Mobile App User Acquisition Is Cheaper But Retention Is Becoming Expensive [REPORT]

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Ever since the unveiling of the Apple iPhone and it revolutionary iOS smartphone Operating System was introduced in 2007, there has been unprecedented growth and innovation in the mobile app development scene. The tech world experienced an extraordinary “app boom” similar to the dot-com bubble of the late nineties. More and more developers got into mobile app development to capitalise on the incredible demand. After years of growth, this is now all set to change. According to usage statistics by Adobe, the “app boom” is now dead. In the ever-changing and rapidly evolving marketplace of mobile apps, the recipes for success are changing and so are the metrics to measure it.

Let’s try to make sense of the current climate of the industry, and where it is heading from here.

App Installation vs App Users’ Retention: A Paradigm Shift

A report from Sensor Tower recently pointed towards a marginal decline in year-over-year app downloads per device in the US, which fell from 35 in 2015 to 33 in 2016. The report also depicts an increase in average user spending. This data points to a stagnation and decline in bulk user acquisition, in favour of a smaller, but “higher quality” user-base with a higher spending rate.

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Fiksu’s Mobile Cost Index report paints a similar picture, with costs for user acquisition surprisingly falling month-over-month by 3% on iOS and 19% on Android. However, the Cost Per Purchaser (CPP), which is a much more effective tool for measuring user retention, was up by 21% on iOS and 4% on Android, from December 2016 to January 2017. We see that even though it is now cheaper to achieve a greater number of app installs, it is getting more and more expensive to acquire high-value users; that is, users who will make monetary purchases on the app platform.

All of this data points towards an undergoing paradigm shift in the mobile app industry. For a long while, user acquisition was the top priority for most developers and download numbers were the metrics used to gauge the success of an app. However, of late, the industry looks to be moving away from user acquisition to focus on user retention. This follows the philosophy of “Quality over Quantity”; developers are now more focused on retaining high-value customers than on a large-scale user acquisition only.

Dissecting The Reasons Behind The Shift

We must now ask the question, why has shift in priorities occurred? As smartphone hardware and operating systems have evolved over the years, so has the app development scene. The ever increasing internal storage available in phones, expanding the selection of apps along with the prevalence of Internet and data services have changed consumer habits when it comes to app usage. We now find that users have increased the ability to download a greater number of apps much faster from a saturated and highly competitive marketplace. The flip side is that this had led to the creation of a more discerning customer; users nowadays have expressed a demand for apps fulfilling specialised targeted needs, and first impressions are now more important than ever.

A large part of the reason for this fundamental shift is the emergence of the In-App-Purchases (IAP) and micro-transaction based business model in mobile apps. The basis of the IAP model is focused on user retention and engagement. Since there is no upfront fee involved, the IAP model relies on profits from ad revenues and direct purchases for extra features and an ad-free experience. This system exclusively rewards those who manage to retain their user-base for extended periods of time.

Why Focus on User Retention Over Acquisition

The mobile app marketplace is changing, and it is vital for developers to adapt in order to achieve success. According to Bain & Company, an increase of 5% in customer retention can increase a company’s profitability by 25% to 95%. Cultivating customer loyalty has multi-faceted advantages. Dazeinfo outlines that word of mouth and recommendations are the second biggest drivers in mobile app installations. A report by Go-Gulf shows that it is also considerably easier to convince existing users to commit to an in-app purchase, with a 60-70% chance of them making a purchase as opposed to a 5-20% chance of purchase for a new user.

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There is a need for a shift in mindset for many developers and advertisers in the mobile app industry. Conventional growth drivers and methodology are slowly getting outdated and outpaced by newer techniques in a variable marketplace. Traditional incentivized install systems provide very low user retention rates and an even lower Return On Investment (ROI). In-app ad installs also fare similarly. The key to a successful ROI now lies in targeted advertising, low barrier to entry, increased personalization, community integration and customer service.

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