Silicon Valley's Greatest Opportunity? Better Marketing

It's crazy how time flies.  In October of last year I marked my 6 year anniversary in Silicon Valley.  It's been quite a ride and I've been privileged to see and be part of some pretty amazing things:  the booming of the app economy, the explosion in Android adoption,  the growth of mobile gaming, and the launch of Google playjust to name a few.  

Like many, I'm perpetually amazed at the level of energy, innovation, drive and creativity here. I've lived in 11 countries and actively worked in 7 of them and I don't think it's a solely an American thing to claim that there is no place like the Valley.  There just isn't.  The unique mix of energy, technology, capital, innovation and cultures simply doesn't exist anywhere else.  It's what makes this place so unique and dynamic.

But the Valley has its dark sides and its own challenges as a recent article in The Economist points out.  Success and financial gain aside, one that's very rarely talked about but is becoming more widely acknowledged is the lack of focus on marketing.  I'm constantly surprised by how little focus there is on marketing at many companies - both big and small.  Many marketers will agree: For all the innovation in the Valley, marketing if often under utilized, misunderstood or de-prioritized as part of the business.  

Why?

To appreciate the answer you have to first understand what the role of traditional marketing is.  Philip Kotler, a professor at Northwestern considered by many as one of the gurus of marketing defines it as follows:

"Marketing is the science and art of exploring, creating, and delivering value to satisfy the needs of a target market at a profit. Marketing identifies unfulfilled needs and desires. It defines, measures and quantifies the size of the identifiedmarket and the profit potential."

Sadly, marketing is often misunderstood or under appreciated in the Valley.  Ask many founders and even VC's and they will tell you marketing is about PR, advertising or "growth hacking."   

As a marketer with 20 years experience I've developed a thick skin and don't take this personally.  I remember being at Google several years ago in a staff meeting when a product manager proclaimed "marketing could go home and we really wouldn't feel the difference on the revenue side."  When you're Google and your app is pre-installed on every Android handset that comes to market it's easy to feel that way but sadly that didn't help the usage of that particular app. As a matter of fact, never has Google's marketing spend nor the size of its marketing team been larger than it is today.  

But let's get back to our earlier definition of marketing for a minute.  Another famous marketer, E. Jerome McCarthey developed what's widely known today as the 4-P's of classical marketing.  For the uninitiated these are Product, Place, Price and Promotion.  

This is also where things get really tricky in the Valley.  Product in technology is usually owned by product management / engineering team (and in early-staged companies by the CEO / founders).  Place, more commonly known as distribution, is usually owned by business development and sales. Price is owned by sales.  Which leaves marketers with...you guessed it "Promotion."  More commonly known as advertising or growth hacking here (cough cough).

Now I'm not saying marketing should own all of the above.    The complexities and skill sets needed are too great and you're not going to change the culture in which tech companies operate.  However, not having marketing deeply involved in all these aspects of the business can result in products not fit for market, brand erosion, and reduced profitability.  

Let's look at each of these in turn.

Product.  All too often I've seen startups fail because founders build cool tech in search of a market.  This happens because you have incredibly smart technical teams that love to build cool things but aren't close enough to consumers or customers to understand what problem they're actually solving or whether those people actually even need this technology (Google Glass anyone?).  The other day I met with a serial entrepreneur who showed me his "Instagram for VR."  I looked at it and was like "Cool.  Eventually, there will be a market for that but not now.  There simply isn't enough of an installed base and capturing and sharing content hasn't been established in VR.  You're at least 3 years too early."  

Another problem you get when marketing isn't involved in product is "feature creep".  I often see great products crammed with tons of cool features.  But the truth is that what makes products like Whatsapp, Instagram or Snapchat great isn't all the cool features. It's that they actually solve a real problem and do it simply.  Argentineans have a saying which is "A preuba de boludos."  Translated into gringospeak as "idiot proof."  Too often products (whether B2B or B2C) are too complicated, lack clear tutorials or onboarding and/or don't directly address a particular need.  The result:  cool tech with no clear market and possibly wasted VC dollars.  Building a successful product is about thinking about the long term.  Improving and adding features as consumer needs evolve over time. However, at the onset you have to solve 1 problem and do it freakin well!  

How Marketing can help Product

The key to nailing product-market fit and avoiding feature creep is having product teams and marketing work together from product concept through launch.  Don't build a product, throw it over the wall and expect marketing to "acquire users."  What's worked for me is what I simply call D2; the "dynamic duo".  This duo is a PM (product manager) and PMM (product marketing manager) who develop the product together from the onset.  While the PM develops PRD's (product requirement docs) and works with engineering to build, test and iterate on the product, the PMM's role is to look at the market, consumers and competition and ensure that 1.) We're solving a real pressing need 2).  We can differentiate against what's out there currently and 3). We can make money doing that.  Good PMM's are both technical enough to understand how products are built but also business savvy enough to understand the economics of the business and where there is an opening to position the product uniquely to have a competitive advantage.  This structure worked for me both in games (studio heads + PMM's) and even at Google (PM's +PMM's). Once the product is ready, PMM's will also work to develop all the necessary assets, brand materials and tools to bring the product to market.  In larger organizations they will then hand this off to consumer marketing teams that handle acquisition and retention while in smaller orgs they may even handle this themselves.  Often the PMM will also run market research and work with the PM to do client interviews, qualitative research and focus groups to more deeply understand consumer needs and how the product can meet these needs.  It's usually a win-win scenario where PM's and PMM's both own the product and the P&L and have clear responsibilities to ensure everybody wins.  Likewise, if things fail they both take the rap ;)

