Native apps account for slightly more than half the mobile conversion

Retailers focusing solely on mobile web may be missing half their customers.

I’ve been looking at conversion across Kony customers and I’m seeing a pattern that is counter to the assumptions of conventional wisdom: about half the visits are from native applications and the other half come from mobile web.

More importantly for retailers: half the conversion is coming from native apps in addition to half the visits.

This means transactional native applications cannot be overlooked as a part of your mobile strategy.

I haven’t seen any other studies to compare this observation. I was speaking with Forrester analyst Sucharita Mulpuru Wednesday and asked her if she had seen any other data along these lines and she said she also hadn’t seen any studies looking at conversion between mobile web and native channels. I suspect that Kony has a unique perspective since Kony customers tend to cover three, four, five or more channels.

Transactional native applications cannot be overlooked as a part of your mobile strategy.

iPhone conversion is 30% higher than mobile web

I think retailers have created a self-fulfilling prophesy: mobile web dominates retailing because retailers generally haven’t done the heavy lifting of offering fully-transactional native applications. Let’s face it, retailers are comfortable with web development, but native development is less familiar. There are multiple SDKs, languages, and development environments to learn. Traditional web analytics, reporting, and checkout APIs are more difficult to implement from native applications. Frequent updates are also difficult from native apps – especially with the multiple environments to support.

However, we’re seeing what bankers have seen to be true for a while now – you can’t pick and choose channels to support. Some customers want to use native apps and some customers want to use mobile web. It depends upon the person, the phone, their relationship to you, what they’re trying to do, and when they’re trying to do it.

You need to be there when the customer is ready.

Furthermore, we’re seeing over 30% higher conversion for iPhone native app customers vs. mobile web customers. Therefore it’s imperative to have a well-designed, transactional app for those customers that want to use it. It also makes sense to drive users to that app to try to increase conversion overall.

The ROI is pretty easy to calculate. Offering both mobile web and native applications significantly increases the number of visits and the number of purchases and significantly increases the conversion rate for a significant subset of native customers.

Why would you want to miss half your customers – especially the ones that are more likely to purchase?

There are two things I believe very strongly about the future of mobile commerce:

• • Mobile commerce is here to stay
• • Mobile platform fragmentation will remain a serious challenge throughout the foreseeable future

Since mid-2009 we’ve built a very successful business helping nearly twenty name-brand clients in banking, retail, insurance, fast food and other verticals wrestle with these issues.

We’ve seen the questions change from “WAP vs. App” to bewilderment at the challenge of managing an exploding number mobile product lines while simultaneously managing a flood of customer adoption and increased competition.

The mobile challenge is to develop a roadmap of continual product improvements without knowing the exact technology mix that will be in users’ hands.

Fragmentation persists because of creative destruction. The iPhone created the industry. Then, Google eclipsed the iPhone with Android devices from a variety of OEM manufacturers. Apple did it again with the iPad. Now tablet salvos from Dell, RIM, Samsung, and others are incoming. Arguably, we’ve also already seen the rise and fall of many technologies like WAP, Palm, J2ME, Blackberry, and Symbian, just to name a few.

Organizations must support the mobile devices their customers have. As customers flock to the next great innovation, companies must reach their customers on the device they have right now — and in the way that works best for them.

The days are long gone where IT picks the technologies they’ll allow their customers to use. So, the mobile challenge is to develop a roadmap of continual product improvements without knowing the exact technology mix in users’ hands at rollout, versions 1.2, 1.3, and beyond.

Companies are burning resources porting to new platforms instead of innovating and staying ahead of the competition

Most companies are rolling out their first mobile product and in some cases extending variations to other platforms. Few companies have had to manage complex product lifecycles for the mobile channel. As new platforms are emerging, companies are burning resources porting to new platforms instead of innovating and staying ahead of the competition.

Few companies have the resources to manually manage multiyear product lines across a number of platforms including product management, revision control and infrastructure, quality assurance, and development.

