The ABCs of Mobile Apps

As the use of smartphones grows, developers are increasingly flooding the market with a variety of mobile applications that can be downloaded onto the devices. But while the promise of mobile technology seems boundless, its execution can be more problematic, noted panelists at the recent BizTech@Wharton Conference.

For one, there is the issue of protecting consumer privacy, which has become especially critical in the face of the Federal Trade Commission’s “Do Not Track” proposal that would allow Internet users to block websites from collecting information about them. Companies that rely on ad-supported mobile apps, or websites designed for the phone, need to track consumers’ web use in order to target ads to them. Without targeted ads, growth of mobile apps would dry up, panelists stated, because the cost would then be transferred to customers who are used to downloading the programs for free. “I would argue that 60% of the innovations coming out of startups would go to zero if there weren’t ways of monetizing through targeting,” said panelist Omar Green, director of strategic mobile initiatives at software firm Intuit.

The challenge for companies is finding the fine line between providing helpful information and preserving privacy. For instance, if a patient searches for articles on depression, would it be appropriate to target him or her with ads about depression medication? Vishy Gopalakrishnan, director of industry solutions at AT&T Mobility, argued that it can be done tastefully. Facebook has shown that people are comfortable with revealing things about their personal lives to a certain extent, he pointed out. The trick is for the company to use that information in a helpful and subtle way and to “give some assurance — formal or informal — that you’re not going to share [personal data] with the whole wide world.”

Another challenge is the issue of compatibility. Mobile app developers have to write different versions of their programs for different platforms, such as the iPhone, Android and the BlackBerry. Consequently, the programs take longer to implement and are more cumbersome to update, speakers said. “If you want to win at mobile, you can’t just pick one. You can’t just say, ‘I need an iPhone app,’” according to panelist Eric Blumberg, founder of Smarter Agent, a Camden, N.J., mobile technology development company for real estate agents. “You have to do all of them.”

Perhaps the biggest riddle to solve, though, is monetization. Blumberg said Smarter Agent charges real estate agents and institutions, but is free to consumers. The app, which can be customized by individual real estate brokers, provides consumers with real estate listings. Along with a subscription fee, Smarter Agent also makes money through ads. The ads are not intrusive to people when they find them helpful, Blumberg suggested. For example, if a home buyer is searching for a house with hardwood floors but comes across a property that does not have them, the app can serve up an ad from Ikea offering a deal on hardwood flooring.

The key, panelists noted, is to make ads part of the mobile user’s experience instead of a disruption. “Advertising on the web is not advertising on mobile” Blumberg pointed out. “[Placing ad] banners on mobile [is] probably going to drive most people away because your screen is only so big and you’re putting a banner on it.” His firm tries to find ways to insert ads where people will not mind as much — for instance, on the blank screen that comes up while a phone is downloading information. (The ad disappears once the downloading is complete.)

Some companies offer free apps but charge customers for access to internal features, noted Ryan Charles, who leads the mobile efforts for Zagat, a well-known restaurant review provider. For example, FarmVille is a game that lets users manage a virtual farm by planting and harvesting virtual crops, and raising virtual livestock. Players earn virtual money to pay for plants and animals as they gain experience, rise in game levels or by paying actual money. Another app, Smurf Village, is free to download but there is a charge for additional in-app content. For example, adding a wagon of “Smurfberries” can cost as much as $100. Charles called it a “free model with an in-app purchase.” This strategy of monetizing mobile apps will not work with everything because consumers “might not be addicted to a certain section of The New York Times as much as they are to upgrading their Smurf Village.”

The bottom line is that companies have to find methods of making money from mobile, and they are experimenting with ways to do it creatively. Without monetization, all the innovation will be wasted because the app will not be sustainable. But the ads must fill a customer’s needs. “If ads really help you do things … then they’re not really ads, they’re things that help you,” Blumberg said. “If I’m moving and Home Depot is giving me 20% off my next purchase, is that an ad or is that a benefit of using the app? Advertising isn’t a dirty word, but how you implement it can be.”

Knowledge@Wharton