Business Models for mobile Applications

Bachelor Thesis

Business Models for mobile Applications

Richard Marktl [email protected]

Adviser:

Dipl.-‐Ing. Dr.techn. Univ.-‐Doz. Martin Ebner [email protected]

Dipl.-‐Ing. Dr.techn. Josef Kolbitsch

[email protected]

Abstract In the mobile space are countless financial successful applications and every one of these is backed up by a business model. A business model defines how technology, strategy and organization work together and how to achieve maximal possible financial success. This thesis will present common business models that are used in the mobile space. The business models illustrated are very varying from classic sale to indirect advertising models. The Apple App Store is used as environment to describe and analyze the models. The thesis also contains one case study of a successful application. It shows the evolution of the application and necessary changes to adapt to new market challenges.

1 Introduction .................................................................................................................4 1.1 The Apple App Store....................................................................................................... 4 1.2 Scope and Goals ............................................................................................................... 5

2 Mobile Business Models and how to start them...............................................6 2.1 Business Models .............................................................................................................. 6 2.1.1 Introduction ............................................................................................................................... 6 2.1.2 Advertising Applications ...................................................................................................... 7 2.1.3 Paid Applications ..................................................................................................................... 8 2.1.4 Subscriptions ............................................................................................................................. 9

2.2 Application Launch......................................................................................................... 9 2.2.1 Peak Sales vs. Sustained Sales ............................................................................................ 9 2.2.2 Create User Attention ..........................................................................................................10 2.2.3 Planning of the Launch........................................................................................................12

3 Case Study .................................................................................................................. 13 3.1 iTranslate ~ the free translator ................................................................................13 3.1.1 History ........................................................................................................................................13 3.1.2 Current Statistics ...................................................................................................................14 3.1.3 Outlook .......................................................................................................................................15

4 Conclusion.................................................................................................................. 17 5 References.................................................................................................................. 18 6 List of Figures............................................................................................................ 20

1 Introduction The goal of every commercial project creating a mobile application is to generate a financial success. The project usually consists of two parts -‐ the technical part and the financial part. The first part is to program and deliver a mobile application. The second part consists of choosing the right business model to monetize the application. Thus the success of the whole project depends on the chosen model: If an inappopriate model is chosen the application will not generate the necessary return of investment (ROI) and fails, but if the right model is chosen the mobile application should generate enough money to cover the costs of development and benefit the owner. The application could be the best technical available application in the market, but without the appropriate business model it is not possible to create success.

As environment to analyse business models for mobile applications, the Apple App Store is chosen. The Apple ecosystem is the first option, because Apple “invented” and created the mobile application market. The market itself is also the biggest of the currently available mobile application markets (Compare with [2] and [3]).

1.1 The Apple App Store With the release of the first iPhone Apple created a new generation of smart phones and one year later they created, with the release of the iPhone Software Development Kit, the market for mobile applications. Competitors in the market started later, therefore the market for mobile applications on the Apple platform is more mature and sophisticated than the markets of other mobile platforms. To understand its volume and what opportunities it offers, this paper describes the Apple App Store ecosystem in the following paragraphs.

iPhone sales started in the third quarter of 2007. Since then Apple increased the sales every year, by now they have sold more than 100 million devices. The mobile market itself is very fast growing and other operating systems like Android and mobile devices are also selling very well. Apple released the iPod Touch in 2007 -‐ the device is similar to iPhone but without the telephony functionality.

In the first quarter of 2010 the company added the next device, and created a whole new market category, the iPad. The iPad also runs iOS and the application and user experience model is the same [5].

Figure 1: iPhone Sales[5]

Figure 1 shows how many iPhone devices are sold in one quarter. It can be seen that Apple sells most devices in the last quarter of this year.

