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WINNER TAKES ALL 
Discoverability, Quality, and the App Economy 
Eric Benjamin Seufert 
LTV > CPI #2 
November 20, 2014
WHO AM I? 
Freemium Economics 
Head of Marketing at Wooga
THE INTERNET 10 
YEARS AGO
THE INTERNET 10 
YEARS AGO 
• Marketing provides value only for largest spenders;
THE INTERNET 10 
YEARS AGO 
• Marketing provides value only for largest spenders; 
• Returns from market capture highly sk...
MODELING THE 
INTERNET
MODELING THE 
INTERNET 
• “All pay auction”: everyone pays, few win;
MODELING THE 
INTERNET 
• “All pay auction”: everyone pays, few win; 
• Content not monetizable;
MODELING THE 
INTERNET 
• “All pay auction”: everyone pays, few win; 
• Content not monetizable; 
• $0 switching costs;
MODELING THE 
INTERNET 
• “All pay auction”: everyone pays, few win; 
• Content not monetizable; 
• $0 switching costs; 
•...
MODELING THE 
INTERNET 
• “All pay auction”: everyone pays, few win; 
• Content not monetizable; 
• $0 switching costs; 
•...
USER BEHAVIOR 
• Users choose highest quality sites of which they are 
aware;
USER BEHAVIOR 
• Users choose highest quality sites of which they are 
aware; 
• Users respond to firms’ “bids” for their ...
USER BEHAVIOR 
AWARENESS 
QUALITY 
NO YES
USER BEHAVIOR 
AWARENESS 
QUALITY 
NO YES 
SITE 1 
SITE 2 
WINNER: NONE. NO HIT.
USER BEHAVIOR 
AWARENESS 
QUALITY 
NO YES 
SITE 1 
SITE 2 
q1 
WINNER: SITE 1.
USER BEHAVIOR 
AWARENESS 
QUALITY 
NO YES 
SITE 1 
SITE 2 
q1 q2 
WINNER: SITE 2.
USER BEHAVIOR 
AWARENESS 
QUALITY 
NO YES 
SITE 1 
SITE 2 
q2 
WINNER: RANDOM CHOICE.
ADVERTISING
ADVERTISING 
• Firms seek maximum exposure if they choose to 
compete;
ADVERTISING 
• Firms seek maximum exposure if they choose to 
compete; 
• Demand for advertising is price inelastic;
ADVERTISING 
• Firms seek maximum exposure if they choose to 
compete; 
• Demand for advertising is price inelastic; 
• As...
ADVERTISING 
• Firms seek maximum exposure if they choose to 
compete; 
• Demand for advertising is price inelastic; 
• As...
ADVERTISING 
• Firms seek to beat competitors in terms of quality on 
marginal basis (quality investment costs are sunk);
ADVERTISING 
• Firms seek to beat competitors in terms of quality on 
marginal basis (quality investment costs are sunk); ...
ADVERTISING 
QUALITY INVESTMENT 
ADVERTISING INVESTMENT
ADVERTISING 
QUALITY INVESTMENT 
ADVERTISING INVESTMENT 
ADVERTISING 
ARMS RACE 
BEGINS 
BARRIER TO ENTRY 
PROHIBITIVELY 
...
ADVERTISING 
QUALITY INVESTMENT 
ADVERTISING INVESTMENT 
ADVERTISING 
ARMS RACE 
BEGINS 
BARRIER TO ENTRY 
PROHIBITIVELY 
...
SO WHERE IS MOBILE?
SO WHERE IS MOBILE? 
Top 10 Grossing Chart, US / iPhone, November 20 2014
SO WHERE IS MOBILE? 
Top 10 Grossing Chart, US / iPhone, November 20 2014
SO WHERE IS MOBILE? 
• Clash of Clans and Candy Crush 
Saga have dominated Top Grossing 
1 & 2 positions for 2 years; 
Top...
SO WHERE IS MOBILE? 
• Clash of Clans and Candy Crush 
Saga have dominated Top Grossing 
1 & 2 positions for 2 years; 
• 8...
SO WHERE IS MOBILE? 
• Clash of Clans and Candy Crush 
Saga have dominated Top Grossing 
1 & 2 positions for 2 years; 
• 8...
SO WHERE IS MOBILE? 
• Clash of Clans and Candy Crush 
Saga have dominated Top Grossing 
1 & 2 positions for 2 years; 
• 8...
SO WHERE IS MOBILE? 
• Clash of Clans and Candy Crush 
Saga have dominated Top Grossing 
1 & 2 positions for 2 years; 
• 8...
SO WHERE IS MOBILE? 
• Clash of Clans and Candy Crush 
Saga have dominated Top Grossing 
1 & 2 positions for 2 years; 
• 8...