Place.  More commonly known as distribution.  Distribution can make or break a product.  Regardless of whether it's hardware or software.  You can have the best product in the world but if you're competitor has a slightly weaker product but is more widely available you're probably going to lose.  When I worked at Pepsi in the 90's (yes, totally dating myself) one of the big reasons why Coke kicked our ass wasn't advertising (Actually Pepsi's advertising is better than Coke's - I'm biased like that) but because they have way better distribution.  The joke in the industry is that you can find Coke more easily around the world than drinkable water.  Sadly, that's also statistically true.  

The same is true in tech.  You have to be where your customers are and even where they aren't.  The more consumers see you the more brand "recall" you have (ie. the first brand they think about when they are considering a purchase). Twitter and Facebook aren't massive just because of their product and virality. They are successful because you "see" them everywhere.  They are distributed by 100,000's of 3rd party brands on their websites, apps and in the press.  In effect, their ubiquity is a reflection of their distribution.  It's the power of being everywhere.   Coke and Pepsi have enjoyed a duopoly in the soft drink market since the 1890's mostly due to distribution not just advertising.  

How Marketing helps distribution

The key to unlocking distribution is to identify all your possible distribution channels: ie, where are users / clients going to find my product and figure out how to market to each based on their own, unique characteristics.  Once you establish the different channels or partners you have then marketing usually works with your BD teams to develop channel marketing plans.  That's marketing-speak for marketing programs specifically tailored to the needs of that channel.  Here's an example.  When I ran Google Play marketing, one of our programs was called "Comes with Google Play."  It was a program targeting handset vendors and carriers where we provided them with programs, assets and tools to communicate to users that Android devices came with Google play content.  The goal was to ensure that consumers considering Android wouldn't buy an iPhone because Android lacked content.  So we developed the program to provide those channel partners with assets and programs to help carry that message to prospective users.  We even had a partner marketing team who helped push the program to partners and provide them with the framework for brand approvals to communicate this to end users.  

One of the best known programs of that sort was Intel's famous Intel Inside campaign (developed in 1995).  Not only did it help users understand what a processor was and why it mattered but, more importantly it told users why they should only consider PC's running with Intel processors.

Price - show me da money!

Usually the domain of sales or senior management effective pricing can dramatically increase profitability, extend product life cycles and destroy competition.  

Getting pricing wrong can also have dramatic consequences on your sales.  In 2011 Blackberry introduced their first tablet: The Playbook.  Aside from having a terrible name which had nothing to do with the product (they had virtually no games or entertainment content and were targeting business owners) they priced the device initially at $499 to $699 which was the same price as the market leader: the iPad.  The result was a dismal flop.  It should have been intuitive.  After all why would I buy an inferior product, with less content at the same price from a company with little expertise in tablets?  Blackberry's fall from grace had many contributing factors but a large one was marketing or the lack thereof.  

The other two things to consider when thinking about pricing are your business model and your product life cycle.

One of the biggest challenges when I started working in mobile gaming back in 2005 was that we were effectively asking consumers to fork over 4-5$ to experience something they had never experienced before.  Consumers, especially when considering new products and services, often are hesitant to shell out money for something they've never experienced.  At glu mobile we solved that by providing Try-b4-u-buy versions of our java games.  Years later, this eventually morphed into free-2-play games which is now the standard and has helped turbo charge the entire industry.  For years what held the mobile industry gaming back wasn't just shitty distribution (yes that's you Verizon, T-mobile and Vodafone) but bad pricing.  Once games became free to play, a big reason not to download them suddenly melted away and the market exploded.  Today free to play games account for the vast majority of revenue on both the App Store and Google Play.

Another way to juice up adoption and sales and maximize profits is life cycle optimization.  This is commonly done in many traditional industries from consumer electronics to fashion and cars.  It can and should be used in software as well.  The simple notion is that as a product ages and a replacement approaches you should gradually decrease price to extract additional value.  In 2007-2008 we had amazing success at Glu in Europe by doing this.  Once mobile games had been on the market for six months, we would reduce the price and 1-2 months before a sequel we would reduce the price yet again.  In this way we were was able to capture users who wouldn't pay full price while also seeding awareness for the next title.  The console gaming industry has also seen some success doing this.  

Marketing and pricing

Let's go back to our dynamic duo - D2.  Ideally, both the PM and PMM who own your product should have a pricing strategy not just for launch but for the entire duration of the lifecycle of the product before you launch it.   This pricing strategy should reflect the competitive landscape, the introduction of new features (and whether your going to charge for them) and the planned obsolesce of a product to pave way for a new one.  In the Valley not only do teams spend too little time on pricing (often finishing a product without even figuring out whether to charge for it or not) but they often will either underprice a product (our competitor charges X so we should charge X) or fail to identify features that should justify higher pricing.  Pricing is important not only for profitability but also as an indicator of perceived brand value / strength.  