In 2008 they opened the system up and released a Software Development Kit for third party developers to write applications for iOS. These applications are available through the Apple App Store. The App Store itself is part of iTunes and is already preinstalled on every Macintosh. On iOS devices the Apple App Store is a preinstalled application. The App Store is segmented in several categories like games, music, productivity and so on. Furthermore there are some special categories. The user has the ability to browse the store and to look at different available applications. Every application is ranked in the store: The ranking is calculated through the number of downloads and some not publicly announced factors -‐ the accurate algorithm is a business secret of Apple. Free applications and paid applications are separated in the ranking.

The success of the iPhone was based on the fact that Apple changed the way how a mobile phone is used. They reinvented the user experience with a new operating system, iOS, combinated with a touchscreen. Everything on iOS is seen as an application like telephony or messages, they integrated a full mobile web browser and multimedia capabilities for viewing videos and playing music. In addition Apple removed the keyboard and replaced it by a touchscreen. There are only a couple of hardware devices left: the home button, the lock button and the volume buttons[4][5].

Figure 2: Number of Applications in App Store [7]

Figure 2 shows the growth of applications in the Apple App Store. From the launch of the Store to now. The move to open up the system was very smart, because through third party applications the customer is tied to the iOS platform.The fact that a user is able to download and use third party applications causes him to consume time and money on the iOS platform. That prevents the user from switching to another mobile platform, because all the spent time and money would be lost. The considerable amount of devices and the newly created mobile application market creates a number of new business opportunities. Developers and companies are now in the position to create applications and sell them worldwide, through the Apple App Store.

1.2 Scope and Goals If an application will be a finanicial success depends on choosing an appropriate business model. The selection of the right business model depends on various different factors, like financial, technical and market possibilities. To understand how to choose the right model, this paper describes and presents some existing business models including case studies. The goal of this paper is to demonstrate the impact and functionality of business models. The next chapter shows some of the common business models.

2 Mobile Business Models and how to start them A business model is a defined set of rules that include technology, strategy, processes and the governance of the organization. It is used to create value for the customer and to compete in a particular market [1].

There are more business models than the mere classic sale of applications. In the Apple App Store there are many examples for models, more refined than mere sales, to monetize an application. For a better understanding the business models are described without any possible combination with other business models, in the first part of this section.

There are two important requirements for every business model. The first part is that the purpose of the application needs to be clearly defined. Necessarily in a way that any customer can understand what the application does and what it does not. The application and business model must form a package that is acceptable for all customers [8].

The second important part for a successful business model is a good rating of the application and also a good ranking in the App Store. Without a good ranking the application is not visible in the categories of the App Store. Therefore the launch of an application in the store is a very crucial moment. How to launch an application is illustrated in the second part of this chapter, but first a description to understand the business models.

2.1 Business Models The focus of the selection of the right business model lies on the usage of the application. To monetize the application it is necessary to adapt the business model to the user behavior. There are different types of application usage and not every model is suitable for every usage type. The type is defined by the manner the application is utilised by the user. The following list of different application types gives an overview of the relevance of the usage in the sight of the business model [9].

• Continuous usage: The application delivers new information important to the user in periodic or non-‐periodic time intervals.

o mail application (delivers emails) o news applications o game applications

• One time usage: The application is only used for a short time. o game applications (casual games) o entertainment applications

• Sporadic usage: The application is only used if necessary. o translator applications o reminder applications

2.1.1 Introduction The descriptions of the different usage types show that, for example, an advertising model does not work with a “One time usage”-‐application, but the model is suitable for “Continuous usage”-‐application.

Before the individual models are described, a short overview of the possible business models is given. The following list of models is separated in several general categories. It is likely that some applications match more than one category.

