THE MOBILE CLIFF…
Your writer is in New York this week and speaking with a few entrepreneurs and investors, and a single word comes up again and again : mobile.
Now that’s pretty obvious–mobile has been huge for years.
But the word comes up more and more often, and–this is a first–with a tinge of fear.
According to our sources, here’s the problem:
- Many of the world’s biggest websites have all-but stopped growing on the desktop web, even as they keep growing on mobile.
- For many of these services, within the next year or eighteen months, mobile will be half of their traffic or more.
- And here’s the rub: these companies are either competing with very strong mobile upstarts (think of all the sites that have a strong photo-sharing component…) or facing a much more challenging monetization universe, with eCPMs a fraction of what they are on the web (particularly for content sites).
Call it THE MOBILE CLIFF.
For many services, they are seeing a situation where the much-faster-than-expected rise of mobile. And given the monetization picture, some large websites are facing going out of business within two years.
In particular, for content websites already operating on very thin (or negative) margins, a revenue mix where most of the revenue and all of the growth comes from lower-producing mobile spells a future where they go out of business.
For years now content websites have relied on desktop screen real estate to jam up their sites with more and more, and more colorful, ads. On mobile, with small screens and smaller bandwidth, that’s not possible.
But the problem with mobile monetization is much deeper than that.
While there are some new opportunities in mobile monetization such as in-app purchases and app downloads, mobile does not generate a lot of additional purchases. If you go to Amazon.com on your iPad to buy your Christmas presents instead of on your PC, that is a “mobile” purchase, but that is not a purchase that is driven by mobile. Mobile did not make you buy more stuff.
The reason why this matters is that, at a macro level, the amount of money spent on advertising is driven by the return advertisers get on that money, which itself is driven by purchases. Mobile leads to a lot more impressions and pageviews, but if it still leads to the same overall number of purchases, that means that the total digital ad spend is going to get that much diluted over many more impressions. Which means that for any given service, all else equal, the same amount of impressions will lead to much lower ad revenue.
Another threat from the mobile cliff is unbundling.
One of the commonplace (and true) things that is said about the web is that it “unbundles” services that used to be bundled in the outside world. For example, newspapers bundled news, entertainment, advertising, listings…and the web unbundled them.
And now mobile is doing the same to the web. Think of Facebook, whose main use cases include sharing photos, sharing status updates, and instant messaging. Now people share photos with Instagram, share status updates with Twitter, and IM with WhatsApp. Just as newspapers with the web, once-cutting-edge services have to wonder about radically rethinking their service or risk sliding into irrelevancy. No wonder Tumblr came out with a photo-sharing app (Photoset) and Facebook acquired Instagram. (We have reports on Facebook’s clever mobile strategy and on Tumblr’s business–click here to sign up for our pro service.)
Meanwhile, distribution and usage are even harder on mobile than on the desktop. Instead of SEO and Facebook’s social graph, developers have to navigate Apple and Google’s maddening app stores. While surfing the web, people might return to a dozen websites a day. But on mobile, increasingly people turn to just the handful of apps on their homescreen, and quickly forget the thousand other apps they’ve downloaded.
As Über-VC Fred Wilson put it in a recent post on “What Has Changed” that sent the startup world chattering:
strong product market fit is no longer enough to get to a large user base. you need to master the “download app, use app, keep using app, put it on your home screen” flow and that is a hard one to master.
It is, indeed.
Because of the app store’s distribution dynamics, the lucky few winners that sit at the top of the rankings get bigger from being there, and it is much harder for everyone else to break out. The long tail is much, much shorter.
Obviously, every disruption creates winners as well as losers. Services that have “native” business models that are platform agnostic will win (or be relatively unscathed). So will services that are “mobile first”, and obviously services that “unbundle” successful web apps.
We spoke with an entrepreneur recently who has a thriving mobile company and has been starting web companies since the early days of the commercial web. “It’s incredible,” he said. “We’re having to relearn everything. Distribution, SEO, design, usage… After 15 years, we finally thought we had understood the rules and gotten good, and now we have to relearn everything.”
After the so-called “fiscal cliff”, behold THE MOBILE CLIFF…
Over the next few months we will be exploring the mobile cliff and its implications, both on this free website and in our pro service. Click here to sign up for our pro service.