SXSW is a week away and we were having an internal pow-wow about whether there would be any breakouts this year.
A collective “Meh” arose. No one could think of anything. HIGHLIGHT? GOOGLE GLASS?
Are we jaded? Is SXSW too crowded to anyone to stand out?
I don’t know. I think there are actually a lot of other factors at work. (But please prove me wrong and send us your pitch!)
1. 2008-2011 was a special time. Smartphones had yet to reach more than half the U.S. mobile subscriber market. SXSWi represented a unique once-a-year testbed for new apps. It was a critical mass of people from all over the country, who worked in different fields like tech, film and music, were early adopters, and most importantly owned smartphones (unlike everyone else).
But today, more than half of U.S. mobile subscribers have smartphones. SXSW isn’t all that necessary anymore to get a concentration of early adopters. An Apple featured placement can get an app developer tens of thousands if not hundreds of thousands of users to at least try out a product. This doesn’t mean they’ll stick, but at least they’re around to look at it once.
2. Both virality and performance marketing on mobile platforms aren’t mature or well understood.
One of the first questions I like to ask any app developer is how they plan to market their work. If they’re not a game developer, they usually haven’t thought about it in depth. “Blog posts, PR,” is the common answer. PR and media are actually not that great for mobile products as a growth strategy. I hate to say it but a good relationship with the kingmakers at Apple or Google Play is more important for an initial app launch.
Why? Closing the conversion loop for a mobile app after someone has heard about it on the web is a horrible experience.
“You have an entirely different onboarding story on the web. You can test easily, cheaply, and fast enough to make a difference on the web. You can fix a critical bug that crashes your app on load 15 minutes after discovery (See Circa). You can show 10 different landing pages and decide in real-time which one is working the best for a particular user. You can also close a viral loop: A user can click an email and immediately be using your app with you. You can’t put parameters on a download link and people don’t download apps from their computer to their phone. Without the barrier of a download + opening the app to try your product, you can prove value to the user immediately upon their first impression, as is with Google. In addition, the experience of signing up for a service is superior in every way. Typing is easier. Sign-up with OAuth is faster. Tab to the next field. Provide marketing alongside sign-up as encouragement. Auto-fill information is a feature in every browser. The open eco-system of the web and 20 years of innovation has solved many of the most difficult parts of onboarding. With mobile, that kind of innovation is lagging significantly behind because we create apps at the leisure of two companies, neither of which have a great incentive to help free app makers succeed.”
At the same time, virality on mobile platforms is poor. Two companies, Apple and Google, which haven’t historically been good at building social networking products are controlling distribution for hundreds of thousands of other companies.
A system that prizes top rankings and human curation is slowly giving way to a more SEO-driven approach. But virality for mobile apps is still largely driven by plain old word of mouth. Facebook is making some in-roads with a deeper integration into the Apple app store. But anecdotal feedback from the biggest developers I’ve talked to suggests that it’s still highly variable as a marketing channel because Facebook is constantly tweaking the mobile news feed.
Performance marketing is improving, but it isn’t nearly as mature as it is on the web. It’s fairly standard now for the largest mobile game developers to spend a few million dollars per month on marketing between 30 to 40 different channels — all of which are rigorously data tested for lifetime value (LTV) of the various users they send a developer’s way.
Everyone else that hasn’t figured out a revenue model and therefore can’t pay to acquire users is basically competing for visibility against the budgets of game developers and big e-commerce apps like Groupon. You either pay for growth, or if you’re pre-revenue, you hope to be that one app a year (out of several hundred thousand) that breaks out like a Snapchat (2011) or an Instagram (2010) or a Foursquare (2009).
The odds are always going to tough for entrepreneurs, but they’re particularly terrible for pre-revenue consumer mobile apps. That’s why VCs like Fred Wilson have cooled or readjusted their thinking on “mobile first” companies and why a host of seed-funded, pre-revenue mobile apps are hitting a wall right now.
3. The big web-based social networking products are actually doing OK at transitioning to mobile.
Fine, so monetization isn’t there yet. But if you look at the social networking category, it’s dominated by companies like Facebook, Twitter, Pinterest, LinkedIn and Skype in terms of both downloads and active usage.
Facebook said in its last earnings call that it had more daily active users on mobile than on the web last quarter. In fact, Facebook’s mobile users are more engaged than web-only ones, not less. As someone said to me at dinner last night, “Facebook doesn’t have an engagement and retention problem. But everyone else has a Facebook problem.”
I hear about a similar dynamic among Chinese entrepreneurs as well. The high-growth, social networking and communication apps out of Asia are coming from publicly-traded incumbents like Tencent with WeChat, Sina with Sina Weibo and NHN with Line. Not startups.
4. Consumer isn’t dead. It’s just different now.
It’s become common to say that the heat has shifted toward enterprise and away from consumer, after mixed performances from Facebook, Groupon and Zynga on the public markets.
But the reality is a bit more complex. From Facebook’s beginnings up until the IPO last year, the most hyped consumer startups like Twitter, Pinterest and Tumblr a) tapped into people’s vanity or need for self-expression and b) leaned toward advertising.
The apps that I’ve stuck to in the last year like Zimride’s Lyft, Uber, etc. a) actually rely on users paying for goods or services (not advertising!) b) match supply and demand in two-sided markets in real-time and c) can pay for growth once they nail their lifetime value.
The key with these models is highly controlled growth. Startups like Lyft and Sidecar are limited by the number of quality drivers they can hire. Exec is only expanding to cities out of SF now that the company feels confident that it can maintain the user experience while scaling the supply-side remotely. These companies grow carefully, city by city and country by country.
Not by betting the farm on one big splashy SXSW launch.