• Free applications without any commercial intention • Advertising (free applications)

o classic advertising o promotion applications o affiliate marketing

• Paid applications o priced applications o demo application with a premium application o freemium and In App Purchase

• Subscriptions

The following chart shows the distribution of paid and free applications in the Apple App Store. Free applications in the diagram are free to download from the store, but it is possible that a free application is monetized through In App purchase. There are more paid applications than free applications because a paid application does not require as many downloads as a free application to generate the needed return of investment. In the case a free application is used to generate revenue, is it necessary to understand that money is not earned directly, it is earned through measures like advertising or promotion marketing. These forms generate only a very small amount of revenue, so a large user base is needed for a success. Paid applications generate a significant larger amount of money compared with free applications, therefore fewer downloads are needed to be successful [8][9].

Figure 3: Number of free and paid Applications [7]

2.1.2 Advertising Applications There are several different types of applications for advertising, but this paper will not go into detail. The common thing that all advertising applications has in common is that the revenue stream is not direct. The revenue stream is generated, for example, through fees for the advertiser or provisions if advertised goods are sold. A free application has the advantage that it is more likely that the App Store customer will download it. This will result, if the application is successful, in a large user base. So advertising for mobile applications can be used to monetize the “traffic” of the application. [9]

2.1.2.1 Classic Advertising The first form of advertising for mobile applications described is similar to the classic Internet advertising business. The application shows some form of banner or full screen ad, like web sites show advertising banners. This type of application can use an ad provider to deliver ads into the application, but it is also possible that the application display exclusive ads for the application developer, for example, to advertise another application offered by the developer.

An ad provider is a middleman between the application and a customer who wants to advertise his products. Every time the application is active the ad provider is notified, and the ad is delivered through a server, and the application displays the ad. The ad provider is the hub used to connect advertiser, publisher and application developer. The advertiser is able to advertise his products on the different mobile applications and the developer is able to monetize his user base.

The ad provider pays for the impressions provided by the application or for “clicks” on the ads displayed by the application. Therefore a relativly large user base is needed to generate a substantial revenue stream. The fact that a big user base is needed constrains this business model to applications with a mass appeal.

Many ad networks are available, the most important ones are: [13]

• Admob (Google Inc.)

• iAd (Apple Inc.) • InMobi

The following two applications make use of an ad provider.

Figure 4: iTranslate App / FTD App

The iTranslate application has an area below the application design itself where ads are displayed [11]. In the “Financial Times Deutschland” application the displayed ad is part of the article layout [12].

2.1.2.2 Promotion Advertising The second kind of advertising applications are promotional applications. They promote all different types of goods. There are many of these applications in the Apple App Store: some of them contain interactive information about the promoted goods, some of them are intended to be games with promoted goods. The common thing promotional applications share is that the revenue is generated through selling more of the advertised goods. Here are some examples for such applications:

• Mercedes-‐Benz C63 AMG App [14] • Volkswagen Touareg Challenge [15]

2.1.2.3 Affiliate Marketing Affiliate Marketing is similar to the earlier mentioned classic advertising, but the money is not generated through impressions, the money is generated through commissions instead. The affiliate will be paid from the merchant based on the success.

The affiliate uses ads or other marketing possibilities to direct the traffic in his application to the merchants website or application, if a business between the merchant and the user is established the merchant pays a commission to the affiliate. In many cases the merchant provides a partnership program to make it easier for the affiliate. There are several common options:

• per-‐click (for example: 0.05 $ per new user on the web page) • per-‐sale (for example: 5 % provision from the value of the commercial transaction) • per-‐lead (for example: 0.50 $ per new newsletter subscription)

A good example for affiliate marketing in the mobile space is the iTunes Store or the Apple App Store -‐ they pay a small amount for sold music or application. The affiliate market has the same problem as the classic advertising: To earn a substantial amount of money and to work in a cost-‐covering way the application needs a very large and active user base [16].

2.1.3 Paid Applications The iPhone application market is very lucrative for top seller applications. Therefore the Apple

App Store contains more paid applications than free applications. To generate enough revenue a paid application needs an initial marketing push. Only submitting the application and waiting for success is not enough because the App Store contains so many applications that it is hard for the user to find a specific application [7].

