Tag Archives: Mobile

Will Apple Bet the Farm on Quattro Wireless?

Apple‘s recent purchase of mobile ad network Quattro Wireless may signify a much more significant shift in Apple’s business model than it would otherwise seem.

So, why did Apple buy Quattro (Apple earlier sought to buy market-leader AdMob, but ceded the purchase to Google once the price became too rich)?  Apple has always focused on providing well-designed, tightly-integrated software and hardware to customers willing to pay a premium for these qualities.  The focus has always been profits over an indeterminate quest for market share and that strategy has proved very durable.  With that in mind, my guess is that Apple will initially use Quattro to better monetize the large number of free apps (perhaps 9:1, free:paid) in the App Store.   While free apps help iPhone/iPodTouch sales by making the devices more useful, Apple’s 30% take on free app sales is still $0.  Beyond iPhone/Touch, being able to monetize content via an ad-supported model will become more important as publishers begin to distribute content on the iPad.  While the iPhone/Touch/Pad SDK enables app developers to charge for incremental purchases within apps, Apple will need an ad platform to satisfy the needs of various publishers, particularly on the iPad.   These are all practical tactics that make a lot of sense in the context of Apple’s strategy to monetize “closed” platforms that benefit from tightly integrated software and hardware.

Apple’s critics have faulted the company for not being more “open” with the iPhone/Touch/iPad OS (“open”, meaning device agnostic, with no app approval process).  Critics say Apple is making the same mistakes today as it did during the OS wars.  The battle then was Apple’s “closed” model that exclusively paired Apple software to Apple hardware, versus Microsoft’s decision to allow its software to run on any hardware device (with certain controls).  We all know the result: Microsoft has something like >85% of the OS market vs. ~10% for Apple.   The argument is that Google’s “open” Android platform will eat Apple’s lunch just as Microsoft did, and Apple will be relegated to distant second place in mobile.

Others argue (using Clayton Christensen’s theory) that Apple does not need to open up since customers will continue to value higher-performance mobile devices over lower-priced commodity ones for the next decade or so. It’s hard to argue against this, but it is difficult to time innovation to anticipate customers’ needs, especially when you’re targeting global markets each with unique demand.  More importantly, the competitive attribute may not be device performance, but app costs (i.e. look at the substitutes: free turn-by-turn GPS on Android vs. $59.99 for TomTom‘s US GPS app on iPhone).  Couple this with the fact that the iPhone’s gross margins are decreasing and that iPhones account for more than 30% (!) of Apple’s ’09 Net Sales, Apple may be in a tighter spot sooner rather than later.

Before Quattro, Apple’s mobile business model could not compete with Google’s ad-based model because Apple’s incentives to sell more iPhones and paid apps simply did not enable it to do so.  Google benefits from an open platform because it gives Google broader reach to sell more ads.  More importantly, as Bill Gurley points out, Android offers a “less than free” business model to carriers that want to license Android.  Carriers that license Android split ad revenues with Google, so instead of carriers paying to license an OS, carriers are getting paid to use Android.  And with traditionally expensive apps such as turn-by-turn navigation becoming free on Android (ad supported), it will be difficult for Apple to continue making money off of app sales commissions.

While Apple has remained “closed”, the Quattro purchase will enable the company to pursue a more open strategy that would enable Apple to benefit financially (ad-supported) from ubiquity.  A more “open” system would allow the iPhone/Touch/Pad OS to run on non-Apple hardware (managing this ecosystem would be more complex) and enable developers to launch apps more easily. Of course, this would go entirely against Apple’s long history of tightly integrating its hardware to its software, but Apple has done 180’s before (Perhaps in a calculated way.  Jobs once said something like, “nobody will ever want to watch video on a small screen” before they launched the iPod with video).  The decision to open up would look highly unlikely in the context of Apple’s recent decision to remove certain adult-themed applications from the App Store.  Nonetheless, while Apple is rightfully focusing on getting its phones on more carriers worldwide, Quattro Wireless could be the genesis of a more “open” (but bet-the-farm) strategy at Apple.

