Sramana Mitra: Let’s look at the iOS app store, for instance. I recently read an article that said that the top 25 apps make most of their revenues. Those include companies like Electronic Arts. A lot of them are games. Games seem to be dominating the monetization category. What is your observation about that very short “head” that is followed by a very long tail of free apps?
Miko Matsumura: I believe that as you take a snapshot of a slice in time, then you are going to see a power distribution – a curve with the area under the curve going dominantly to the top apps. That has been consistent. But it is also volatile. If you flow the camera in time, you will see that the top apps are being knocked off very quickly. What happens is the up-and-coming apps just rush in very quickly, and those entrepreneurs are puzzled about what to do. We think the mercurial nature of the app store can create new winners.
In terms of the way that the market segments itself right now, I absolutely agree. I have my own hypothesis about behavior and engagement in mobile apps. This relates to the limbic system – neuroscience in general. Behavior in apps is driven by primitive human impulses. The things I tend to look for are: Engagement is driven by things to eat, whether it is virtual or real. FarmVille, for example, is about making things to eat –virtual things to eat. But it is driven by the impulse of making real things to eat, which is driven by the limbic nutrition-seeking behavior. Then there are mate-seeking behaviors, like couple’s apps. You could even argue that some social networking is geared around that. There is reproduction, there is nutrition, and so on. But amazingly, the dominant behavior is threat processing. You can even see news applications fitting into that category, because people frequently look into the news and they see terrible things that could threaten them. Yet people are compelled to pick up the newspaper every day and keep looking at it. This is because the brain has evolved to process and understand threats. What is interesting is that you can even flip that over and look at how people relax by playing violent games. These games are engaging because they simulate the Darwinist survival impulse. If you look at engagement, you can find a lot of clues about how applications achieve traction. There is some interesting insight to be had and that can be applied to the traditional metrics: User acquisition, user retention, conversion, monetization, and so on.
SM: According to you, what is the dominant category in independent apps today?
MM: It is clearly games, in my opinion.
SM: Violent games?
MM: Not really. You can hit a much broader base through casual gaming and social gaming. I will give you an example. One of the early investments that we made was in a company in Japan called Enish. They went public in the NIKKEI in Japan.
SM: How big is the company?
MM: I would say it is bigger than Kii. It is definitely a good-sized company.
SM: So a company in Japan going public with around $25 million to $30 million is normal?
MM: Yes, that is easy enough to do and is certainly not a problem. From our side – we see the gaming as being the beginning. Ultimately, we see the mobile platform evolving. We see commerce and other sectors evolving into this. The whole mobile thing is becoming much bigger than just entertainment.
SM: Mobile commerce is already happening.
MM: Yes, and we see that as being part of the whole equation.