As the digital marketplace has evolved, it has become a challenging place for developers. With over 20 years of experience in the technology industry, Martin Macmillan, CEO and co-founder of Pollen VC, has seen the challenges that face startups. He looks at how to approach the digital marketplace in this article.
The advent of democratic, open-to-all digital marketplaces must have seemed a godsend for anyone with an idea and basic coding skills that wanted to launch their own app. Yet, as retail spaces such as Apple’s App Store have taken hold, competition has intensified and is giving rise to a new form of digital Darwinism. While it may have been the case that an app developer could become an overnight success without a solid business plan for their product, those days are long gone.
To ensure success, app developers need to treat their apps and games like commodity fast-moving consumer goods as opposed to more niche creative products. Take food as an example. While your wonderfully artisan product has appeal at the local market, where aficionados congregate and share recommendations, for major success, you need to make it in the high-volume supermarkets. To survive in such a cut-throat environment, you will need extensive marketing campaigns, research into consumer behavior and constant refinement of both product and positioning. If not, your audience won’t know what to look for and your product will disappear into the darkness (and the bargain bin, probably).
Putting your product (whether it’s artisan food, a communication app or a text-based adventure game) in front of the right people is key. Hitting the top of an app store’s top chart is one place you can be sure to attract a large enough audience to make your product a success. To get there, you need to think strategically.
Starting strong might seem like the best way to secure success, and an initial flurry of downloads and recommendations for a new, “hot” game or app can prove a great springboard to achieving healthy revenues. A developer can then, however, face the danger of imitations and clones which can tap into their sales. For example, the designer of Flappy Birds recently found that his follow-up app, Swing Copter, had been cloned within days of launch, with many of the copies doing better on the download charts than the original game.
To exploit any initial success from a well-thought-out launch, app developers need to hack their growth. This means jettisoning the old business models that have worked for offline companies, or the ‘build it and they will come’ approach of early app pioneers. Instead, they must apply a savvy blend of monetization and customer acquisition strategies, balancing product needs with marketing demands.
The Path to Safety
The hero in this approach is the digital marketplace. Despite creating a competitive and ruthless environment, these new retail spaces hold an invaluable wealth of data. Coupled with in-app analytics, this gives a developer access to near instantaneous feedback on customer preferences and behavior.
Using this data, app entrepreneurs can drive the monetization of their products from the minute they launch in a marketplace. They can use a formidable array of tools such as promotional activities, new additions to a service or game, and new in-app purchases aligned to user behavior to increase the money a consumer spends on their product. As they develop and deploy each tool, the app developer can use data from the marketplace to check if the strategy is working, make any tweaks necessary, and calculate the return on investment. Using these tools, a developer can calculate the Lifetime Value (LTV) of customers, indicating the revenue that the product will generate per customer.
Home and Dry
Adding to this, developers and designers need to work on customer acquisition, and can again rely on increasingly sophisticated attribution software to provide direct feedback on how successful their marketing and promotional activities are and the quality of users acquired. The developers of a game or app can target different territories and compare different promotional tools with instant data on how they fare. Developers should, over time, be able to calculate a formula indicating the cost to acquire quality users. Once identified and understood alongside with the LTV, a good game should be able to find a virtuous cycle upwards towards strong success, where LTVs exceed the acquisition cost of a user and the opportunity to do this at scale.
The next stage of growth hacking is where the new rules of business come into play again – how revenues are re-invested to ensure the long term success of the business. The quick, responsive nature of the digital marketplace requires fast investment of revenue back into both the product and its monetization. As revenue rolls in, sellers must apply those revenues to supporting future growth. Essentially, the quicker the game can fund its own user growth, the more sustainable and successful it becomes.
And What Have We Learned?
Today’s games developers have been brought up on romantic stories about their predecessors who wrote games for mobile devices in their bedrooms. These pioneers then, through organic, word-of-mouth recommendations, generated cult or even mainstream followings. Happily, those developers and games still exist, and long may they do so. But to ensure a modern game delivers some return or profit, a developer needs to make the market conditions and characteristics work for them, and take time to understand the economics behind the app stores. Use the data generated to inform strategy, don’t be afraid to invest in wider marketing, and make sure you have a long term goal in mind rather than depending on ad-hoc feature opportunities to create your success.
Learn more about how Pollen strives to provide a new way to bring growth to the digital industry on their website.