New Media Survey White Paper 2012

NEwMEdia

8/22/2012Shay MErrittE

dirEctory

ExEcutivE summaryBusinEss industry and OutlOOk

vc invEstmEntrOi On avEragE app dEvlEOpmEnt

markEt sizEsBEyOnd apps

hOw many dOwnlOads?avEragE app pricE

hOw many appsmOnEtizatiOn schEmEs

dEvicEs FOrEcastarEas FOr grOwth

majOr playErsExamplE invEstmEntEarning pOtEntial

whO has thE mOnEycritical succEss nEEds

grOwth thrOugh acquisitiOnlaunch stratEgiEs

ExEcutivE SuMMary

the new media landscape is very competitive and highly fragmented. there are predicted to be a billion smartphones, and 400 million tablets on the market in 2016 with 650,00 apps in the app store that is growing at 15,000 apps a month. consumers are hard to reach and for the most part frugal, with only 30% regularly paying for apps, and then the average price paid for an app has dropped from about $1.99 to $1.50.

But this isn’t all bad news, there are opportunities for growth, especially for american greetings properties. the tablet app market is ripe for growth as the number of devices grows and consumers are willing to pay premium prices for premium content. Furthermore there is a prediction that the app economy may subside in favor of the creation of cheaper and more universal web applications, as well as the creation of content platforms that can provide an experience to consumers across multiple platforms.

BuSiNESS iNduStry aNd outlook

high thrEat of NEw coMpEtitioN

•Low Barriers To Entryno switching or sunk costslow capital requirements

no customer loyalty

high coMpEtitivErivalry withiNthE iNduStry

high thrEat of SuBStitutESlow price differential

no Buyer switching costslimited product differentiation

high number of substitutes

high powEr ofBuyErS

high Firm concentrationhigh available information

high price sensitivitylow uniqueness

high powEr ofSuppliErS

high supplier switching costslow differentiation of inputs

limited, strong distribution channelslow supplier concentration

http://www.techjournal.org/tag/who-buys-mobile-apps/http://www.everythingicafe.com/distimo-app-store-revenue-and-sales-are-growing-thanks-to-in-app-purchases/2012/07/27/

vc iNvEStMENt iN appS

vc Financing in 1st 6 mOnths OF 2012 FOr mOBilE

$3,900,000,000

diFFErEnt mOBilE start ups invEstEd in479

$3,500,000avEragE vc invEstmEnt amOunt

$960,000,000invEstmEnt in mEdia & applicatiOns

http://techcrunch.com/2012/08/19/the-consumer-is-king-record-4b-raised-in-mobile-vc-in-the-first-half-of-2012-more-than-25-in-consumer-apps/

roi for avEragE app dEvElopEr

http://www.bluecloudsolutions.com/blog/cost-develop-app/http://mashable.com/2011/02/24/mobile-app-dev-cost/

cOst tO dEvElOp a vEry Basic app ($5,000)avEragE app rEvEnuE + $8,700)

avEragE rEturn On invEstmEnt ($3,700)asd

40000

$3,700

http://www.factbrowser.com/tags/tablets/?and=market_structure,forecasthttp://econsultancy.com/us/blog/9638-the-rise-of-the-billion-dollar-mobile-gaming-market-infographic

how Big iS thE MarkEt

$22,500,000,000mOBilE apps

$9,000,000,000taBlEt apps

$15,000,000,000gamEs

$5,420,000,000kindlE salEs

$1,800,000,000nOOk salEs

BEyoNd appS

the future of mobile and digital is an increase in 360o platforms. compa-nies that provide an experience, whether utilities, entertainment or games that can provide value and engage anywhere digitally on web applications, in apps, on the tablet, in video games and on smart tvs are the companies that will win in the digital future. Furthermore in the future, new technolo-gies like html will render the app ecosystem superfluous as companies can go directly to consumers.

individual apps platFOrms & EcOsystEms

http://www.theageoftheplatform.com/observations/what-comes-after-apps/

how MaNy dowNloadS

http://techcrunch.com/2011/10/04/more-than-1-billion-ios-apps-are-downloaded-per-month/

1,250,000,000

1,000,000,000

mOnthly applE app dOwnlOads

mOnthly andrOid app dOwnlOads

avEragE pricE for appS

http://tech.fortune.cnn.com/2011/05/24/apples-itunes-store-500000-ios-apps-and-counting/http://www.tecca.com/news/2011/04/28/android-free-apps/

frEE

$.99

$1.99

$2.99-$4.99

$5.99+

the average price of apps has dropped from $2 in 2009 to $1.50 in 2011

how MaNy appS arE thErE?

