User Acquisition: The Hidden Driver Behind the Unbundling Trend

Posted 6/2/2015 7:01:05 AM by ADAM FOROUGHI, Chief Executive Officer of AppLovin

User Acquisition: The Hidden Driver Behind the Unbundling Trend
There’s no doubt that unbundling or launching specialized apps has been a sound strategic move for incumbent apps (think Twitter’s Vine and Periscope and Instagram’s Hyperlapse and Layout, not to mention Facebook’s Messenger), as has specializing from the get-go - the extreme examples being Yo, or IFTTT’s Do. 

This is for good reason. Streamlined, single-function apps improve the consumer experience by trimming the fat and eliminating little-used features. This improves functions: load times, fluidity, and clarity of the interface for users. Developers benefit too, because specialized apps are synonymous with better design and greater control. For all of these reasons, it’s fair to say that the specialization trend is more than just a fad. 

Most of the buzz about app specialization is about how polarizing it can be when an entrenched app unbundles (see Facebook/Messenger and Foursquare/Swarm), or how successful it can be in terms of user satisfaction for new apps (see Periscope, Hyperlapse). But to me, what’s really interesting about the specialization trend is how it positively affects user acquisition (UA) - specifically conversion rates (CVR) on UA campaigns, and ultimately cost per install (CPI).

Conversion Rate: The Basics on Fluctuation

Before the “why”, let’s review conversion rates (CVR) and what causes them to fluctuate. If an advertiser is running an acquisition campaign and bidding on a cost-per-click (CPC) for a new unbundled application, its conversion rates will tend to be higher than if it were trying to get installs for their legacy, do-it-all stalwart app. Obviously, the higher the conversion rate, the more user clicks convert into installs and the lower the cost per install. Conversely, low conversion rates mean higher costs to acquire users.

What is the main cause of CVR degradation? Saturation. When ads for an app are reaching users who’ve seen them over and over, the advertiser has reached a point of saturation. While saturation is often good for brand advertising, it’s not so good for direct response UA. When advertisers spend a lot of money acquiring users, they get the low-hanging fruit right away, but once they’ve got this low-hanging fruit, they’re only paying more and more to acquire the harder to reach users.

How can an advertiser solve for this? There are a number of ways: specialization to expand reach, cross promotion, retargeting to increase retention, localization, and monitoring LTV all make a difference and help reduce acquisition cost:

Economies of Scale Working in Reverse

Having multiple apps makes good sense for CPI campaigns because economies of scale - the idea that the more you do something the cheaper it gets - work in reverse when it comes to UA for apps. This a byproduct of the natural conversion rate degradation that apps experience in UA campaigns. For example, an advertiser’s first ten thousand installs each cost $1, the next thousand are $1.05, and so on. When one extrapolates those costs, the difference is often more exaggerated -- you can either pay $30,000 to acquire 30,000 users each in three different apps ($90,000 total for 90,000 users) or you can acquire 90,000 users in one app for as much as double that amount.

Reach A New User Base

By creating multiple apps developers can better target their content (by app) and reach different types of users. Focused content and app experience often attract a “core” user base that would otherwise be uninterested in a more “general” app. It’s harder to pull out specific app features and advertise to engage users with that feature. 

However, when a developer creates an app that specializes in a specific thing, it’s easier to engage users who care about that particular function. Developers are better able to reach new audience segments they might not be able to reach otherwise. 

Cross Promote
Established brands often have suites of apps (Google, Microsoft, EA, etc.) which creates a great opportunity for them to deep link in one of their apps to another, and generally market each of their apps to a wider base. 

But cross promotion tactics aren’t just for established brands. An indie developer with a suite of casino apps can make virtual poker chips that are transferrable between their blackjack, roulette, and poker titles. Then they can incentivize downloads of the entire suite by offering virtual currency incentives in each discrete app. And this type of cross promotion is not just for games. Facebook famously got rid of the messaging function in its flagship app, yet the Messages tab is still present, now serving as a hard-coded ad to install Messenger. An indie dev with a suite of productivity apps can use the same tactics. 

Focus on Function Leads to Greater Retention

Often when apps have a more streamlined purpose, they are more “sticky.” Users tend to come back to  more specific apps when they serve a specific, useful function. Plus, developers can push users to their apps for even more engagement by using retargeting campaigns to get users to come back and engage more often. Retargeting campaigns often have strong ROI because the users are familiar with the app and the content in the ad promoting it and are more likely to engage again. 

If a user re-engages with an app regularly, then the developer doesn’t lose the user to another app and doesn’t need to pay for more new users. The more users developers can retain, the less users the developer needs to acquire (because they’ll have a high volume of users, higher chart ranking, viral activity and all the benefits that go along with having more users in general). 

Speak the Language of Conversion 

Another reason an app’s conversion may be dying is that the app is not localized. This can be a major hurdle for reaching critical mass in UA campaigns. If advertisers are buying worldwide (and many are) and CVR is dipping, it could also be because users have learned that the app isn’t relevant to them because it is only in English. 

A good strategy is to build the same successful app in different languages so there is relevant and “specialized” content for multiple demographics. Particularly in emerging markets, having unbundled apps helps your CVR, retention, and discoverability.

Always Look at Your Bottom Line 

The specialization/unbundling route may seem like a good route, but ultimately developers need to consider the bottom line. They must calculate their users’ lifetime value (LTV). If their users’ LTV is X, how many of them do they need to cover their development and acquisition costs to make a profit of Y? What is the cost to acquire this mass of users? Would it be cheaper to distribute these users across a suite of apps? 

All things being equal, developers need to know if their savings from more cost effective UA campaigns justify the extra development and maintenance time needed for multiple apps. For most developers, the answer is a resounding yes. With multiple SKUs, developers have an edge on the costs to acquire users, cross promotion opportunities, greater retention, and the ability to reach lucrative niches. While not the answer for every app and every dev, specialization is here to stay.

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About the author: ADAM FOROUGHI, Chief Executive Officer of AppLovin

As the CEO of AppLovin, Adam leads the company in vision and strategy. His unique blend of product focus and creative thinking keeps the AppLovin team in motion. Adam began his career as a derivatives trader, where he was inspired he was inspired by scalable high frequency trading models. Over the next decade, he applied this knowledge to ad tech at three companies he founded: Lifestreet Media, Social Hour, and AppLovin. Today, Adam continues to refine – and demonstrate – his theory that better business results come from smarter algorithms and better data.

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