Talking about software #4 - Marketing a games App

Now we’ve developed some focus and context, we can now turn to some specific marketing related issues for Games-Apps and examine some specific examples of practice.

Where to start? How about channel strategy? If your app is for an Apple device, there is only one choice – the App store as part of iTunes. Apple take 30% of the price the end user pays – and decides whether or not they want to retail the App at all – sometimes a problem if your App contains adult orientated material like sex, violence and profanity. In return for the substantial slice of the pie and they host the App on their servers for download and integrate it into the online catalogue, as well as managing feedback and payment.

Firemint.com

If your business is involved with traditional physical goods, the feedback you get from your channels can be delayed, incomplete or inaccurate. This makes good decision making difficult. This isn’t true for Apps. The above graphic shows the sales chart of a game called Flight Control (Firemint, 2011). As you can see, even with millions of copies sold, Firemint knows exactly how many were sold overall, how many in specific national markets and the impact of significant events like a change in price, some publicity or even just a release of an updated version. Within each market they also know their ranking in the sales charts. The pie chart below shows the relative importance of each national market. Unsurprisingly the US is no. 1, and the UK is certainly doing well – but look at the surprise entry at no. 3 – Australia. When you have this level of detail and precision, making good decisions is easier.

 Firemint.com

After distribution and sales management, perhaps it is time to look at pricing. Further interesting things are happening here as the nature of Apps means that great flexibility is possible. The price of an App can be changed almost instantly, meaning that price can easily be used as a promotional tool or to establish a user base for future exploitation. Apps can even be offered free via the Apple App Store. Why would any company give away its product? There are some good reasons. As just mentioned, the short-to medium term objective might be to establish a reputation or gain publicity and attention. Once achieved the App can have a price change upwards. Electronic Arts used this tactic before Christmas 2010 to considerable benefit. Slashing prices across their range of games, they quickly occupied most of the top ten positions on the charts. After Christmas, when millions of owners had unwrapped their new Apple devices, EA reaped the benefit from their games being front and centre. Some Apps are deliberately released with only a portion of the functionality operable. If the user wants to get the full benefits, then a payment must be made.  If this were a car, we might refer to that as a test-drive. If the App-sample isn’t to the liking of the user, then there is no cognitive dissonance – no money was wasted. This switching on of the functionality of the App isn’t even as simple as an on-off switch – the App creators might have adopted a pricing model called freemium - a word you will hear increasingly often in the future. Freemium means the App itself is free or very low cost to download, but once installed the user must make what is called an in-app purchase to unlock portions of functionality. In game terms, this might mean extra levels to play through for a few pennies, or new items for in-game characters to be equipped with. This model is one which is increasingly attractive with App developers as it means they can create a stream of revenue from each user, rather than a one off payment and achieve this without the substantial costs of developing an App from scratch.

Firemint (2011) Flight Control Sales Per Week From: http://firemint.com/wp-content/uploads/2011/01/FlightControl-PerWeek.png see also Firemint Backgrounder at: http://firemint.com/2010/firemint-backgrounder-current-as-at-15-july-2010/

Radiohead - practicing disintermediation with their new album - King of Limbs

A few years ago Radiohead adopted a very interesting pricing and distribution strategy for their album In Rainbows. Consumers could choose their own price and download it directly from the website owned and controlled by the band.

Stories vary as to how much money was made - numbers of sales, average price paid etc, but what was undeniable was that per copy, Radiohead were receiving a much greater slice of the pie than for the traditional model of reproduction and distribution on physical media - like a CD.

How so? Costs not being incurred - burning and shipping discs - but also because Radiohead cut out many of the intermediaries in the supply chain. Record label, manufacturers of discs and jewel cases, distributors and of course retailers. The curse of the 'content producer' like a music band or the drudges that produce textbooks is that only a small percentage of each sale makes it to their bank account - all the other parties get paid, and often by a multiple factor when compared to the artist. Retailers would historically do much better from a book or album than the people who created them.

Radiohead have realised that these other parties are no longer useful or necessary - and that they can keep a much larger slice of the pie by disintermediating their supply chain. The prices are now fixed, but the same model is being used for their new album - King of Limbs.

Not everyone has gone - Radiohead still have financial intermediaries to move money about, and there is probably a technical and legal team supporting the website - but the vast majority of the cash is now going to the band and not the middlemen. Good for them.

Could a new band do the same - with no fame and reputation - we might say brand? Difficult.

