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From the Magazine: Q&A: Simon Khalaf, CEO, Flurry

Tue, 08/27/2013 - 2:08pm
Andrew Berg

A mature economy and growing economy has emerged from out of the now burgeoning app stores. But like any musical artist will tell you, the competition out there is brutal and regardless of how good you are, it’s sometimes hard to be seen. App developers find themselves in the same situation and increasingly they’re returning to good old fashioned marketing fundamentals to find and retain a place on the end user’s homescreen. Wireless Week recently sat down with Simon Khalaf, CEO of app analytics firm Flurry, to find out how the app market has changed and how developers are navigating a more complex market. 

Wireless Week: Does the cream really rise to the top in the app stores, or is it entirely based on who has the biggest budget? 

Simon Khalaf: If you look at the rush to buy as much traffic so you reign, I think that game is almost gone. Most of the buyers are LTV-driven [Lifetime Value]. You cannot control organic traffic. You cannot say, ‘Well, I’m going to get organic traffic.’ If you look at the Flurry data, the organic user is among the worst user you can have, because they are window shoppers—oh wow, an app is strange, and I download it just because it’s strange, and I look at it, and then I never use it. Retention among those users is very, very low. 

I would say Apple has done a very good job lately, so has Google, to take other signals, which we don’t know and even if we know, we will not say. But they take the quality into consideration, the retention, in addition to user reactions, and I would say that the quality of what’s rising to the top has dramatically gotten better in the past 18 months. That said, rank-based discovery never scaled, and it’s no longer what people do. I think that as the market matured, and as revenue became the big driver for applications, they’re now applying the traditional basics of marketing—segmentation, targeting and positioning—and focusing on the lifetime value of a consumer, and treating an install as a customer. 

An install is an initial interaction with a customer, so what you do after an install becomes very important. So, I think, the market has tremendously matured. You’re not dealing with kids who just want an app to rise to the top. It won’t get them leads. You’re dealing with businesses that want to be established and they want to establish a long-term relationship with their consumers—gamers included. The gamers are doing a very good job at monetizing their games. They’re including monetization in their game loop, they’re generating revenue, and they’re allocating some of that revenue to marketing. So, if there’s a word that could be said about the last 18 months, it would be ‘maturity.’ 

WW: What kind of role does social discovery play? 

Khalaf: If you look at what we do, we’ve made apps within apps to promote other apps. For instance the Facebook app, they promote other apps. There are other ways, you have social discovery where people start chatting about apps. And then they can point them to the app store. There’s Cydia, where there’s more apps than one. None of those have scaled though.

I would say the fundamentals of marketing do not change; the tools change. It’s the same thing with the Web. If you look at 1996 to 2002, most of the Web was done through link exchange, where one Web link points to the other and that’s how discovery happens. But once the discovery engines scaled—with all fairness it was AltaVista and then Google kind of hijacked the search-driven discovery—and the connecting glue became content. Then people did search-optimization for organic traffic and then they did paid search for paid traffic and they advertised those. And I think the Web has worked because content was the connecting glue between websites.

In mobile, there is very little connecting glue. It’s technically still a wide open market; application discovery, content discovery on mobile are still wide open. Let’s look at the facts. Number one, we know it’s not search, because the content inside the applications, and even on the Web, are not search-optimized, nor should it be. The experience is what matters and not the content. It’s still debatable whether it’s social. There’s very little evidence that social is what’s going to unlock discovery. As for recommendation engines, we have one. It’s paid, so it’s done through traditional forms of marketing, and I think that’s proven to be the most scalable form of discovery. 

So if you parsed Facebook’s revenue yesterday [July 25], they talked about their best producing products. They talked about three: eCommerce direct response, paid app installs, and custom audiences. The first and the third are the same. But. the talked about direct response and paid app installs as their successful wireless products, and that speaks to the need for the industry and for marketers to control their own destiny, versus relying on Apple and Google’s ranking algorithms of the day. I think that speaks to the maturity of the market, and the role of the traffic acquisition manager as one of the most important among developers. 

WW: You used the word ‘maturity.’ Does a mature market still have place for the little guy working out of the garage? And if I’m a little small developer, what’s my strategy for going to market? 