2.1.3.1 Priced Applications The standard model to earn money in the Apple App Store is to create a mobile application, price it according to its functionality and sell it in the store. There are thousands of applications that are sold this way. This model works for almost any application. A drawback is that this is not a substantial business model like advertising, because once the application is sold there is no way to sell the application to the same customer a second time.

2.1.3.2 Demo applications with a premium application This model consists of two applications -‐ a free one and a paid one. The free application is used as demo to show the user how powerful the paid application is. The free application is more likely to be downloaded than the paid application and therefore the free application can be seen as marketing move. The user is able to test the free application and decide if he/she will buy the paid application.

2.1.3.3 In App Purchase Model With this model the application itself is free and the main revenue stream is generated through the In App Purchase. The applications consist of an initial usable part and a part that is only usable if the customer decides to buy it. For example, a game has five free levels and to play the sixth level the user has to buy the level. It is not necessary that the application is free. There are many examples for paid applications with an In App Purchase model.

The In App Purchase model can also be used to create a substantial business like advertising. There are many different forms of the In App Purchase model. The application can be used as hub for the developers store where it is possible to sell goods like books, virtual goods etc. [17][18].

2.1.4 Subscriptions A subscription means that the customer has access to a service or product as long as a fee is paid. The fee is paid for a limited period of time, if the time is over the customer has to repay the subscription. Magazines or newspapers work with this model, but this model is also usable for the mobile application market. For example the application“Order & Chaos Online” [19] is a game with a monthly subscription to play it online [17].

2.2 Application Launch After the business model for an application is selected, it is necessary to prepare the launch for the application. The launch of an application is the most important moment in the lifetime of an application. The success of an application completely depends on the launch. As mentioned in the introduction, the App Store has more than 400,000 applications, therefore it is important to generate enough attention to reach the customers [7].

The chosen business model and the type of the application content also have a major impact on the launch. It is obvious that not every form of content has enough appeal to generate a large user base. That is important to decide if the launch tries to aim on the “top 100” category or application specific categories like productivity, music, etc. A game or social network application is able to climb the first place in the “top 100” category, because they have enough user appeal, but for a business application, for example with financial content, it is likely that it will not attract enough user. Such an application should aim at the top place in its own category and it will probably never appear in the “top 100” category. The following chapter describes the influence of the mentioned user appeal and the subsequent pricing.

2.2.1 Peak Sales vs. Sustained Sales The pricing depends on the competition and to a great extent on the user audience. An application with a large user audience does not need high prices to generate enough money because the number of downloads will compensate the price of the application. An application with a small user base needs a higher price because it will not generate so many downloads.

Therefore one has to differentiate between peak sales and sustained sales. Of course there are applications that combine both kind of sales, but such an application must have a usage pattern (as described in chapter 2.1) that supports a sustained sale [8].

A classical peak sale approach has some interesting characteristics. The sale starts with a peak and then slowly declines. Such a pattern is common for applications that implement a one-‐time usage approach because through its usage model the application is not able to generate a sustained sales pattern. An example is the game “Trism” [22] -‐ it was quite successful, but after some time the sale slowed down. Other examples include event centered-‐applications, e.g.: Soccer World Cup, Rugby, etc [23].

Sustained sales as mentioned work for an application with a small user audience, therefore the price can be higher. The application will generate the revenue over a longer time period, because the download numbers will be relativly low. An application with a small audience does in most cases not generate as much revenue as a similar application with a big user audience. The application “Omnifocus for iPhone” [24], a professional personal task planner, is a good example for sustained sale.

If an application has saturated the market, and the sales decline to a level that is not sufficient anymore the application could be pushed up in the Apple App Store ranking to gain enough attention to start the sales again. To achieve a marketing push, the application needs attention from the user. Not every application is suited for such a treatment, but a sustainable sold application could benefit from it. The next chapter will describe how user attention is created.