Let's say your positioning your firm as the "market leader" in X space (who doesn't?).  What does it say if your pricing is the same as everyone else's?  It says you don't have enough confidence to charge more for it.  If you don't have enough confidence to charge more for it than is it really better than what's out there?  It might be but that's what your customers are going to be left asking.

Marketing teams need to be assessing how sales and volumes change over time as a function of pricing.  They should be looking at one-off sales promotions targeting specific times of the year and they should be planning price reductions when products are being phased out and pricing increases when products ad valuable features.  Lastly, if you're selling physical products your marketing teams should be working with sales to identify opportunities to price discriminate according to different channels.  Ever notice how a can of Coke (or Pepsi) costs more in a restaurant than in a gas station?  There's a reason for that.

Last but not least Promotion (aka Advertising, Growth Hacking, UA)

Congratulations.  If you've actually read this far and didn't realize what other things marketing can help you with you may have actually learned something ;)

Yes, it's true.  Advertising does remain a core function of the marketing team. But here's the catch: Advertising isn't as effective as it used to be - particularly among millennials.  Why?  There's simply too much noise and too many fragmented channels to market through.  Too many ads, too little time coupled with consumers and clients who are sometimes a bit lazy and usually irrational (if you don't buy this read Dan Ariely's book "Predictably Irrational").  Consumers are filtering out all the noise and are basing purchasing decisions based on other things (friends, the latest fads, what they've used before, the first thing that comes to mind etc.).   Even Google admitted last year that possibly up to 50% of Adwords clicks are accidental.    On the B2B side, many customers are saying that they are actually more into buying products and services from companies who they trust and who "help" them with their business.  The translation in B2B is a greater focus on content marketing and developing materials that actually teach customers something that helps their business as opposed to trying to sell them something.  Content marketing is on the rise and an increasing number of marketers are finding that this is the friendliest path of least resistance to building relationships that eventually translate into greater sales and longer retention.  A great article in Adweek captures why content marketing is on the rise and some of the trends we're seeing.  

The key to understand advertising is simple:  advertising is a process and a journey.  I've often used a framework to help explain this journey: ALTR. Awareness, Likability, Trial, Repeat.  

Before a consumer is going to buy your product they have to have heard of it. Once they've heard of it they need to "like it" or accept it as part of their consideration set among other products they might buy.  Third, they have to try it.  They may buy it or try it but that doesn't mean they will stick to it.  The rule of thumb among marketers is that a customer you already have is always worth significantly more than a new one you have to acquire.  That's why many VC's are placing so much emphasis on retention.  Acquiring a user on Facebook at $5-7 is one thing but loosing 92% of them after 30 days is another.  

What your marketing team should be doing in regards to advertising

Good marketers will develop advertising strategies that capitalize on each stage of the consumer journey as outlined above.  Successful marketing strategies will have different messaging, different creative applications and different advertising channels depending on the goals at each phase.  Each step of the process should be measured and evaluated based on its own metrics.  For example, awareness should be measured in terms of aided versus unaided brand awareness, visits to your website, shares, posts etc.  Trial can be measured in terms of the number of consumers / clients that tried your product and the duration during which they used it while retention is a function of how long a consumer continues to pay for and use your product.  

Different advertising strategies need to employed depending where in the consumer journey you're targeting users.  Billboards or display ads may be good for awareness but not for trial.  Re-targeting is effective for consumers already considering your product but not for those already using it.  Blog posts, white papers and webinars are only effective if the content is tailored to the right audience at the right point in their customer journey.  If you're writing posts on your product features and expecting leads than you're simply wasting keystrokes.  

The good news in all this?  There's still a ton to do to improve tech marketing in the Valley.  As a marketer, I'm excited and optimistic about marketing's prospects.  The Valley is in many ways building the future of consumer and enterprise products across many different industries.  Better marketing will result in better products, targeting the right audiences, with the right message, at the right price available wherever those consumers expect the product to be available. It's a good time to be a marketer in the Valley (if you have a thick skin) and never before has marketing been more important both for the top of the funnel as well as for the bottom.  Marketers should embrace this opportunity while CEO's and VC's should encourage both their marketing and product teams to work more closely together before they actually launch their products.  Firms, clients and investors will be much better of for it.  

Mad Mork

Branding 101 for Start-ups

According to recent forecasts, advertising spend will exceed over $50billion in 2015 with the fastest growth coming from mobile.  With that marketers, particularly start-ups, face a daunting challenge:  how to reach users with a compelling message and cut through all the noise.

Today at the Yodlee Interactive bootcamp, I had a chance to share some learnings with aspiring fintech entrepreneurs and take them on a journey about branding.  What is branding?  Why is it important?  what kind of benefits can it bring my company? and more importantly:

How do I get started building a brand?  What's the process and who is involved?  Below is a short preso which attempts to answer some of these questions.  Make sure to download the file and check the slide notes which is where all the detail is.  I hope it helps you!




