Back of the Envelope | Jonathan Wegener's Technology/Marketing Blog » ecommerce

Building a Broken Product

Jonathan — Thu, 29 Jul 2010 20:16:07 +0000

“More expensive and less functional.”

That was the recommendation I had for a friend’s startup. Why? The free version of the company’s product works too damn well.

You’ve probably heard of Freemium. There’s also Previum and a dozen other variations I’m sure. The exact differences aren’t really worth getting into because all share the same truth: Something’s gotta break. And someone’s gotta pay to fix it.

But breaking a product is harder than it sounds. Products can break to different degrees and along many different dimensions. Time is one such dimension. With trial software, the user is given a few weeks to use the product. If they like it, they continue using it. Rdio gave users three days to try it out. Balslamiq gives seven days. Basecamp gives 30 days. As you can see the degree of this breakage varies widely.

Another related dimension is usage in which the product breaks after being used a certain number of times. Or when a certain amount of use is reached. For example, Pandora breaks after 40 hours of usage in a month.

But most products are broken along some feature dimension. AirVideo converted me into a paying user in (a ridiculously fast) five minutes by making the product so broken that it demonstrated that the technology worked and was awesome, but I couldn’t browse all my videos making the product essentially unusable. And sometimes products are entirely broken, which is to say they exist entirely behind a paywall. Many dating websites continue to operate like this.

There’s a dizzying number of dimensions along with products can break. It’s limited only by a product’s feature set, a product’s complexity, and your creativity. Most products are simultaneously broken along several different dimensions, to varying degrees of breakage, and at different price points.

Building a product that’s correctly broken requires a strong product sense, and a willingness to experiment and charge money. Limit the free version too much and you lose users which could potentially be great sources of word of mouth marketing. Give too much away, and you’re cannibalizing your own business and shooting yourself in the foot. It’s a fine balancing act for sure!

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Framework For Thought: Aggregators

Jonathan — Fri, 23 Oct 2009 04:18:36 +0000

This post about competitive dynamics has been stewing in my mind for months now and it’s still a work in progress. At its heart is a framework for thinking about a common type of tech company: the aggregator. The aggregator takes disparate items, gathers them, and presents them as a unified front.

Aggregators can exist for both content, products, or services and there are thousands of examples across every category: Google News (news content), OpenTable (restaurants), Expedia (airlines and hotels), Lendingtree (loans), SeamlessWeb (restaurant delivery), Digg (web content), Servicemagic (service contractors), Zocdoc (doctors), Admob (mobile ad units), AdWhirl (mobile ad networks), Pontiflex (marketing leads), GymTicket (gyms).

There’s often one key value that these aggregators offer: convenience. They provide a one-stop shop for customers to find what they’re looking for without going to dozens of different places. The ability to sort and compare items is also an important feature present in most aggregators.

In almost every case there’s an interesting tension between these ‘aggregators’ and their ‘constituents.’ Let’s consider Google News. Google news is increasingly the starting point for people looking for news on the internet. Newspapers hate that Google News is scraping their content and eroding their brand value — but at the same time, Google News drives a significant proportion of their web traffic. They’d be stupid not to want that. As a member of an aggregator, they’re ensuring they get web traffic. Unfortunately they’re helping build the Google News brand rather than their own.

Are they shooting themselves in the foot?

This issue arose in my post about Opentable. One commenter wrote that restaurants participating in OpenTable build the OpenTable brand rather than the restaurant’s own brand. It’s very true, but what can be done when the aggregator has gained a critical mass?

Once established, the aggregator has the upper hand. All the individual entities/constituents act in their own self-interest and therefore will remain part of the network. No single constituent can defect without suffering harm. And widespread mutiny is unlikely — it’s unlikely that all the restaurants are going to band together and start their own version of OpenTable. It’s a tragedy of the commons, and the aggregators benefit handsomely from the resulting lock-in network effect.

As an established aggregator, risk can come from only a few places:

1) Competition in the form of another aggregator

2) One or more constituents decide to sidestep you.

#1 is hard to avoid — dozens of flight and hotel planners compete for attention of the same travelers. #2 is rare, but extremely interesting when it does happen. One example of this is Southwest Airlines, which isn’t listed on any of the travel booking sites. Similarly, Admob refused to serve ads through AdWhirl which was an ad network aggregator (and when that didn’t work AdMob bought ‘em!)

