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For mobile devices, think apps, not ads

Sunil Gupta
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Apps are valued for their functionality and arenot found intrusive. They are also morecost-effective than traditional ads

Like most professionals, I carry a smartphone. Although I use it frequently for emailing and texting, I also use apps to find information or entertain myself. And as I navigate its 3.5-inch screen, I routinely encounter something else: a growing stream of itsy-bitsy advertisements. These balky, Lilliputian ads represent the state of the art in mobile advertising – and they don’t work.

Many companies are betting that with some tweaking, mobile ads will become an integral part of their communications strategies. Indeed, one of the most celebrated media graphics produced in the past year is a slide showing a side-by-side comparison of how people consume media (mobile now accounts for 10 percent of time spent with media) and where advertisers spend their money (mobile accounts for just 1 percent). Over time, some observers argue, these numbers will converge.

Smart marketers will embrace mobile as a communications platform, but the best use of the new medium won’t look anything like the current generation of tiny display ads. The best way for marketers to communicate through mobile will be with apps. Apps will trump traditional ads in part because consumers don’t perceive them as advertising – they value them for their functionality and thus don’t find them intrusive – and also because they’re actually more cost-efficient than traditional ads.

If you observe how people use their smartphones (beyond calling, emailing and texting), you’ll see that apps dominate. Users spend, on average, 82 percent of their mobile minutes with apps and just 18 percent with Web browsers. They download about 40 apps to their phones (out of more than a million available) and regularly use about 15.

Smartphone apps fall into five categories:

+ Games and entertainment, which, according to one study, account for 42 percent of time spent on smartphones

+ Social networks, which account for another 31 percent of smartphone time

+ Utilities, including maps, cameras and email

+ Discovery, including apps for Yelp and TripAdvisor

+ Brands, such as Nike and Red Bull

The challenge for brand marketers is clear: If smartphone users spend most of their time with apps but regularly use only about 15, and if few of those 15 are for branded products, then marketing real estate on users’ mobile screens is constrained indeed.

Instead of buying tiny banner advertisements, marketers should create apps that add value to consumers’ lives and enhance long-term engagement with their brands. To do so, they need to understand how and why users choose apps. My research reveals five strategies that can help them succeed:

1. ADD CONVENIENCE. Most airlines have mobile apps that allow customers to check in and monitor their flights’ status. Most banks have mobile apps that let people track their bank balances and pay bills. Of course, people can also do these things on computers or from a mobile browser, but the apps function more quickly and smoothly, so most customers prefer them. And every time a consumer uses one of these apps, or even glimpses it on the screen while swiping to find something else, it increases his exposure to the brand.

2. OFFER UNIQUE VALUE. Some apps take advantage of mobile capabilities to do things traditional computers can’t. In 2006, Nike unveiled Nike+, an app that works with a special chip in runners’ shoes to monitor speed, distance and calories burned. Although the app itself is free, people must buy either a sensor-equipped Nike sneaker or a shoe-mounted sensor to use it. Nike credits the app with having driven growth of 30 percent in its running division as of 2012, and it has expanded Nike+ to include apps and accessories that track other activities, from playing basketball to sleeping. Nike+ doesn’t feel like traditional marketing communication, and that’s exactly the point. Mobile users don’t want ads; they want apps that deliver unique benefits.

3. PROVIDE SOCIAL VALUE. Facebook’s app is one of the most used in the mobile world. Yet Facebook, like other social media companies, has struggled to monetize its user base through advertising. Marketers question the effectiveness of ads on social media sites, because ads interrupt the user experience of connecting with friends.

Activities that enhance connections among friends are a different matter: Social gifting, such as exchanging gift cards through social media, is a case in point. As Reid Hoffman, a co-founder of LinkedIn and a partner at the venture capital firm Greylock Partners, has observed, it draws on three hot trends: gift cards, social networking and mobile shopping.

4. OFFER INCENTIVES. The basic concept is familiar: Many firms use short-term promotions and other incentives to entice customers to buy their products or like them on Facebook. To win a spot among the handful of apps on a consumer’s mobile phone, however, marketers need to come up with especially creative incentives.

Coca-Cola did so with a recent promotion in Brazil. In March 2012 the company began installing special devices in venues such as beachfront kiosks – bright red machines that look like soft-drink dispensers and bear the Coke symbol and the phrase “Refil de Felicidade” (“Refill Happiness”). After downloading a mobile app, consumers can hold their phones up to one of these machines, which will “dispense” 20 megabytes of free data credits.

5. ENTERTAIN. Recall that smartphone users spend more than 40 percent of their app time playing games, and that the figure for tablet users is even higher. This represents a huge opportunity for savvy marketers.

Red Bull is one company that has capitalized on the opportunity, devising several mobile gaming apps. For an energy drink company, building games requires a new and very different set of capabilities, and it is more complicated than simply buying banner ads. But the games have been downloaded about 2 million times to date, and whenever a customer hits “play,” he’s engaging with Red Bull.

The fact that creating apps demands completely new skills will probably turn out to be a plus for many companies. Thousands of computer programmers have become freelance app designers, and their fees are often far lower than those of ad agencies. So apps are not only the most effective way to reach mobile consumers, they’re also more cost-efficient than many traditional ad campaigns.

Despite the ubiquity of smartphones, sophisticated marketers will realize that “mobile advertising” is often a hollow phrase. People simply don’t like ads on their mobile devices. Marketers will get better results by communicating with consumers in a format that enhances their lives and offers long-term value. In the coming years, creative minds may find new vehicles for achieving these aims. But for the time being, apps are the best way to win the hearts and minds of mobile consumers.

(Sunil Gupta is the head of the marketing unit at Harvard Business School.)

© 2013 Harvard Business School Publishing Corp

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