This document summarizes a report by GP Bullhound on the mobile app ecosystem. It describes how the mobile app market has grown tremendously since the launch of the iPhone in 2007. The report identifies three pillars of success for mobile app developers: being relevant, cultivating large active user bases, and converting user relationships into revenue. It analyzes popular app categories and monetization strategies. The report also outlines challenges in the mobile app space and argues there is still significant opportunity for value creation.
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GP Bullhound Mobile App Ecosystem Report
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INDEPENDENT TECHNOLOGY RESEARCH
MOBILE APP ECOSYSTEM JULY 2014
The New “Mobile App Reality”
Unprecedented Value Creation Opportunity
ALI DAGLI
Ali.dagli@gpbullhound.com
San Francisco: +1 415 500 6999
ALEC DAFFERNER
Alec.dafferner@gpbullhound.com
San Francisco: +1 415 986 0168
OKAN INALTAY
Okan.inaltay@gpbullhound.com
San Francisco: +1 415-200-4139
2. 2
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SCREEN OF HORROR
WE CAN NO LONGER LIVE WITHOUT OUR SMARTPHONES AND MOBILE APPS
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TABLE OF CONTENTS
» How the mobile app phenomenon started
» Its appeal and what has changed
» The three pillars of success for developers
» What consumers do most on mobile devices
» The challenges
» Unprecedented value creation opportunity
4. 4
Based on the study
“Bicycle for the Mind”
Initiated by
Apple
Accelerated by
Google
Cast Includes:
› 10k+ Ecosystem partners
› 1m+ Mobile App Developers
› 1.75Bn Mobile users
The study measured efficiency of locomotion for various species.
Humans came a third of the way down the list.
However, when given a bicycle, humans came in on top.
25+ years ago, this study made Steve Jobs realize that it was
man’s skill as a toolmaker that categorically amplified his inherent abilities.
Driving Jobs to invent his evolutionary bicycle for the mind:
the “iPhone"--inaugurating today’s ubiquitous mobile app ecosystem
THE NEW “MOBILE APP REALITY”THE NEW “MOBILE APP REALITY”
4
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IPHONE LAUNCH VS NOW
JUNE 2007 – IPHONE LAUNCH IN NEW YORK
MAY 2014 –ORDINARY DAY IN SAN FRANCISCO
IN 2007, EVERYONE’S LOOKING AHEAD TO THEIR PURCHASE
IN 2014, EVERYONE’S LOOKING DOWN AT THEIR PHONES
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THE IRRESISTIBLE APPEAL OF MOBILE
» Powerful personal computers — with us at all times
» Two-way connectivity between individuals and the world
» Innumerable apps already installed — and millions available instantly
» Each app curated for its purpose — customized for and by each user
» Seamless app store and instant-purchasing back-end
» Dynamic real-time data integration (e.g. social, location, motion)
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CHANGE IS SHIFT FROM PACKAGED PRODUCT TO SERVICES MODEL
Content
Creator
Publisher
Distribution
Partners /
Carriers
Retail
+
Platform
Third-party
Development
Tools
Passive
Consumer
Consoles + Steam?
Empowered
Consumers
IP-Based Platforms
Mobile-First
Web
Social Networks
IP-Based TVDistribution
Partner
Service
Provider
FROM TRADITIONAL ONE-WAY PACKAGED PRODUCT MODEL
TO IP-BASED TWO-WAY SERVICES MODEL
» Inefficient/indirect
» One-way
» Few options
» Control to sell
» Low margins
» Efficient/Direct
» Two-way
» Many options
» Engage to keep
» High margins
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THREE PILLARS OF SUCCESS FOR MOBILE SERVICE PROVIDERS
1. BEING AND STAYING RELEVANT
2. CULTIVATING LARGE ACTIVE USER BASE
3. CONVERTING STRONG USER RELATIONSHIPS INTO MONEY
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(1) BEING AND STAYING RELEVANT
BE RELEVANT
WANTS
NEEDS
EMOTIONS
RELEVANCY IS PROXY FOR REPEAT USAGE/RETENTION
STAY RELEVANT
SATISFY/LISTEN
RE-ENGAGE/BALANCE
CONTINUE TO INNOVATE
Messaging/Calls
Dating Apps
Social Networks Games Mobile Music
Mobile Video
ProductivityReservationsMobile Content On-demand Services
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(2) CULTIVATING LARGE ACTIVE USER BASE
LARGE ACTIVE USER BASE IS PROXY FOR POWER/PATH TO MONETIZATION
#1 in 2004
(95M MAUs)
0
200
400
600
800
1000
1200
Users on Mobile (In Millions)
Mobile Platforms
» Google Android
» Apple iOS
Mobile Gateways
» Browsers
» Messaging Apps
» Horizontal Social Networks
Mobile Services
» Media
» Music
» Video
» Utilities
» Productivity Apps
» Online/Offline
» Games
» Dating Apps
» Vertical Social Networks
Source: Company filings, industry news and market research, GP Bullhound.
