Liz Gannes

Recent Posts by Liz Gannes

Can a Spot on Apple's Top App List Be Bought? Welcome to Cross-Selling!

Can a spot on Apple’s top iPhone app list be bought? Is there a price per head that mobile apps must pay to get users?

The answer seems to be an unequivocal yes, especially for free gaming apps. These days, companies pay to market their apps like any entertainment property would, but it’s extremely transactional, with a specific dollar amount for every new user paid to companies like Tapjoy and Flurry.

NetworkEffect spent some time recently with app developers and distribution companies to get a sense of how this all works and how much it costs. They say it’s crucial, especially for free mobile games, to pay to jumpstart an app’s launch with paid users and get momentum to bring in users organically–perhaps even more important than building a good app that people like.

Everyone from small start-ups to large game studios are paying tens of thousands of dollars per day to get their apps in front of users. One VC called the services “crack for app developers,” with apps that stop paying and fall down the charts going through severe withdrawal.

The top app distributor is Tapjoy. Tapjoy has an interesting turnaround story–it was formerly known as Offerpal, which was at the center of the “Scamville” scandal in late 2009.

After scathing coverage on TechCrunch for its practice of getting users to sign up for deceptive offers in order to buy virtual goods in Facebook games, Offerpal and similar businesses were largely stamped out of Facebook.

Offerpal bought mobile app monetization provider Tapjoy last year, changed its business to primarily mobile gaming apps, and adopted its acquisition’s name. I recently spoke with Tapjoy CEO Mihir Shah, who was fresh off raising $21 million from Rho Ventures and other investors (he joined the company in late 2009, and is its third CEO since the Scamville controversy broke).

Shah said Tapjoy is “very profitable,” with a run rate of more than $100 million. His company has 50 percent market share among all free apps, Shah said, and nearly 100 percent market share for apps that use virtual currency. Big customers include DeNA, Zynga, Disney and Glu.

Tapjoy inserts itself in the virtual goods marketplaces within apps. So instead of paying a few virtual coins to buy a virtual hat or something, a user could earn currency for installing a promoted app. App developers pay 35 to 75 cents for every free app install. And paid apps usually pay Tapjoy 50 to 75 percent of what they charge for their app, said Shah.

Many of the apps monetize those installs by getting users to pay for virtual goods by in turn installing other people’s apps. Of course, Tapjoy gets a cut of that too.

This cross-selling strategy is used by highly reputable apps. In the screenshot above you can see Tapjoy placements for top brands like Google Mobile, Groupon, and Zynga’s Words With Friends.

Launching an iOS app on Tapjoy costs $30,000 to $500,000 (Android is cheaper), according to Shah (pictured at left).

“You can’t just pray, because you’ll never get found,” he said.

App developers report being charged $15,000 to $30,000 per day to make the iOS top 50 free app list in the U.S. If the average return on investment for a free game user is 50 cents, as sources indicated, you’re walking a pretty delicate line. But once you get on that list, the cost can go down to about 10 cents per user, because people find you for free through Apple. And if a game is actually good, or has social mechanics, it may well keep its numbers up.

But if developers drop off the list, they find themselves coming back the next day or the next week for another hit. Plus, as Shah pointed out, smartphones and tablets are getting brand new users all the time, ready and waiting to get hooked on their first game.

Paid users tend not to be as valuable. They often do the bare minimum to qualify for whatever they need in the other game they’re playing: Download the app and open it once.

One developer estimated paid users have 10 to 20 percent of organic user engagement. Tapjoy is trying to fix that with a new pay-per-engagement product, where users can earn currency in a game by getting to a certain level in another game.

Tapjoy’s top competitor is Flurry, which despite the ubiquity of Tapjoy says there is plenty of market share to go around. The company charges two to three times more per install than Tapjoy, but gives added value like analytics and in-app video ads.

“The demand [from developers] is so high we can’t possibly supply them,” said Flurry VP of Marketing Peter Farago, adding that many apps reassess their distribution budgets and allocations on a daily basis to meet their targets. Farago said his company has a daily reach of 30 million users.

Some in the industry have soured on these app distribution cross-selling schemes, and point to the parallel with Tapjoy/Offerpal’s undue influence on Facebook. Many suggest that Apple should tidy up shop by improving its app ranking algorithm to include engagement metrics, or by revising iAd so that it’s more affordable for app marketing.

An Apple spokeswoman downplayed the importance of companies like Tapjoy’s role in app discovery, saying the App Store itself provides many discovery tools including user ratings, editorial features and Genius recommendations.

She pointed out that Apple has had more than 10 billion downloads of more than 350,000 apps. The implication was that activity in the App Store outsizes the virtual goods cross-selling market.

But even if Apple were to improve its discovery and distribution tools, Shah and Farago think they would still have a business. Though interviewed separately, in near-unison they argued that apps paying to market their launches is no different from any other entertainment property like a movie opening or TV show premiere.

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