2.2.2 Create User Attention There are more than 400,000 applications on the Apple App Store, and only a small amount of them is directly visible in the iPhone/iPad App Store application. Therefore the aim at the launch of every application should be a high download peak. This needs a very focused marketing at initiative launch time, to push the application. This peak is necessary to get into the most visible Apple App Store rankings. As mentioned in the introduction of this chapter, every successful application needs to be visible for the user [7].

A free app with an advertising business model for example needs a considerable user base to generate enough revenue. Therefore the launch needs to create a download peak, to push the application into the Apple App Store top ratings. After some time the application sales usually decline, but if the launch was successful the decline stop on a sustained level and will still generate downloads. This means the number of downloads should be on a relative high level for a longer time.

To reach this objective methods to generate attention are needed. They can be differentiated in passive and active measurements. The difference is that an active measure is controlled by the owner of application and a passive measurement is controlled by someone else, for example a blog article. These measures include: [9][10]

• Email Marketing • Social Network Marketing (Facebook, Twitter etc.) • Purchased Downloads • Word of Mouth Buzz • Advertising • Apple App Store Featuring

2.2.2.1 The Email Newsletter The Email Newsletter is an email sent to inform the user about new products or new features in the advertised product. Many application developers use the email newsletter as a marketing tool. They collect email addresses through an application teaser page, filled in by the user, so that he/she can be notified at the application launch. Many companies also collect email addresses of people who ask for application support to use them for marketing. The company Tap Tap Tap, Inc. is a good example for email marketing. They use more than 500,000 email addresses during an application launch. The more email addresses you have, the more users can be reached at the launch of the application. This is necessary to generate enough initial downloads to get on the top of the Apple App Store [20][21].

Not every company or developer has a similar list of addresses, but companies like Tap Tap Tap,

Inc. are able to push other applications, if the owner is willing to pay for their service.

2.2.2.2 Social Network Marketing Social networks can also be used to generate attention at the launch of an application. There are many social networks that can be used to reach the potential consumer, who will download or buy the application. The company Tap Tap Tap, Inc. for example has more than 100,000 followers on Twitter. This can be an advantage for every application launch.

2.2.2.3 Purchased Downloads It is possible to use money to pay users for downloading the application at the time of its launch to push sales.

There are several ad networks like Tapjoy that are able to push your application through a incentive based download model. The ad network supports a virtual currency in any application implementing the ad network service. Through this the user can gain virtual currency in exchange for a download or any other action that may be useful to an advertiser. If the application was downloaded, the user obtains the virtual currency to consume it. The publisher of the application can buy this virtual currency from the ad network to support its launch.

There are some drawbacks from this approach [25][26]:

• It is very expensive to push an application into the “Top 100”. • Apple has changed its policy to prevent such actions. For Andriod application is it still

possible to push applications this way [26].

2.2.2.4 Word of Mouth Information of the application is spread through word of mouth [29]. This is very difficult because chances are that the word of mouth could be negative. Tap Tap Tap, Inc. showed at the launch of their application “The Heist” that this is a possibility to advertise an application. They used a mystery price to encourage the user to talk about the application [20].

2.2.2.5 Advertising Advertising can also be used at the launch to push the application. There are some ways to advertise an application.

• Classic advertising • Application reviews • Reports in the media • Cross promotion

Classic advertising is a way to promote the application through the use of an iPhone/iPad ad network like Admob to publish ads on these devices to push your application. This kind of approach needs money to work and to reach a large audience.

Another way to promote applications is to use review sites like “AppCarver” or “AppStorm”. The review site will create a review of the application to inform the site audience about the application. This will generate traffic to the application download site.

It is also possible that a news outlet like “Techcrunch” or “Mashable” will publish an article about the application. This is the case if the application handles controversial content or currently important issues. This should be exploited at the application launch to generate attention. There are also many blogs on the Internet that will write about and comment on applications. It is common practice to contact these bloggers and provide them with application promo codes [10].

