In the world of mobile gaming, Angry Bird has not only generated some amazing download and revenue stats, but also offered new insights into simple but sustainable business models that could serve well for big software corporations to emulate.
To date, the Angry Bird game is available in the Apple, Nokia Ovi and Android app stores. The Windows Phone 7 version is also expected to be available in the Windows Phone App Marketplace this month.
In an interview with Peter Vesterbacka of Rovio, Peter said that they have intentionally kept the business KPI of Angry Bird very simple, focusing on download and retention rate as the primary metrics of success. So far, they’ve had impression results, with over 30 million total downloads and 80% retention rate since the game’s launch in late 2009.
Rovio also has a simple business model, offering 2 versions of Angry Bird: a paid version for the Apple and Nokia app store, and an ad-funded version for the Android app store.
Given Rovio’s focus on retention rate, the company have been updating the game periodically with new levels to retain users’ interests in the game. The fact that the users only have to pay once when they first download the game but yet is able to enjoy “free” new level upgrades also plays well to consumer spending psychology. This is like “unlimited refill soft drink” at fast food chains. However, this approach also poses a challenge for Rovio to make money on the new levels if the users had already downloaded and installed the mobile game.
This is where Rovio’s ad-funded business model becomes interesting.
The ad-funded Android version of Angry Bird was downloaded one million times on its first day of release in October 2010. To date, this version boast 7 million downloads. What’s even more interesting to note is Rovio expects to make 1 million USD in mobile-ad revenue every month with the current number of Android game downloads. This ad revenue number is achieved within less than 2 months after the ad-funded game version is launched. Given Rovio’s approach of using new levels to keep retention rate high, the ad-funded model could potentially address long term revenue sustainability much better than the one-time paid version.
So what does Rovio’s ad-funded Angry Bird game has to do with the monetization of business cloud apps in emerging markets?
Three years ago, I wrote a blog post on SaaS in China, advocating the use of hosted software distribution model for addressing various challenges with selling software to businesses in emerging markets. Since then, I’ve worked with many teams in Microsoft to pilot and deploy business cloud services in China and Vietnam. One key lesson I learned is even with a hosted software model and cloud services, it remains a challenge for international software companies to sell software in emerging markets.
I will not go into all the challenges here (e.g. government regulatory and data sovereignty issues), but will highlight one that can potentially benefit from Rovio’s ad-funded business model.
A key issue with selling software to local business in developing economies is the low value-perception of non-physical goods. So even with a subscription model, businesses in emerging market are still sensitive to the relatively high monthly user fee they have to pay to use business software such as CRM. Most companies set their user subscription price based on developed markets price elasticity, which ranges from 5 USD for basic communication services to about 20 – 30 USD for a CRM user license each month. At this kind of price, software remains an expensive commodity for emerging market business owners.
Moreover, there are usually a few local software vendors who can offer the business software at a much more competitive price, frequently at 5 – 10 times less money than software solution offered by US-based companies. Although the features and quality of local software companies may not be as high, it is often perceived as “good enough” for local businesses, whose buying decision is also heavily weighted on the lower cost.
Enter ad-funded software as an alternative monetization model for business cloud services in emerging markets.
With the consumerization of business IT, there is never a better time to target both B2B and B2C ads in common productivity,communication and collaboration business cloud services. For SMB in emerging market, it is even more true that users are frequently using the same PC for business, personal and entertainment purposes. For example, in Vietnam, it is not uncommon to see the staff in small hotel chains using the same PC for checking in hotel guests and watching music videos on youtube when the work pace is slow.
Unlike B2C ads, B2B ads can be accurately targeted to business app users, using some industry information provided by the SMB when they sign-up for the cloud service. For example, ads for cleaning supplies, wholesale food and groceries can be targeted to business app users of restaurant businesses.
Given the vast number of SMBs in emerging markets, “free” ad-funded version of business cloud services could quickly gain popularity and broad adoption. When business software are daily tools for increasing work productivity and revenue, it naturally yield a high retention rate, thus bringing continued user eyeballs for ads that are being displayed by the cloud application.
The fact that software produced by “foreign” large software companies have a better brand and quality perception in emerging markets, also helps improve the prospects of adoption when the price is reduced to “free ad-funded”.
Therefore, an ad-funded business model seem to be an effective way for business cloud service providers to overcome the price sensitivity issues in emerging market, and accelerate initial adoption with some immediate ad-revenue to help cover operational costs.
Over time, as SMB in emerging market matures in their value-perception of business software, the service provider may consider an option for them to migrate to an ad-free paid version of the business cloud services. Perhaps by then, we may also find out if ad-funding is a better (and more lucrative) model than paid subscription for selling business cloud services in emerging markets.
Mikael Hed, CEO of Rovio said that he wanted to make the Angry Bird game available to as many people as possible, and given the complex nature of the Android marketplace, “free” appears to be the right solution.
Getting people to pay for software in developing world also present multi-dimensional challenges, and the ad–funded free model could just be the right approach for international software brands to nest their golden eggs in emerging markets.