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Pros & Cons of App only strategy

Saturday, August 22, 2015 7:40:38 PM Asia/Calcutta

An Engineer and MBA (Finance) from University of Delhi, Mr. Tushar Kansal has served in senior positions at Deloitte Touche Tohmatsu, Brand Capital (Times of India), Aircel Ltd (in its USD 10 billion Central Treasury) and at MTS India (raised more than USD 2 billion complex structured debt from International and Indian Banks), handling high-pressure responsibilities in Corporate Finance/ Treasury. Before starting Indus B2C's Dot com ventures, he was CFO (Chief Financial Officer) of DLI (Distribution Logistics Infrastructure), owned by Guggenheim; a USD 170 billion American Private Equity (PE) Fund. Tushar was also instrumental in making bidding strategy of 3G and BWA spectrum auctions for Aircel, in which the company emerged as the top winner across multiple regions. He is an Amazon Trained E-commerce Specialist (ATES), Google AdWords Certified and Google Analytics Certified. He tweets at @TusharKansal and is on LinkedIn

Off late, we have seen a phenomenon of sorts of shutting down the website and going App-only – Myntra was the first prominent Indian e-commerce company to take this route, followed by Flipkart. Is this phenomenon going to pick pace and turn into a movement? My take.

Apart from Myntra - Zopper, a hyperlocal shopping marketplace, also recently shut down its website citing that conversion rates i.e customers making a purchase are much higher on mobile (about 2% to 3% ) than on website (about 0.3%). Dating and matchmaking site TruelyMadly did the same as it gets 97-98% of user engagement from apps. Grocery delivery firm Peppertap, says it gets 87% of its orders through its mobile app. A number of fast growing firms such as TinyOwl, Grofers and RoomsTonite started as an app only company and are doing well.

#Fact 1 - Smartphone penetration in India is deepening and mobile-based transactions are seeing a sharp growth. Majority of transactions of e-commerce companies is through mobile and this trend is accentuating

"India is set to overtake the US as the second largest market for smartphones in the world by 2016 as smart mobile devices become affordable", said eMarketer, a US-based global research firm. Globally, there will be 1.91 billion smartphone users in 2015 and increase by 12.6% the following year to touch 2.16 billion in 2016.

On absolute basis, mobile users have surpassed desktop users in India e.g Facebook’s India’s daily active users in India (DAUs) are at 55 million, out of which 49 million DAUs come through mobile (not mobile exclusive), accounting for over 89% of Facebook’s daily traffic as of December 2014.

SnapDeal mobile app based transactions rose to 65% in 2015. Flipkart’s rose to 75%, compared to 6% in 2014.

Smartphone sales are zooming and Customers use it as a first point of contact. It is widely accepted that Customers buying through mobile also stay longer and are better engaged. The mobile is the preferred way to buy things online.

#Fact 2 - Cheaper sub-5000 Rs. handsets are now coming in Smartphone mode and connecting ever larger Indian rural population with the internet. Laptop is seen as bulky and costly in comparison to Mobile. To reach this virgin rural customer, one way forward is app-only.

#Fact 3 - Mobile is not just another channel - it's a full-fledged business, a delivery address, a world which can offer latest technologies seamlessly like Virtual reality. It can also be your advisor.

#Fact 4 – On a desktop, one checks prices on a site, opens another site and compares prices. However, an App is a slightly difficult environment in the sense that to close and open a new App needs more patience and time. This slight difficulty creates a small trigger to not compare prices. And according to Behavioural economics, these small triggers significantly change customer decisions. This takes some pricing pressure away especially important in a high price-elastic market such as India.

However, this is a thin aspect and could fritter away with time. Amazon once tried charging higher from Mac users on the assumption that they could pay more, and it turned out to be a PR disaster.

#Fact 5 – An App once downloaded, keeps on springing up in front of you and hence promotes impulse buying. Also, one carries a mobile device everywhere and hence offers more chances to e-commerce companies to sell to you. It is also seen that one checks the mobile as high as 150 times a day!

Mobile app users are more engaged compared to web: Mobile app users come back to the app and transact many more times a month compared to their desktop or mobile website counterparts.

#Fact 6 - However, what truly builds engagement is the app’s shortcut on home screen, and “push notifications”. Push notifications enable companies to provide a superior, personalized experience to its customers. Since the Mobile ecosystem captures large information about each user, his interests, buying preferences etc – it provides highly contextual and relevant service.

This is different from the Desktop system since Browsers are owned by some other company (like Chrome owned by Google) – Browsers themselves, capture complete data on the user but the benefit of that goes to the Browser’s owner. However, Mobile Operating system like Android can't analyze what's going in an App and hence is a more secure environment from point of view of the e-commerce company.

The App opens a whole new world of Geo-targeting – the method of determining the geolocation of a website visitor and delivering different content to that visitor based on his or her location, such as country, region/state, city, metro code/zip code, organization, IP address, ISP or other criteria. What better way to provide to customers the best purchasing experience?

#Fact 7 – World’s greatest innovations are happening on Mobile e.g Using Watson, Fluid created a virtual shopping assistant for e-commerce firms. Unlike the present breed of recommendations, based on browsing or shopping history, this virtual assistant will understand user needs and provide advice, much like an expert salesperson would.

#Fact 8 - Maintaining both mobile and website is costly. Also, advertising on app is cheaper than the desktop version. With increasing margin pressures, online retailers want to streamline their technology spending and focus on a single platform.

Given the 8 Facts above, Myntra’s and Flipkart’s move to App-only strategy seems eminently wise. However, there are many who think otherwise.

They say that Flipkart, after going app-only, will follow Amazon's Kindle strategy and integrate vertically with its own hardware, a dedicated software and an entire ecosystem around it. Innovations like cash-less transactions, an app which can function in negligible bandwidth, geo-tagging et al will likely follow suit.

Something strange also catches the keen eye of these market followers - Shortly before Myntra announced its app-only move, Flipkart signed up for Airtel Zero. The tie-up would have let its customers use its app, without having to pay Airtel for the data. Flipkart, after days of vigorously defending its move, opted out when it saw the public mood turn against the so-called violations of net neutrality. Yet, the episode led to the theory that Flipkart was trying to use a combination of the app and Airtel Zero to score a point over its competitors.

Some also say that regular desktop-based e-commerce cannot be ignored. Lacs of professionals are on the Desktop 8-9 hours every day in their offices! Can a Flipkart afford to ignore this knowing many will migrate to a Snapdeal instead?

Some customers point out that Smartphones support only limited Apps and once overloaded, hangs and craves for memory and battery. They also point to the high uninstall rate for apps. Checking pricing of an iPad Air – a 16 GB storage model costs USD 499 whereas 32GB model costs USD 599. This means that the extra 16 GB costs INR 6000. Not loose change!

From a Finance perspective, valuation of m-commerce companies is running ahead of pure-play e-commerce companies – given the steep USD 15 billion valuation that Flipkart has been given, carrying m-commerce multiples can lend greater justification to its hefty price tag.

The biggest pointer to App-only strategy being a colossal mistake, is the latest from WhatApp! One of the biggest mobile only app, it moved to Desktop recently! From that angle, app-only takes away the choice and does not seem to be the right strategy, going forward.

In all, I think that the final word is yet to be written whether App-only is the right way forward – The outcome of Myntra and Flipkart will point the right way out.

 

Posted in News By

Tushar Kansal

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