This document provides an overview and analysis of the mobile applications market and opportunities for investment. It discusses recent trends driving growth in mobile apps like open platforms and payment systems. The market size for smartphones and apps is growing rapidly. While many apps are downloaded, retention and monetization rates are still low. The document evaluates business models and investments in different app categories. It also provides considerations for making successful investments in mobile apps, focusing on social, entertainment, and viral features. In the last section, it introduces the investment firm b-to-v and their approach to investing in startups.
fundamentals of corporate finance 11th canadian edition test bank.docx
Mobile Applications – Market Evaluation and Opportunities
1. Mobile Applications – Market Evaluation and
Opportunities
prepared for b-to-v Core Croup Internet and Mobile
St. Gallen, March 2009
2. Agenda
1. Recent Developments and Trends
2. Market for Mobile Applications
3. Recent Investment Activity in the Mobile Space
4. Blueprint of an attractive Investment in Mobile Applications
5. About b-to-v
p. 2
3. Trends for mobile applications
– Open Platforms:
New development frameworks focus stronger on web technology (Apple
iPhone, Palm Pre). Hence, easier deployment of applications that do not be
customized for each mobile, such as with J2ME or Symbian.
– Open Shops:
Strong limitation of former operating systems in distribution of applications.
Changing environment with Application Stores of Platform Manufacturers (e.g.
Apple App Store for iPhone) or Download Platforms, such as GetJar
– Payment:
Easier setup of transaction-based business models with higher revenue shares
for developers
Creating a new Ecosystem for developers
p. 3
4. Fostered by an improved environment
– Broadband Speed:
Higher penetration of 3G+ in developed countries allows PC-like surfing behavior
on mobile phones plus broader WiFi coverage.
– Flatrate data plans:
User having more cost control on their data usage with flatrate plans or at least
much cheaper data plans with high volume.
– Better handsets:
More elaborate smartphones with more convenient usability (e.g. touch screens)
becoming more accessible to the mass market, esp. the ones based upon low-
cost open source operating systems, such as Android.
p. 4
5. Business models shifting to Device Manufacturers
– Former portals of mobile operators’ (MNOs) have not appealed to consumers
– Only new capabilities and functionalities of smartphone handsets haven driven
up mobile internet usage significantly
– Device Manufacturer become more independent from MNOs and are able to
dictate the terms (e.g. exclusive distribution of iPhone with selected MNOs)
– Manufacturers are actively fostering this new ecosystem through own venture
activities (iFund, Blackberry Partners Fund, Android Developer Challenge are the
most recent ones with over USD 250m+ funding volume), previous activities
from Nokia, among others
p. 5
6. Agenda
1. Recent Developments and Trends
2. Market for Mobile Applications
3. Recent Investment Activity in the Mobile Space
4. Blueprint of an attractive Investment in Mobile Applications
5. About b-to-v
p. 6
7. Development of worldwide handset market
– In 2008, 1.27bn new mobile handsets shipped worldwide, thereof 14% smartphones
– Nokia being dominant market leader with nearly 40% worldwide market share overall
– However, in strong growing smartphone segment loosing market share to Apple and RIM
(in 2008 Apple alone sold 13.7m iPhones)
Sources: ABI Research (2008), Gartner (2008)
p. 7
8. Game-changing iPhone in mobile internet usage
– The iPhone significantly has driven customer attention to the mobile web, even
stronger expected with greater 3G coverage
– No other device is used more for web search, email, music and social networking
– Hence, mobile internet usage is becoming a mass market phenomena– partly
thanks to the iPhone: Alone in Germany 20% (worldwide 16%) of mobile
subscribers are using the mobile internet, in the US even 35% do so daily
Sources: ComScore (2008/2009), TNS (2009)
p. 8
9. Consumption Patterns of Content and Applications
– In part due to social networking and internet commerce, smartphone users are spending an
average of more than 4.6 hours per month browsing the mobile web in the US and nearly
2.5 hours per month in the UK
– Thereof, in the UK user spent alone 1h 44min per month browsing on Facebook
– Content looked for in the mobile internet: 1) Search, 2) News, 3) Music, 4) Social Networking,
5) Weather and 6) Sports (according to TNS survey)
Sources: M:Metrics (2008), TNS (2009)
p. 9
10. iPhone App Store: From 10k to 20k+ apps in 73 days
– Most efficient ecosystem for mobile apps worldwide (over 25k apps listed as of mid Mar 09)
with very dynamic pricing (mostly expressed in price reductions)
– Since launch of App Store in July 08 in total 1.2k applications were pulled for various reasons
– Over 1/3 of apps are in Gaming and Entertainment, about 75% of all apps are paid-apps
Games
Entertainment
Utilities
Education
Productivity
Lifestyle
Healthcare and Fitness
Books
Reference
Travel
Sports
Music
Navigation
Business
Finance
Social Networking
News
Photography
Weather
Source: iPhone App Store USA (as of end Nov 08)
p. 10
11. Most downloaded iPhone apps
– Overall 800m downloads as of mid Mar 09 (up from 500m end of 08), thereof about 25%
Games
– Recognition only through listing on “Top 25/100” (at least 20k/5k downloads needed)
Source: iPhone App Store USA (as of end of 08)
p. 11
12. But no sustained usage – for both free and paid apps
– For free/paid apps, only about 20/29% of users return after the first day after they
downloaded it. By 30 days out, less than 5/3% are using the app.
