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Expect shift to freemium app monetization model: CTIA panelist

ORLANDO, FL – An International CTIA Wireless panel discussed the various tactics that companies are using to monetize their applications and which approaches work best.

“The Secret Sauce for Application Storefronts” session focused on the impact that applications have in the mobile industry. The panel was moderated by Mark Beccue, senior analyst at ABI Research, Oyster Bay, NY.

“There are some examples of apps that have in-app features such as micropayments and virtual goods,” said Todd Murphy, director of Verizon Wireless, Basking Ridge, NJ. “Tapjoy is a situation like that. It offers both a paid and free app and their paid version is better.

“The point is that for in-app transactions [such as in-app credits and virtual goods], I think it’s been a proven case in many examples where it does better,” he said. “However, for in-app advertising, I don’t think it’s been proven yet.”

In-app purchases
Patrick Mork, chief marketing officer at GetJar Networks, San Francisco, said that Angry Birds is another example of an application that does just as well as its paid version.

However, it all comes down to the customer.

“Some people are stingy and just simply don’t want to pay for apps and others will pay because they don’t want to see ads,” Mr. Mork said. “There’s definitely a trend with in-app transactions.

“I know that with a popular games company, their games increased revenue when they used in-app credits and virtual goods,” he said.

According to Mr. Mork, companies should focus on the business models that will work best for them depending on their target audience before they put an application into an app store.

A good best practice is launching a lite version of a paid application for free before offering a paid version. Brands should let consumers sample and test an app out before they buy it.

Rovio’s Angry Birds is a great example of that.

“With any new product and service, consumers  need to sample these products before they pay for it,” Mr. Mork said. “They should experience apps and then make up their minds if they want to pay for it.

“We make content downloaded free and there’s a way of monetizing after,” he said. “And we believe that’s where the market is going.”

Premium vs. free
According to Verizon’s Mr. Murphy, when the company first began, the mobile world was really driven by a premium model.

Then, the company saw a trend for subscriptions to be a way to monetize and engage with customers.

“At the end of the day, we see a shift to the freemium model – with more engaging services,” Mr. Murphy said. “You want to get people into the services before you start charging them for it.

“We talk to publishers on a regular basis and the split is 50/50, if not more in favor of this in-app type of monetization strategy,” he said.

There are not a lot of challenges with in-app payments, per Mr. Murphy.

“We have the billing capability there, it’s just a way to implement that and make it easy for developers to come in and grow their offering,” Mr. Murphy said. “We’re very sensitive to some of the stuff about how developers present that offering to customers.

“It’s easy to just throw the purchase on your phone bill and we just want to do it in the right way so that our customers trust us,” he said. “That’s really the sensitivity of how we implement that.”

According to Mr. Murphy there are some growing trends. Netflix has a friendly subscription model that it offers its customers and games are moving towards that same type of model.

Additionally, digital periodicals such as The New York Times are starting to offer monthly subscriptions.

“With engagement comes a different type of monetization strategy,” said Scott Schwarzhoff, vice president of marketing at Appcelerator, San Francisco. “That’s where advertising models come to play and that’s where subscription models come to play.”

Deal with fragmentation
According to Verizon’s Mr. Murphy, in regards to brands and agencies, fragmentation is a big deal.

Fragmentation is something that is inherent in the mobile industry and it exists for many reasons.

“From a brand perspective, it’s like mobile 101,” Mr. Murphy said. “Brands need to be educated about what it means, why it exists and how to overcome it.

“The point is, is that fragmentation is there and it’s not going to go away anytime soon,” he said.

GetJar’s Mr. Mork agreed and said that for brands, fragmentation is absolutely critical.

“Agencies and brands are looking to reach as many customers as possible,” Mr. Mork said. “They want fragmentation to go away and it’s not going anywhere.

“The first place to start is to understand what you’re trying to achieve on mobile,” he said. “Are you going for a marketing approach or a performance approach?

“You also have to figure out who your audience is.”

Final Take