http://www.engadget.com/2012/06/27/google-play-hits-600000-apps/?icid=eng_latest_arthttp://www.mobilestatistics.com/mobile-statistics/

650,000

600,000in app stOrE

in andrOid stOrE

BESt way to MoNEtizE

frEEFree apps are popular because they provide the consumer with a low barrier of entry and can be

monetized via ads, although the revenue per ad has been dropping over time.

prEMiuMsimply an app that one has to pay to download, can also contain in-app purchases.

frEEMiuMFreemium apps are free apps with some functionality with additional features or a premium experience

unlocked through in-app purchases.

SuBScriptioNsubscription apps are free or low cost apps that derive a lot of their revenue through recurring monthly

payments that unlock content, generally used by companies that create and distribute media.http://techcrunch.com/2012/05/07/google-play-about-to-pass-15-billion-downloads-pssht-it-did-that-weeks-ago/

http://www.readwriteweb.com/mobile/2012/04/mobile-game-devolpers-reconcil.php

Freemium titles are responsible for68% of revenue

dEvicES forEcaSt

2012 2016SM

art

phoN

Eta

BlEt 400M

52% aNdroid48% applE

1B70% aNdroid

30% applE

491M70% aNdroid

30% applE

106M43% aNdroid

57% applE

http://www.businessinsider.com/bii-report-how-annual-tablet-sales-will-explode-to-400-million-by-2016-2012-8http://mobithinking.com/mobile-marketing-tools/latest-mobile-stats/a#subscribers

arEaS for growth

E-BookSE-Books, especially for the tablet are predicted to be a growing business, especially those that include innovative interactivity, have strong brands, and have marketing to spend. consumers are willing to pay

$9.99 to $15.99 for a quality interactive e-book and there is still room for players to establish brands. and become best-sellers with less work.

taBlEtSsimilar to e-books, tablets are growing product area that is predicted to grow by 400% in the next four years. currently the tablet market is underserved by quality apps that are made just for the tablet and

not just smartphone imports. Furthermore, tablets are seen as a premium platform, where consumers are willing to spend more on tablet specific apps.

wEB appS/platforMSa near future case is developing products that live on the web. these are cheaper to produce since they are device agnostic and don’t need to live within one of the 2 major app ecosystems, few develop for this market as the html5 protocol hasn’t been 100% adopted by all major browsers, but this should change within the next 2 years. related to this is that the brands that will succeed in next few years will be those

that have developed platforms that deliver experiences to consumers across diverse devices, including tablets, smartphones, smart televisions, in location based services, etc, and could involve physical objects

like gaming pieces.http://www.theageoftheplatform.com/observations/what-comes-after-apps/

http://www.businessinsider.com/bii-report-how-annual-tablet-sales-will-explode-to-400-million-by-2016-2012-8

who arE thE Major playErS?

zyNga: $1.16Bzynga generated $1.16 billion in 2011 from the more than 30 games it has made or acquired. it has 306 million monthly active users and 72 million daily active users. it was founded in 2007 and currently has

3000 employees

rovio: $100Mrovio generated $100 million in 2011 from a handful of apps. it’s flagship angry Birds app has been

downloaded over a billion times. it was founded in 2003 and currently has 100 employees

capcoM: $79.2Mcapcom mobile generated $79.2 million in 2011 from several dozen apps, and was one of the first

companies to sell in game premiums. it currently has more than a thousand employees.

http://investor.zynga.com/releasedetail.cfm?ReleaseID=648577http://www.incomediary.com/20-top-app-developers-of-2011

iNvEStMENt ExaMplE

$50,000dEsign

$60,000cOding

$15,000tEsting

$7,000inFrastructurE$30,000

markEting

http://www.bluecloudsolutions.com/blog/cost-develop-app/#devcostshttp://www.padgadget.com/2010/10/17/the-cost-of-building-an-ipad-app/

An anonymous app developer gave the following breakdown of what they spent to build a game that was able to make it to the top 20 paid app downloads.

