and get a cut. Banks will have to think “Powered by Intel” model for them to be successful otherwise they are going to miss the boat.