As sales of smartphones have exploded, the price for the apps that run on these phones is quickly trending toward zero, thanks to low barriers to entry and intense competition. Nonetheless, savvy developers are driving revenue by rethinking the user experience and carefully designing the payment moment. This subtle movement is up-ending the mobile app market and providing inspiration for how we might rethink the very concept of point of purchase.
Indeed, mobile phone applications are an excellent example of an “extreme market,” where fast-paced change makes emerging business trends particularly noticeable. Extreme markets can show us how business will evolve. These spaces move fast, making change more noticeable. Or they’re constrained in ways that allow hidden trends to become obvious.
For instance, we often treat point of payment as a very isolated moment in a customer flow, in both physical and digital experiences. But looking to an extreme market like mobile apps will help us rethink how the payment process is designed.
In just five years, almost 100B apps have been downloaded from the Android and Apple marketplaces. As developers and industry analysts have noted, today these app stores have so many competing apps, the best competitive strategy for a developer is to offer their app for free and earn revenues through in-app purchases during use. (Earlier this year, it was reported that 76% of total revenue generated from mobile applications came from in-app purchases.)
Designers are quickly learning that instead of asking for money in exchange for downloading the app (when the user is used to paying), it’s best to carefully design payment moments within the experience. It’s common now to be prompted to pay for new functionality, extra gameplay, or hiding those annoying advertisements.
This evolution to in-app purchases is a small shift in experience that has large implications for the developer’s business model. To earn revenue within the flow of the app, designers have to position payment exactly when the user would recognize the value. (Which means you *really* have to understand your users.) And to promote the app, developers are prompting users to rate the app after they’ve conquered a difficult puzzle, or used a feature for the first time – moments when they’re arguably most appreciative. Payment and promotion used to live outside the app experience; this evolution directly connects the experience to the business model.
As more apps have redesigned for in-app purchases, new payment interactions have emerged and revenues have surged (because if your best customers love you, they can continue to pay you.) And because developers can test and iterate to optimize their experiences quickly, there are millions of pricing and payment experiments playing out in this space every day.
Some big winners in this movement include Candy Crush, the top grossing puzzle game that charges players to play additional turns within an allotted time. Or Clash of the Clans, a “free” app that earns $671k per day from users buying in-game currency to fight battles. An app called Bilingual Child that tripled its revenue by allowing parents to unlock all additional app content with a single click, fueled by parents excited for their children to learn Spanish. These apps are winning because their payment experience complements their user experience.
What if we took a cue from mobile apps and created more fluid points of purchase, using phones or other technologies? Theme parks and nightclubs have begun to adopt experiences that allow you to link your credit card to an NFC chip, creating cashless transactions at registers. Imagine redesigning other experiences so that cash registers went away completely.
Square’s Wallet app uses proximity to allow you to pay by referencing your name at the lunch counter. Clipp and Dash are new services hoping to help small businesses make it easier for their customers to run tabs and split checks. With the technology available today, we have all the tools to redesign our user experiences, better serving customers and earning greater revenues.
The lesson in this case is clear: the point of payment isn’t just the end of a customer’s journey, but rather an experience to be consciously designed.
But this is just one example of looking at an extreme market to identify opportunities (or cautions) in other verticals. We’ve seen how daily deal offerings (like Groupon) can combine virality with couponing. We can also see how quickly evolving sectors like crowdfunding or the sharing economy — companies like Airbnb & Lyft — can help highlight trends and metaphors that we can apply to other problem spaces.
Thanks to Diego Rodriguez, Tom Hulme, Katherine Otway, and Matt Weiss for reading drafts of post.