Category Archives: Mobile/Smartphone

Writings on laptops and smartphones, including devices, software and development.

The Key To Freemium Subscription Conversion

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I’ve been analyzing a number of subscription services over the past year, primarily those following the freemium business model. The ones who seem to have the most success not only solve a problem but also seem to have something else in common: each one offers multiple ways to ram your head against the pay wall.

To simplify, I’m going to focus on a handful of freemium services. Freemium, if you are not aware, are products that offer some functionality for free and more if you pay. Examples include Evernote, Flickr, and 37signals’ products. To different extents, each service offers functionality for free and then gives you multiple methods where that free service isn’t enough and paying becomes the likely option.

Evernote offers more for free than most services. You can create and upload way more for free than 99.9% of people would ever use each month, for instance, and gives you access to that information everywhere. Given that you’d think Evernote would have a low conversion rate. But it’s actually really high: over 20% of active users (those who use the service at least once per month). Why do people upgrade? Bigger uploads, better security, offline access, history of note changes, collaboration options, better search and  faster image recognition. And those are just feature reasons. Evernote CEO Phil Libin claims that the primary reason is because customers want to know the company will be around long-term. That’s eight reasons — and I didn’t list them all — for a customer to pay. Each customer only needs one reason to upgrade. Evernote ensures most customers will eventually run into one of them.

Flickr has an upload limit for free, or rather it has a limit of how many of your uploaded photos you can see. The Pro account adds unlimited photos, larger sized photos, more videos, HD videos, more groupings, high res images, ability to download uploaded images and statistics. Again, Flickr offers nine or more ways for a customer to hit a wall and need to upgrade.

As a third example look at 37signals’ Highrise. Highrise revolves its various price points around four or five key features including number of users, amount of storage, number of deals, number of contacts, etc. Again, multiple ways to run into a wall and need to pay.

In contrast, let’s look at a product like Cheddar. Cheddar is a subscription-based to do app for iOS and Mac that is for sale right now. According to the sales site, Cheddar has a 2.55% conversion rate, fairly anemic and, given his numbers, not enough to make it a full-time job. Cheddar offers one reason to upgrade: unlimited lists. That’s it. That means 97% of customers are more than happy with one or two lists, which is what you get for free. There is nothing else to get these folks to pay.

There is more than this required to make a subscription service work but getting people to convert partly means giving customers more than one excuse to do so.

The Future of Tablets

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I skimmed the headlines coming out of the CES trade show in Las Vegas the last couple of days. I never found hardware that interesting, honestly, so almost nothing caught my attention… until I saw this video:

Obviously it can be this thin because there is no battery attached, but it is clear to see a future where our tablets are as thin as a piece of paper and can connect together just by touching them. This is cool stuff!

The Case For Weakening iOS App Store Sales

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We have seen a pretty significant drop in sales over the past 12 months. I spent much time first beating myself up over not adjusting faster and then forgiving myself and trying to understand why it occurred. I have come to four conclusions of what could be impacting our sales:

Increased Competition: We were, for the longest time, the king of iPad calculators but the number of apps available specifically for iPad has increased over the past year. [1] In particular, HP launched its 12c version specifically for iPad and we worked with DEWALT to build a version for construction, eating into our finance and construction sales. This caused a little softening in the second quarter but wasn’t enough to make us worry. We did play with pricing in the summer to see the impact, something I still mean to write about here. The bottom line on that one: more unit sales, less revenue, not worth it.

App Store Changes: With the release of iOS 6 in October, Apple changed the App Store’s presentation. I think this had two effects: 1) it emphasized apps named the same as their search terms and 2) changed how far into any search results a customer was willing to go. For the former, apps named “checklist” or “calculator” are overemphasized in the App Store as those are terms people search for. In our case, almost every one of our powerOne apps has a competitor named by the search term: mortgage calculator, finance calculator, scientific calculator, etc. Since Apple emphasize exact name matches, these apps always end up at the top of the list. Regarding the latter, the shift from a list of apps to cards means customers don’t look at more then the first couple of apps. Previously it was easy to look at 25 or 50 options quickly. (Image from VentureBeat.)

Shift to International Markets: US smartphone market penetration now exceeds 50%. I believe this means that products primarily geared around the US market will see slowing sales. Apps who have broad appeal beyond US borders should do better, although Europe too is at or near 50%. powerOne apps are heavily geared around both US mathematics and English language.

