Are Mobile Apps A Business?

(MoneyWatch)  That's the subject of a session at next week's CTIA Wireless IT and Entertainment conference in San Diego, and has been raised as well by controversial results from a recent poll measuring click-through rates for mobile ads.

In a nutshell, the question is whether mobile applications have staying power as a business model, or whether they're this tech generation's version of ringtones. This issue goes beyond the businesses of the mobile app vendors themselves and gets to the strategy of the device makers that host those apps. Apple has built its entire marketing campaign for the iPhone around the number of apps in its app store, and Research in Motion, Nokia, Palm, not to mention Qualcomm, Verizon and, most recently, Intel, have jumped into the fray. But if it turns out that mobile users don't click on the mobile ads that support those apps, then what happens to that strategy? Either the device-makers would have to subsidize them, or develop them internally, both alternatives leading ineluctably to a reduction in the number of available apps,

The study, from Massachusetts online marketing agency Chitika, concluded:

Of the 92 million impressions cited in the study, approximately 1.3 million (1.5%) came from mobile browsing. While non-mobile held steady with a 0.83% clickthrough rate, mobile as a whole pulled a mere 0.48% ?€" just over half of the average-- It appears given the numbers that mobile users are not receptive to advertising -- a phenomenon that is not surprising, given the mobile users' propensity to be searching for quick answers or directions.

Kim Dushinski, a mobile marketing strategy consultant, took issue with that study, noting that the study simply demonstrated that mobile users are unlikely to click on mobile ads that were actually designed for desktops.

You cannot simply force desktop ads onto mobile devices and then cry out that no one is clicking on them. It doesn't make sense-- That would be like airing an audio only ad created for radio on TV and then claiming that radio ads don't work as well as television commercials-- What the Chitika study really taught us is not that mobile users don't click on ads, but that mobile users require ads specifically created for mobile use in order to click on them.

Of course, Dushinski's business is also dependent on the success of mobile ads, so I tried to get some kind of independent verification. As you might imagine, most app vendors keep their revenue and click-through rates pretty close to the vest, but I did find one large app vendor willing to share numbers as long as I kept his name and company to myself.

So you'll have to trust me when I say that the company is successful enough to offer a representative sample, and is present on a number of platforms. Here is what the CEO of this company wrote in an email:

Today I'm seeing an average 1.21% click thru rate and an average of
$3.57 eCPM-- The top app today is seeing a 6.37% click thru rate and a $22.06 eCPM-- If you know traditional Web site rates, this is pretty extraordinary.

Even people who say there's no such thing as a "typical" click-through rate would agree 1.21% isn't too bad at all. Digital marketing guru Adam Boettiger blogs:

What should you use for Worst-Case scenario? 0.1% sounds good to me. Whatever you use, understand that many advertisers online consider a good response to be 0.5% or higher. 1% to 2% response rate would be great.

Sounds like a business to me.