Organizations won’t be successful picking and choosing platforms either. It’s not enough to only support iPhone or Android (or SMS, mobile web, RIM, Windows Phone 7, iPad, etc.). The playing field is changing too dramatically and too often. Companies picking and choosing platforms may find themselves investing in a dead-end product with few customers after a release or two (or even at the first release). Two years ago RIM seemed to rule the world. Five years ago Palm ruled the smartphone world.

Browsers aren’t a panacea either. Major mobile innovation is happening with native and hybrid application technology. HTML5 solves some problems but will not make native applications obsolete. Exposing native resources through the browser create unacceptable security risks in many situations (along the lines of Java applets and Active X). Furthermore, variations in HTML5 implementations likely will continue the testing nightmare that exists with the mobile browser, where tens of thousands of browser permutations exist.

Every company interested in mobile commerce has to face the device fragmentation issue and I don’t see it going away any time soon. In fact, it usually just gets worse. We just have to deal with it.

I’m going to be spending a lot of my time addressing these issues in the future.

My black suit and I just escaped from the 110º Las Vegas heat where we attended Source Media’s American Banker / Bank Technology News Mobile Banking and Emerging Applications Summit along with over 300 others from the mobile banking and mobile payments industry.

Seriously, the bankers were in the conference rooms not the pool

I was honored to lead a two-hour pre-conference workshop where we walked through relevant mobile banking ecosystem stats, building mobile business cases, and highlights of integration gotchas. The business case portion sparked particularly vigorous and interesting discussion.

Coincidentally, the next day Bob Hedges from Mercatus proclaimed provocatively:

“Making the business case for mobile banking is like making the business case for oxygen.”

Bob was making the point (after showing a ton of data for building mobile business cases) that it’s not up for debate whether mobile banking will be important in North America. Mobile Banking is important and it’s here to stay. Mobile banking is table stakes and organizations without mobile banking aren’t at the table. I doubt anyone at the conference disagreed, considering the overwhelming data supporting this that we saw from so many sources. Hundreds, if not thousands, of banks and credit unions are offering mobile banking — and it’s working.

With so many banks already providing some form of mobile banking, the general conversation not surprisingly contained many themes around what’s next for mobile banking.

• US Bank announced a number of aggressive initiatives including two separate Person-to-Person (P2P) payment offerings and a white label personal shopping and couponing application for retailers.
• Wells Fargo shared their success in offering mobile banking for commercial treasury services customers. Interestingly, Wells’ Megan Minich shared that the iPhone accounts for 30% of mobile access to their treasury services mobile app, with the majority of access (50%) coming from BlackBerrys.
• USAA also walked us through their latest innovations and hinted at an upcoming P2P Payment offering. USAA’s Jeff Dennes also noted that roughly 20% of their mobile users identify mobile as their primary channel for interacting with USAA with Android already accounting for 13% of their mobile volume.

Hands-down, I think P2P was the overwhelming theme of the conference. There was a sense of momentum and inevitability around P2P discussions that didn’t exist in 2009 or even before the Great Recession. To be sure, there’s great uncertainty as to how P2P will work best and what exactly will be the compelling factor for user adoption. However, banker after banker discussed on and off the record their plans for implementing P2P in the near future.

Notably, Wences Casares of Bling Nation bluntly said what needed to be said about the payments industry:

We’ve gotten used to high levels of fraud due to crappy [payment] networks. We put people’s full names on the cards, with account numbers, and the CVV. We put it all on the magstripe again which is easy to read. And it all gets passed along a chain of companies from the retailer, to the payment gateway to the acquiring bank and so on. We hand our card with all this information to the merchant and say, “Here you go Mr. Merchant. Here’s all my information. Do what you want with it.”

Raucous applause followed.

There’s a momentum in the industry to innovate and find ways to make mobile banking more transactional, less dependent upon cash and checks, and to reduce fraud. Venture capital is flowing into startup payments companies. Bankers are sifting through the options trying to figure out an approach that works. NFC and contactless payments are also on the horizon but are perceived (I think) to be less immediate than P2P payments (2012 or 2013 rather than 2011).

The banks that survived the Great Recession are preparing to innovate and compete. Mobile banking and mobile payments are their weapons.

