The mobile app dilemma: An electric case study

Last week saw the Apps World Africa conference, where a bunch of different people stood up to talk about the business of mobile apps.

The conversation revolved around: How to build them, how to market them, how to make money out of them? And this is the hardest part — if you build it, they may not come. Unlike Kevin Costner’s Field of Dreams, just being really, really passionate is not enough in the real world.

Enter Sebastien Lacour from Powertime, a company that is currently turning over more than R2-million per month on its mobile app, which allows consumers to buy prepaid electricity to feed their meters. It is the only app of its type in South Africa currently, and has made Powertime the single largest pre-paid electricity merchant on mobile.

The app was written to complement, and even replace, the powertime.mobi site. It was first released on iPhone, then Blackberry, then Android, then Symbian (Nokia).

Why did they do this? Lacour explained that the strategy was based on a specific segmentation of the mobile world, dreamed up by technology research company WorldWideWorx.

It starts with ‘grassroots’ low spend, low sophistication users with basic phones accessing only basic mobi sites, across the ‘elephants’ (high spend, moderate sophistication) largely on Nokia handsets, through ‘lion cubs’ (Blackberry) and up to the ‘sophisticats’ (high spend, high sophistication) largely on iPhones.

Android users are a bit odd-man-out. Tagged as ‘magpies’ by the Worx, these users are sophisticated, but dilettante. They are not big spenders, although there are a lot of them (23% of the user base). Also, Android is a relatively easier platform to develop on and introduce into the app store (Android Market).

For a commercially successful app rollout, you need to go where the money is first, and the users second. The typically 80-20 rule in also applies in prepaid electricity — a few big spenders make up the bulk of electricity purchasing.

This explains the rollout order: iOS (iPhone, iPad) in February 2010, Android in February, RIM (BlackBerry) in April, and Nokia in March.

The important number in this game is the active user base. Powertime has 10,000 customers, and is targeting 120,000 by the end of 2012. This number does not look so impressive right now– so many web and mobi startups talk about user bases in the millions, but this is often wrong thinking: lots of eyeballs before lots of revenues.

The old fallacy of the “Chinese Model” of the dotcom era still applies: “If I get even just 2% of the Chinese market, that’s like 60-million people”. Yes – but in real life, getting that 2% IS the problem.

With an average value per transaction of R335, this currently translates into a very healthy R2-million per month revenues for Powertime after only a year in operation, with a remarkably low churn rate. Being largely self-funded, this was done with little marketing – mostly PR and word of mouth.

With over 7 million prepaid users, however, the opportunity is massive.

Says Lacour, the secret to success in the app market is value-add. Simply connecting people to a payments mechanism or an information source is useful, but not “must have”. It’s easy for someone else to pop up and do the same thing, or to be disintermediated by the content source that opens a direct channel.

App by itself is often not the business — it’s an enabler, but you have to build back-end technology that does something special.

Lacour took the conference delegates through Powertime’s “Service Oriented Model”.

There’s the user, which interacts with the service through a rich app for popular handsets. They connect to a transaction infrastructure on the back end (transaction in the sense of a financial transaction as well as servicing user sessions), which talks to a business intelligence engine.

The transaction server also connects into a financial switch (payments gateway), which connects to the banks (from which the funds come from), and to the electricity utilities (which provide the tokens that you type into your power meter).

The key element for Powertime is the business intelligence engine — this is the critical part that provides the “value add” that will keep the customer using the app loyal. Without it, Powertime could be disintermediated at a stroke by the payments provider or even the utility if they decided to implement a direct-to-consumer model.

The business intelligence engine gives the user personalised reports based on previous history, analysis of usage patterns and predictions for the future. What the user sees is his Virtual Meter in the mobile phone app, giving an intuitive sense of how much electricity he is consuming day by day, an alarm of when he may be cut off and left in the dark, as well as historical analysis (most people plan to keep tabs on what they spend, but forget month after month) in a intuitive, graphical way.

As an aside, Lacour mentioned in the Q&A afterwards, the business intelligence engine allows Powertime to do accurate behaviour analysis to combat credit card fraud. An online service needs quick and easy access, but credit card fraud is a major issue. Reducing fraud but not putting loads of hurdles in front of legitimate users is a delicate balance.

In future, as people start to fit their own power meters in their houses (not that they don’t trust what the utility says, but, well, you know…), the picture changes again, because new meters can talk to the back end servers via the Internet, ‘closing the loop’ on what you spend versus what you use – and when.

This is where the back-end business intelligence engine will become a massive differentiator and value add to users, a major leap from the basic web-based vending systems that makes up most of the prepaid market currently.

Lacour also examined some of the mistakes they’d made. Using Justin Palmer’s “Top 10 eCommerce Startup Mistakes”, he highlighted three of them:

Blowing your budget on web development and neglecting marketing: Powertime only really started pushing the marketing in February, meaning that as it was really wanting to ramp up numbers, the consumer base was still wholly unaware of the brand, or what the app would do for them.

Not realising website visitors aren’t as committed as store visitors (3% vs 50% conversion rate) — the fact that someone hits your site, or downloads your app doesn’t mean they’re customers. Doing projections based on ‘drive-by’s” can mean wildly wrong guesses.

Using print media for online media — an online service needs to be marketed online primarily.

Ignoring Online Trust Issues — The fact that your team understands the technology, and the security systems you have does not mean users will. Going the extra step to explain and reassure is important.

The take-home from the presentation was to see mobile apps as an enabler of a business model, rather than the business itself. Powertime may not have millions of users (yet), but it is already the largest mobile merchant in South Africa, and with its Service Oriented Architecture, is gearing up to add a slew of additional functions.