Khalaf: There’s absolutely, absolutely room for the guy in the garage. If you look at Flurry’s top 250 apps, they almost all toggled between last year and this year. So, while the time spent inside Facebook is impressive, it has not grown. Most of the growth is in developers building great applications. I mean last year, we were talking about Instagram, and we were talking about Pinterest. This year, we’re talking about Dropbox, we’re talking about Vine, and we’re talking about Supercell. All three experiences almost did not exist a year ago. Snapchat is eleven people. Vine, before they got picked up by Twitter, I think they were five people. 

Again, it’s the back to basics. It starts with a great, killer product. Then it’s about understanding your audience. And then it’s your marketing and distribution strategy. Some of it relies on organic, some of it relies on paid. You look at the gamers, which is no longer a venture-driven industry. Venture is, you build a widget and you scale it. Gaming is a one-hit wonder. You invest in the title, you produce it—cost of development 100 to 200K, cost of marketing 200K— you launch it, and if it’s successful you start making money and you allocate some of that money to marketing spend and just add water. If it doesn’t work, you move on to the next one. Hollywood has produced many movies that cost a lot to make but flopped, and they’ve produced many hits that didn’t cost a lot. It’s the same thing. Rinse and repeat. 

By maturity we don’t mean consolidation and we do not mean the indie developer gets squeezed—that’s consolidation. Maturity, from our perspective, is going back to the basics of marketing, versus trying to play games. 

WW: Do you feel like either Apple or Google are doing a better job of fostering visibility, or is it just a mark of the market’s maturity that they don’t have to be as involved? 

Khalaf: In all fairness to Apple and Google, they have told the market, ‘We are a distribution channel and not a marketing channel.’ They  have said, ‘Don’t’ rely on me as a marketing tool, what I’m offering you is a distribution mechanism. I have the consumer’s credit card, but you do your own marketing.’ 

Would I put Apple and Google as the reason that the market matured? No. I would say that the market matured because it is required to mature. People thought applications were going to be a fad, and they were passing it up, and now five years later, time spent inside applications is challenging television. So this is how content will be delivered for the next decade.  You talk to the top media companies—Disney, NBC, CBS, Fox—they’re all scratching their head, saying, ‘Oh, this is the new television.’ Most of the large retailers are saying, ‘Ah, this is couch shopping and I need to invest.’ Hey, the Victoria’s Secret app is a store in your pocket, and I need to understand when people enter that store what they do, what are they buying, what am I promoting. The market overall understood that this is not a fad. This is how delivery of goods and services, and content and entertainment, is going to happen. It’s maturity. 

WW: Can you give me an idea of how developers use Flurry’s insights to improve their marketing strategies and increase visibility? 

Khalaf: The basic concept is they integrate with the Flurry platform. Three entities within the organization will work with Flurry. The developer, who needs to understand how the app is working. The marketer, who needs to understand how the product is doing against its target audience. And then the traffic acquisition manager, who buys traffic from networks—from ourselves, from Facebook, from others, and they measure the performance of the campaign. 

So for example, I launch a campaign for my app. I get downloads, or revisits, and they say, ‘How are these users doing? Are they buying? Are they retaining? How often do they come back on a weekly basis?’ And we give them the tools to benchmark against industry average. So let’s say you have a travel app. We tell them that your retention is in the top 5 percentile of travel apps, or that what you’ve done on the marketing side, has it done better or worse than the industry average. And they can decide what that average is. So you can compare across all apps, or compare with only travel apps, or you can compare with gaming apps. It’s really up to them. 

Also, we allow them to buy traffic. So, 80 percent of the AppCircle revenue, which is our demand side product, is from app developers buying traffic. We do have a strong position in the market. I’d say Google and Facebook duke it out quarter over quarter for number one, and we’re number three after Facebook and Google in terms of the amount of traffic we send to developers. The way we know that is that Flurry analytics measures all sources of traffic. We’re in 360,000 apps, so it’s a good indication. 

The third way they can work with Flurry is on the supply side. We have a product called AppSpot, and it allows them to monetize through advertising. So all the Flurry data is available to allow the publishers to either sell their ad inventory direct, and we don’t charge them for that. 

Let’s say you have an app and you have a sales force, and you want to sell a campaign to Proctor & Gamble to promote Clairol to women, let’s say women age 18 to 25; without the Flurry data you cannot do it, with the Flurry data you can. We do not charge you for that. We allow you to send your traffic to any network you want. We optimize that for you and you can allocate some of your inventory to the Flurry marketplace. We sell that for you and we take a 20 percent fee.

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