Mobile banking adoption in the U.S. is grew by 20% last quarter according to research we have done on large and regional banks in the U.S.

USAA is a good published example of this industry growth we think is fueled by the proliferation of smartphones and a growing consumer comfort and familiarity with mobile technology.

Nielson: Smartphones to overtake feature phones in 2011

USAA reports having 17% mobile banking adoption at then end of Q1 2010 up from 14% at the end of 2009. Other banks for whom we cannot report numbers grew at a similar rate.

The key question is “When will mobile adoption level off like online banking did?”

Online banking usage has held steady around 40% for years now. So far, most U.S. banks have limited mobile banking to online banking customers. Wells Fargo is the notable exception.

Banks are considering options to support offline customers (non-online banking customers). However, many efforts are unlikely to be live until at least early 2011.

When will mobile adoption level off like online banking did?”

At 20% quarterly growth, mobile banking will catch up with online banking in 2011. Meanwhile Nielsen reports smartphone usage will catch up with feature phone usage in 2011.

Bank of America may be an example of maturing mobile banking. But if so, mature mobile banking isn’t moving much slower than the newcomers.

BofA reports having over 4 million mobile banking users up from 2.6 million reported in June 2009. That addition of 1.4 million users in nine months represents roughly 18% growth per quarter and nearly 54% growth overall.

It’s time to put those offline user support projects into overdrive.

Universities are an under-reported but fascinating segment of mobile commerce. I’ve spent a great deal of time talking to University Advancement and Development groups (aka fundraisers) about mobile technology over the last few months. Here are the results of some research I conducted with MobileFeat, a maker of mobile applications for non-profits. I think these results are interesting to anyone focusing on the twenty-something market segment.

Half of recent graduates have an iPhone

Smartphone distribution among recent graduates

Nearly half (43%) of recent graduates would like a mobile application from their University

Less than a quarter of smartphone users graduating in the last five years have ever donated to their alma mater

The Challenge

Higher Education fundraisers are finding it increasingly difficult to stay in contact with young alumni. Alumni often move around repeatedly in their early careers. Often schools lose touch with many young alumni.

There has long been a correlation between gifts of any size by young people and large gifts to their alma mater later in life. Therefore, it’s imperative to get young people to donate now if schools want major gifts thirty years from now.

Furthermore, even if schools can contact alumni, Caller ID lets alumni simply screen out phone-a-thon campaign calls. With no prompting, one respondent specifically mentioned using Caller ID to avoid university fundraising calls. So phone-a-thon cost-effectiveness is decreasing despite being staffed by unpaid university students.

What we found

Not surprisingly, a strong majority (87%) of respondents carry smartphones. Half of respondents use an iPhone and nearly a fifth (19%) have a Blackberry.

Similarly, three quarters of respondents (75%) said they were interested in staying in touch with their school and in getting campus news, departmental updates, sports scores, etc. Many of these respondents indicated they already use email and social media such as Facebook to stay in touch with former classmates and their alma mater.

When asked directly about also using a free application to stay in touch with their school, nearly half (43%) indicated they would, even though there are few if any such applications in existence today. Presumably interest would be even higher if such applications were already widely available.

Opportunity
Less than a quarter (23%) of smartphone users graduating since 2005 have donated to their alma mater. Participation rates at colleges and universities vary widely among institutions and across fundraising campaigns. However, in my experience this participation rate falls below Annual Fund campaigns for the universities represented.

With over three-quarters not giving, there appears to be an opportunity to increase donations through more consistent communication with alumni. There is a clear interest from alumni to stay in touch with schools through both mobile applications and social media. Mobile appears to be an untapped platform for University Advancement & Development staff to maintain contact with young alumni and generate net-new donations to universities.

Methodology

We interviewed recent graduates from around the U.S. in late October and early November 2009. Universities represented include UC Davis, Penn State, Elon, Dartmouth, and Purdue. Graduation dates ranged from 2005 through 2009.

Contact me if you would like to conduct more detailed research on this or other mobile topics.