Mobile App Install Ads & Facebook’s Earnings Report

facebook_arpu_2014

Very interesting tidbit for the #stats hound in Facebook beats the street and Wall Street yawns: Facebook earnings report for Q2/2014 reveals that their App Install Ads may be driving significant revenue increases. [above chart is from the post]

But lest you think that this is a Facebook issue alone, it is really much bigger than that:

1) The rise of App Install Ads (AIAs), which for some reason according to Re/Code’s Peter Kafka “…In [the] FB [earnings] call, [Facebook’s] Sandberg tries to downplay importance of app install ads to mobile biz. Not a ‘great majority’ of $.”

… appears to prove my long-held belief that Context is the key to getting ads to work, i.e. offer people something that makes sense in the context of what they are already doing. In that light, offering people mobile apps while they are using a mobile device and likely app, is exactly the right approach.

(Compare what I wrote here a long time ago:
businessmindhacks.com/post/is-advertising-failing-on-the-internet .)

Pair it with the “Impulse Purchase Territory” pricing of between FREE and $4.99 say, and you have something that works, compared to offering them a refrigerator or car in a mobile ad.

(More on the Impulse Purchase Territory pricing concept here:
businessmindhacks.com/post/from-kevin-kellys-the-satisfaction-paradox-on-why-curation-will-be-the-only-thing-youll-still-pay-for where…

“…I’ve said previously that e.g. Sony is making a huge mistake by not going the $1/month route for complete/unlimited streaming music access with their own new offering: Because that would put it in the complete impulse purchase, don’t-need-to-think, will-likely-never-cancel-for-any-reason category.”

BTW Amazon took another significant step a few days ago in the inevitable march to near $0 book content with its $10/month all-you-can-read Kindle eBook subscription service: nytimes.com/2014/07/19/business/media/amazon-introduces-kindle-subscription-service.html Yes, there are still the “Big 5” publishing houses as holdouts, because they wrongly believe that they have pricing power left… .)

2) The relative ARPUs shown below are particularly interesting to me from the perspective of Web or mobile service monetization strategies. As you can see, the world-wide ARPU for Facebook is creeping towards $10 per user per year, with significant — though expected — variation between various regions:

In the U.S. with $6.44 per quarter = near $26 / year, the revenue is more than double a European user, and 6 times that of a user in Asia.

I have been playing with the idea over the past 6+ months of what would happen if Web services attempted to charge their users $1/month in exchange for never having to bother them with ads, or any other form of targeting or data exploitation, except maybe for where that were specifically requested by the user (OPT-IN), in line with +Doc Searls‘ and others #VRM  ideas.

For FB, the world-wide and European ARPU numbers still show this as a viable option, but for the U.S. of course one could argue that FB would be leaving too much money on the proverbial table if they went this route (they would have to charge a U.S. user $2/month to break even with their current number).

Then again, a non-public company wouldn’t have short-term shareholder interests to answer to, and could well choose to go the longer-term more sustainable route of forgoing some ad revenue for a happier, more loyal user base.

(Not that it is by any means easy to significantly drive up ad monetization on social media, as Twitter has been finding out for a good while now.)

It least that’s my current view/argument, that once ONE successful Social Media / etc. service offers this #privacy respecting option, that they will either clean up big, or force  the competition to follow suit in relatively short order. Yes, we all once thought that G+ could be that option, but it was not to be…

3) Related: This chart shows the rise of FB’s mobile ads going from a mere blip around Q2/2012, to 1.5x or the stagnant desktop ads a mere two years later!

“Where Facebook’s money comes from, via @BIIntelligence”
>>  twitter.com/jyarow/status/492048993053319169

Mobile is rising in the near blink of an eye (and not done yet…), and Mobile Apps have emerged as maybe THE way to monetize it beyond device sales and mobile bandwidth. Stands to reason that selling ads WITH this trend instead of against it would work.


Tangentially related posts on Mobile and Pricing issues:

stratechery.com/2014/microsofts-mobile-muddle/
authorearnings.com/july-2014-author-earnings-report/

Tech Bubble or nah…?

Let’s begin with key quotes from this worthwhile read: Why the global tech startups bubble isn’t likely to burst

“…Likewise, the technological building blocks for digital firms have now become so evolved, cheap, and ubiquitous that they can be easily combined and recombined.”

Those building blocks are many, and the most important of them are “platforms”: hosting services (the cloud), distribution services (app stores) and marketing venues (social media). The ultimate platform, they argue, is the Internet, which has become “fast, universal, and wireless.”

Startups can be thought of as “experiments on top of such platforms,” and they are doing, according to the report, what humans have always done: “apply known techniques to new problems.”