Occasionally the constituents themselves will ally: One example is Hulu, a joint venture between NBC, FOX and ABC, which aggregates all their content into a single place.

And once in a blue moon a constituent will creatively embrace aggregation in their attempt to fight the aggregators. For example, Progressive Auto Insurance proudly shows you the prices of their competitors alongside their own prices. Fascinating strategy.

The more fractured and crowded the marketplace, the less likely a mutiny or rebellion. Are the tens of thousands of restaurants on Seamlessweb suddenly going to unite to form their own online ordering system and destroy Seamlessweb? Not likely. But are the dozen or so large newspapers going to unite to rally against google news and demand to be de-listed or compensated better? Absolutely.

As the number of constituents increases, the dependency on any one constituent decreases. And as an aggregator grows its brand, it becomes extremely difficult for a constituent to break away. Doing so requires an extremely strong brand and unique offering (like Southwest Airlines) and an alternative sales/delivery channel.

This is most important in the context of a offline company: Consider that Brick and Mortar stores like Walmart are essentially product aggregators. Shoppers go to Walmart because they know it has a wide selection at great prices. Suppliers don’t want to miss out on the huge volume that the Walmart sales channel delivers. The more Walmart grows, the more crucial they become to their suppliers’ businesses. And the more suppliers they gain, the more crucial they become to consumers. At the end of the day, Walmart has incredible negotiation power in the form of pricing leverage over its constituent suppliers. There simply aren’t many alternative channels. Suppliers are trapped.

I’m going to end the post here because it’s already way too long. But please leave your thoughts and help me push this topic further. Thank you!

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Think Palm and iPhone ‘Spyware’ is Scary? Try Google Android

Jonathan — Thu, 20 Aug 2009 06:46:07 +0000

Lions, Tigers, and Spyware on Phones, Oh My!

Mobile spyware is the focus of the tech media’s latest frenzy. It started when a hacker discovered that the Pre sends back location data about users to Palm. Next, a blogger ‘discovered’ that certain iPhone apps also phone home. The frenzy came to a head when ReadWriteWeb published Dear iPhone Users: Your Apps are Spying on You.

(from www.flickr.com/photos/gerlos/3119891607/)

This article focused on the NYC-based iPhone Analytics company Pinch Media. The issue? Pinch Media’s software allows developers to learn a lot about their users: Apps with geolocation features can return information about the location of their users. Apps using Facebook Connect can even return demographic information (gender and age) about their users.

Of course, there’s no personally identifiable information here. It’s all aggregate anonymous information — and this has been Pinch Media’s response to the issue. Tracking anonymous information for benign purposes is analytics — not spyware. At the end of the day, developers simply don’t know all that much about their individual users. It’s not like they can identify them by name, right? RIGHT?

Well, um, on that note… we know the full name and location of each and every Android user with our app.

How?! Did we build in some sneaky spyware into Exit Strategy NYC?

Nope. Google tells us. This information is part of the Google checkout process behind android app purchases. Each app download contains the full name of the user:

Clicking on the order number reveals a more detailed page containing the billing city and zip code of the user:

Creepy? Absolutely. A google/facebook/linkedin search can reveal incredibly detailed information about every android user with our app. Furthermore, this information is pushed on us — I certainly didn’t choose to see this detail about our users!

Seeing this level of user information displayed was extremely alarming at first. But when you think about it, it’s really not that surprising. Google Android purchases are processed through Google Checkout — the same system that applies to e-commerce transactions. Certainly I would need to know my customers’ personal information if I were shipping a physical product. Should digital purchases be any different?

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Part two: the business of SMS Couponing

Jonathan — Thu, 25 Jun 2009 05:35:05 +0000

(This is the second of a two part post. The first part contains a profile of a startup. This part contains numbers and analysis related to that startup.)

First, some background. I became interested in the mobile coupon business space a few years back when I started thinking about how mobile coupons could effectively be applied to a college campus. I approached Artia Moghbel, a friend who had started an on-campus discount card (The Pirate Card) and together we wrote up a business plan for Morningside Mobile [PDF] which won second place in Columbia University’s B-plan competition. Essentially Morningside Mobile (MoSiMob) was Dodgeball crossed with a mobile couponing service and applied to the microcosm of a college campus.

