As we are heading into this new decade, I continue to be bullish on consumer startups and remain confident that Europe can build on previous successes such as Skype or Spotify to catch up with the US and China. Building a consumer startup is extremely hard, but it’s worth it. Potential returns are just so much larger than in enterprise.
by: Yannick Oswald
photo: Anna Katina
featured: Yannick Oswald
Listen to article
However, while the mobile platform has matured with pioneers from the early days and the FAANG dominating the app stores, many investors have started to question the potential to launch and distribute break through consumer products at scale and, thus, consumer startups have a hard time raising venture money. A good reason for me to be even more excited about consumer stuff 😜
Here’s the thing. ‘While the percentage of new apps in the App Store most popular lists is low, the key is that it’s not zero. Many of our companies got there in no time and some managed to dominate them. So, while the door isn’t open as wide as it was before, it’s still open and holding open.’ Secondly, users are digital product fluent these days and more comfortable discovering and using more and more services simultaneously. And finally, and perhaps most importantly, we are witnessing the emergence of new platforms such as voice with the huge adoption of smart headphones and speakers and with them new app stores. Less than a decade ago, we witnessed with the emergence of mobile one of the greatest hot streaks ever for consumer startups… it might be happening again.
Here’s an hypothesis. There have always been and there will be new consumer companies that enjoy monopoly dynamics or economies of scale, and this mainly through Brand. But, while brand strength is correlated with the app store ranking, it is not dependent on it. So, how can we measure the strength of a Brand?
This post from Lemonade provides some great elements.
‘During our journey from zero-to-100, we saw Lemonade advance from a nonexistent brand to one of the most Googled in our category. If you add up the branded “renters insurance” searches among the top insurers in the US, you’ll find that Americans are searching for “Lemonade renters insurance” more than some of the largest brands in the industry. That’s true in aggregate, nationwide, but we have yet to launch in several states – so the graph (see the graph online) actually ‘understates’ things. In places we’ve operated in for 2+ years ‘Lemonade’ is still more Googled – often the most Googled’.
Based on the data from some of my companies, organic growth quickly increases within a couple of months from below 10% to around 40-50% – and then even up to 75-80% for the ones that have a viral component or achieve to have a high app store ranking. But while these two factors drive organic growths in the early days, they are replaced in certain key geographies for >50% within 1-2 years by other channels: word of mouth driven by delighted customers (from <10% to up to 20%+ – kick-ass products always win!) and direct brand name searches on the web and mobile (from 0 to up to 30%+). From years 3-4 on, you see the direct brand name searches lead discovery. So while app store rankings are great to kick start growth (while hard in big geographies, they are not so hard to achieve in smaller countries actually). A quick focus on key geographies, locations where we see early signs of an emerging brand, might make sense to bypass the dependance on the app store and leverage more local acquisition channels…
It would be great to get your thoughts on this topic. How do you solve the dependency on the app store rankings?