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WorldMate CEO blog – Nadav Gur
Monday, October 18, 2010
My new Blog - The Vanguard
So it's out. While my existing WorldMate blog is still there, on The Vanguard I will be free to share my wisdom and folly on various things - from travel through mobile to managing start-ups and capital. Check it out - http://www.nadavgur.com
Tuesday, July 7, 2009
This Blog Is Moving!
I have moved my blog to the following address:
http://ceoblog.worldmate.com
See you there...
http://ceoblog.worldmate.com
See you there...
Tuesday, June 16, 2009
iPhone Users Are Predictably Irrational
Over the last year or so, I've visited the topic of iPhone Apps and what they're good for several times. I must say I've angered some of my readers who saw my resistance to this great new wave as being purely bull-headed. Now that WorldMate for the iPhone is here, and our commitment to serving users on this platform is clear, we can come back to a discussion that's a little more level-headed.
My chief concern was how the AppStore marketing platform – which consists mainly of the best-seller lists, skews the platform towards cheap gizmos. Or basically – my argument is that:
As I've spent some time writing a rather long piece - here are my main themes up front...
Now you know what I think - let me try to explain.
This discussion is by nature an economics discussion, so let's start by figuring out the "Right value" or "Right price" for the product.
WorldMate for other platforms (e.g. BlackBerry, Windows Mobile) retails for $99/yr. We've done quite a bit of price-testing before settling on this price, and we were considered one of the most successful app developers on these platforms. So you can state as a fact that:
Otherwise they wouldn't have paid, right? But of course you could always argue that these people weren't thinking straight.
So - maybe a better way of justifying the price is by calculating the economical value. What WorldMate essentially does is save you time and get you out of trouble while traveling on business. We inform you of things in advance and provide you info quickly – so you won't miss your flight, get lost, etc., and we help you optimize – for instance find another flight when you need to change your schedule, or when your existing flight was delayed / canceled. So basically what we do is save you time. Now our average customer travels over 10 times a year and probably spends around $20,000 on business trips on a yearly basis. He costs his employer around $100 per hour in general, and double that while traveling. So – if we save our customer one hour a year – for instance by telling him he can leave for the airport an hour late cause the flight is delayed, or by giving him a map to his destination which saves him getting lost – the ROI is positive. If ever we manage to get him home a day early or enable an impromptu meeting while traveling (e.g. using our Connections social network) – that's easily a 5-x ROI.
Now one may argue that we need to look at the alternative cost – what replacement products are there. Let's assume that there are 2-3 free products or mobile websites out there that could replace WorldMate for free. If it'll take you one hour to find them, or, if these products are not as well integreated as WorldMate such that over the course of a year of usage it'll take you one more hour to get the info from them that WorldMate would have gotten for you automatically – then again, you paid your $100 to get these "Free" products – i.e. you paid more than you'd have paid for WorldMate anyway. So the bottom line is I think I can safely say:
Yet another way to examine this is how much does it actually cost us – what's our cost per user?
The platform we have cost quite a few millions of $ to develop over the last five years. The iPhone app itself cost us ~$150,000 to develop and we're still spending heavily. The content costs per user are meaningful (in the cents to dollars depending on activity). Hosting costs us six figures a year. So we certainly can't be profitable on $0.70 / user unless we serve millions.
Still – the iPhone customer market sees this differently. We launched a product at a $19.99 introductory price, and while we generally like the sales figures, still we see comments like "how could this be worth $20". Wait a minute - we've just shown how the product is worth 5 times this?
So what is it? Are iPhone users less rational? - not likely; Are they underpaid? Is their time not worth as much? Not really - recent surveys from Forrester and Nielsen survey show over 39% have over $100,000 HHI.
So why do iPhone users attribute a lower value or price to WorldMate – or for that matter, any app?