I spent that summer teaching myself the basics of Ruby on Rails and preparing a variant of Morningside Mobile called FreeFoodFone. But our calculations had relied on using Email <-> SMS gateways to get around high SMS gateway costs. It turns out this workaround isn’t technically feasible and the service never got off the ground. Over the next year, I watched Social Monkey, a similar idea to Morningside Mobile (launched by some Tufts University students), which shutdown about a year after launch.

Here’s the big issue: SMS text messages cost 3 cents to send. Each. That doesn’t sound like much compared to, say, the 20 cents you would pay the US Postal Service for a direct mail campaign. But it adds up quickly: sending 1000 text message advertisements costs $30. Therefore any type of mobile SMS advertising has a cost basis of $30 CPM (truly COST per thousand). If you get a 1% response rate to your mobile advertisement, that works out to a $3 cost of reaching that one responsive customer — and that’s not including the actual cost of the coupon discount.

Now let’s look at some figures provided by Mobile Spinach. Although they declined to share specific rates, Mobile Spinach says they can routinely get double digit CPMs. Let’s assume the best case and round it up to a $100 CPM. Most of the company’s campaigns are between 500 and 1000 text messages. This means that at best, the average campaign runs between $50 and $100 dollars. That’s tiny.

What’s the Achilles heel of any hyperlocal business based on advertising? Small deal sizes and high overhead. The large overhead cost of closing deals makes a local ad business tough to scale effectively. Let’s look at this on a micro-level by considering the cost of a salary. Let’s say an entry level salesperson earning $50,000 a year. They work 50 weeks/year, which means a salary of $1000 a week, $200 a day, or $25 an hour. As shown earlier, Mobile Spinach’s ad campaigns are $100 each on the upper end. Even if this sales person could close an advertising deal every two hours (a herculean task), the sales people would be burning up half of the company’s incoming revenue. Add to that the $30 of cost from sending the SMS messages, and there’s not much leftover. Sure, some of the business is repeat business (there’s longer term value once the relationship is formed) — but it’s still tough to make the numbers work.

Let’s look at this from a macro perspective: At full scale, Mobile Spinach envisions 500,000-750,000 users of the service across 30 cities. They also say that at the absolute max, they’ll send 10 messages/month to users — any more, and the service becomes overwhelming and annoying. Let’s assume every ad is sold at a $100 CPM, which works out to 10 cents per text message. 3 cents of that goes to pay for the SMS message, and 2 cents goes to pay a commission for the Tastemaker (20%). That leaves 5 cents per message. They’re sending at maximum 10 messages per month to each user. Essentially, after we’re accounted for the cost of goods sold, this works out to a per-user income of $0.50 each month or $6 each year.

Assuming a reasonable $8 customer acquisition cost for the company, it will take more than a year of usage to start earning a profit (and even longer if a reasonable churn rate is factored in). If they succeed in their upper goal of getting 750k users on the service, at $6 annual income per customer, the company will have $4.5 million to pay the salaries of all their staff plus overhead costs. Mobile Spinach plans to have 60-70 sales people at full scale. At a low figure of $50k/year, a sales force of 70 people would cost $3.5 million in salary alone, not to mention benefits, insurance and overhead. It’s tough to see the numbers working.

In the end, there’s really only two business models based around coupons. You can be in the business of selling coupons to consumers like The Entertainment Guide. Alternatively, you can be in the business of coupon delivery: Newspapers and companies like Valpak (owned by a newspaper company) have done this successfully for years. There are many companies working on the delivery of mobile coupons: Cellfire, 8coupons, CouponAlbum.com, CouponChief.com and CouponMountain.com just to name a few. But none have taken off.

Why not? It’s hard to say. The truth is that SMS messaging has existed for years. Mobile Spinach could have been built six years ago. There’s no recent technological change or evolution that opened up the market opportunity But the company thinks they’ve figured out the issues that have plagued typical SMS coupon services.

Most coupon services are bothersome and overwhelming. Mobile Spinach tries to solve this problem by offering ‘exclusive’ offers and also by letting users pick exactly the type of deal they’re looking for: For example, within the ‘restaurants’ category are the following sub-options: ‘$$$$’ or ‘$$$’ or ‘$$’ or ‘$’ and fast food, vegan, seafood, grill, deli/bakery, italian, asian, american, organic and health food. This level of specificity sounds great to the end user, but specificity and exclusivity are the opposites of scalability — and scalability is key to a technology startup. By breaking down their deals into tons of small categories, the company has created a thousand different chicken and egg problems for themselves: creating a critical mass of merchant in each niche AND creating a critical mass of users interested in that niche. In my humble opinion, the company should sharpen their focus: pick a single niche, dominate it, and then expand horizontally from there.