I have in the past argued (mostly) that “this time it’s different” since tech valuations are not really that high given the massively increased user bases we are talking about, both as to the overall Web, and Mobile in particular. See here: plus.google.com/+alexschleber/posts/RYsqz6Wc75o

There also were moments when I started to have my doubts, and there certainly are excesses and plenty of “froth”: plus.google.com/+alexschleber/posts/UYCyqBkd6o6

But ultimately they are just not in the “irrational” territory, galling though they may be at times (ask the average San Franciscan about Twitter, Google, et al. making their city ever more unaffordable… asf.).

Here is a thought I just developed over on an old thread I was rereading: plus.google.com/+alexschleber/posts/VcUjPRYotSX (see for the per sector employment stats/trends data background)

Re: “Information Services” / Software employment remaining steady, that is one of the reasons for startup / Silicon Valley perceived bubble valuations:

1) If the input of s/w engineers stays about constant, but they are serving ever larger user populations with roughly those same numbers, then the price of the company/startup (= group of engineers) must by Supply/Demand “law” go up. Compare 50 odd employees of WhatsApp serving 450M active users!

2) “Mobile” (phones mostly) has created a 10x jump in addressable users (even for relatively new companies) that was previously unheard of, while the #dinomedia and similar “dinosaur” businesses are having to contend with ever stagnant or even shrinking “user”/customer pools.

E.g. think about “Old Hollywood” and why it is increasingly in trouble world-wide: If a semi-hit movie brings in $100M in U.S. box-office, that means that given the current price for a ticket trending toward an average of $10, that’s really only 10M people that have seen it! (Yes, there is the Redbox/Netflix/TV distribution aftermarket, but that’s “Aftermarket dimes for Box Office dollars”. Fine. Add another 10M say, but realize that the prices for this are increasingly trending to $1 – Redbox, or less – bundled subscription content a la HBO.)

TV similarly is looking at normal “users” (viewership) in the 5M to 20M range even for its top shows BTW. Yet no one had/has ever accused Hollywood or TV of being in a (valuation) “bubble”. Maybe in decline, but not a Bubble.

Now compare that to Instagram, WhatsApp, Facebook, Twitter, etc.”addressable users bases”!

3) In summation, Mobile truly has changed the game. Ecosystem (size) is everything…

Compare the specific case of “digital news businesses” as a recent growth in VC funding phenomenon
plus.google.com/112964117318166648677/posts/HViD3w4SGL1

…For the longest time, the founder, Shane Smith, talked about Vice becoming the next CNN, which sounded outrageous. Now that it is valued at five times what The Washington Post recently sold for, it doesn’t seem quite so silly.

Big (Old) News(paper) Media caught in the same trap of their comparatively minuscule addressable user bases:
en.wikipedia.org/wiki/List_of_newspapers_in_the_United_States_by_circulation
(no, neither the WSJ or the NYT are far behind, in an “Orders of Magnitude” sense…)

Yes, they each have a “digital” leg to lean on, but they largely insist on trying to veil those behind “Paywalls”/-fences. Which brings me back to the oldie but goodie pronouncement I made here:

“…Only then will some in the #Dinomedia come to see, that the race was not about who was still going to eek out some residual ‘crumbs’ profits from the Old System, but who was going to wholesale import the masses into their Ecosystem.”

All the way back to the original linked posts “platform” angle: Yes, the platforms are massively more evolved than they were in say 1999. Just think on Amazon’s AWS Cloud Infrastructure service and from there on down (Google, Facebooks “OpenCompute”, etc. etc.).

The one area where all of this wonderous infrastructure is underdeveloped and deeply insecure is in boring basics such as passwords (they STILL don’t work…), security, encryption (as we’re learning weekly from Greenwald/Snowden), and that most basic Internet protocol of all, E-mail (up to 90% spam load last I heard…).

Those are the areas where the entire Internet could still trip and fall…

Satya Nadella’s “ascendance” to the Microsoft throne

While this WIRED post about Satya Nadella’s “ascendance” to the Microsoft throne starts out positive enough, there are many things to be concerned about underneath that surface (pun intended)…

“…But the choice of Nadella is a statement that, in the coming years, cloud computing will be a more crucial field to dominate. After all, cloud services ultimately feed the mobile as well as the gaming world, providing a way for software developers and businesses to build and host and operate the mobile applications that run on a world of smartphones and tablets.”

Except Microsoft isn’t dominating ANYTHING in the Cloud when it comes to either mobile apps or other startups. Amazon is. Google is putting up a fight with Compute Engine, and there is a host of smaller, more nimble Cloud PaaS (Platform as a service) and [X]aas (something/anything as a service) players out there innovating and winning customers. Rackspace. Heroku. Firebase. MongoHQ. And on and on.