Talking about software #3 - making games has come full circle

In the last post in this series, we saw some headline figures about Apps, but do we know anything a bit more specific about how people are using and consuming Apps? Indeed we do. One online collective has examined this issue and has some tentative findings to report (Appsfire, 2011):

1.      A typical iPhone user has downloaded about 80 Apps to add to the 20 pre-installed by Apple.

2.      Users spend upwards of an eighty minutes a day using these Apps.

3.      Just over half of the Apps downloaded were ‘free’

App Usage by Category

                                    Appsfire.com                         

The Business and Culture of Gaming has Come Full Circle

As can be seen, games form a substantial part of the buying-and-selling of Apps. A particularly interesting thought about App games is the extent to which the business and culture of gaming has come full circle. In the 1980’s – ancient history now – the creation and marketing of computer games was a cottage industry. More accurately, it was a bedroom industry – teenagers and twenty-somethings were able to teach themselves the skills and knowledge through trial and error. Over and above a home computer very little was required and the scale and nature of the product meant that one person could create the whole thing. Codemasters started like that, as did many other firms and now senior individuals in the industry. As technology evolved, and the potential for complexity of design and structure set in, the industry evolved from a semi-professional sector into one requiring significant capital investment in high-end equipment and highly specialised design/coding/creative roles. A big game on a major platform like Playstation or Xbox that it is hoped will be a big seller is likely to have involved the efforts of several hundred people and an enormous amount of hardware. The recent game – Grand Theft Auto IV - is understood to have cost upwards of $100m to produce. $10m was spent on the audio component of the game alone. In the modern marketplace for PC and console games, the individual or small firm cannot hope to bring a competitive and attractive product to market, and the same is true for most other categories of software.

Apps, and games Apps in particular take us back to the beginning of this cycle. Certainly some of the big players have established business divisions to focus on Apps, but a small firm can bring a product to market using nothing more than a standard-PC and some cheap software. You can read about the nature, culture and success of such SMEs in a paper like O’Dwyer (2009).

Appsfire (2011) Infographic: iOS Apps Vs Web Apps From: blog.appsfire.com/infographic-ios-apps-vs-web-apps

O'Dwyer, M. Gilmore, A. and Carson, D. (2009) Innovative marketing in SMEs, European Journal of Marketing, Vol. 43 Iss: 1/2, pp.46 - 61

The price of an undergraduate degree - Oxford and Cambridge will charge £9,000

How much should Universities in England and Wales be able to charge in respect of course fees for one year? The Government has set a new limit of £9,000 - up from just over £3,000.

Simultaneously, Government ministers have expressed 'concern' that institutions are planning on charging the maximum possible - internal documents have revealed this is certainly the case at Oxford and Cambridge: High-fee universities warned of sanctions

My initial comment is 'well duh!'. I would be amazed if those two institutions end up charging anything less, though there may be a sop of some kind of bursary scheme for students from disadvantaged backgrounds.

It won't just be those two ancient places though - very many others will want to charge as much as they can. Why? Other than the fact that it increases the amount of revenue received per head, charging less can create real problems in respect of how they are perceived. Would you choose a university because it had the cheapest programme in your intended area? I suggest not. Even if you hoped to reduce the cost of your education, you might be concerned how that might look to others - peers and employers for example.

'If you were any good, you'd charge full price'

So, some predictions:

1. Oxbridge will charge full whack as soon as they can
2. Redbrick institutions will follow suit, but have more developed bursary schemes
3. Those doing the teaching won't be seeing much of any increased revenue [drat!]
4. We're going to see a shift in the proportion of UK students in each general area. Humanities to be massacred, arts to shrivel, business schools to inflate. Note this is a prediction, not a desire.
5. Scottish students will be paying upfront in five years. It will start at a lower level, but catch up within the next ten years.

How would I set fees? Thanks for asking. I think that setting them by institution is a bad idea - it creates divisiveness/a class system and it encourages an upward spiral. Some have suggested that price should be a function of cost - that lab based programmes should cost a lot more than those that need only a lecture hall. I don't agree with that.

I suggest that rather than by institution, programme cost should be set by general area. A key problem with the spread of students in the UK HE sector is that we're dreadfully short of language students, engineers, scientists and mathematicians, and have very many students in other area -  case of under/over supply for society and the economy. I would use price to move students from one group to another, based primarily on how useful that person was then likely to be to society. Engineers, chemists etc go nearly free, other subjects pay more. I don't intend to denigrate subjects like history or sociology, but too many students of those subjects are at university as a lifestyle experience rather than because of ability or talent at those subjects - that is, a good proportion of students are flexible about what they study, and price could be a mechanism to change their behaviour. But what about students from a poor background that have considerable ability as a young historian, won't they be prevented from taking up their place by the higher price? With the increased revenue from high subject fees, it would be very easy to make sure that those of obvious talent get their places free.