Additionally, the company is trying to build their user base from scratch. But companies with large existing mobile user bases would seem to make a perfect fit for Mobile Spinach’s mobile couponing product. Why not partner with a company like loopt?

Basically, the mobile couponing business is an extremely tough business to scale well. I like mobile spinach’s gusto and ‘dial-down’ approach, but at the end of the day I’m still vexed by these three issues:

1) the high cost of sending SMS text messages.
2) the difficulty of convincing consumers to share their mobile phone numbers.
3) the high overhead costs of closing numerous small local deals.

This last issue concerns all types of hyperlocal companies: Yelp, Outside.in, Patch.com, GoMobo, Grubhub, and Yodle just to name a few.

Local is a tough business.

As usual, readers, I’d love to hear your comments and questions. So let’s have ‘em!

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Part one: Startup Spotlight: Mobile Spinach

Jonathan — Mon, 22 Jun 2009 21:59:24 +0000

(This is the first in a two part post. Part one contains a profile of a startup. Part two contains numbers and analysis related to that startup.)

Mobile Spinach is a small and ambitious Bay Area startup focused on the mobile coupon space. The company is still at a very early stage — seed funded and looking for funding. Earlier this month I had the pleasure of talking with co-founder Anthony Vitti. We had a great discussion about the difficulties of effective marketing for local businesses, and Anthony laid out his vision for Mobile Spinach and the opportunity he sees.

Mobile Spinach’s offering for consumers is a compelling one: “Get exclusive deals and mobile phone alerts from our Tastemakers who hit the streets to find you the best deals when, where, and how you want them.” Think local trend-blog meets social-shopping meets mobile-couponing: Thrillist meets ThisNext meets Cellfire. Whereas existing coupon services like Cellfire and 8Coupons focus on product discounts (Save 25c on toilet paper!!), Mobile Spinach focuses on deals from local lifestyle businesses: Shopping, Night life, Events, Travel, Dining and Food, Arts and Music, Gyms and Spas. One of their co-founders runs a contemporary San Francisco lifestyle brand called Artificial Flavor, so they’ve got experience with fashion trends.

With Mobile Spinach, you receive deals only from the Tastemakers you’ve chosen to follow. These folks are the site’s power users — aggressive well-connected individuals who introduce their favorite local businesses to Mobile Spinach’s service and get special deals for their followers.

Mobile SMS couponing requires a light touch. Consumers don’t want to be interrupted with advertising that’s not relevant to them. Mobile Spinach understands this very well: “Less is more” says Anthony. Relevancy and customization are crucial to Mobile Spinach’s vision of an empowered consumer who is able to “dial down” the service as needed. Besides using Tastemakers as filters (so consumers only receive deals that match their taste), Anthony suggested that consumers will be able to make further customizations like electing to receive coupons ‘only on Tuesday nights’ and ‘only from nearby restaurants.’

For these local businesses, Mobile Spinach helps them engage local consumers and market themselves effectively. According to Mobile Spinach, there are very few ways for small to medium business owners to get noticed — traditional media, SEO, and SEM all have high costs and questionable efficacy. With Mobile Spinach, 500-1000 SMS messages are typically sent for a campaign and the company reports double-digit response rates. The company also reports getting double digit CPM rates for their mobile advertisements.

For Mobile Spinach, tastemakers act as sort of a crowdsourced marketing effort as they spread the word about the service to their friends. More importantly, they bring local businesses onboard to advertise with Mobile Spinach — and receive a 20-30% commission. These tastemakers, combined with a traditional in house salesforce, are designed to make the service scalable. Anthony envisions having 20 tastemakers in each of 30 cities across the country once the service expands to full size.

Mobile Spinach has a nice vision for a social-recommendation local couponing business. Furthermore, Mobile Spinach shows sensitivity and insight into the typical issues plaguing SMS advertising. But can they make the numbers work?

Well, let’s do some back of the envelope calculations…

(continue to part two)

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iPhone App Competitive Dynamics

Jonathan — Wed, 01 Apr 2009 15:41:18 +0000

: Image by emilychang via Flickr

To say that Apple’s App Store is thriving would be an understatement. There have been 800 million downloads across Apple’s 30 million iPhones and iPod Touches — meaning on average each device has downloaded 27 apps. The App Store now has over 25,000 apps and 250+ are added every day.

