Apps Look To Flip Monetization Switch In '12

If 2011’s headline for local news apps was that outlets needed to have one, the message for 2012 is that apps can make money, too.

Apps are moving beyond the plant the flag, swallow the development costs stage, and they’re seeing a horizon of more monetization potential past the display ads and sponsorships that have, in some cases, justified their initial launch.

But the path in that direction isn’t navigable on autopilot, experts said. For some media companies, it will involve nothing less than a paradigm shift in the way that they think about apps and their content, perhaps turning to companies like Yelp and Foursquare as innovative models. And for nearly everyone in the game, it will mean building on the promising momentum of rising mobile usage for local searches, unlocking the power of geolocation and pushing for greater clarity in the hazy world of app metrics.

“The economics of this are very muddy, and I think that one of the biggest issues I see with these apps is it’s an extremely crowded carnival,” said media analyst Gordon Borrell, CEO of Borrell Associates. “Getting attention for your great Tilt-a-Whirl is a lot of trouble and expense. You can certainly get people to ride it once, but do it on a daily basis? Maybe not.”

Crossing over from curiosity to habit is the most difficult journey an app can make, Borrell said, but also one that’s essential to its success with users and advertisers. “What’s so damned compelling in the local market that’s going to make you want to open it every day?” he said. “What is going to impress you so much about an advertisement on the app that’s going to make you want to go buy something?”

Many local news apps are currently making money, Borrell said, but it often doesn’t cover the cost of the sales effort, the initial development and the content. He noted that mobile advertising, including but not limited to apps, was still an extremely limited revenue stream for the 4,800 companies in his media database. The majority had no mobile profits; others scraped by with $5,000-10,000.

But what can they expect? After all, even Facebook has yet to net a dime from its colossally popular apps, as recent pre-IPO reports have widely publicized.

For Borrell and others, the answer lies in shifting those expectations away from the media companies themselves and toward the users and advertisers, especially the latter when it comes to revenue.

“What I really wish is the media companies would stop thinking about themselves when they think about apps and start thinking about getting results for businesses,” he said. “If the app that they want to develop gets a result for a business, then that’s what should really drive the development of it rather than the desire to push out news, weather and sports to consumers.”

For Mike Boland, senior analyst and program director at BIA/Kelsey, the user comes first. “As mobile apps begin to evolve, especially a lot of the local ones, we’ve seen a lot of the strategies so far focus on building something that’s very user-centric and getting the user end of the equation in place before there is monetization,” he said.

For media companies willing to rethink their apps’ functionality, there are a number of buoying signs in the marketplace that might encourage them. One is that ads sales are dramatically up according to app designers who also serve their ads.

“When we started, less than 5% of the available traffic was ever filled by the local property,” said Wade Beavers, CEO of Rochester, Minn.-based DoApp. “Today, we’re filling less than 50%. The good news is local properties are actually out selling and delivering local ads.”

Beavers said part of that is coming from a more incentivizing focus on digital sales within local companies. For Jason Gould, senior VP and GM of Inergize Digital in Bloomington, Minn., it’s also down to the app’s ability to geolocate users when serving ads.

“The targeting capacity of mobile is significant,” Gould said. “Part of our backfill strategy is really targeting geolocation, and we’re seeing our yield go up dramatically.”

Another positive sign for apps is smartphone users’ increasingly local focus. “Google reports that along all the mobile searches that they see, 40% of them are local queries or have local intent,” Boland said. He added that Yelp, which he closely watches, draws 7%-8% of its roughly 50 million monthly unique visitors through mobile. It might seem like a small number, but he noted that 30% of Yelp’s overall traffic comes from mobile.

“What that tells me is it’s a smaller base of users, but those users are much more engaged,” he said.

Boland said that this points to an opportunity to turn on the monetization switch, and where companies like Yelp may do so yields an instructive lesson for all local media. He believes that among such apps, “the eventual monetization is probably going to be a lot more complex and opportunistic than just throwing up some display ads.”