Wednesday, October 31, 2012
Heads or Tails: Pick your target carefully for Mobile Enterprise success
One of my first questions to any entrepreneur targeting this sector is: "is this a head or a tail solution?"
What do I mean by that? And why does it matter?
Mobile industry analysts and boosters love to talk about the huge (and growing) total numbers of apps and publishers in the major app stores. What they don't tell you is that the vast majority of these have (effectively) no downloads and produce barely enough revenue to cover the developers' Red Bull budget.
Like many other software-powered sectors of the economy, returns to mobile app publishing follow a power law distribution, with download volumes and revenues highly concentrated among a very small number of firms (i.e., the "head" of the curve) and a massive number of marginal players that are just barely getting by (the "tail").
So when an Enterprise Mobile entrepreneur comes to me with an economic model that depends on earning small amounts of money from large numbers of mobile publishers, my bullshit meter goes off right away. How many publishers have they talked to? How many are using the service today? What's their conversion rate from free to paid? How does lifetime value (LTV) stack up against customer acquisition cost (CAC)?
Conversely, when I come across an Enterprise Mobile team that has a product and sales strategy that are both laser-focused on the "head of the curve" -- the few hundred mobile publishers that actually have the scale and profitability to invest in their franchise -- I lean way forward.
"Head-focused" Enterprise Mobile businesses are much harder to build than those targeting the long tail -- sales cycles are longer, product feature and performance expectations are higher -- but the prize is actually one worth winning: a big profitable business in a fast-growing sector of the economy.
So if you're thinking of building tools for mobile developers or publishers, think hard about what end of the distribution you want to target. And if you want to make money, think extra hard about whether the tail has enough meat to make a meal.