Why would any startup or app developer choose to jump on the Microsoft B2B (really Big B to Big B…) bullying train…?! Maybe some clueless Big Corp CTOs or midlevel managers will still be buying Microsoft stuff “because choosing IBM Microsoft never got anybody fired…”?

To wit (WIRED): “…What Microsoft doesn’t have is a brain trust with much experience working at the giants of Silicon Valley — companies like Apple and Google and Facebook and Twitter, which have come to define the modern world in ways that Microsoft does not. That includes not only Nadella but his lieutenants. But, for better or for worse, Microsoft typically doesn’t mix well with those steeped in the new Valley culture.”

This header commentary from TIME here struck me as similarly odd:
plus.google.com/+TIME/posts/7iqY88izfz4
“His profile’s been low, but he’s been a key player for the tech giant.”

A key player in what? MSFT’s drift into obsolescence…?! In the creation of propaganda to try and make Microsoft Azure’s share in cloud computing appear more substantial than it really is? (See here: gigaom.com/2013/04/29/say-what-microsoft-azures-a-1-billion-business/ )

Also extremely (probably the most) worrisome? Bill Gates’ video statement here: Bill Gates welcomes Satya Nadella as Microsoft CEO where he “intones”:

1) Microsoft accomplishments from the 1980s…?!?!

2) The platitude that the industry is changing… you don’t say…

3) That Microsoft is having “a challenge” in mobile computing… (and Gates strangely stumbled over that term).

Ahahahaha… in truth Microsoft is NOWHERE in mobile, either in smartphones or tablets. Both Windows Phone / Nokia and Windows 8 / Surface have failed thus far.

Recall that Microsoft had to buy Nokia (at a firesale price after MSFT plant… I mean ex-MSFT-er Steven Elop hollowed out Nokia’s already “burning platform” to a mere shell of its former self…) to keep its smartphone “strategy” alive AT ALL.

Recall that the Microsoft Surface has been largely D.O.A. just as predicted:
plus.google.com/+alexschleber/posts/QuqxGmxbtaw

4) So what’s left then of the vaunted “Devices and Services” strategy that Gates almost religiously intones in the video?

Says Gates: “…even building a new platform… a CLOUD PLATFORM that connects to all sorts of different devices”. Yikes! Gates has been out of the game for over a decade in many ways, and his view of reality appears dangerously time-warped here.

Has anyone told him that the days of Microsoft’s bullying train are long gone? E.g. recently Microsoft’s own (businesses and consumers, those few that still need PCs…) customers have been forcing the company to backtrack on its Windows 8 “Touch Interface for desktops, like it or not…” strategy:
plus.google.com/+alexschleber/posts/QuqxGmxbtaw

6) But MOST WORRISOME of all is what he says next! – “I’m thrilled that Satya has asked me to step up, substantially increasing the time that I spend at the company… I’ll have over a third of my time available to meet with product groups… and it will be fun to define this next round of products working together…”.

YIKES! Precisely the thing that any outside CEO candidate was dreading, and likely making moving both Ballmer and Gates off the board a precondition for anyone to even consider the challenge (compare here: www.mondaynote.com/2013/12/08/microsoft-ceo-search-stalemate/ ).

Now Gates will be MORE INVOLVED again instead, yet somehow he doesn’t have the stomach for returning as CEO full-time himself.

This more than anything else makes me question if we’ll get to see much change at Microsoft at all, visionary or otherwise. If Gates had such great and modern-day relevant ideas for #mobile , etc. before, he could have easily communicated those to Ballmer circa 2008-2010, when now it really is much too late in the game…

7) And then again even Nadella intones all of the Microsoft tropes we’ve heard from Ballmer in recent times, “devices and services”, and “experiences”…
theverge.com/2014/2/4/5377318/microsoft-ceo-satya-nadella-first-letter-to-employees

“…As we look forward, we must zero in on what Microsoft can uniquely contribute to the world. The opportunity ahead will require us to reimagine a lot of what we have done in the past for a mobile and cloud-first world, and do new things.

We are the only ones who can harness the power of software and deliver it through devices and services that truly empower every individual and every organization. We are the only company with history and continued focus in building platforms and ecosystems that create broad opportunity.”

Things, empower, software, platform. That all sounds exceedingly vague…

Maybe to become the leader of what I have for a while considered to be a Cargo Cult, you have to have been brought up inside of that cult…

( >> en.wikipedia.org/wiki/Cargo_cult “… the apparent belief that various ritualistic acts will lead to” the same results as the culture/technology being copied… e.g. Microsoft trying to be Apple with the Surface by copying a “hip” tone in ads…, etc.)

Even last week when Nadella’s likely promotion to CEO was first leaked, I was struck by the meandering, NO-CLARITY-OF-VISION tone of him talking about MSFT’s cloud offerings and strategy.

I guess this is how you learn to talk when you had to report to Steve Ballmer everyday…