The answer is as simple as it is perplexing. There's a developing field in economics called Behavioral Economics. Simply put, what it studies is how people actually behave – as consumers, deal-makers etc.. You'd think that what's economics does in general – right? Well, not really… Traditional economics assumes people are rational beings. Empirical studies show they just aren't. And Behavioral Economics tries to understand this conundrum. There's a great book in the field called Predictably Irrational, written by Professor Dan Ariely of MIT, and one of the phenomena it describes is "Price Anchoring"
Price Anchoring in simple terms is the fact that the first price you see for something, is what you'll expect it's worth, regardless whether this price makes any rational sense. I especially like the story about the experiment they did where they told people to write the last two digits of their Social Security Number next to the name of a product – as a price. And then asked the same people how much they really think the product is worth. Lo and behold – people whose SSN ended in high numbers, ended up thinking the products are worth more than did the people whose SSN ends in low numbers. Incidentally, we're talking about highly rational MIT MBA students... Further studies show that it's then very hard to change that "anchor" – the initial impression of price, no matter how irrelevant, affects the long term perception of value, or "appropriate price".
How does this apply to the App Store?
When Apple gave early iPhone developers an incentive to price everything at $0.99, it actually made its customers perceive of iPhone Apps as worth $0.99, $1.99, maybe a few $ - tops. Regardless of the actual value created, the corresponding value of the content / service or any other rational aspect.
So for most iPhone users, the equation is simple:
Oops. How do we make money in such a market? What's the long-term outlook like? Can this change over time? Does Apple care and will it attempt to change it?
Frankly, we'll see. We do have some great ideas about how to monetize, but we'll have to live and learn. I'd welcome thoughts and opinions.
Some interesting reads:
My chief concern was how the AppStore marketing platform – which consists mainly of the best-seller lists, skews the platform towards cheap gizmos. Or basically – my argument is that:
The marketplace that Apple has created does not allow a company like WorldMate to charge the a price for its product that is in line with the product's value.
As I've spent some time writing a rather long piece - here are my main themes up front...
- There are dozens of thousands of smartphone users who think WorldMate is worth at least $100 per year
- A rational ROI analysis shows that WorldMate is worth at least $100 per year
- If WorldMate is to make money on the iPhone platform – It can't do that on a few dollars per user.
- Apple's App Store set-up triggered a consumer behavior called "Price Anchoring" which makes iPhone users believe that a price of $1-2 is adequate for apps, without any real rationale
- This makes it very hard to build a scalable business on selling iPhone apps.
Now you know what I think - let me try to explain.
This discussion is by nature an economics discussion, so let's start by figuring out the "Right value" or "Right price" for the product.
WorldMate for other platforms (e.g. BlackBerry, Windows Mobile) retails for $99/yr. We've done quite a bit of price-testing before settling on this price, and we were considered one of the most successful app developers on these platforms. So you can state as a fact that:
There are dozens of thousands of smartphone users who think WorldMate is worth at least $100 per year
Otherwise they wouldn't have paid, right? But of course you could always argue that these people weren't thinking straight.
So - maybe a better way of justifying the price is by calculating the economical value. What WorldMate essentially does is save you time and get you out of trouble while traveling on business. We inform you of things in advance and provide you info quickly – so you won't miss your flight, get lost, etc., and we help you optimize – for instance find another flight when you need to change your schedule, or when your existing flight was delayed / canceled. So basically what we do is save you time. Now our average customer travels over 10 times a year and probably spends around $20,000 on business trips on a yearly basis. He costs his employer around $100 per hour in general, and double that while traveling. So – if we save our customer one hour a year – for instance by telling him he can leave for the airport an hour late cause the flight is delayed, or by giving him a map to his destination which saves him getting lost – the ROI is positive. If ever we manage to get him home a day early or enable an impromptu meeting while traveling (e.g. using our Connections social network) – that's easily a 5-x ROI.