2.2.2.6 Apple App Store Featuring The Apple App Store featuring is a very powerful way to push your sales or downloads. Apple uses its own store to promote third party applications. These applications are available under the store category “Highlights” and are therefore on a very prominent place. It is also possible that the application gets a big banner at the top of the “Highlights” category. However since there are more than 400,000 applications, it is not very likely to get an Apple App Store featuring.

Figure 5: Apple App Store for iPhone

Only the described methods are not enough to gain enough attention to push an application. It is necessary to combine them. The next chapter will show how to plan the launch of an application.

2.2.3 Planning of the Launch As described in the above chapter it is desirable to reach the “Top 100” of the App Store. In the case the launch has failed and the application was not able to enter the “Top 100” category or the first places in its own category, the application won’t be visible for any potential customer. To prevent such an event it is necessary to combine and focus every possible measure to push the application.

The first step before the launch is to think about the target audience. This is necessary to make sure resources are not wasted on an audience that has no use for or interest in the application. To know the potential customer it is necessary to use the available resources and choose the right measures to gain attention.

After the audience was located it is necessary that the application fullfils some basic requirements. The requirements are expressed in the following list [9]:

• A good looking and appealing design. • A useful description to help the customer. • An icon that is memorable and easy to see in the App Store. • The application should be stable and easy to use.

If the basic application requirements are fulfilled, a point in time is needed to launch the application. That is important for any application, because it is counterproductive, for example, to launch an application for school grades at the end of the school year.

Depending on the launch date, the measures mentioned above should be taken to push the application. That means, if possible, the application should be sent to news outlets or bloggers before the launch to give them a chance to test and review the application. The application has to be reviewed and approved by Apple, after that the application will appear in the store. At this moment the application is available for the customer, but not yet visible because it has a poor ranking.

The newsletter or a similar measure should be ready and sent to the customers. The application will now go up in the ranking. To prevent losing momentum it is necessary to start with the classic advertising and other active measures. The actions taken before the launch will expand their impact and then support the active measures after the launch. The application should now have a decent ranking. Of course not every application is able to become a success but with this it is possible to minimize the chance of failure. The launch is only possible in a small time window, because to reach a good ranking a high number of downloads in a short time frame are needed. Therefore is it necessary to bundle them in a small amount of time.The next chapter will show a case study of a successful iPhone application.

The App Store application on the iPhone shows the featured categories and applications in the upper half of the store. They use big images to gain attention. In the lower half a scrollable area with currently featured applications is displayed.

3 Case Study This case study focuses on the application “iTranslate ~ the free translator”. The application uses a combination of three mobile business models: In App Purchase, Classic Advertising and Freemium. “iTranslate ~ the free translator” was an “all time Top 100” application in the Apple Store.

3.1 iTranslate ~ the free translator The application “iTranslate ~ the free translator” is a universal translation tool. The application itself is based on the Google Translate API. This API can be used to translate a text from a source language into a destination language. The API currently supports more than 56 languages. Those languages can be paired in any order [28].

3.1.1 History The history of the application was an evolutionary process that started with a free application.

3.1.1.1 Free Application The first version of this application was developed, by Richard Marktl, a student of the Graz University of Technology, in the forth quarter of the year 2008. At first the application was not created to earn or generate any revenue. He implemented the application out of pure curiosity and for a better understanding of the iOS SDK. The application launched on the 22nd of October 2008. No measure more than releasing the application was taken, but the application was a huge success. It gained momentum very fast and during the first days it created more than 1,000 downloads per day and never fell below this number.

In retrospect the success can be explained as it follows: The application targets a large audience and solves an important real world problem. Moreover, it was only the second translator in the whole Apple App Store and at that time the application store was very small and did not provide too many applications. Another reason for the success was the fact that the application had a good user experience and an adequate appearance.