In such a crowded marketplace, how can an app possibly get noticed?

As developers know all too well, the key to being noticed is getting the app into the top-selling lists. Pinch Media’s data shows that “appearing on a top 100 list increases daily new users by an average of 2.3x” and appearing in the top 10 or top 25 list can mean an order of magnitude gain.

App developers have told me they’d do anything short of cutting their toes off to get into the top 10, top 50, whatever. That often includes lowering the price of their app.
-Dan Frommer, Silicon Alley Insider

So let’s say you have an app that’s selling for $1.99. Sales are ok, but you want to make more money. So you cut your price to 99c in an attempt to get on the best-selling list. It’s perfectly logical after all: the variable cost per unit is zero. If you can increase sales 2.3x but earn half as much on each sale, you’ll come out a winner.

So obviously there’s a strong incentive for developers to cut their prices and concentrate on doing whatever it takes to get into that top 100 list. And therein lies developers’ biggest complaint: the app store calculates popularity by unit downloads — without taking price into consideration. This structure has created immense competition and downward pricing pressure. In February, the average top-50 app sold for $2.39 which is down 34% from $3.63 only two months prior.

Many have called on Apple to sort the list by total revenue rather than unit downloads. For example consider one purchase of a $10 app equivalent to ten purchases of a $1 app for ranking purposes. This would highlight the apps creating the most value rather than the most downloads and it would help app developers sustain higher pricing.

But let’s talk about Apple’s dirty little secret: they want apps to be cheap. The cheaper the apps, the more downloads — and the more value the user gets from the device. This helps sell more devices, and although lower app prices does mean less app store revenue (Apple takes a 30% cut of app sales), that money is peanuts compared to Apple’s $425 profit/phone. In fact, Apple has said publicly that the app store is being run as a break-even service:

We’re thinking about the App Store in the same way that we think about the iTunes store. While it will generate some revenues, it will be a small profit generator, and just as with the iTunes store making iPods more attractive, we think the App Store will make the iPhone and iPod Touch more attractive to customers. We’ll hopefully see an indirect return by selling more iPhones and iPod Touches.
-Peter Oppenheimer, Apple’s CFO and SVP

The download pricing pressure caused by the per-unit ranking method is seriously hurting developers. Is this a sustainable model? No. Developers will get fed up and leave eventually. But right now it’s a one horse race: no other mobile platform has achieved much traction. The most money for developers still lies in writing software for the iPhone. And until Apple’s hand is forced by competition making significant inroads, a la Amazon forcing Apple to make iTunes DRM free, Apple won’t change a thing. Everything is perfectly aligned in their favor.

One last point: The upcoming iPhone 3.0 software supports a subscription pricing model for apps. To be 100% clear, the new software will support in-app purchasing which asks the user to pay each month to continue using the application (rather than an automatic recurring subscription payment system like many people envisioned — the difference is subtle but important). Some have reacted negatively to the subscription pricing announcement, fearing that apps will suddenly turn into crippleware and try to charge for every feature that was previously free. This may be true at first, but ultimately it’s a free market and the problems will sort themselves out. The simple truth is that the lack of a subscription pricing model was leaving money on the table. It’s nice to see that being remedied.

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Lifehack: Decision Making by Popularity / Unexpected Uses for an SEO Tool

Jonathan — Tue, 24 Mar 2009 00:59:37 +0000

One of my best Firefox extentions is “SEO for Firefox” from SEOTool.com. For any site you visit, the toolbar shows you information about that site’s inbound links and search engine rankings. For example, when I visit the South by Southwest website, the toolbar displays that the sxsw.com has a google pagerank of 7. It also shows me that there are 74,000 inbound links to the sxsw.com and 473,000 links to pages under this domain. Why would the average web browser care about this information? Read on!

Originally, I installed this plugin to help me learn more about SEO (search engine optimization). But it’s been useful in a way I wouldn’t have predicted: knowing the number of inbound links helps me quickly make decisions based on popularity. It helps separate the signal from the noise.
Let’s say you need an online bookkeeping solution. You ask friends for a recommendation but get none. So you google “online bookkeeping solution”. The results are overwhelming and confusing. You poke around a bit more and stumble on a Techcrunch article that mentions a bunch: Outright.com, Xero.com, Saasu.com, Lessaccounting.com, Fastdue.com. How do you decide between them?