Shift to Consumers: I also believe we are experiencing a shift from professional customers to consumer ones. The earliest adopters of iPhone and Android smartphones were, logically, professionals. They could write off the price of the expensive phones plus had the most need to carry portable computers in their pockets. They were also trained for years by Palm and BlackBerry to think about pocketable computing. Our products are heavily geared toward professionals, many of whom have already bought a powerOne product. As the new smartphone buyers become more consumer-oriented, there is less need for productivity apps and thus our sales weaken, even as the entire App Store’s sales escalate.

This, of course, is all speculation. There is no way of really knowing what has happened. If I was a betting man, though, I’d bet on a combination of these factors.

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[1] I couldn’t find a 2012 number but there were 60,000 iPad specific apps in January 2011 and 275,000 in October 2013.

Apple’s Original iPhone Was A Minimum Viable Product

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Glenn Kelman, CEO of Redfin, wrote a post at Techcrunch a couple of days ago lamenting the lean startup movement and the minimum viable product (MVP):

The problem with this paradigm is that it isn’t always the best way to build disruptive technologies, which, as Michael Arrington noted yesterday, lately seem in short supply. How many big ideas “failed fast” and were discarded just because they were half-finished?

If Steve Jobs had shipped the minimum viable iPhone, might we have concluded that people preferred a keyboard? If Tesla had manufactured the minimum viable car, would anyone still be driving it?

Maybe the reason we don’t have big ideas is because our entire approach to building them is sometimes so frugal with time, money, and belief. Lean startup techniques have revolutionized how we build software, but the lean startup has also turned the a startup’s only initial asset – the conviction that an idea will work — into a villain rather than the hero. This is why we so often see startups pivot rather than persevere.

The lean startup movement is often taken to extremes. The point is to develop the minimum product necessary to start conversations with customers. Lean startup is not a one-size fits all. It’s a determination, a very hard one at that, by the founders of the business.

Since Glenn brought it up, let’s talk about the iPhone’s first release. Glenn suggests it was not a minimum viable product. It was.

Here’s a device that had a limited number of apps, no way to load more (except as browser apps, which few were going to do), no copy and paste, no notifications, no connection to an Exchange server back-end. The entire product was a MVP trial balloon and it is easy to discern the hypotheses. Would people be okay without a keyboard? Would the full Internet really work on a portable device? Could we charge a full price for the device so we can minimize the carriers? Can we get carriers to allow us to be the ones who distribute the OS? Will people accept the phone as an app? Will people accept using the browser for apps instead of loading them onto the device like every general-purpose computing platform before it? Will people prefer to carry a single device that does everything over distinct devices like iPods?

To some of these the answer was a resounding yes. Phone as app in exchange for a full screen browser that acts like a desktop browser? YES! Single device for carrying music and have calls and messaging? YES!

And to some things the answer was no. Full-priced device? Apple issued a credit to early adopters within a month or two of shipping. It was clear Apple was going to have to follow the US standard of subsidized devices. Apps loaded onto the device? A year later we had the App Store because it was clear the experience of making browser apps wasn’t enough.

Apple used the initial iPhone to start a conversation with customers. They saw how customers were using the device, they talked to customers on tech support and watched what they posted on forums, and of course Apple leveraged the Apple Stores for detailed insight.

A minimum viable product doesn’t mean the smallest possible product, made the cheapest possible way, in the shortest amount of time. It means the minimum app that a customer will find exciting, be willing to use, and acts as a catalyst for conversations about what could be better. Sometimes that is a simple product and sometimes it takes years to get there.

The Rules Are The Rules

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I have such mixed feelings about Apple’s App Store and the way it is handled. On one hand it is great for users as they know every piece of software they download won’t be stealing their information or act as a virus. (Yes, there are missed things but for the most part this has been true and Apple quickly fixes the security issues.) On the other hand, it has destroyed the price of software, made marketing a product except by word of mouth nearly impossible, and makes testing with more than a few people painful.

Given that, though, I do respect Apple for its consistency. If this report is to be believed then Apple basically told Microsoft they can pay the same rate as everyone else.

So the company has been pushing Apple to adjust the 70/30 revenue split in its developer license agreement. Predictably, Apple has refused to comply. It’s not yet clear what sort of concession Microsoft is seeking, but whatever it is, Apple’s evidently not willing to consider it. Indeed, I’m told it has taken a “the rules are the rules” stance, which would suggest it’s not at all willing to negotiate a different split.

There are no favorites in Apple’s world. The rules are the rules. I heard similar stories from a friend regarding Apple’s developer conference. He works in a massively huge organization and Apple set a five passes per company rule for the conference. No exceptions were made, even for this big company that has hundreds who could attend.

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[via Daring Fireball]