3.1.1.2 Paid Application The application had the potential for more sales and with the help of a designer and another developer, a new version was released. The first business model, two quarters after the launch, was a classic advertising model. The ad network “Admob” was integrated into the application. The revenue generated through the “Admob” was not sufficient because the user base at that time was not big enough. This lead to a new iTranslate application: “iTranslate Plus”. The free version was used as demo version for the iTranslate Plus version. There are several differences between these to applications. The iTranslate Plus version has no ad banner and therefore the entire screen of the iPhone is used. The iTranslate Plus version also has a translation history, but this feature was also available in the normal version after some time. This business model was quite successful. This success enabled Richard Marktl and his cofounders to found a company in 2009, Sonico GmbH.

3.1.1.3 In App Purchase With iOS 3.0 the In App Purchase was made available. This was very important for iTranslate because it made it possible to sell the new TTS feature. TTS stands for “text to speech” and is used to convert text on the phone to speech delivered through the audio speaker. The TTS system was licensed from a third party company, Loquendo. The TTS feature is usable in every iTranslate version available.

3.1.1.4 Application Launch In 2010 an iPad version of iTranslate was developed. The launch of the iTranslate version was planned very carefully. Before Apple announced the iPad, Sonico started to collect email addresses for newsletters and also started a Twitter account. Both iTranslate versions were used to generate Twitter followers. During the launch iTranslate for the iPhone was used to push the iPad version. Through these 3 measures it was possible to push iTranslate for iPad into the Apple App Store top rankings.

3.1.1.5 Usage Tracking Shortly after the launch of iTranslate for iPad, a tracking server was started to analyze the traffic generated by the user. The first thing tracked was the most used language pair combination and what kind of text the user translated. The research delivered some interesting facts:

• There are only very few language pair combinations that are really heavily used. • More than 40 % of the translated texts are one-‐word translations.

The results of the tracking made clear that there was enough potential to improve the translation itself. Sonico bought dictionaries for 16 different languages to improve the one-‐word translation. The dictionaries were converted into a digital form and stored on a server. An API was created to make the dictionaries available to any iTranslate application. Since then one-‐word translations for the available languages have been responded by a special server. This improvement was very important, because the Google API only returns a single word to any one-‐word translation. With these dictionaries it is possible to create better results.

The most recent feature added to iTranslate was the automated speech recognition (ASR). This feature is also based on a third party company, Nuance. ASR is transaction based, because Nuance doesn’t support another model to monetise its technology. The user is able to buy 75 transactions through an In App Purchase. This business approach of Nuance is not user friendly, because it is not very convenient to rebuy new transactions after every 75 transactions. A better approach would be a temporary subscription.

3.1.2 Current Statistics Today the free iTranslate version in total has more than 20,000,000 downloads and further 9,000 downloads every day. The application has been able to sustain the daily download number for the past three years. With the help of the user base that was generated during the last 3 years Sonico GmbH was able to create a successful business.

Figure 6: iTranslate Download Numbers

The chart above shows the daily downloads from the application launch on the 22.10.2008 to now. The trend chart looks like a classic saw tooth trend. It can be seen that the Christmas holidays are very important for the Apple App Store. The Christmas holidays are responsible for the biggest peak in 2008 and 2009. The peak in the middle of 2009 was caused by the new iPhone and the peak in the fall 2009 was caused by the Thanksgiving holidays. The peak during April 2010 was the first time iTranslate was able to reach the United States “Top 100” category. The number of downloads were doubled during this day. There is one important fact visible in

the chart: after every peak the average download number is higher than before the peak, which means a steady growth.

The following chart shows the download numbers per day since the launch of iTranslate Plus. The numbers for iTranslate consist of three elements:

• iTranslate the free version (see Figure 6) • iTranslate Plus • In App Purchase of the iTranslate Plus Packages. These packages are sold in the free

version to remove the advertising.