Download Here

stay Mad, stay foolish,

Mad Mork

Zynga and King's failure could be Nintendo's opportunity

As a long term Nintendo shareholder and fan, I nearly fell out of my chair the other day when I saw the movement of the share price.  Up more than 4% on 8.18 on the Tokyo stock exchange (though it's subsequently down a bit today as folks take some profit).

The reason: speculation that Nintendo will finally enter the booming mobile games market through its affiliate, The Pokemon Company, by launching a Pokemon game made for Apple's iPad. Though there is no exact date set yet articles appeared in both the WSJ (for those of you who still pay for news) and Bloomberg related to Nintendo's plans.   The Pokemon game in question, a trading card game (TCG), works perfectly for this franchise (since Pokemon is not only a hit TV show but also based on a real world collectable card game in its own right).  More importantly, the TCG mechanic has been tried and proven in Asia by many of Nintendo's would be competitors on mobile like Mobage (part of DeNA), who arguably pioneered the genre with Rage of Bahamut, Blood Brothers and Marvel: War of Heroes in 2012- 2013. Rage of Bahamut was a top selling iOS and Android game for much of 2013 and continues to be among the top 100 here in the United States while Marvel: War of Heroes is ranked #59th on the Apple store currently according to Distimo, an app analytics company, and ranked #21st on Google play.

Nintendo needs a hit and it desperately needs to be on mobile.  To put things in perspective, there were 200 million tablet sold globally last year alone according to IDC.  Compare that to the most successful console of all time: the Playstation 2 which had lifetime unit sales of around 150M units - over 6 years! More importantly, tablets have become gaming machines in their own right.  To gamers who scoff about a tablets capabilities look no farther than games like Infinity Blade, Racing Rivals, Nova 3 to get an idea of what these machines are capable of.  Are they up to the likes of top console games?  Not yet but given the demographics of how people use tablets (11 min average gaming sessions for example) consumers don't expect a console-like experience yet but still happily will spend money for mobile games.  More importantly, companies like Nvidia (NVDA) are now unleashing a new generation of processors (like the K-1) that are even more powerful and consume less power than the chips actually used in the Xbox One or PS4.

The size of the stake is huge and has never been hotter.  The mobile gaming industry is estimated to bring in some $21.7 bln USD in 2014 and could generate as much as $35 bln by 2017 according to figures published by AppLift and Newzoo.

That said, the market has never been more competitive.  Though games like Puzzles and Dragons or Machine Zone's Age of War may bring in several million dollars per day in revenue, development costs, marketing costs and the overall cost of doing business are all on the rise (see the post I did on this recently here and the opportunity it presents for Google).  However, this is where I believe a company like Nintendo has a massive advantage over say a Zynga or a King.com:  They have the brands.  

Pokemon, Zelda, and Mario are all household brands and games that people all over the world of all ages have played and enjoyed.  The impact of brand is essentially reduced marketing costs, pricing power and the ability to extend the brand far beyond its base of users.  For all their early successes, there is a reason Zynga is where it is: nobody would ever care to watch Farmville on Nickleodeon and my kids aren't interested in brushing their teeth with Words with Friends toothpaste.  Though King.com is advertising Bubble Witch Saga heavily on TV, the stories, characters and themes of these games still feel superficial and shallow.  These are essentially casual games designed to reach a very broad user base quickly but with little depth.  The result is that they reach a large base but typically only 1-2% of users monetize and the ARPU (average revenue per user) is much lower compared to games that appeal to mid core or core gamers.  For example Candy Crush is estimated to generate a little over $1M / day from daily active users of more than 7M users which Clash of Clans does roughly the same revenue for 4M users.  

Nintendo is not breaking new ground here.  Activision, another successful gaming company that has been remarkably late to mobile, leveraged their World of Warcraft franchise recently and entered mobile gaming with there Hearthstone franchise.  The game, on iOS only, has done extremely well and is among the top 50 grossing games on the App store in the US.  Coincidentally, it is also a TCG which bodes well for Nintendo's efforts.  

So the three questions investors need to ask themselves when looking at Nintendo are:

1.  Can Nintendo learn mobile faster than Zynga, King and others learn how to build real brands / franchises?

2.  Can Nintendo develop a product roadmap of titles that complements rather than cannibalizes their existing hardware sales?