– By category, entertainment and gaming apps seem better to retain an audience over a
longer time.
– In terms of time spent gaming apps reveal 2x higher engagement than other categories.
Source: Pinch Media (Feb 09), based on 30m+ downloads
p. 12
13. Leaving questions open for the right business model
– Assumption: Free apps are used 12 sessions per user and run 6.6x as often as paid apps
– Compared to the average of USD 0.70/user for paid apps a free app with this assumed
80 sessions would need to command at least a CPM of USD 8.75 in order to earn through
advertising (one ad per session) as much as a paid app on a per user basis
– However, current iPhone app ad rates are between USD 0.50 and USD 2.00 CPM
– Conclusion: Only <5% of apps are suitable to make money through advertising
– Open questions for the right business model:
– Charging for apps might to seem better at first
– Trying to make the app more sticky, and hence increase usage
– Benefiting from network effects in order to attract more users
– Targeting the right users in order to command higher CPMs
Source: Pinch Media (Feb 09), based on 30m+ downloads
p. 13
14. Agenda
1. Recent Developments and Trends
2. Market for Mobile Applications
3. Recent Investment Activity in the Mobile Space
4. Blueprint of an attractive Investment in Mobile Applications
5. About b-to-v
p. 14
15. Analysis of venture investments in mobile space (1/2)
– Tracking worldwide mobile-related VC investments from June 07 to Feb 09
– In total 360 deals, thereof 159 in Mobile Apps and 31 in Mobile Advertising
– Average investment per deal in Mobile Apps USD 8.5m, in Mobile Advertising
USD 10m respectively
– With regard to newly established funds of manufacturers an increased deal
activity can be seen with significant average investments per deal, e.g.
– iFund (in cooperation with KPCB): USD 6.85m (6 deals done to date)
– Blackberry Partners Fund: USD 5.7m (3 deals done to date in mobile apps)
– Android Developer Challenge: USD 187.5k (20 projects funded to date)
Source: Own analysis
p. 15
16. Analysis of venture investments in mobile space (2/2)
– More mobile apps in entertainment* and with social neworking features
attracted funding than apps in other categories; productivity apps being the
third most important category
– Location-based features complement more and more funded mobile apps
Entertainment
Social Networking
Productivity
Location-based
Gaming
eCommerce
Video
Music
Communication
Photography
Security
Travel
Search
Money
Sports
* Entertainment category also comprises lifestlye apps, such as dating.
Source: Own analysis (double entries possible for categories)
p. 16
17. Selected mobile apps in Entertainment and Gaming
– Gaming apps with music and social features focussed on iPhone
– Most popular game for iPhone and iPod touch in 2008 (total unique installs per month: 5m+,
100k paying customers as of Dec 08)
– Business Model: Freemium model (free apps with advertising and paid apps) plus affiliate
revenues
www.tapulous.com
USA, Palo Alto (CA) – Financials / Funding: Break-Even in Dec 08 / funded with USD 1.8m from angel investors
(Andy Bechtolsheim, Marc Benioff, Jeff Clavier, Katrina Garnett, Khosla Ventures, among others)
– Take-away: Addictive products create strong community for viral effects
– Developer of premium 3D mobile games since 2004, business relationships to 160 mobile
operators worldwide
– For iPhone and iPod touch significant number of downloaded games with high conversion
rate to premium
www.fishlabs.de – Business Models: Channel sales via operatators and portals & direct sales such as through
DE, Hamburg download platforms (for App Store: freemium model)
– Financials / Funding: funded by Neuhaus Partners and angel investors
– Take-away: Direct sales activities on platforms have higher gross margin with greater upside
than through channel partners, they only recently peaked thanks to transaction model of the
App Store
p. 17
18. Selected mobile apps in Social Networking
– Worldwide leading social network
– 180m active registered users, 220m unique users as of Dec 08 (thereof 20m via mobile
platforms); Facebook for iPhone/Blackberry has 5.4m/3.7m active users per month
www.facebook.com – Working on own mobile development kit for Facebook apps, recently introduced Facebook
USA, Palo Alto (CA) Connect for iPhone allowing third-party apps to integrate with Facebook‘s social network
– Business Model: Advertising
– Financials / Funding: USD 300m revenue (2008e) / funded with USD 516m by Greylock, Accel
Partners, Microsoft, among others
– Take-away: Social networking on mobile will be dominated by Facebook (followed by
MySpace), thus all major mobile operators are in cooperation discussions with Facebook
– Mobile entertainment network with social networking features and multiplayer games (only as
Java app), operating since 2007
www.qeep.net
DE, Cologne – 1m registered users with high activity level (as of Feb 09)
– Business Models: Advertising and premium features (item-selling, skill-gaming)
– Financials / Funding: Advertising revenues since Dec 08/ funded by Bertelsmann (BDMI)
– Take-away: Most users are in emerging markets, such as South Africa, Indonesia or India,
and as such offer only lower CPMs in advertising; hard to monetize through advertising solely
p. 18
19. Agenda
1. Recent Developments and Trends
2. Market for Mobile Applications
3. Recent Investment Activity in the Mobile Space
4. Blueprint of an attractive Investment in Mobile Applications
5. About b-to-v
p. 19
20. Considerations for investments in mobile apps
– Focus on social apps with an entertainment character (e.g. multiplayer games)
– Productivity apps are mostly an extension of existing web services, otherwise an
online interface is mandatory
– Usage of phone's features (location targeting, accelerometer, camera etc.),
especially for games
– Need to create viral features and a high stickiness in order to foster distribution
and extend usage
p. 20
21. Discussions of mobile apps development in general
– Are mobile apps just extensions of existing web services?
