The mobile single-purpose app strategy

Thin wedges can be valuable icebergs.
BY Taylor Davidson | March 9th, 2014
My Homescreen, March 2014

Me, talking about Facebook’s unbundling strategy in Crain’s:

Mr. Davidson sees acquisition possibilities for New York startups down the road as Facebook looks to further “unbundle” its experience into single-use applications, the way the social-media giant has done with messaging and photography, he said. For instance, Facebook might invest in apps for location services and contact management— areas where New York startups show strength.

There has been a lot of great analysis of the strategy behind unbundling Facebook’s user experiences, specifically around mobile, into a portfolio of single use applications tied to specific user experiences (see Techcrunch and Stratechery to start). Built and bought, the first examples are easy: Instagram for sharing photographs, Poke for ephemeral photo sharing, Messenger for Facebook Messaging, Paper for content consumption (Facebook social content as well as selected publishers), and of course WhatsApp for mobile OTT messaging and (soon) voice calling. Even if some of the Facebook-built apps have struggled, the strategy is clearer: Facebook is building a conglomerate of social services, and I see the opportunity for Facebook to continue to build products internally or buy startups across a wide range of areas, including contacts, calendar, location services, groups, events, payments, and more.

But why unbundle? There’s a couple user interface and experience reasons why single-purpose apps are currently winning on mobile. The touch interface of mobile smartphone operating systems makes it easy to survey multiple applications to select from: easier than opening up a single app to dig through a menu and list of features. Portals haven’t work on mobile: in many ways, the phone itself is the portal.

Additionally, mobile operating systems unlock a data platform for specialized mobile apps to leverage in a way that isn’t possible on the desktop today. Contacts, calendar, photos, location, storage, and more are all available for an app to access with ease, and that accessibility makes it easy to build a valuable specialized application on top of mobile platforms. In the same way AWS enabled people to access computing resources at a vastly lower cost structure than before, and helped spawn a movement of cost-efficient startups, iOS and Android have enabled people to access mobile data resources at a scale not accessible before, and has helped spawn a movement of life-efficient apps.

In other words, there’s a reason everyone’s pitching an Uber for something.

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Specialized, single-purpose apps win in mobile by being thin slices of value creation, instantly accessible, instantly valuable. But what’s the broader impact of a single-purpose app world?

For one, the problems of customer acquisition and engagement are magnified. In a world where customer acquisition and engagement on mobile are major challenges (read a million other articles about the problems of app store discovery and search, download metrics and tracking, and more), the proliferation of single-purpose apps increases the competition for homescreen and top-of-mind share. In 2012, the average person had 41 third-party apps installed on their phones, and there’s a lot of competition to simply be installed, let alone be on the limited homescreen space.

Second, single-purpose apps amplify the amount of siloed data and reduce the data scale held by any one app. Data, data, everywhere, but all in silos. Single-purpose apps build deep understanding about interactions about our actions and behaviors in very specific ways (i.e. what we read, what we listen to, how much we work out, where we go), which makes them very powerful sources of data, but also locks that data away from other apps.

Of course, those are problems that can be fixed. Not all single-purpose apps are alike: there’s a big difference between a single-purpose company and a multi-purpose company with a suite of single-purpose apps. Facebook, by taking the later strategy, is looking to expand their share of the homescreen by unbundling their products, and pursuing a "social conglomerate" strategy by using separate products and brands to reach difference use cases, demographics, and desires.

This allows them to tackle customer acquisition by leveraging their suite of apps as distribution channels for their own apps (something the gaming apps do successfully), and also to tackle the data problem by building a rich set of insights and data about interactions across the entire suite of their apps.

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The social networks aren’t the only ones with that potential. In my post about OTT messaging apps last fall, I focused on the potential for messaging apps to be advertising and brand-supported businesses. What I didn’t highlight as clearly was the potential for them to be broader platforms themselves. If you’re spending all your time in a messaging app, why shouldn’t you be able to accomplish other things inside of them?

Gaming has been the first realizations of messaging apps’s platform strategies. Line uses their messaging service as a distribution channel for games, which contributed 60% of their $338 MM in revenues in 2013. Kakao Talk Games made $311 MM in revenues in the first half of 2013. Kik went beyond distribution and built a more robust platform strategy, building ways to deliver content directly into the app, including a browser and a gaming platform for companies like Zynga to build games natively into the platform.

And gaming is the tip of the iceberg. For example, WeChat recently integrated Didi Dache, a popular taxi-booking app in China, and boosted registered users from 20 MM to 40 MM, and a number of banking and payments integrations are on the way. It makes sense: take something everyone uses every day for communication, and build more functionality and utility into their experience.

The struggle with this strategy, of course, is that the deeper integrations and feature creep is what causes people to run back to single-purpose apps. Businesses want to leverage eyeballs for distribution, but for people, efficiency and utility is what wins, and that’s what single-purpose apps have in spades. If the core phone operating system already provides the resources and integrations that new apps need to be valuable in the short-term, are networks the only long-term value that apps provide?

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So, how far will unbundling go?

There’s a marginal benefit / marginal cost assessment that every person makes when they decide to test, and then use, a new app. We have to decide if the value of this app is worth creating an account for, worth granting access to our contacts and data for, worth spending time learning their particular user interface, and worth spending the time building the app into our routines. That’s hard for a person to do, and it’s hard for an app developer to understand, and I think that’s why it’s really hard to judge beforehand (as an investor) which apps will take off and which won’t.

For Facebook and Twitter (and perhaps LinkedIn), the math is a bit different: as public companies with business models to support and shareholders to appease, their single-purpose app strategy is a bit different than a new startup just trying to get on someone’s phone. Building single-purpose apps to testing feature sets and usecases can be far easier, cheaper and cleaner than changing the headline app. And single-purpose apps in the conglomerate can operate under separate brandnames, unburdened by people’s preconceived ideas and associations with the headline app.

As long as the acquisition opportunities are there for successful single-purpose apps, venture money will continue to fund the space. Thin wedges can be valuable icebergs: meaning, single-purpose apps are wedges that get on to a person’s phone and into a person’s mindset and daily workflow, and can then be built into far larger products and value propositions afterward. Easy to build, easy to test, easy to kill if they fail, and also enormously valuable if they succeed.

Unbundling and bundling is an age-old cycle due to repeat. The important thing is to recognize what part of the innovation cycle you’re in, and strike your own strategy accordingly.

Building a new app? Just remember: thin wedges, big icebergs.

Related, Why Mobile Unbundling isn’t Inevitable and [Why Deep Linking Matters](Why Deep Linking Matters)