3.  Can mobile generate meaningful, profitable revenues?

The answer the first question isn't obvious.  For every company that has embraced mobile and succeeded many have not.  EA was successful after acquiring Jamdat, an early pioneer in mobile gaming back in 2006.  However, it still took EA quite a number of years to figure out and launch Free-2-play games (the dominant model of monetization on mobile today).  Like many large gaming companies, EA feared that giving away games for free would damage their franchises and devalue the brands that they stood for.  It wasn't until 2011 that EA embraced F2P in earnest with The Simsons: Tapped out, which proved to be enormously successful for them and still continues to do well in the charts.  Moving from paid games to F2P requires a culture change in most organizations that is often difficult to embrace.  Aside from monetization, there is the mobile form factor, user base and session length the consider.  Mobile screens are smaller and more limited which may explain why Nintendo is choosing to go on iPad first.  More importantly, gaming sessions are far shorter (11 minutes for a tablet session vs. north of 40 mins for a console gaming session).  This means consumers need to be able to "achieve" something that keeps them coming back for more.  Lastly, marketing on mobile is completely different than the traditional CPG model favored by console games publishers.  Acquiring users on mobile and retaining them is a science in itself and top game companies like Supercell, Zynga and others spend vast amounts of money and have large, dedicated teams whose sole purpose is to run and optimize campaigns across dozens of mobile advertising partners like Chartboost, Facebook (FB), Admob (GOOG), Fiksu and others. Running, optimizing and tracking mobile ad campaigns across 80+ different traffic sources requires unique skill sets and people which Nintendo would have to acquire/hire to fully leverage the mobile platform.  

The issue of a solid mobile roadmap seems less risky.  Given the form factor, user base and different consumption habits, I think Nintendo has enough resources and game design chops to come up with unique games that are made for mobile that provide a very different experience from what someone would experience on a DS or a Wii U.  Their experience making portable games for the DS here would be a tremendous asset though sessions on mobile devices are even shorter.  The key here is for them to hire and dedicate resources specifically for mobile.  The biggest problem traditional console game publishers face when moving to mobile is to simply "shoe-horn"  an existing console franchise onto the mobile platform.  A great example of how "not" to do this was Bioware's (a publishing division of EA) adaptation of Knights of the Old Republic (KOTOR) for iPad.  The games' size, controls, graphics and story were all simply copied or "ported" to iPad with little regard for the mobile user / experience.  The result was that though the game initially did nearly 60k in sales on it's first day, sales subsequently crashed once word got out among users that this was essentially an Xbox game from 2005 with little adaptation to mobile.  Other premium console franchises like Deus X and Final Fantasy committed similar mistakes as can be seen below.  

source: Distimo.com App Analytics firm owned by App Annie

Back in 2011, I wrote a piece entitled Could Nintendo Be the Next Nokia.  It doesn't have to be that way but clearly the company is at a crossroads.  It botched the launch of the 3DS (in terms of pricing, lack of titles and misjudging the amount of interest in 3D portable gaming) and subsequently botched the launch of the Wii U as well.  Though 3DS sales have recuperated, after sharp price reductions and the launch of new titlees, and the Wii U's slate of games shows signs of improvement (Super Mario Kart 8 has crossed 1M units sold) the company faces the strategic challenge of not being present on the PC nor on mobile; two key areas of growth (the former being particularly large in China).  Moving its beloved franchises to mobile without cannibalizing DS sales should be a priority.  Nintendo's rabid fan base would no doubt move en masse to mobile to play Zelda, Mario and Pokemon.  Now all Nintendo has to do is provide a great, made-for mobile experience.  

OK great.  But what about the numbers?  Well just bringing Pokemon to iPad won't turn Nintendo around.  Clash of Clans, one of the top grossing games on iOS globally, pulls in roughly $1.2M / day according to Thinkgaming.com  from a daily user base of around 4M players and this revenue is both from iPhone and iPad users.  So if Nintendo were to launch on both devices and also add an Android version (assume the Android game would monetize around 80% of the rate the iOS game does which is consistent with other top games) you might see yearly revenues of roughly $780M.  Less Apple and Google's take you're looking at around $550M (30% distribution costs) less development costs and marketing.  For just one game.  If you also factor in that marketing costs will be far lower than normal given Nintendo's brand strength and that development of a high quality game will likely not exceed $10-15M you're looking at something far more profitable than console equivalents.  Now also keep in mind that mobile development is faster and allows developers to make changes "on-the-fly" and resubmit to Apple and Google.  This means Nintendo could potentially be launching yearly sequels of their major titles and be continuously updating existing games with fresh content (characters, missions, events).  The importance of this is that it essentially de-risks development by turning Nintendo's games business into a games-as-a-service business where games can be improved constantly and always have new content.  This is exactly the model top developers like Zynga, Tencent, CJ&EM (a top korean developer), EA and others use.  

So in conclusion, investors should rejoice regarding the news that the Japanese publisher is finally dipping its toes into the water.  Now lets just see if they can embrace mobile and bring the joy of Mario, Luigi, Zelda and others to the teeming masses of users who have been waiting so long.  Myself included. 

Google's Next Opportunity Could Spell Serious Competition for Facebook on Mobile

As I mulled over Google's (GOOG) Q2 earnings a few weeks ago I couldn't help but think that Google is still missing a huge opportunity:  helping more developers get discovered on the Google play store.

Ask any mobile app developer today what their biggest problem is and they will probably say two things:

1.  Make more money on Android
2.  Get their app discovered on the Play store

Apps have become big business for Google.  Android's +Sundar Pichai claimed that it had paid out over $5 billion to developers over the past 12 months.  Some back-of-the-envelope analysis coupled with folks I spoke with estimate that the play store will pull in between 3.5 - 4 billion dollars this year in topline revenue.  Not bad.