what iS our EarNiNg potENtial

(p*N*.7)- (1.3*N)+ (N*.25*5)-(p*.25*N)

p= app pricEN= NuMBEr of appS Sold

$.99$1.99$3.99$1.99

100,00050,00050,000

100,000

$39,550$42,275$52,365$84,550

p N EarNiNgS

SalES dEvElopMENtcoSt

MarkEtiNg coSt

prEMiuMS

I put together this back of the napkin equation to give a quick conservative calculation of what a freemium app’s earns could be taking into the average number of users who buy premiums, the development costs, the percent the app stores take out and the average amount it takes to purchase

http://techcrunch.com/2011/09/16/who-spends-more-in-freemium-games-battle-of-the-sexes-edition/http://www.bluecloudsolutions.com/blog/cost-develop-app/#devcosts

whErE iS thE MoSt MoNEy?

http://techcrunch.com/2011/09/16/who-spends-more-in-freemium-games-battle-of-the-sexes-edition/http://blog.flurry.com/bid/72755/Mobile-Freemium-Games-Women-Thrifty-Men-Binge

25-34 year olds spend more time in freemium apps and spend the most money on in-app premiums. With men spending the Most time and more money. Among app downloaders, the groups most likely to pay for apps are men, adults age 30 and older, college graduates, adults with household incomes of $50,000 or more, and those living in urban communities

MEN & woMEN25-34

MoNEy SpENt playiNg frEEMiuM gaMES

tiME SpENt playiNg frEEMiuM gaMES out of

ENtirE populatioN

avEragE SpENdiNg oN iN-app prEMiuMS

28%

49%

$16/Mo

what arE thE critical NEEdS to BE SuccESSful?

MarkEtiNghaving a great product that people talk about, is only half the battle, in order to really make an app successful, it needs to be marketed, especially early on in the release to achieve a high download ranking in the app store which helps perpetuate downloads. the top revenue earners, who earned at least $50,000 with their most successful app, spent the most effort on marketing. On average, 14 percent of their time was dedicated to promoting their app, backed by a marketing budget of nearly $30,000 on average.

grEat productthe first half of a successful app is that the app has to be great. whether it is a beautiful design or innovative elements, the app needs to have something great about it. this is because a large driver of downloads are family and friends word of mouth, about 50% of mobile gamers said they learn about new games from acquaintances and 25% learn about apps from social media.

http://uxdesign.smashingmagazine.com/2012/04/05/art-of-launching-app-case-study/http://econsultancy.com/us/blog/9638-the-rise-of-the-billion-dollar-mobile-gaming-market-infographic

growth through acquiSitioN?

Acquisition as an avenue for growth has seen mixed results. One story to watch is Disney’s acquisi-tion of app developer Tapulous (for an undisclosed amount after a 33 Million round of funding) and social game developer Playdom (for $563 Million) in 2010. These acquisitions have led Disney to develop several long running #1 apps that have had several million downloads and spun off other merchandise.

http://www.businessweek.com/magazine/content/10_32/b4190035402934.htm

thE thEOrizEd amOunt OF disnEy’s spEnding On digital acquisitiOns in 2010

$800,000,000

thE thEOrizEd amOunt OF apps that havE BEEn dOwnlOadEd4,000,000

what arE thE BESt lauNch StratEgiES

chooSE thE right app catEgorysome of the most popular paid categories are games, Entertainment and Books.

MarkEtiNg aNd prthis is probably the 2nd most important part of developing an app, after actually designing the app. marketing can include advertising, social media campaigns, reviews in app blogs and review sites, and other general public relations tactics of press kits to media outlets. marketing and pr gets people’s attention and creates awareness, which is often all you need for a consumer to consider a downloading an app, and will quickly cause people to download when app is released, driving up it’s placement to the top 25.

aSk for ratiNgSapp store ratings are an important driver for app downloads, since a lot of people base their download decisions on word of mouth, and ratings act as a kind of anonymous word of mouth and peer promotion when consumers decide about downloading an app, especially for new apps.

http://uxdesign.smashingmagazine.com/2012/04/05/art-of-launching-app-case-study/http://www.quicksprout.com/2012/05/10/the-beginners-guide-to-mobile-app-marketing/

most developers agree that best launch strategy to create a successful, highly downloaded app, is to get featured in the top 25 of downloads. most consumers find most of the apps that they download by looking at the top 25 in

the app stores and take it of a sign of quality and worthiness that others have downloaded the app. although, this is kind of a catch-22, people download the apps in the top 22, but how do you get people to download enough to get

it into the top 22?

gEt iNto thE top 25