When Apps are Freemium the Services are Premium
Amazon may have developed the template but it was Apple who applied it to the business of selling Apps and with the app store being such a run away success story it seems these days everybody is busy launching their own branded app store. So the question has to be asked: Will app stores be the sweet spot for developers, Telcos and handset manufacturers tomorrow?
The short answer is no.
SAP’s Fergus O’Reilly has already pointed out that the Telco’s are concerned that app stores are turning into “Crazy Frog 2.0”… a market dominated by impulse buys of low value products by consumers, with minimal stickiness or brand awareness.
O’Reilly believes the future is in mobile services not mobile apps. Here’s why. The App Store is very much a product-centric model: you buy an application, it is an atomic transaction: you pay once, you own it.
The problem is once your product is a unit transaction the only way for pricing to go is down and that is why free apps dominate the app store.
Mobile Services economy is very different. Service pricing would depend on who you were, how you used the service, whether you bought related services or optional extras. So service pricing requires packaging, bundles, cross-product discounts, rewards and discounts for regular users. Mobile Services are a business model. Apps are a product offering.
Apps may be offered as part of the service but they are not the core offering of the service.
Mobile services are the future of SaaS, PaaS, Cloud Computing and any other form of web based client server business model you can think of.
As I have said before SaaS is for start-ups. Cloud Computing is for the market leaders.
So let begin by taking a quick look at what mobile services are not.
Well contrary to the global popularity for American business methods a mobile service isn’t about a one size fits all with a super size me option. Mobile Service is about tailoring the solution to the client’s requirements. It’s also about being available at any time and anywhere to make it happen now.
Let me put it this way. The mobile apps craze is all about personalising the mobile handset. We see the same thing on Facebook with the personalisation of the home page (That’s why I believe in many ways Facebook and Mobile are one of the same business and what works on one should work on the other)
At the most fundamental level mobile services is about personalising and enriching the data that feeds these personalised spaces. At the most complex level it is about the flexible on demand delivery of both data and functionality to the mobile device.
It’s been said before that SaaS is about rules not exceptions. With Mobile Services it will be the exceptions that make or break the relationship. It is also the exceptions that provide the opportunity for the service provider to charge the premium margins.
The big advantage services have over apps is they provide you with the opportunity to profit from recurring revenues. The downside, as every Telco knows, is churn. The other problem with services is the Customer Acquisition Costs are much higher but you do have the opportunity to up sell and cross sell once the customer is on board.
This then is the cross over point where Apps and Services compliment on another.
As I have said before launching a SaaS service as a Freemium offering is a mistake. So too with a mobile service. It doesn’t matter if you putting ads on the menu or just providing a cut down version of the service as a hook all Freemium is going to do for you is increase your Customer Acquisition Costs and devalue the Brand. (See The Reality of Freemium in SaaS)
The problem with offering a Freemium service is it reduces your customers to the status of traffic. And as Google has just discovered with the Nexus One customers and traffic are mutual exclusive ideas that require very different business cultures.
Freemium apps however are not going to significantly increase your Customer Acquisition Costs. Simply because the support costs are minimal. Nor will they devalue your Brand by being made available for free because, as we have seen with the app store stats, customers expect apps to be free.
The challenge is to convert those Freemium apps into service paying customers. The key to that is to keep the two things mutually exclusive. i.e. Just because you have downloaded the free app doesn’t mean you get the service for free.
Indeed the more intelligent marketer will not make the apps openly available but target the customers they want to harvest by offering the premium app for free on an exclusive basis. Thereby building the brand and reducing the customer acquisition costs while capturing market share in the most profitable segment of the market.
As I have said before apps are fast becoming fashion items, disposable and of limited lifespan. This means developing software apps today is no longer about changing the way people do business but about tapping into how people see and project themselves. Today it is the service component that is the key to locking in the relationship and changing the way people do business.
And what is the service? The space in between what the apps provide and what the customer is willing to pay for.
What is the space in between the apps? The network stupid… 