SO WHERE IS MOBILE? 
• Four companies own apps that 
generate 70% of the unique visitors 
to the Top 25 mobile apps* 
*htt...
SO WHERE IS MOBILE? 
• Most smartphone 
owners download 0 
new apps per 
month* 
*http://mobiledevmemo.com/the-problem-wit...
SO WHERE IS MOBILE? 
• Nearly half of all time spent in 
mobile apps is devoted to 
users’ single favorite apps* 
*http://...
MOBILE IS WINNER 
TAKES ALL
MOBILE IS WINNER 
TAKES ALL 
• $0 switching costs;
MOBILE IS WINNER 
TAKES ALL 
• $0 switching costs; 
• Returns highly skewed;
MOBILE IS WINNER 
TAKES ALL 
• $0 switching costs; 
• Returns highly skewed; 
• Marketing arms race, sunk development cost...
MOBILE IS WINNER 
TAKES ALL 
App store discovery is not “broken”…
MOBILE IS WINNER 
TAKES ALL 
App store discovery is not “broken”… 
…the App Store was designed to be like this.
HOW DO YOU WIN?
HOW DO YOU WIN? 
Higher Quality and / or Better Discovery
BUT WHAT ABOUT _? 
Handful of examples of viral breakouts:
BUT WHAT ABOUT _? 
Handful of examples of viral breakouts:
BUT WHAT ABOUT _? 
Handful of examples of viral breakouts:
BUT WHAT ABOUT _? 
Handful of examples of viral breakouts:
BUT WHAT ABOUT _? 
Handful of examples of viral breakouts:
BUT WHAT ABOUT _? 
High novelty factor.
BUT WHAT ABOUT _? 
High novelty factor. 
Target teen / young adult demographic.
BUT WHAT ABOUT _? 
High novelty factor. 
Target teen / young adult demographic. 
Heavily subsidized launches through press...
BUT WHAT ABOUT _? 
Betting on virality is not the best strategy!
BUT WHAT ABOUT _? 
Betting on virality is not the best strategy! 
- Dev costs are sunk (if virality doesn’t work, you 
los...
BUT WHAT ABOUT _? 
Betting on virality is not the best strategy! 
- Dev costs are sunk (if virality doesn’t work, you 
los...
BUT WHAT ABOUT _? 
Betting on virality is not the best strategy! 
- Dev costs are sunk (if virality doesn’t work, you 
los...
HOW DO YOU WIN? 
Discoverability:
HOW DO YOU WIN? 
Discoverability: 
- Spend more than your competitors, more 
effectively;
HOW DO YOU WIN? 
Quality:
HOW DO YOU WIN? 
Quality: 
- Better / less contrived monetization tactics.
THANKS 
@eric_seufert 
MobileDevMemo.com
REFERENCES 
• Adamic, L.A. and B.A. Huberman, 2000, “The Nature of Markets in the World Wide 
Web,” Quarterly Journal of E...
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Winner Takes All: App Discoverability, Quality, and the App Economy Slide 1 Winner Takes All: App Discoverability, Quality, and the App Economy Slide 2 Winner Takes All: App Discoverability, Quality, and the App Economy Slide 3 Winner Takes All: App Discoverability, Quality, and the App Economy Slide 4 Winner Takes All: App Discoverability, Quality, and the App Economy Slide 5 Winner Takes All: App Discoverability, Quality, and the App Economy Slide 6 Winner Takes All: App Discoverability, Quality, and the App Economy Slide 7 Winner Takes All: App Discoverability, Quality, and the App Economy Slide 8 Winner Takes All: App Discoverability, Quality, and the App Economy Slide 9 Winner Takes All: App Discoverability, Quality, and the App Economy Slide 10 Winner Takes All: App Discoverability, Quality, and the App Economy Slide 11 Winner Takes All: App Discoverability, Quality, and the App Economy Slide 12 Winner Takes All: App Discoverability, Quality, and the App Economy Slide 13 Winner 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Winner Takes All: App Discoverability, Quality, and the App Economy

  1. 1. WINNER TAKES ALL Discoverability, Quality, and the App Economy Eric Benjamin Seufert LTV > CPI #2 November 20, 2014
  2. 2. WHO AM I? Freemium Economics Head of Marketing at Wooga
  3. 3. THE INTERNET 10 YEARS AGO
  4. 4. THE INTERNET 10 YEARS AGO • Marketing provides value only for largest spenders;
  5. 5. THE INTERNET 10 YEARS AGO • Marketing provides value only for largest spenders; • Returns from market capture highly skewed.