Now one may argue that we need to look at the alternative cost – what replacement products are there. Let's assume that there are 2-3 free products or mobile websites out there that could replace WorldMate for free. If it'll take you one hour to find them, or, if these products are not as well integreated as WorldMate such that over the course of a year of usage it'll take you one more hour to get the info from them that WorldMate would have gotten for you automatically – then again, you paid your $100 to get these "Free" products – i.e. you paid more than you'd have paid for WorldMate anyway. So the bottom line is I think I can safely say:
A rational ROI analysis shows that WorldMate is worth at least $100 per year
Yet another way to examine this is how much does it actually cost us – what's our cost per user?
The platform we have cost quite a few millions of $ to develop over the last five years. The iPhone app itself cost us ~$150,000 to develop and we're still spending heavily. The content costs per user are meaningful (in the cents to dollars depending on activity). Hosting costs us six figures a year. So we certainly can't be profitable on $0.70 / user unless we serve millions.
If WorldMate is to make money on the iPhone platform – It can't do that on a few dollars per user.
Still – the iPhone customer market sees this differently. We launched a product at a $19.99 introductory price, and while we generally like the sales figures, still we see comments like "how could this be worth $20". Wait a minute - we've just shown how the product is worth 5 times this?
So what is it? Are iPhone users less rational? - not likely; Are they underpaid? Is their time not worth as much? Not really - recent surveys from Forrester and Nielsen survey show over 39% have over $100,000 HHI.
So why do iPhone users attribute a lower value or price to WorldMate – or for that matter, any app?
The answer is as simple as it is perplexing. There's a developing field in economics called Behavioral Economics. Simply put, what it studies is how people actually behave – as consumers, deal-makers etc.. You'd think that what's economics does in general – right? Well, not really… Traditional economics assumes people are rational beings. Empirical studies show they just aren't. And Behavioral Economics tries to understand this conundrum. There's a great book in the field called Predictably Irrational, written by Professor Dan Ariely of MIT, and one of the phenomena it describes is "Price Anchoring"
Price Anchoring in simple terms is the fact that the first price you see for something, is what you'll expect it's worth, regardless whether this price makes any rational sense. I especially like the story about the experiment they did where they told people to write the last two digits of their Social Security Number next to the name of a product – as a price. And then asked the same people how much they really think the product is worth. Lo and behold – people whose SSN ended in high numbers, ended up thinking the products are worth more than did the people whose SSN ends in low numbers. Incidentally, we're talking about highly rational MIT MBA students... Further studies show that it's then very hard to change that "anchor" – the initial impression of price, no matter how irrelevant, affects the long term perception of value, or "appropriate price".
How does this apply to the App Store?
When Apple gave early iPhone developers an incentive to price everything at $0.99, it actually made its customers perceive of iPhone Apps as worth $0.99, $1.99, maybe a few $ - tops. Regardless of the actual value created, the corresponding value of the content / service or any other rational aspect.
So for most iPhone users, the equation is simple:
"The adequate price for an iPhone App is $1, maybe $2…"
Oops. How do we make money in such a market? What's the long-term outlook like? Can this change over time? Does Apple care and will it attempt to change it?
Frankly, we'll see. We do have some great ideas about how to monetize, but we'll have to live and learn. I'd welcome thoughts and opinions.
Some interesting reads:
- FierceWireless: If you're trying to make money, dump your iPhone strategy
- TechCrunch: Report: iPhone Applications Are Getting Cheaper
- Silicon Alley Insider: Apple's Relationship With iPhone Developers: 'Reluctant Tolerance'
- And of course - Predictably Irrational
Thursday, June 4, 2009
WorldMate for iPhone: The iPhone App is here!
It's here. After all the debates, arguments, discussions and anxieties - WorldMate for iPhone is out there. 24 hours ago we launched both WorldMate - a free version, and WorldMate Gold - a Paid version. And these are just the first in a sting of releases planned for the next 3 months, which should make WorldMate for iPhone one of the richest and most valuable iPhone Apps out there.