Figure 7: Combined iTranslate Sales

The iTranslate Plus Package started on the 1st of June in 2009. Like in Figure 5 the chart trend is similar to a saw tooth, and after every peak the average number of downloads is higher than before the peak. The trend shows a steady growth. There is one exception: An Apple App Store featuring caused the peak during October 2009. This shows how powerful an Apple App Store featuring is. During Christmas 2009 the voice feature was introduced and the sale was boosted from approximately 400 sales per day to 1,000 sales per day. The small peaks between the big peaks are weekends. The big peak in December 2009 was caused by the Christmas holidays and the peak in January 2010 by the New Year holidays. The peak at the end of April was caused by the Easter holidays.

Another important fact is that the peaks made during holidays or special events were not made with any help of advertising or any other measure to push the application downloads or sales. The good ranking in the store was sufficient to generate such download peaks. The application was of course updated and polished before any holidays or events, but that was the only measure. Therefore is it very important for the success of the company to maintain the good rankings and the quality of the applications.

The application iTranslate for iPhone and iPad made it possible to launch a successful and sustainable business. It also was possible to use the revenue to buy dictionaries and to focus on the development of the iTranslate applications.

3.1.3 Outlook The In App Purchase Model and the Freemium model were very successful, but the competition has become fiercer during the last year. There are many other translator applications and also

Google launched one -‐ “Google Translate”. The application from Google is free, and supports features like TTS or ASR. Therefore is it necessary for iTranslate to change and focus more on the advertising model to compete with the competitors.

As described in the second chapter, a business model based on a free application needs a big user base to generate enough revenue. To reach such sustained download level it is necessary to keep your application clean and fast, to hold existing customers and to get new customers.

The free iTranslate application was updated 26 times during the last three years. These updates were used to encourage the user to use the application and to preserve the user base. The updates introduced new features in the application and of course solved problems.

As mentioned in the previous chapter it is very important for an application like iTranslate to track the user behavior and the application usage. Through the tracking results Sonico was able to improve the translation itself to sustain the number of downloads and also to preserve the user base. [28]

Currently Sonico works on a solution to decrease traffic to the Google translation API, because Google will start to demand a fee for its Translation API. They will price one million characters with 20 $. This is a threat and also an opportunity, because any competitor with an advertising business model, whose user base is not big enough, or a business model based on sales cannot generate enough revenue to carry the arising cost. They will have to stop using the Google Translation API. Therefore is it possible for iTranslate to replace these applications, but the Google API usage of iTranslate might be to expensive. Therefore iTranslate will try to reduce the usage of the Google API.

4 Conclusion The Apple App Store and many other marketplaces in the mobile space offer opportunities to start or create successful business. Every business model discussed in this paper has the chance to be successful, but there is a big difference in the way the models generate revenue. The difference lies in the monetization, models that monetize a customer more than once are prefered.

The nature of the store makes it difficult to create one “Top 100” applications after another. Therefore sustainable business models are better. If an application is able to become a huge success a real business can be created. It is also easier to create and maintain only one application instead of many. A good example for such an application is the iTranslate described in the case study.

Another important aspect is the usage of third party services. The advantage of a third party is in most cases to prevent an expensive in-‐house development, but the application depends on it. This has negative consequences for the application, for example,when a provider like Google changes the pricing from zero to twenty dollar per one million characters. Such a sudden change could in the worst case destroy the application. Third party dependencies also limit the choices of business models. Therefore an application should, if possible, prevent third party dependencies.

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6 List of Figures Figure 1: iPhone Sales[5]................................................................................................................. 4 Figure 2: Number of Applications in App Store [7].............................................................. 5 Figure 3: Number of free and paid Applications [7] ............................................................ 7 Figure 4: iTranslate App / FTD App ........................................................................................... 8 Figure 5: Apple App Store for iPhone ..................................................................................... 12 Figure 6: iTranslate Download Numbers .............................................................................. 14 Figure 7: Combined iTranslate Sales....................................................................................... 15

Business Models for mobile Applications

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