  6. 6. MODELING THE INTERNET
  7. 7. MODELING THE INTERNET • “All pay auction”: everyone pays, few win;
  8. 8. MODELING THE INTERNET • “All pay auction”: everyone pays, few win; • Content not monetizable;
  9. 9. MODELING THE INTERNET • “All pay auction”: everyone pays, few win; • Content not monetizable; • $0 switching costs;
  10. 10. MODELING THE INTERNET • “All pay auction”: everyone pays, few win; • Content not monetizable; • $0 switching costs; • Content investment => perceived quality;
  11. 11. MODELING THE INTERNET • “All pay auction”: everyone pays, few win; • Content not monetizable; • $0 switching costs; • Content investment => perceived quality; • Development / marketing costs are sunk.
  12. 12. USER BEHAVIOR • Users choose highest quality sites of which they are aware;
  13. 13. USER BEHAVIOR • Users choose highest quality sites of which they are aware; • Users respond to firms’ “bids” for their hits.
  14. 14. USER BEHAVIOR AWARENESS QUALITY NO YES
  15. 15. USER BEHAVIOR AWARENESS QUALITY NO YES SITE 1 SITE 2 WINNER: NONE. NO HIT.
  16. 16. USER BEHAVIOR AWARENESS QUALITY NO YES SITE 1 SITE 2 q1 WINNER: SITE 1.
  17. 17. USER BEHAVIOR AWARENESS QUALITY NO YES SITE 1 SITE 2 q1 q2 WINNER: SITE 2.
  18. 18. USER BEHAVIOR AWARENESS QUALITY NO YES SITE 1 SITE 2 q2 WINNER: RANDOM CHOICE.
  19. 19. ADVERTISING
  20. 20. ADVERTISING • Firms seek maximum exposure if they choose to compete;
  21. 21. ADVERTISING • Firms seek maximum exposure if they choose to compete; • Demand for advertising is price inelastic;
  22. 22. ADVERTISING • Firms seek maximum exposure if they choose to compete; • Demand for advertising is price inelastic; • As advertising costs increase, likelihood of entry falls;
  23. 23. ADVERTISING • Firms seek maximum exposure if they choose to compete; • Demand for advertising is price inelastic; • As advertising costs increase, likelihood of entry falls; • Spend positively correlated to gross revenues.
  24. 24. ADVERTISING • Firms seek to beat competitors in terms of quality on marginal basis (quality investment costs are sunk);
  25. 25. ADVERTISING • Firms seek to beat competitors in terms of quality on marginal basis (quality investment costs are sunk); • Advertising generates revenue proportional to reach, so firms seek to maximize advertising spend.
  26. 26. ADVERTISING QUALITY INVESTMENT ADVERTISING INVESTMENT
  27. 27. ADVERTISING QUALITY INVESTMENT ADVERTISING INVESTMENT ADVERTISING ARMS RACE BEGINS BARRIER TO ENTRY PROHIBITIVELY EXPENSIVE
  28. 28. ADVERTISING QUALITY INVESTMENT ADVERTISING INVESTMENT ADVERTISING ARMS RACE BEGINS BARRIER TO ENTRY PROHIBITIVELY EXPENSIVE MARKET PARTICIPANTS
  29. 29. SO WHERE IS MOBILE?
  30. 30. SO WHERE IS MOBILE? Top 10 Grossing Chart, US / iPhone, November 20 2014
  31. 31. SO WHERE IS MOBILE? Top 10 Grossing Chart, US / iPhone, November 20 2014
  32. 32. SO WHERE IS MOBILE? • Clash of Clans and Candy Crush Saga have dominated Top Grossing 1 & 2 positions for 2 years; Top 10 Grossing Chart, US / iPhone, November 20 2014
  33. 33. SO WHERE IS MOBILE? • Clash of Clans and Candy Crush Saga have dominated Top Grossing 1 & 2 positions for 2 years; • 8 of Top 10 grossing apps are games; Top 10 Grossing Chart, US / iPhone, November 20 2014
  34. 34. SO WHERE IS MOBILE? • Clash of Clans and Candy Crush Saga have dominated Top Grossing 1 & 2 positions for 2 years; • 8 of Top 10 grossing apps are games; Top 10 Grossing Chart, US / iPhone, November 20 2014 T10 Grossing Dates of first publish:
  35. 35. SO WHERE IS MOBILE? • Clash of Clans and Candy Crush Saga have dominated Top Grossing 1 & 2 positions for 2 years; • 8 of Top 10 grossing apps are games; Top 10 Grossing Chart, US / iPhone, November 20 2014 T10 Grossing Dates of first publish: 2014: 1
  36. 36. SO WHERE IS MOBILE? • Clash of Clans and Candy Crush Saga have dominated Top Grossing 1 & 2 positions for 2 years; • 8 of Top 10 grossing apps are games; Top 10 Grossing Chart, US / iPhone, November 20 2014 T10 Grossing Dates of first publish: 2014: 1 2013: 2