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(3) CONVERTING STRONG USER RELATIONSHIPS INTO MONEY
A. DIRECTLY MONETIZE USERS THROUGH APP STORE AND DIRECT PAYMENTS
1. Bank on strong engagement (IN-APP)
2. Bank on perceived monetary value (PAID)
3. Direct to owned products with 1 & 2
B. INDIRECTLY MONETIZE USERS THROUGH ADVERTISING/REV-SHARE/LICENSING
4. Sell user impressions (CPM ADVERTISING)
5. Sell user intentions (CPC ADVERTISING)
6. Sell user installs/actions (CPI/CPA ADVERTISING)
7. Direct to 3rd party products with 1 & 2 (REV-SHARE/LICENSING)
C. MAKE IT FREE, NO ADS; GO FOR ULTIMATE USER GROWTH AND EVENTUAL EXIT
8. Sell the company
(?)($1bn) ($19bn)
12. 12
Ad Hoc Labs
SLOTS/CASINO/POKER ARCADE/TURN/PUZZLE BRAIN/QUIZ/WORDS
Poptacular
MGMT/SOCIAL CASUAL
Zakeh
STRATEGY/CARD BATTLE/RPG/SIM ACTION/ADV/SHOOTER/RACING
Krasnov
Games
COMMUNICATE AND SOCIALIZE
CONSUME MEDIA
TRIGGER OFFLINE ACTIONS/EVENTS
BE IN TOUCH (ONE TO ONE/ONE TO FEW) BE IN TOUCH (MANY TO MANY/SOCIAL NETWORKS)
BROWSE THE WEB GET NEWSLOOK FOR INFORMATION PLAY MUSIC PLAY VIDEOS
BUY OFFLINE GOODS MAKE RESERVATION ORDER ON-DEMAND SERVICE MANAGE MONEY GET HEALTHY
LONGER READING
MAKE CALLS
FitNow
MoboTap
GET EDUCATION/LEARN
Bagatrix
WHERE DO WE SPENT MOST OF OUR TIME ON MOBILE
GET THROUGH THE WEEK
MANAGE EMAIL/CALENDAR GET STUFF DONE EDIT PHOTOS/VIDEOSNAVIGATEORGANIZE/CREATE DOCS/NOTES USE UTILITIES/TOOLS
Alminder
Cogitap
Software
Good.iWare
GO ON A DATE
WHAT CONSUMERS DO MOST ON MOBILE DEVICES
PLAY GAMES
SPACETIME
13. 13
SLOTS/CASINO/POKER ARCADE/TURN/PUZZLE BRAIN/QUIZ/WORDSMGMT/SOCIAL CASUALSTRATEGY/CARD BATTLE/RPG/SIM ACTION/ADV/SHOOTER/RACING
COMMUNICATE AND SOCIALIZE
CONSUME MEDIA
TRIGGER OFFLINE ACTIONS/EVENTS
BE IN TOUCH (ONE TO ONE/ONE TO FEW) BE IN TOUCH (MANY TO MANY/SOCIAL NETWORKS)
BROWSE THE WEB GET NEWSLOOK FOR INFORMATION PLAY MUSIC PLAY VIDEOS
BUY OFFLINE GOODS MAKE RESERVATION ORDER ON-DEMAND SERVICE MANAGE MONEY GET HEALTHY
LONGER READING
MAKE CALLS
GET EDUCATION/LEARN
WHERE DO WE SPENT MOST OF OUR TIME ON MOBILE
GET THROUGH THE WEEK
MANAGE EMAIL/CALENDAR GET STUFF DONE EDIT PHOTOS/VIDEOSNAVIGATEORGANIZE/CREATE DOCS/NOTES USE UTILITIES/TOOLS
GO ON A DATE
MONETIZATION CHARACTERISTICS OF EACH CATEGORY
PLAY GAMES
HIGHLY ENGAGING MOBILE SERVICES (INSTANT GRATIFICATION)
HIGH APP STORE & DIRECT PAYMENTS (IN-APP/PAID) MONETIZATION POTENTIAL
FREQUENTLY-USED MOBILE GETAWAYS/SOCIAL NETWORKS
HIGH INDIRECT MONETIZATION POTENTIAL
MOBILE PRODUCTS W/ HIGH PERCEIVED VALUE
HIGH PAID AND INDIRECT MONETIZATION POTENTIAL
FREQUENTLY-USED MOBILE PRODUCTS W/ RELATIVELY LOWER ENGAGEMENT
PAID OR INDIRECT MONETIZATION POTENTIAL 13
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MOBILE APP ECOSYSTEM CHALLENGES
» Big and established players outbidding competition/owning a territory
» User retention — engaging/retaining users in a highly dynamic marketplace
» User monetization — Free-to-play monetization; lower CPM rates on ads
» User acquisition — crowded space and high user acquisition costs
» Privacy and safety concerns related to personal data
» Device, platform and app store fragmentation (e.g. Android, China)
» Localization, culturization, or being foreign to a large market (e.g. China)
15. 15
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UNPRECEDENTED VALUE CREATION OPPORTUNITY ON MOBILE
NON-GAMING DEVELOPERS GAMING DEVELOPERS
COMPANY VALUATION TIME
Crime City & Modern War
$210 million
(Sale to Gree)
10 months
Clash of Clans & Hay Day
$3 billion
(51% Sale to GungHo)
15 months
Candy Crush Saga
$5 billion
(IPO)
18 months
Puzzle & Dragons
$7.2 billion
(Market Cap Appreciation)
18 months
COMPANY VALUATION TIME
Instagram $1 billion
(Sale to Facebook)
18 months
Snapchat $4 billion
(Rumoured Google Offer)
26 months
Whatsapp $19 billion
(Sale to Facebook)
4 years
Twitter $24 billion
(IPO)
6 years
USER BASE REVENUES PROFITABILITY
4 4 4
USER BASE REVENUES PROFITABILITY
4 1 0
TYPICAL VALUE CREATION
Strategic
TYPICAL VALUE CREATION
Strategic, Financial
16. 16
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GP BULLHOUND SNAPSHOT
» Long track record of success
› Founded in 1999, completed over 160+
transactions
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Berlin, and Manchester
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