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Mobile Fix - August 24


One of the best recent books on the challenges facing the ad industry is Madison Avenue Manslaughter and the author has a good post summarising the current challenges facing agencies. Not much good news. A new report from Forrester builds on this, claiming the relationship between CMO and agency is at risk. Their solution - essentially move faster to horizontality and to stop worrying about conflicts. For me it misses the best solution - better align goals, recognising that great ideas drive business success - so let the people with the ideas participate in the profits they create.

In a typically provocative article Fix friend Rory Sutherland says

Whilst I would question the media points, I agree this is where our business should be focusing.

App Store Tax

One of the reasons that the Apple services income brings in almost $10bn each quarter is their tax on Apps. Just about any revenue that goes through the 2 million apps is subject to a 30% charge. But whilst it’s a great business for Apple some of the bigger apps don’t like watching huge chunks of revenue disapearing. One estimate suggests Fortnite will pay around $135m to Apple in 2018. They have managed to wriggle out of paying Google Play as much as $50m if their strategy to avoid the Android Store works in terms of downlaoad numbers..

There is no doubt that the App Store delivers value - global distribution, payments, trust etc - but it’s no surprise people are looking at ways of avoiding this. But relying on people to come to your website and sideload an app could be risky. After all 70% of something is better than 100% of nothing, if you don’t make the numbers work.

Netflix are emulating Spotify and testing a new subscription models that avoids the App Stores - with a business model that competes directly with both Apple and Google you can see why these two would choose this strategy to avoid funding their rivals.

Another issue with App Stores is the control that Apple and Google exercise - Apple have just culled thousands of Gaming Apps in China and Facebook have pulled their VPN app Onovo over a disagreement with Apple about privacy.


Is a leveling of growth behind the Netflix desire to avoid the App Store tax? Some new data shows that there is a net decline in US users as the new customers were outweighed by those cancelling the service. There is also more debate around the large number of people thought to share Netflix passwords - meaning lots of people are not paying. It is thought this practice is increasing but given the fragility of the Netflix stock price it seems unlikely they will do much about it as that risks another fall in numbers.

So if you have millions of people enjoying the service, but you are not making any money from them what can you do? That’s right - you look at the most successful business model for content creators - advertising.

Netflix are testing full screen videos personalised to the user between episodes. The content is the same as they would show elsewhere in recommendations, but they have tested ad formats in the past. We think it’s inevitable they add a free, or reduced cost, service with ads.

A key role for advertising is discovery and we could see targeted Netflix ads as a natural next step from Instagram stories for the burgeoning DNVB brands. And remember their ads work; the businesses are growing like crazy and - as Mary Meeker showed us a few months ago - ecommerce click throughs have tripled on Facebook over the last couple of years.

Fix friend Rob Norman shared his thoughts on Netflix ads in AdAge and are they worth reading. Amazon are on a similar path and are using Twitch to test different options

This maturating from ad free subscription to a blend isn’t new - there was the same concern over cable TV almost 40 years ago.

But the challenge is making better ads; everyone watching Netflix has their smartphone by their side and will simply pick them up if the ads are boring. This Variety piece on rethinking the commercial break is worth reading. As we explored with our VC event in the Spring in New York, we are bullish on OTT and see targeted TV as a huge opportunity. But the innovations in the delivery and the targeting need to be matched with a smarter approach to creative.

Media Brands

The growth of GAFA has enabled old and new media brands to thrive. The challenges are well known and we cover them often. But it’s also important to point out those doing well. The sector is now seeing entrepreneurs identifying talent and investing in them.

Daquan grew his meme site to 11 million followers on Instagram before partnering with the people behind who have taken the business to another level with a presence on Snap Discover and brand partnerships. More and more people are taking this approach - as this piece on Digital Holding Companies shows. Our friends at Vida are pioneering this approach in the UK, and prefer to think of their role as Accelerators and Incubators.

One of the best examples of a digital media success story is Digiday and this podcast of their Editorial Director talking with Peter Kafka is good insight - especially as they are self funded.

Food Platforms & Apps

It’s a while since we talked about our thinking on Vertical Stacks as GAFA seek to do pretty much everything they can with the consequent collateral damage to brands in the sector they enter. So YouTube pushes into Music and premium Video to help sell Android devices and provide more inventory for ads. The fact this hits Spotify and Netflix is collateral damage - no real malice. They are just in the way.

When Uber launch UberEats it’s a way to increase driver utilisation - keeping drivers wanting to be with Uber as there are now both rides and deliveries to earn money from. So switching to Lyft would mean you would lose money.

UberEats is now on a $6 billion run rate and growing like crazy. But the effect on Deliveroo or Hungry House is just collateral damage - no malice.

The other side of this growth is to open a new opportunity as the cost of entry to opening a restaurant is slashed. In our corner of East London new restaurants open - and close - all the time. Talented chefs need to find City Boys to fund fast increasing rents and fit out costs.

But there is a new strategy. Come up with your positioning and menu, find a cheap kitchen space and get listed on UberEats, Amazon and Deliveroo and you are in business. Your restaurant is essentially an App on the Food platforms and you just need to get the marketing right.

People are constantly exposed to new Direct brands through the DNVBs and all the Amazon own labels so are more open to new food concepts. The Food truck scene also helps. This is a good look at how this is developing in the US.

Quick Reads

And a good resource from them on making Mobile First Video for Facebook and Instagram

Our friends at Weve are pulling out of the mobile ads business. Despite smart people and great creative they never really had enough inventory to scale.

As Direct brands and DNVBs scale they need to rethink their marketing approach. This is a good look at how some brands are adapting. We are very keen on this space and have developed a service to help those businesses that have a good inhouse team. This short paper outlines our approach.(PDF)

A big part of our general approach is testing and learning so like this YouTube project where they created 33 ads for a fake Pizza brand and tested what worked

This is a good update on GDPR and rightly points out that some smaller adtech firms have suffered whilst GAFA seems to have done OK. Still early days yet.

Finally... I have some more speaking events coming up and I am delighted that I am talking about the Future of Media at the next TNN breakfast on September 25th. These excellent events tend to sell out so you should get your free ticket soon.

What’s happening at The Media Kitchen

We’re busy onboarding our latest client (the Institute of Directors) and kick off soon.

Lots of new business conversations and RFPs to fill in. We are piloting SEO as a new service across all our offices but based here in London. And our new service for businesses who have inhouse teams is triggering some interesting conversations. The summary for that and our other specialist services can be found here

I am pretty sure we could add value to your business - let’s talk about where you need help.

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