– Which applications cannot be substituted by online ones accessible through the
mobile web browser? (just games?)
– How scaleable are applications? Just one-trick ponies from garage developers
– What is the upside potential of mobile apps? Compare recent sales of mobile
apps, e.g. MindMaker to MindMeister
– It is still difficult to find sustainable business models that scale. What are
alternatives to mobile advertising? (subscription vs. transaction-based)
– What will be the future strategy of Mobile Network Operators (MNOs)? M&A of
traffic-rich apps?
Specialization and portfolio of apps in this category
needed for differentiation, critical mass and upside
(e.g. in Gaming, Productivity or eCommerce)
p. 21
22. Agenda
1. Recent Developments and Trends
2. Market for Mobile Applications
3. Recent Investment Activity in the Mobile Space
4. Blueprint of an attractive Investment in Mobile Applications
5. About b-to-v
p. 22
23. b-to-v at a glance
– At the heart of what we do is the b-to-v Investorenkreis, an exclusive circle of
entrepreneurial investors from Europe
– b-to-v renders exclusive services to members of the b-to-v Investorenkreis, e.g. it
enables the confidential sharing of investment opportunities, supports the
processing and structuring of deals, and helps to manage and control
investments
– Admission to the b-to-v Investorenkreis is granted only to candidates who have
proven their business acumen, investment expertise, and personal integrity
– Our approach gives entrepreneurs the unique opportunity to discuss their
ventures and financing needs with senior entrepreneurs, benefit from their
experience, their networks, and receive funding from them
p. 23
24. Cornerstones of the b-to-v Investorenkreis
– The b-to-v Investorenkreis has 54 members
– Members come from various industry backgrounds (e.g. high tech, internet,
telecom, clean tech), and have
– founded > 100 companies
– and have invested in > 1’000 deals
– sold > 300
– realized > 100 IPOs
– In sum, the members’ annual direct equity investments volume amounts to
EUR 20-25m
p. 24
25. Co-Authors
Florian Schweitzer (Partner) co-founded Alexander Stoeckel (Investment Manger)
b-to-v and built its network of private holds an MBA from the University of
investors since 2000. He studied Business Oxford. Prior to b-to-v, he worked as
Administration at the University of fund-of-fund manager and as executive
St.Gallen. management assistant.
Sven Eppert (Investment Manager)
studied Business Administration at the
Catholic University Eichstätt-Ingolstadt
and the Warsaw School of Economics.
Prior to b-to-v, he worked in asset
management and in consulting.
p. 25
26. b-to-v overview
BrainsToVentures AG
Blumenaustr. 36 / P.O. Box 142 Dr. Jan Bomholt, Partner and co-founder
CH-9004 St. Gallen
Dr. Christian Schütz, Partner
Contact T: +41 71 242 2000
Florian Schweitzer, Partner and co-founder
F: +41 71 242 2001
www.b-to-v.com Christoph Schweizer, Partner
info@b-to-v.com
Dedicated people 54 members of the Investorenkreis
Core personnel 8 investment professionals
Deal flow p.a. (average) 1,500 business plans
Deals done p.a. (average) 20
Investment strategy Opportunity driven
Geographical preferences Europe, USA and Asia
Financing stages Early stage, expansion stage, and later stage, as well as MBI and MBO projects
Most recent Exits Three IPOs (XING, Codfarmers, Fidor) and three trade sales (Cycleon, myBet, Plazes)
p. 26