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Mobile App Business – 5 Reasons why it is unlikely to succeed

Mobile App Business is the latest buzzword in the startup space. As of now, i know a lot of clients working in this domain. Sometimes i wonder why so much euphoria and enthusiasm around Mobile App Business. It is difficult to say whether it is a herd mentality or sound business logic behind the same. Another possibility is that we are thinking ahead of times. According to rough estimates, there are approx 2Mn mobile apps available on the Android platform. If you are planning a Mobile App Business then you have to compete with 2Mn apps. Whereas, on a handset, you can install max 5-6 mobile apps. This post is not about competition but just to share a perspective. Competition is everywhere and you have to survive the same be it Mobile App Business, the web or physical store.

A post on Mobile App Business is incomplete without a discussion on Myntra. There was a lot of chatter when Myntra announced Mobile App Business model in May’15. It was a bold move. Within 9 months they realized their mistake and re-launched Mobile site. Flipkart also planned the same route but it was testing waters through Myntra. I always suggest startups to catch industry signals. The case study of myntra shows that India is not ready for Mobile App Business model. The company did not provide any official justification for this move but anyone can conclude :).

In my previous post in the business section, Startup Failure i shared that there is a thin line between pessimism and reality. I am not saying that all 100% mobile app businesses will struggle but founders should answer some of the key questions. One of the critical success factor for mobile app business is Engagement. Based on my study i observed that life of a mobile app on the handset is dependent on the engagement level. Though it is a No-Brainer but i think this point is missed by most of the startups in this space. In the case of Myntra, the engagement means no of orders per month. If it is one or two per month then the probability of retention of the mobile app on a smartphone is very low. Secondly, customers in India are not brand loyal and are value seekers that we will discuss later in the post. Let’s check out some of the reasons that may prove to be a hindrance to the growth of mobile app business.

Mobile App Business – 5 Reasons why it is unlikely to succeed

1. Hardware Limitation:

Average smartphone price in India is approx Rs 8250. The max traction is in sub Rs 10,000 segment. There are 22 Cr smartphone users in the country. This is one of the core reason for startups for being gung-ho about the potential of mobile app business. This data point should not be looked in isolation. Unlike the web, there is a hardware limitation in Smartphone. To compare, there are 1bn websites in the world. I can open any of these sites in my mobile browser. It is true for Rs 2,000 smartphone and so as for iPhone 6S costing Rs 71,500.

On the other hand, there is a limitation in case of mobile apps. The hardware limitation is in terms of no of apps that can be installed. Now you will say that configuration is also improving. A good smartphone for Rs 10,000 is powered by at least 1 GHz processor and 2 GB RAM. It is more than sufficient. I don’t agree. At the same time, the mobile apps are becoming more smarter thus consuming more bandwidth. To share an example, it’s like for windows 98, the hardware requirement was a 66MHz processor, 225MB hard disk space and 24MB RAM. Now for Windows 10, you need 1 GHz processor, 20 GB hard disk space and 2 GB RAM. You can compare yourself :). The point i am trying to make is that even if the configuration is improving you cannot install more than 5-6 mobile apps on sub Rs 10,000 smartphone without impacting the performance.

2. Competition:

In continuation of point no 1, there are 2Mn mobile apps fighting for 5-6 slots in your mobile. In these 6 slots, assuming 2 will be definitely social media apps. Another 2 slots will be occupied by apps like mobile wallet, games, news etc. The whole fight is for max 2 slots. A mobile app business has to evaluate, analyze and conclude the probability of finding a place among these 2 slots. Always remember that for a smartphone user, app space is a real estate. It’s like a mall and apps are individual stores. Another imp question is how many users will install i.e. will find value.

Even if the customer will install startup mobile app, for how long it will remain in the handset. The engagement level as discussed by me is the key for retention. Lastly, there is always the fear of smarter app may outpace your mobile app in future. Therefore, the risk-reward ratio is highly skewed against mobile app business.

To summarize, in the mobile app business, there is three-level competition. The first two levels are finding traction and space on users mobile. The third one, i will discuss later. On the other hand, non-app businesses will struggle only for traction. Maybe this is the reason why myntra re-launched Mobile site :).

3. Brand Loyalty:

As i keep highlighting that we are value seekers. There is no brand loyalty. I am also not an exception :). It makes competition tougher for the mobile app business. You must have observed that ranking of top apps keeps changing except few big names. For e-commerce based mobile app business, the cash burn rate is high to make customer download their app. On a daily basis, i receive 1-2 newspaper inserts with offers on first order. As a smart customer, i download the mobile app, order, avail discount and uninstall. As a business, it is quite a sad situation because to acquire a customer there is a cost. Anyways, the mobile app business model is based on the fact that out of 100 users, 75 will uninstall and at least 25 will retain the app & order again. The worry starts when 90 uninstall.

For brand loyalty, a startup should answer the value it is bringing on the table. Secondly, a compelling & strong reason for a user to retain the app of startup or any business on their mobile. Lastly, a road map to keep the user engaged. If i don’t have an answer for these three points then i will not venture into the mobile app business.

4. Why Mobile Apps?

It is a million dollar question. When a user graduate move from one platform to another or one medium to another there should be a reason. The reason for the success of smartphone compared to a laptop is that i can carry it anywhere. If i can open a site A on my mobile browser then why should i download an app with the same info. To answer this, e-commerce players launched special sale only for mobile app user. Another option was tried by myntra i.e. mobile site is not available. Therefore, no other option but to download the mobile app but they failed on brand loyalty front. The user interface can be one of the compelling reasons like in the case of social media apps or mobile banking/mobile wallet. The mobile site is bit uncomfortable and UI is not good. At the same time, these are utility or must have services.

Therefore, a mobile app business should answer a question why smartphone user downloads a mobile app. Therefore, it will be a 3rd challenge along with traction and space on the smartphone. I have space on my smartphone and i like the service but i don’t have any reason to download the particular mobile app.

5. Cost:

Somewhere i read that mobile app developer is one of the best paid jobs in India. It directly means the cost of app development is a costly affair. Sometime back i was also bitten by a bug of mobile app business. Though i dropped the idea after the initial assessment. A good mobile app cost around 5L to 7L INR. The cost of gaming apps is much higher. Here i am not including the cost of marketing, promotions, maintenance, enhancement etc. Therefore, the cost is a big entry barrier for mobile app business. On the other hand, if the cost will decrease then like websites every tom dick and harry will enter this business.

Currently, most of the mobile app business are running on Freemium model i.e. basic version is Free and apps charge for premium features, functionality etc. You also need to evaluate other monetization techniques and the road to profitability as the cost is high. Even if you generate traction on the mobile app, the biggest challenge still remains How to monetize the App?

Words of Wisdom: In my opinion, mobile app business cannot succeed as a standalone business model. It is good to have me-too business model provided you are successful in online/offline versions. Even for established brands, the mobile app traffic is a fraction of the overall traffic. The utility based apps and gaming apps are highly likely to succeed compared to other genres. As an entrepreneur, you should keep mobile app business on your radar and wait for right time to enter. Even if you enter now don’t expect wonders in the short term. For any entrepreneur or startup, this business is aspirational but sometimes reality bites

Copyright © Nitin Bhatia. All Rights Reserved.

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Ravi
Ravi
8 years ago

Fine research.

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