The second mobile cycle

A refrain commonly posited by mainstream technology news websites is that the “mobile cycle” — that is, the torrent of mobile-focused consumer technology software companies that started as smartphones proliferated — is over. The most popular consumer-focused technology blogs generally cater to investors: absent an explicit industry focus, a “tech blog” defaults to indulging venture capitalists. When investment opportunities dry up for any given sector, the center of editorial gravity for a mainstream tech blog needs to evolve to whatever else could conceivably come “next”.

This makes perfect sense. But while many people, having pronounced the app store dead, shifted their attention to chat bots, AR/VR, voice devices, etc., something interesting took place: the second mobile cycle. If mobile cycles are defined by the combination of the form of content interaction that successful participants deploy and the business models that drive the monetization of that content, then it’s almost undeniable that the first mobile cycle has given way to the second: that a fundamental change has taken place within the app economy.

The first mobile cycle was characterized by freemium apps, primarily games, building massive audiences and monetizing their users via in-app purchases and advertising. The second mobile cycle is characterized by a much more diverse set of apps building more modestly-sized, better-retaining audiences and monetizing them via subscription packages (as well as with in-app purchases and advertising).

It’s almost impossible to deny that a tectonic shift has taken place. For one, the Top Grossing chart has thawed: from 2013 through 2015, the Top Grossing chart was dominated by a small cohort of 2012 / 2013 vintage games. The Top 10 Grossing positions in the US are now split evenly across games and subscription-powered services:

Many of these apps are streaming services. Streaming video has exploded on mobile as data has become cheaper for consumers across the world. One example of this is the EU’s decision to ban roaming charges across the 28-member states, which was implemented this past summer. But mobile data prices are decreasing everywhere, from Nigeria to China to India. Data-intensive streaming used to be restricted to wifi-connected use, but with declining data prices, many smartphone owner are now able to stream rich media content all the time.

This is reflected in consumer media consumption habits in the US: fewer people are buying movie tickets, more than half of teens stream full-length shows and movies digitally, and the “cord nevers” (people who have never subscribed to a traditional television package) represent nearly 1/5th of the US population.

And the boom in mobile subscription pricing — which will likely accelerate as Google just last week matched Apple’s policy of reducing the platform fee on second-year subscriptions by half — has created opportunities for app developers to generate significant, Top Grossing-levels of revenue from relatively moderate scale. Tinder, for instance, has approximately 25MM monthly active users and is now consistently a Top 5 Grossing app. While 25MM is a massive audience on an absolute scale, compare it to the 100MM daily active users of Clash of Clans (which probably translates to roughly 200MM MAU) or to the 65MM monthly active users of Pokemon Go.

This shift in mobile behavior has created real opportunities for companies participating in the second mobile cycle: subscriptions offer developers a more reliable stream of revenues than IAPs to buy traffic against, and the streamability of mobile video has unlocked an important new content format for category leaders and startups alike. What’s more, the transmogrification of the largest content channels on mobile into distribution platforms — such as Facebook building its own app store — has allowed content creators to monetize their work without needing to build out distribution channels themselves. This has created new tensions which may spill over into outright hostility in the near-term future, but it has also catalyzed a new wave of startup formation built upon these new mobile monetization models.

Photo by Blake Richard