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How Blippy Can Help Foursquare Monetize Check-Ins

Foursquare‘s great for a number of reasons.  Like a lot of people, I use it to keep track of my friends when I’m going out, but it’s also a fun way to discover new restaurants and other spots based on friends’ check-ins.  Since I go to great lengths to find awesome Chinese, Indian, Thai, Vietnamese, Korean, etc. food, Foursquare makes it easy for me to share these gems with my close friends.  It’s also a good way to keep a running log of where I’ve been.

While the “check-in” is already becoming a commodity (Yelp recently released check-in functionality and Facebook will, too), Foursquare has focus and timing on its side.  Back in 2006 I might have friended someone on Yelp because I liked a bunch of their reviews, but since I don’t know these people beyond their food rants I don’t want to share my real-time location with them.  FB will have a similar problem since a lot of people have hundreds of “friends”.  Unless FB can make it easy to select what friends you want to share location information with, it’s going to be such a noisy mess that it won’t have any value (let’s all hope FB check-ins will be opt-in).  The point is that people are figuring out the best way to use social networks and Foursquare’s launch happened to coincide with the steeper end of this learning curve.  Most Foursquare users I know are far more selective about who they accept as friends (typically one’s “real” friends) vs. who they friend on “older”, non-native-mobile social networks.

Whether it be mayorships, scavenger hunts, coupons, or other marketing or promotional offers, there seem to be a number of ways that Foursquare can begin to experiment with monetization.  The problem with most of these monetization schemes is that they’re a little klugey and require too much work for either the user and/or the business.  Coupons would be a challenge for Foursquare, because traditionally coupons are distributed by the manufacturer to the consumer and then redeemed at the point of sale with the help of the merchant.  There are three entities in this transaction, all of whom benefit at specific parts of the coupon value chain.  The merchant honors the coupon and gives the customer the discount but then the merchant has to submit the redeemed coupon in order to get repaid.  This works because the consumer has an incentive to use the coupon (to get the discount), and once it’s used, the merchant has an incentive to get repaid.  The manufacturer is happy because it got a sale it might otherwise not have received.

Now, consider what happens when a hypothetical FS coupon is redeemed at a small business (not a Best Buy which has sophisticated POS systems).  You’re at a packed bar and you show the bartender your coupon for a free beer.  The bartender (who is usually not the owner and has less incentive to keep track of these things) will need to somehow process the coupon so that you can’t reuse it.  Let’s say there’s a simple code he types into your phone (that’s awkward and slow) or maybe he just swipes a finger across the screen to process it.  The problem actually isn’t the processing, it’s that unlike in the supermarket example, there is no third party that will repay the business owner for the coupon.  If the bar pays FS directly for each coupon redeemed, the bartender has little incentive to process the coupon.  If the bar is paying for each coupon that gets redeemed, a less-than-honest business is not going to process (and pay for) the coupon once it’s already acquired the customer.  A CPM-based coupon system isn’t a great alternative either since it’s difficult to tie the ad to a specific action and thus to charge much for the coupon.

The point is that check ins don’t necessarily translate into dollars, but sales obviously do.  The real value for businesses (and for FS) is to harness the social and loyalty aspects of Foursquare and tie them to sales.  One way that Foursquare might do this is by partnering with a company such as Blippy that publicly tracks users’ purchases.  Blippy is still early in its development (launched about a month ago) and doesn’t have an API yet, but consider how a Foursquare check-in could be tied to the bar bill you forgot you racked up at Clandestino?  Businesses could begin to tie their mobile advertising spend to specific customer check-ins and related purchases.  You could then begin looking at people’s networks to better understand who the influencers are – the people who by virtue of their check-ins attract high-spending, loyal friends to the business.  If you’re interested in digging deeper into network science, you may want to check out Professor Michael Kearns‘ posts about his incredible class, Networked Life (if you happen to be a student at Penn, I highly recommend it).

The other way to do this would be to integrate a mobile payment API into Foursquare.  A service such as Venmo or Square could be a neat addition and it would solve the problem of tying the check-in and social features to the customer’s purchase.

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