Within 24 hours of launch we had over 1,000 new users. Both WorldMate and WorldMate Gold are already Top-20 iPhone travel apps. And this is just a beginning.
What does it do? Version 1 of WorldMate for iPhone provides our itinerary planner that is synchronized with the www.worldmate.com online itinerary planner, real-time flight status, flight schedules, click-thru to to maps & directions, a currency converter, as well as iPhone weather and world clocks. The Gold version automates the Flight Status function such that as soon as you enter the app you know if your flight's on time or not. The Free version is Ad-funded.
Over the coming months, we will strive to prove the thesis - there are enough serious iPhone users out there who are interested in more than gimmicks and games, to warrant the creation of this service on the iPhone.
Let's kick ass!
Thursday, April 30, 2009
iPhone musings one last time - the moment of surrender
First I was applauded, then advised, then blasted. The iPhone has changed the landscape, and I cannot ignore this any longer. Competitors like Tripit and FlightTrack are learning from us, duplicating our product, and trying to take the market away from us.
It's time we re-claimed our invention - the mobile itinerary application, and put it on the iPhone.
We've just published a post on the WorldMate blog explaining why WorldMate for iPhone and why now. Check it out.
It's time we re-claimed our invention - the mobile itinerary application, and put it on the iPhone.
We've just published a post on the WorldMate blog explaining why WorldMate for iPhone and why now. Check it out.
Thursday, April 2, 2009
The BlackBerry App World launch - Is this pent-up demand or what?
It's been less than 36 hours since the App World was launched, and I have to say we're surprised at the rate of take-up. Our own app, WorldMate Live, is one of the apps featured there and hovers around #12 in the top downloads tables.
Extrapolating from our download numbers over these 36 hours, I'm expecting there were over 1M downloads from the App World in the first 24 hours. A million! Considering that the App Store was NOT pre-installed in any BlackBerry, but people actually had to download it to get at the apps in it, this is extremely impressive.
The App World itself still has some quirks - strange process of acquiring and displaying reviews, some usability issues here and there. But it's 100% functional and does the job. And the apps are top-notch. So very different from what we see on the iPhone App Store for instance.
I guess we're off to a good start then!
Extrapolating from our download numbers over these 36 hours, I'm expecting there were over 1M downloads from the App World in the first 24 hours. A million! Considering that the App Store was NOT pre-installed in any BlackBerry, but people actually had to download it to get at the apps in it, this is extremely impressive.
The App World itself still has some quirks - strange process of acquiring and displaying reviews, some usability issues here and there. But it's 100% functional and does the job. And the apps are top-notch. So very different from what we see on the iPhone App Store for instance.
I guess we're off to a good start then!
Tuesday, March 31, 2009
Going to TravelCom '09
For the next 3 days, I'll be attending Travelcom '09 , one of the key travel trade-shows attended by all the who's who of the industry. Like every '09 show, the economy has a major effect on the vibe and the topics discussed. However at the same time, the travel industry is going through a quite a unique process of change, inflicted by a mixture of economic, regulatory and technology trends. I will be sitting on a panel about mobile and its influence on travel - "What you must know about Marketing Travel through Evolving Mobile Communications Systems" to which I've been invited by one of the few real luminaries in travel - Henry Herteveldt of Forrester. So if you're there - drop by, I guarantee it will be interesting.
Time permitting - I intend to write my next post about Web 2.0 and Travel. It seems like, unlike other areas, in Travel, web 2.0 actually means business.
Oh, one last thing - I owe you this picture, taken from seat 2F on yesterday's Continental flight EWR-ATL... I'm thinking of making it part of the WorldMate brand...
Time permitting - I intend to write my next post about Web 2.0 and Travel. It seems like, unlike other areas, in Travel, web 2.0 actually means business.
Oh, one last thing - I owe you this picture, taken from seat 2F on yesterday's Continental flight EWR-ATL... I'm thinking of making it part of the WorldMate brand...
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