Impressive numbers but in reality - Google is still scratching the surface.

When it comes to discovery on Android the solution basically boils down to one thing: Facebook (FB). Every single developer I talk to, including those in our portfolio here at Signia Venture Partners, will tell you that Facebook is the biggest, most important and most expensive source of app installs they have.

The problem with Facebook ads though is that as Facebook's targeting and quality has improved, larger players like King.com (KING), Supercell, Machine Zone, Zynga (ZNGA) and others have gobbled up inventory driving up the cost of installs to levels that simply exceed the Lifetime Value of Users (LTV) for most developers. While the cost per install on Facebook today is somewhere between $3-$4 per install, in September of last year, for example, one of our companies saw CPI go north of $5 which simply wasn't sustainable for their business model.  In fact, according to data released by Superdata, between 2012 to December 2013 the CPI has gone from $1.30 to $4.36; an increase of 288%!

(source: Superdata)

The solution: the industry needs more sources of quality inventory to help bring down prices.  But while some industry watchers think Twitter (TWTR) might have the solution it's actually Google that's sitting on a goldmine: the Play store itself.

Before I joined Google in 2011, I ran marketing for a venture-backed alternative app store called GetJar (acquired this year by Sungy Mobile: GOMO).  GetJar provided an alternative to then Android market by allowing developers to distribute apps to consumers via its mobile web store.  So how did it make money?  Through advertising on the app store itself.  GetJar has an ad-based solution where it allowed developers to bid for actual placement across the store.  Developers could bid for installs by OS, handset and country and a high enough bid coupled with the apps quality score would get them featured in one of several listings either on the home page or across one of the other pages in the store (these appeared in the store as a "sponsored" listings - see below).  If a consumer then clicked on the ad and installed the app, the developer would pay GetJar the value of its bid.

(Source: GetJar homepage on mobile)

The whole model functions much like say... Adwords actually.  So imagine if Google actually added an advertising solution to the play store itself allowing developers to bid for visibility and installs directly on the store front?  What could the economics look like on the revenue side?

For starters, at GetJar about 8% of our downloads were monetizable (back in 2011) - that is we were able to get paid for those installs.  Now GetJar didn't have Google play's scale so lets say Play is only able to sell 4% of their installs. If we assume play downloads are somewhere around 2.9 billion per month (45% more downloads than IOS which is roughly tracking at 2b / month according to Statista) then we're talking about 116M downloads per month.  If we take the median CPI for Android downloads globally according to +Chartboost of around $1.10 then we're talking a high margin ads business worth an additional $1.5B a year in revenue.  Better yet, the cost side of running this business would probably be small for Google.  The existing sales team and ad ops team that currently sells Admob and other mobile search inventory would probably manage this business and 100% of the traffic comes from the store itself (so no traffic acquisition cost (TAC).

More importantly, everybody gains from this.  Developers gain a new, lower cost traffic source for their installs.  Consumers win by discovering new apps / games and other content promoted by the content owners that they might not find otherwise and Google unlocks an additional high growth, high profit revenue stream.

The only possible losers - Facebook (FB), Twitter and nearly every other app install service / ad network out there.  So what is Google waiting for? Well there are a number of reasons why they haven't taken this on.  First, it's a question of focus.  Google has been scaling at an incredible rate and has also been very busy continuously launching new verticals internationally.  Books, Movies and Music continue to expand abroad and this is surely taking up a lot of their resources.  They are also constantly working on improving payments and stability for users which requires resources if they are going to keep users happy.  Second, their could be anti-competitive reasons.  It's well known that over 90% of their business is from games.  These same game developers acquire traffic from many different sources.  Launching an ads business might be good for developers and users but it would negatively affect folks like Chartboost, Fiksu, Twitter and even Facebook.  This could be seen badly by regulators and those affected would likely cry foul.  Finally, there is always going to be the user to keep in mind.  Users might react badly to ads being injected into the store front.  Likewise, they might think Google is using their data to promote certain apps to them which, though it might be welcome by some users, would have privacy zealots running to man the barricades.

So Google must have its reasons for not launching this type of a service to date.  However, given the natural consumer and developer need I think it's more a question of "when" not "if" Google plans to launch a service like this.  The opportunity is simply too obvious to be missed.

The Smartphone Wars are Over: The War for Share of Time Has Begun

Watching the Google IO keynote today was a bit like watching a steamroller: the stats just kept coming and Android's unstoppable march continued.

While by some measure Android's global smartphone share is near or above 80% here were another set of jaw-dropping stats shared by Android / Chrome head +Sundar Pichai

1 billion 30 day active users on Android devices.  315M devices shipped running Android in Q4 2013 and 62% of tablets shipped in 2013 were running Android.

The last stat will surprise some who thought iPad still continued to have a safe lead in tablets (though they still do in terms of tablet-specific content).  When coupled with a surging number of OEM's embracing Android , the increase in computing power and the drop in customer retail prices Android saw a particular surge in developing countries in Asia where cheap Android tablets can now be had for under $60.  More importantly, Sundar shared that over $5 billion had been paid out to developers in the past 12 months - a 2.5x increase over 2012.

