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?

At eTail in Baltimore today, Abhi Dhar, CTO Walgreens provoked the crowd saying, “Consumers have changed because of mobile. Deal with it.”

This statement sums up what we’ve heard here at eTail this week and what retailers report their customers doing.

While not all retailers offer robust mobile offerings — or even any mobile commerce offering at all — mobile (and social media) are affecting consumer decisions. Customers read reviews and compare prices on social media sites, often while standing in the retail store.

Retailer after retailer asked the question, “Should I do mobile web or native apps?” It was deja vu all over again. It’s the same debate mobile bankers had early last year. Abhi Dahl said “BOTH are very important.” I agree.

In mobile banking, we’ve found that banks must offer all three technologies: Mobile web, SMS, and native applications. Many retailers are still resisting hoping to avoid the fragmentation bankers have resigned themselves to.

David Siegel of 1-800-FLOWERS said, “Don’t try to change customer behavior, market to where they are.”

Customers look for brands using their mobile browser. Retailers should have a mobile site. Customers look for brands in their phone’s app store. Brands should have an app.

Companies resisting building a strategy addressing channel fragmentation are just wasting time and ceding market share to their competitors. Many retailers, including 1-800-FLOWERS said that mobile web accounted for over half their mobile sales. The many mobile web proponents I spoke with seemed to consider this evidence that mobile web is the “right” way to do mobile.

My opinion on this stat is that companies only offering mobile web are potentially missing out on 50% of mobile sales. Maybe these users would buy on mobile web if the native app weren’t available. Maybe. Remember, Apple had to create the App Store in response to overwhelming jailbreaking of the iPhone because Apple insisted mobile web was all we needed.

What do we leave to “maybe” in ecommerce?

In ecommerce, we spend millions in site redesigns because we think it’s affecting conversion by a few percentage points. Mobile is a disruptive, market changing force that is likely to become as big or bigger revenue channel than ecommerce. Turning away 50% of revenue anywhere else gets you fired.

Mobile is not yet a major revenue channel. Retailers rarely share conversion rates, but the consensus guidance seems to be in the low single digits (3-5% seems right). Colin Sebastian from Lazard Capital Markets estimated 2010 U.S. mobile commerce sales would be at $2.5 billion, with eBay and Amazon representing 60% of that total (Sabastian said they represent 25% of the ecommerce market).

Mobile commerce revenue now isn’t tremendous. But, each loyal user now represents hundreds, thousands, or even more users in the future. Choosing not to serve your customers in a particular channel all but drives them to the competition. Now is the time for organizations to learn how best to serve their customers in the mobile channel.

As Jeff Dennes of USAA said, “If you don’t have enough [mobile] budget, get a bigger budget.”

Now is the time for companies to aggressively commit to mobile and emerge the market leader.

Customers are making decisions using their mobile phone. It’s up to retailers to decide to serve their customers.

Source: KPMG research released July 22, 2010 of 5,500 respondents worldwide

KPMG released new research yesterday on U.S. and global usage of mobile banking and mobile commerce that illustrates the rapidly growing importance of mobile commerce.

The study found that nearly 1 in 5 Americans use mobile banking (19%) and that 10% in the US have made a purchase from a retail mobile web site using their phone.

Mobile Banking is the first wave of mobile commerce. This study and similar studies support what we’re seeing anecdotally: Retail mobile commerce is following about a year to 18 months behind.

We’re seeing similar patterns with our retail clients that we experienced with banks and credit unions near the inflection point of the mobile banking hockey stick.

Mobile Banking is the first wave of mobile commerce

In particular for retail, the first movers already are in place with basic mobile web sites and a few experimental native applications are in the app stores. Mobile commerce is working for the first movers, now everyone else is scrambling to figure out their strategy and get a foothold in the marketplace without exposing themselves to too much risk.

This is exactly where mobile banking was in mid-2008 right before the economy went off the cliff and took the banks with it. In 2008 many banks, especially smaller ones, felt comfortable ignoring mobile banking because customers weren’t asking for it. In 2010, customers are demanding mobile banking and the institutions that waited find themselves two years behind their competitors that tried some sort of mobile offering.

Now, almost every institution, regardless of size, is working on plans to offer mobile banking

As an interesting side note, generally credit unions have been more aggressive at investing in mobile than banks of similar sizes and now often have a competitive advantage against the community banks that are just starting to evaluate mobile.

This is where retail finds itself now. Retail executives can choose to prioritize other initiatives over mobile because the impact of mobile isn’t showing up on their daily and weekly sales results. But like the bankers saw, it’s too late when your losing sales to the competition.

Mobile commerce is not simply a do-we-have-it or not decision.

Consumers use their smartphones to make purchasing decisions in your stores and on your website whether you have a mobile presence or not

Slapping up a poorly done mobile version of your web site when it becomes a crisis won’t help. Competitors will move onto better user experiences, innovative ways to make shopping — and conversion — easier. The amount of work to stay competitive only gets larger the longer an organization waits. For example, there’s a lot of innovation going on around Location-based Services, usage of cameras for barcodes and augmented reality, etc.  Furthermore, mobile marketing efforts will be critical for reaching consumers as traditional methods lose effectiveness.

Organizations delaying robust mobile efforts put their entire organization at risk.

Consumers use their smartphones to make purchasing decisions in your stores and on your website whether you have a mobile presence or not. Compete research found that 68% of consumers with smartphones used their phone to look up product information for an online purchase. 45% use smartphones to check reviews and competitor prices while in the store.

Consumers are also demonstrating they will purchase via mobile devices if you let them.

Buckle up. Mobile Commerce is finally happening.

2009 saw scores of name brands in retail, banking, insurance and other verticals step into mobile commerce despite the Great Recession and the near implosion of the banking sector. In November and December, we saw a significant uptick in the number of organizations planning for mobile in 2010.

Smartphone consumers use their mobile phone to purchase & research purchases

If there was any doubt left, Compete has released a new survey of smartphone users that clearly shows that consumers are willing to transact from their phones. Most notably 28% of respondents said they use their smartphone to make purchases without seeing the item in a store. Another 34% of consumers said they make purchases on their phone after seeing the item in a store.

This is bona fide mobile commerce.

And, I assert, you can find further proof that this mobile commerce is real in the fact that consumers are complaining about the generally horrid mobile user experience. A full 8% of respondents said that they had tried to make a purchase but failed (45% of the time because the site wouldn’t load.).Most ecommerce executives would be fired if their web site consistently blocked 8% of users from transacting.

Most ecommerce executives would be fired if their web site consistently blocked 8% of users from transacting.

So these growing pains are the beginning of real mobile commerce. If 8% are failing, there are consumers trying hard to transact and consumers are buying. There’s an opportunity to improve the business and there’s a real business.

Now it’s time for organizations to learn how to optimize their site, just like they did with ecommerce. However, with mobile commerce, different optimizations are required for different devices, and different  user interface affordances (or, metaphors) are often required in mobile than in the ecommerce site.

Mobile isn’t a new view of ecommerce. Mobile is a new channel.