You’re a busy person. You don’t want to spend the entire day researching and reading reviews. You need to pick one quickly and get on your way! You visit each site and keep an eye on the SEO toolbar which instantly shows you the inbound links for each of the sites:

Outright.com: 2,000 inbound links
Xero.com: 11,000
Saasu.com: 2,000
Lessaccounting.com: 2,000
Fastdue.com: 284

You quickly identify that Xero.com has the most inbound links. It’s probably the most popular because it’s the best product (this point is discussed in more detail later). Maybe you do a quick twitter search to double check that people are in fact saying good things about the site. Everything looks fine. You sign up. Decision = done.

Inbound link information is also extremely helpful for figuring out roughly how different competitors size up against each other. Camelbak versus Nalgene? 31k links versus 6k. Turbotax vs TaxAct? 340k vs 8k. Google.com vs Live.com vs Ask.com? 515M vs 66M vs 9M. Trying to figure out if anyone else has heard of some (seemingly obscure) website/startup that a friend has told you to check out? Drop.io perhaps? 110k inbound links — “whoaaa, well ok then, I guess drop.io is worth taking a look…”

On a similar note, this information can help you avoid scams and phishing attempts. If for some godforsaken reason you should land on http://www.ie-internet-explorer.com/landing/ie/ie-internet-explorer-browser.php or http://msie.com, the toolbar shows that these sites both have a total of THREE inbound links. Obviously, if they were legitimate sites owned by Microsoft they would have a few more links — so you should probably stay away from them.

Quickly assessing the legitimacy of a site is especially important if you arrive via an advertisement. Anyone can throw up a seemingly legitimate looking website and buy search/banner ads to drive traffic there. But getting a few thousand links? That’s a much harder task.

Having information about inbound links at my fingertips help me separate the wheat from the chaff and figure out what’s worthy of my attention and my time and perhaps my credit card number. It’s basically a lifehack.

Using Popularity to Judge Quality
The decision making process I described above uses popularity as a proxy for measuring quality. In most cases, popularity is a suitable enough measure for quality, especially when a decision needs to made quickly. After all, “nobody ever got fired for buying IBM.” This method of decision making does however discourages you from trying anything other than the market leader. What if second place truly does “try harder” in an Avis sort of way? What if this method causes you to miss some awesome new website or company that hasn’t received a lot of attention and inbound links yet?

Another issue is that this method reinforces a lock-in situation where the rich get richer. But Google itself is guilty of this too: the results of the search engine page are largely dependent on inbound links. More people find the sites with more inbound links. And then they link to these same sites which leads to a self-reinforcing situation where only the top ranking pages get found — a phenomenon which has been labeled Googlearchy. (also see the original academic paper that invented that concept/name [pdf])

The truth is that popularity is always used as a filter. People watch the NYTimes Best-Seller list like a hawk to figure out what to read. The iPhone Top 25 App list is the key to getting your app noticed — and downloaded. And popularity is frequently a selling point: automobile companies brag about their “bestselling” models. Why? Somehow it’s comforting to know that you’re not alone in your decision to purchase this particular car. Millions of other people have done it. They can’t all be morons, right? right?

(P.S. This is where the sociologists come in. If you’re interested in this topic — popularity as a decision-making tool — read some of the research of Duncan Watts, a former sociology professor of mine at Columbia. He has one particularly interesting experiment where researchers tweak how ‘popular’ different songs are in an fake online music store and test the relationship between preceived quality and stated popularity. Full research paper is here: Experimental study of inequality and unpredictability in an artificial cultural market [pdf])

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iPhone App Economics: Free vs Paid

Jonathan — Thu, 19 Feb 2009 08:05:03 +0000

: Image via CrunchBase

Greg Yardley, CEO of Pinch Media gave a fascinating presentation at last night’s NYC iPhone Developer Meetup. Greg’s slides were chock full of numbers and data gathered by Pinch Media’s iPhone analytics platform. As you might expect, I was in heaven.

Greg demonstrated his evidence that a free ad-supported app rarely earns more than a 99c app. After Apple’s 30% cut, this 99c becomes 70c. So what does it take to make 70 cents through advertising?

