Fred Wilson of Union Square Ventures thinks mobile economics will mirror web economics:
I think it means the mobile is slowly but surely moving to a web model. And as that happens, it is important to think of it as one big web and lots of devices and software accessing it. Lots of devices means billions of devices accessing largely free content and applications with advertising and freemium and commerce and virtual goods and many other business models generating trillions of dollars for developers. Just like the web, but even bigger and more exciting.
John Casasanta disagrees; he thinks Apple’s App Store, which enables anyone with an iTunes store account to instantly purchase applications, has made micro-payments a reality:
Fast-forward to 2003 and Apple incorporating music purchasing into iTunes. In its 7.5 years of existence, Apple’s managed to grow its number of users to several hundred million and many of these users have iTunes Store accounts, complete with their credit card tied to the account. It’s basically become the de-facto standard for micropayments and its impulse-buy factor is one of the most significant reasons that the App Store has become so wildly successful as it’s a dead-easy process to buy very low-cost apps on your iPhone.
He justifies his position with Tap Tap Tap’s success. Their application, Camera+, has generated over a million dollars of revenue since its release, and the people who bought Camera+ love it and are very vocal about it. They’re dedicated to it.
That’s not typical free and ad-supported applications; there are exceptions, of course, but users tend to be much less dedicated to free applications, because they haven’t invested in it.
It’s not just the money people invest in paid applications that accounts for this, either. When someone decides to purchase an application, they are making a choice to use it. They are making it their own.
That doesn’t happen with many free applications. Rather, users are simply trying them and are perfectly willing to dump them when something bothers them about it.
Paid applications (or for that matter, services) make for a better business, because users are engaged with it. It’s more stable; developers can focus on building a quality experience, and they can target very niche use-cases. Ad-supported applications, however, and services depend on scale to make adverts profitable, and thus they tend to target the mass-market.
Paid applications allow many different applications addressing the same issue to co-exist. Comparatively, it doesn’t take many paid users to support development on an application, whereas ad-supported applications require a large number of users. In this way, a paid market can support many developers that are technically competing, while an ad-supported market encourages a few applications to dominate. This is good for developers—it means more developers can have successful businesses—but it’s also good for users. This gives users more choice, higher quality applications, and ultimately, more innovative applications, too, because developers can experiment with new ways of doing things with less concern they won’t gain enough users to justify it.