  37. 37. SO WHERE IS MOBILE? • Clash of Clans and Candy Crush Saga have dominated Top Grossing 1 & 2 positions for 2 years; • 8 of Top 10 grossing apps are games; Top 10 Grossing Chart, US / iPhone, November 20 2014 T10 Grossing Dates of first publish: 2014: 1 2013: 2 <=2012: 7
  38. 38. SO WHERE IS MOBILE? • Four companies own apps that generate 70% of the unique visitors to the Top 25 mobile apps* *http://mobiledevmemo.com/the-problem-with-app-store-distribution-in-3-charts/
  39. 39. SO WHERE IS MOBILE? • Most smartphone owners download 0 new apps per month* *http://mobiledevmemo.com/the-problem-with-app-store-distribution-in-3-charts/
  40. 40. SO WHERE IS MOBILE? • Nearly half of all time spent in mobile apps is devoted to users’ single favorite apps* *http://mobiledevmemo.com/the-problem-with-app-store-distribution-in-3-charts/
  41. 41. MOBILE IS WINNER TAKES ALL
  42. 42. MOBILE IS WINNER TAKES ALL • $0 switching costs;
  43. 43. MOBILE IS WINNER TAKES ALL • $0 switching costs; • Returns highly skewed;
  44. 44. MOBILE IS WINNER TAKES ALL • $0 switching costs; • Returns highly skewed; • Marketing arms race, sunk development costs.
  45. 45. MOBILE IS WINNER TAKES ALL App store discovery is not “broken”…
  46. 46. MOBILE IS WINNER TAKES ALL App store discovery is not “broken”… …the App Store was designed to be like this.
  47. 47. HOW DO YOU WIN?
  48. 48. HOW DO YOU WIN? Higher Quality and / or Better Discovery
  49. 49. BUT WHAT ABOUT _? Handful of examples of viral breakouts:
  50. 50. BUT WHAT ABOUT _? Handful of examples of viral breakouts:
  51. 51. BUT WHAT ABOUT _? Handful of examples of viral breakouts:
  52. 52. BUT WHAT ABOUT _? Handful of examples of viral breakouts:
  53. 53. BUT WHAT ABOUT _? Handful of examples of viral breakouts:
  54. 54. BUT WHAT ABOUT _? High novelty factor.
  55. 55. BUT WHAT ABOUT _? High novelty factor. Target teen / young adult demographic.
  56. 56. BUT WHAT ABOUT _? High novelty factor. Target teen / young adult demographic. Heavily subsidized launches through press / platform featuring.
  57. 57. BUT WHAT ABOUT _? Betting on virality is not the best strategy!
  58. 58. BUT WHAT ABOUT _? Betting on virality is not the best strategy! - Dev costs are sunk (if virality doesn’t work, you lose it all!).
  59. 59. BUT WHAT ABOUT _? Betting on virality is not the best strategy! - Dev costs are sunk (if virality doesn’t work, you lose it all!). - And virality isn’t defensible (your competitors can be viral, too!).
  60. 60. BUT WHAT ABOUT _? Betting on virality is not the best strategy! - Dev costs are sunk (if virality doesn’t work, you lose it all!). - And virality isn’t defensible (your competitors can be viral, too!). - And novelty apps are easily replicated.
  61. 61. HOW DO YOU WIN? Discoverability:
  62. 62. HOW DO YOU WIN? Discoverability: - Spend more than your competitors, more effectively;
  63. 63. HOW DO YOU WIN? Quality:
  64. 64. HOW DO YOU WIN? Quality: - Better / less contrived monetization tactics.
  65. 65. THANKS @eric_seufert MobileDevMemo.com
  66. 66. REFERENCES • Adamic, L.A. and B.A. Huberman, 2000, “The Nature of Markets in the World Wide Web,” Quarterly Journal of Electronic Commerce, 1, 5–12. • Aumann, E. and W. Leininger, 1996, “Asymmetric All-Pay Auctions with Incomplete Information: The Two-Player Case,” Games and Economic Behavior, 14(1), 1–18. • Hand, JRM, 2003, “Profits Losses and the Non-linear Pricing of Internet Stocks,” in J. Hand and B. Lev, eds., Intangible Assets: Value, Measures, and Risk, New York: Oxford University Press, 248 – 268. • Noe and Parker, 2005, “Winner Take All: Competition, Strategy, and the Structure of Returns in the Internet Economy,” Journal of Economics & Management Strategy, 141 – 264.
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App Discoverability, Quality, and the App Economy

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