It used to be: do it yourself.
Or maybe: pay for it.
Then: get it for free.
Now: get paid to use it.
“Money is only an object, I’ll get it. Got it, been there.” Carlito’s cocky self-assessment of his business model is in vogue again among apps and platforms. The fierce struggle for scale now has the likes of Uber and Amazon pay us not to use their competitors’ offering.
In their frenzied quest for market domination, mobile applications increasingly resort to subsidising their users. Taxi-service app Uber for instance attempts to stem the fast growth of its challenger Lyft by having travellers lure drivers to its own uberX platform. It would appear Ubers lofty valuation – the company is allegedly worth 17 billion USD these days – has led some to believe a sizeable chunk of cash can blissfully be burnt to acquire customers.
These marketing stratagems hinge on the belief that people in the not too distant feature will ultimately pay for mobile applications, either directly or through in-app purchases and advertising. The question is whether “lifetime customer value”, the ability to monetise those customers, can overcome the cost of acquiring them – before one runs out of money? Loss leaders can easily lead to more losses when the propensity to pay does not pick up after all. Expectations that the offering is for free may have been anchored so deeply they are difficult to unhook again.
Uber’s Chinese counterparts Kuaidi Dache – backed by internet giant Alibaba – and Didi Dache – backed by Alibaba’s competitor Tencent – were forced to bury the price war hatchet when the cash rebates they each offered to passengers and drivers exceeded 200 million USD. Jack Ma of Alibaba had to admit “the game had gone too far.”
Is there a reasonable price for growth after all? Do competitive markets still allow for the creation of sustainable value when companies resort to a growth strategy that accumulates losses, and anchors customer expectations at unprofitably low prices?