The Pinch Media numbers show that free apps, as a category, tend to be used 6.6 times more often than paid apps (this figure incorporates both the increased download popularity of free apps and also the slightly decreased frequency-of-use of free apps versus paid apps). On average, free applications are used heavily at first but usage levels off quickly — the average app lifetime is 12 runs.

So compared to a single paid app, making an app free results in 6.6x more app uses and at an average lifetime of 12 runs/app = 80 sessions. Remember that the paid app makes 70c. So the question becomes “Can the average free application make up 70c in advertising revenue across 80 usage sessions?”

Greg’s answer: “Hell No.” Assuming one ad is shown per each session, this requires a CPM of $8.75. Unfortunately, typical CPMs are 50c – $2.00, far below the point required to match the paid app’s revenue. Unless your app can serve 18 ads per session (assuming a worst case 50c CPM), or there’s some especially ‘sticky’ property that makes users reliably use your app repeatedly, Greg concludes that charging for your app is generally a good idea.

Slides from the presentation below:

iPhone AppStore Secrets – Pinch Media

View more presentations from pinchmedia. (tags: pinch smartphone)

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iPhone App Store SEO and Keyword Stuffing

Jonathan — Wed, 18 Feb 2009 06:59:12 +0000

An interesting trend I’ve noticed lately: iPhone App developers have finally started paying attention to SEO (Search Engine Optimization). And by search engine, I mean the App Store’s search feature. Developers have started putting terms into their app descriptions so their app shows up for related queries. But developers have also begun including unrelated but popular terms, ie keyword stuffing.

For a good example, check out this screenshot of the description for ‘Wobble• Bikini• Fun.’ The app’s developers have cleverly included the names of all the top applications and terms like ‘fart’ and ‘weather’ so that their app will show up for any of these search terms and get more traffic and downloads. In other cases, I’ve seen descriptions that ‘also recommend these fun apps’ and then proceed to include the name of every top application. Very smart.

Let’s also talk about the name of this app for a second: ‘Fun’ is part of the name…brilliant! Guess what the top search result for ‘fun’ is? You guessed it. As long as they’re going this route, why not just name the app ‘fun• naked• girls• inside’? By the way, this 99c app is the #5 best selling paid application as of press time (or clicking ‘post’ rather).

One last thing. Notice the final line of the long paragraph: “And – people of both sex will love it.” Isn’t the grammatically correct term “sexes”? And wouldn’t writing “both genders” or “guys and girls will both love it” say the same thing in a less awkward way?

Alas, these clever developers have realized the power of the popular search term “sex.” This app ranks third for a search of “sex” — right behind the official Sex and the City application.

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The Price of Happiness: 10¢

Jonathan — Wed, 11 Feb 2009 07:56:53 +0000

Amazon’s Mechanical Turk is a self-described “marketplace for work.” The service lets you outsource tasks to a decentralized, on-demand, scalable workforce made up of thousands of Mechanical Turk Workers. The tasks are appropriately named Human Intelligence Tasks (HITs) because the service is designed for repetitive tasks that can’t be done by a computer because they require some modicum of intelligence.

But what happens when these tasks require some modicum of creativity too? Things get interesting. Encouraged by Amazon’s “content creation” use case (see image on right), I decided to see if I couldn’t outsource copy writing.

Here’s the task I submitted:

I’m feeling sad. Won’t you give me a compliment?

Please give me a compliment. Be original, please. The funnier the better. Timely compliments (relating to obama, layoffs, bailouts, madoff etc) are especially appreciated. Slightly raunchy compliments are great too.

Specifically, I wanted 50 witty compliments delivered, and I offered users 10 cents per compliment. Amazon charged me 50 cents too, so the total cost of the experiment was $5.50 Here were my favorites:

I really like the fact that you aren’t the surgeon who implanted eight embryos into a mother of six children.
Do you take karate? because your body’s kicking!
Your looking better than the economic forcast for the next decade!
If I told you that you had a beautiful body, would you hold it against me?
Are you a parking ticket? Cos you got fine written all over.
Do you have a map? I just keep on getting lost in your eyes.
You have abs like Obama.
I love how you always keep your word, example, when you said you would pull out, you did. Quite different from my last man, Bush.
You are the smartest, funniest, best looking, most all-around great guy that I have never met. All guys want to be you and all women want to date you. And if none of that helps, try getting drunk. Best of luck to you.