Some will argue Apple still wins where it counts: profit per device (or actually the fact that they are nearly the only OEM to be profitable save for Samsung) and the overall revenue of the App store and the fact that Apple's out payments to developers is probably x2 Android's.

So what?

Google isn't in the hardware business and -with the exception of Nexus / Chromebooks - never really has been.  Nexus were always considered reference devices.  A signpost to OEM partners of how to best implement Android on their devices and a showcase for Google's services.  Programs like Nexus were even eventually rolled out to other OEM's who developed limited edition stock Android versions of their flagship devices given how popular Nexus devices were among developers.  Today Android took another step forward with Android One, a Nexus like program to standardize the experience of Android to lower-end devices in the market.  A first OEM, Micromax, has already announced a sub $100 device using One targeting developing markets. As for Chromebooks, they continue to dominate online sales of laptops (as seen on Amazon) and as Google Docs now advance to allow for actual editing of Office docs on mobile devices (announced yesterday), they will make more inroads in schools and enterprises.

The truth is that the smartphone wars are over.  Google's strategy of providing an open and free OS and rallying the Open Handset Alliance to one standard (however fragmented at times) has worked beautifully.  Every subsequent generation of Android has not only been better then the last but also gained more share more quickly than it's predecessor.  Kit Kat (Android 4.4) now commands 13.6% share of Android devices according to Google while devices running Android 4.0 or higher now account for nearly 85% of all active Android devices globally.  It's important to caveat here that this data doesn't include data from China since Chinese Android devices typically don't carry Google's suite of services and don't check into their servers but still  - the reduction in fragmentation compared to two years ago has been enormous.

So where does Google go from here?  They take a page from the Cola wars of the 80's - 90's.  Back in the days when I worked at Pepsi, when Coke realized they weren't going to gain much more share of the Cola market globally what did they do?  They went for share of stomach.  They looked for ways they could provide more of their products to users as part of their overall diet not just in terms of their carbonated soda consumption.  So if you're Android / Google what's the strategy?

I call it Share of Time.

And Google IO scored a near perfect 10 on that note.  While Google announced a slew of improvements to Android including a preview of the new OS codenamed "L" the most interesting aspects of IO today for me were two things:

1.  Android's march beyond smartphones / tablets
2.  The accelerating integration of Google Services - especially between Chrome and Android

Keys to the first point were Androidwear, Android TV and Android Auto.  But it's not the fact that three of these initiatives were launched in one day that matters.  It's the way they were launched.  In the valley, one of the jokes among start-ups pitching VC's for money is to say: "Don't pitch a product, pitch a platform.  If it has the word 'platform' in it they're much more likely to invest." This is exactly what Google did yesterday. As opposed to Apple, Google's focus continues to be launching platforms at scale and all three of these initiatives reflected that.  Google's strategy for Wear, TV and Auto is essentially the same as it was for Android for smartphones: build an open, free platform for developers and form an Open Alliance of global partners to help drive the marketing of these services.  More importantly, since all these platforms run on Android, the development of applications and/or extending applications using API's to run from one environment to another is becoming increasingly easy.  Take for example Androidwear.  Google announced that if you have both a wearable and Android smartphone that when you download an app that has a wearable equivalent for your watch that this app will automatically be downloaded to your wearable device.  Better still, it will be automatically updated each time the app receives a new update from the developer.  

What really matters though is the fact you'll be using a whole lot more of Google then you did before.  How often have you had a text message only not to be able to make that call or send an email due to lack of battery?  Or how often have you avoided checking your smartphone in a meeting for fear of being rude?  Now you can use your watch (and be a bit less rude).  On the car side how many of us have hammered our steering wheel at the frustration of expensive but poorly designed in-car GPS systems (my hands remain bruised to this day)? How often have you wished you could just ask your car to play the same playlist that you have on your phone or computer? Or check what movies are playing at a nearby movie theater, buy tickets and navigate to the theatre?  With Android Auto you'll now be able to do just that.

Which brings me to my second point:  the acceleration of integration of Google services across Android.  Nowhere was this more apparent than with Google Now.  Nearly every demo yesterday showed a contextual use of Google Now across each of Google's platforms.  In the case of Android TV the user made a voice search looking for Oscar-nominated movies from 2002 to have a list pop up on the big screen with a list of movies available for purchase through Google play.  In the case of Android Auto the demo featured the user asking for the opening hours of a museum and then navigating to it. Google's strategy here is clear: Google Now is becoming the center of the user's universe to find the information they need while other Google services enable them to act on that search result.  In the meantime, as Google increases the number of touch points it has with us in our daily lives, it learns more about our needs and provides ever better search results and more refined targeting for advertisers based on context.

But Google's integration didn't end with Google Now.  As expected, Android TV will now integrate Chrome's "casting" technology so that users with an Android TV can seamlessly cast the content of their devices directly to their TV's without the need for an external dongle.  Nowhere will this be more interesting than for games.   As the demo showed yesterday, not only does your device become a portable console, but you can even play multi-player games with others across devices.  If you combine this with the sky-rocketing cost of console game development and the fact that the new generation of consoles is still nascent, Microsoft, Sony and Nintendo have cause to worry.