So where would marketing and business education in general be on that continuum of free-to-expensive? It may surprise you to learn that whilst for obvious reasons I'm in favour of students studying marketing, I think it would be a good idea if the course fees were between the middle and the top of the scale. You study business to move into a well paid professional career, not to benefit society. You are being relatively selfish compared to the student nurse or the biologist and should therefore pay more.

Talking about software #2 - Applications

 

Given the vast number of companies and products and uses for software, it simply isn’t possible to cover all issues. Instead, it seems far more sensible to limit ourselves, in form and function. Therefore, this case will focus on the marketing of what are popularly known as ‘Apps’ for mobile devices like Apple’s iPhone. What is an App? The name is an abbreviation for application – a piece of software with a set of capabilities and functions. Microsoft Word is an application, and so is the web browser Chrome. What the abbreviated name refers to though, is a relatively small [in terms of file-size] self-contained piece of software that has a very specific and focussed purpose. Most so called smart-phones come with several of these pre-installed. The calendar is an App, the contacts directory is an App, the web-browser is an App and so on. What makes Apps worthy of particular interest is the after-markets – Apps offered for sale by third-parties to smart-phone users.  Let’s quickly review some quite dazzling facts and figures.

How many apps – products – are there? No one knows for sure, and the number is growing too rapidly to get a good fix, but Apple have indicated that for their smart-phones and portable devices [iphones, iPads] there are at least 400,000 choices. The online store [which itself is a piece of software] only opened in July of 2008. Arithmetic tells us then that in somewhat less than a 1000 days, the Apps added to the list of choices to buy from the store increased by 400 a day, per day, every day!

Just because there are so many products to choose from, it doesn’t mean that people are buying them though, does it? Let’s check that out as well. How many of these applications have been downloaded from the store – and note the word downloaded rather than sold – an issue we’ll come to later? Apple do know that – they know it perfectly. They recently held a sales promotion with a large prize for the person who downloaded the ten billionth App (Apple, 2011). Some context for the figure – 10 billion. That digital music, marketed through software portals like iTunes has revolutionised the marketing and consumption of music is surely beyond question. The rapidity with which the marketplace changed beyond recognition from what it was even a decade below has been breathtaking. One research group has recently compared the growth in sales of digital music with the growth in sales of Apps (Dedieu, 2011). Music had a four year headstart over Apps, if Apps haven’t overtaken music yet then inevitably they will do soon.

Asymo.com

Apple (2011) The App Store has Reached 10 Billion Downloads From: www.apple.com/itunes/10-billion-app-countdown

Dedieu, Horace (2011) More than 60 apps have been downloaded for every IOS device sold From: www.asymco.com/2011/01/16/more-than-60-apps-have-been-downloaded-for-every-ios-device-sold/



Introduction – The Rising Significance of Software Markets

Why spend time thinking talking and writing about marketing in the software industry? Here are three answers.

Firstly, the argument of size. It should come as no surprise to anyone who spends time using a computer or portable device that the software industry is big business. There are strong brands – Microsoft, Google, Facebook – and a multiplicity of types of software for business or leisure use, often with price tags in three or four figures. Exactly how big is the software industry though? The industry body, the SIIA [Software and Information Industry Association] estimated in conjunction with Datamonitor that the worldwide value of software sales in 2008 was US$304bn and estimate a 2013 value of US$457bn (Datamonitor 2008). Microsoft employees 100,000 people, a similar number to Exxon Mobil.

Secondly, the argument of cohort. If you are a relatively young person, software and the hardware it runs on has probably been fully integrated into many aspects of your life – you write email using a web-based application – a word we’ll see again shortly – like Googlemail or Yahoo, you use one or more of a console, PC or portable device to play games and make calls, you relax to music delivered by data files passing through something like iTunes and you sign up for tutorials and submit assignments via a VLE. You are as likely as not to be aware of many different brand names and the people and companies behind them. Software is important to you, it is going to go on being important for the rest of your life. If you aren’t involved with the marketing of software as a career, you are necessarily still going to be involved as a customer.

Thirdly, the argument of culture. Software is now advertised on the high street and TV. There are films about the development of software – The Social Network, Pirates of Silicon Valley and one of my all time favouritess, Sneakers – software capability and fallibility is now a common plot device in literature and drama. Images, tropes and concepts from software have been co-opted into polular culture. See above.

Datamonitor (2008) Software: Global Industry Guide New York, Datamonitor

Thinking about software markets and marketing

In a slight divergence from the posts published to date, I thought it might be an interesting experiment if I presented elements of a small project I have been working and thinking on recently. The project is about the marketing of software - specifically the small scale applications - Apps - that run on a smart phone. There are products, there are brands, there are customers and so there are markets.

First element of an essay on this topic to follow shortly.