Also unexpected was that my full name would be publicly listed next to my task. Several of the submissions addressed me by name, or commented on my name:

Jonathan, I enjoy how your first and last name both have equal number of syllables and vowels. Very balanced. Good job sir.
Your surname is so very smoothy and sexy-sounding, sibilant and sultry. It makes me think of wagons, wagon trains, and governors.
You’re such a sweetheart, Jonathan. Best of luck to you.

And many of the compliments I got were directly related to Amazon Turk itself, often commenting on the free money I was giving away.

I’m not exactly sure what to say to that but, you could just give me the $0.10 because I’m a cool person…haha. And believe me, in today’s economy, I could use every penny I could get. Anyway, have a good day.
You are very nice to be creating this HIT.
Cheer up, dude! You’re a Requester here, not a turker, heck I’m making big plans for the ten cents this HIT pays, so you have bettered somebody’s day, and that’s a good thing, right? Obama is president, so your life will improve soon. You’re having a good hair day, right? Sorry, it’s hard to compliment someone online, and I am NOT saying anything raunchy.
In times like these, who can be better than a guy helping the normal folk with a bailout?

Some compliments were just plain creepy…

Johny boy you are the center of my world and while the economy sinks deeper and deeper my heart grows and my loins tingle thinking of you.

Others were creative but a little off-kilter:

Jon, if I had to describe you, I would say you are the Canada of the world, stable, slightly annoying, but in the end the one who does lose their shirt in this poker match we call a world economy…mostly because nobody invited you to the game.
The stock markets are plunging like never before; i believe that they’ll soon reach zero and then restart the counter! ! !

And many assumed that my sadness resulted from layoffs:

You are too good for that job anyway!
You are so good-looking and brilliant that even if you are layed off, another company will snap you up within days! You are so desirable, you will have too many offers to pick from! Everybody wants you!!!!!
My, dont be upset, Recession is a cycle of ups and down, good times will soon come. Infact faster then you think as Obama has come with knowledge. And Knowledge of what is possible is the beginning of happiness.
Hey cheer up! Some of that bailout pork money is designated for sad people. Just go to city hall and frown.

Some weren’t really compliments but instead jokes:

Police arrested two kids yesterday. One was drinking battery acid and the other was eating fireworks. They charged one and let the other one off! HAHAHA hilarious!

And some rather lengthy jokes too:

A group of frogs were traveling through the woods, and two of them fell into a deep pit. All the other frogs gathered around the pit. When they saw how deep the pit was, they told the unfortunate frogs they would never get out.

The two frogs ignored the comments and tried to jump up out of the pit. The other frogs kept telling them to stop, they were as good as dead. Finally, one of the frogs took heed to what the frogs were saying and simply gave up. He fell down and died.

The other frog continued to jump as hard as he could. Once again, the crowd of frogs yelled at him to stop the pain and suffering and just die.

He started to jump even harder and finally made it out. But when he got out, the other frogs asked him, “Why did you continue jumping? Didn’t you hear us telling you to quit.” The frog explained to them that he was deaf.

He thought they were Encouraging him the entire time.

And one was strangely rhymed poetry:

Obama in the White House,
Madoff headed to the Big House.
Jonathan, he can’t grouse,
No foreclosure on his house.

He didn’t get the layoff,
Didn’t take no payoff,
Didn’t lose his cash to Madoff,
Jonathan, to you my hat is off!

Were my expectations met?

The results as a whole weren’t as good as I had hoped for — I’ve only shared the interesting compliments here. Many of the compliments were in broken English ( You’re so smart and good with money. Not many people have such a good head as you.), extremely mundane (You are the greatest) or attempted to weave in current events in a way that didn’t work (Your looking great today and at least your ears aren’t looking like obamas.)

I had hoped that the task would only be accepted by those who already had a brilliant compliment ready at the tip of their tongue, similar to how the Citi logo (with the red arc over ‘citi’ forming an umbrella) was done in 10 seconds (I strongly recommend watching the video — fast-forward to the halfway point). I had hoped that the majority of uninspired users without a ready compliment would pass over the task, essentially cherry-picking only users with the wittiest compliments. But the average Turker spent 88 seconds on my task (a $4.09 hourly rate)…Oh well, just goes to show how dedicated Turkers are to solving the task in front of them! Curious who these people are? See the faces of mechanical turk.

Readers — would love to hear your thoughts on Amazon Mechanical Turk and other interesting experiments I could perform with the service. Please leave comments… and compliments are obviously encouraged too!

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