When I was at Google and +Sundar Pichai  took over as head of Android / Chrome one of the things I was most excited about was better integration and cooperation between the two teams.  We began to see the fruits of that collaboration in earnest yesterday.  In L for example, Google showed how open tabs on Android devices now appear more as "cards" along with open apps on the device so that users can more easily flip through their tabs without having to return to the Chrome browser each time.  More importantly, Sundar also showed a demo of Android apps now running on Chromebooks.  This was a natural progression that reflects the reality of app usage.  Users are spending more time on their phones than on their PC's (Chrome usage grew 10x in the past year to over 300M mobile monthly users) and even on phones app usage officially passed mobile web usage in terms of time spent earlier this year.

So in conclusion, Google is really after Share of Time.  They are leveraging their success and formula for Android to move beyond phones / desktops to the other areas of our lives where we spend a significant amount of time: our cars and our living rooms.  By tightly integrating multiple services across ever more daily touch points they are going to be able to understand more about us, provide us more contextual and immediate services while providing advertisers with more precise targeting data.  Even the most ardent critic would be hard pressed not to acknowledge what they pulled off yesterday.  They have the vision for how to use technology to make the world's information more universally accessible.  More importantly, they're executing on it.

X- Google play marketing boss, Patrick Mork teams up with former Activision & Kixeye heavyweights to weave Unspoken Tales

FOR IMMEDIATE RELEASE

X- Google play marketing boss, Patrick Mork teams up with former Activision & Kixeye heavyweights to weave Unspoken Tales

San Mateo, California - Patrick Mork, the former global marketing director for Google play and controversial x-CMO of indie app store GetJar, today announced the formation of a new entertainment company, Unspoken Tales.   Unspoken Tales will develop the next generation of entertainment brands derived from action role-playing games on tablets.  

“Mad” Mork, as he’s affectionately known by former teammates, is teaming up with industry veterans Alessandro Tento (former VP of Art Development and founder / GM of Activision’s Shanghai studio), Danielle Deibler (former VP of engineering at Kixeye) and Scott Foe (former CCO of Big Head Mode and a pioneer of mobile social gaming).  “We also have an 18 year veteran game designer who worked on one of the top RPG franchises joining us but he’s in hiding at the moment” hints Mork.  

A gamer at heart, Mork has been in gaming since 2001 when he started a games company in Spain focused on Lan-based gaming.  He later spent 8 years at pioneering mobile games companies i-play and glu as VP of marketing for Europe.  In 2009 he joined GetJar as employee #6 and became notorious for snatching exclusive Android game launches away from Android market (including the server-crashing Angry Birds game).  In revenge, Google hired him in 2011 to lead the rebranding of Android Market to Google play, build the marketing team and support the launch of various Play products including Music, Movies and the Play games service.  Mork left Google in July last year to work with legendary games investor Rick Thompson at Signia Venture Partners as an EIR where he began to formulate his ideas for the company.

Alessandro Tento, Chief Creative Officer, is a former VP of Art Development for Activision where he made significant contributions to the Call of Duty, Guitar Hero and Skylanders franchises among others; built and managed Activision's’ Shanghai studio; lead the creation of Activision’s central art team and built relationships with key 3rd party art vendors in Asia.  Most recently, he was GM of studios at Lakshya Digital in Singapore.  An operation he helped set up and run.  With over 20 years experience in console gaming art development,  Alessandro has also worked for industry leaders Electronic Arts, Microsoft Games Studios, Square and Sony.  

Danielle Deibler, CTO, most recently was an EIR at Trinity Ventures where she supported various portfolio companies on technology related challenges.  Prior to that Danielle led the engineering and operations at KIXEYE, a leading developer of social games on Facebook.  The engineering team grew from 12 employees to several hundred during her tenure.  On the product side, Danielle’s team was responsible for shipping several key titles including War Commander, Backyard Monsters and Battle Pirates.  Prior to KIXEYE Danielle worked for Adobe Systems where she led engineering for several successful technology transfer projects around networking and VOIP for Flash player and AIR, as well as SaaS services surrounding mobile and web marketplace technology. Danielle has over 20 years in the Internet infrastructure, networking, voice, video and interactive technology space.

Scott Foe, Chief Product Officer, is a fifteen-year veteran of the games industry who began his career as a member of the team that developed and launched the Sega Dreamcast, the world's first online games console. Foe served as Chief Creative Officer for Big Head Mode, Inc., a San Francisco-based social/mobile games studio, which was sold to PlayFirst in 2013. Foe's Interactive Achievement Award-nominated game Reset Generation was listed by Pocket Gamer beside Angry Birds as "one of the-most important handheld games of all-time," and Giant Bomb called Foe's most-recent title, Douche Defender, "one of the most-important simulations of human drama ever played.”

About Unspoken Tales

Unspoken Tales is a next generation entertainment company focused on the development, distribution and commercialization of original content for mobile devices.  The company is located in Silicon Valley, California and plans to release its first title in late 2014.

For further inquiries please email:  press@unspokentales.com