A Venture Capitalist’s Perspective on The Future of Mobile Apps: Part 2

In February we released our inaugural mobile app store forecast.

Danielle Levitas, SVP of Research & Analysis at App Annie, recently sat down with Eric Liaw of Institutional Venture Partners to get a venture capitalist’s perspective on our findings. (Disclosure: Eric Liaw sits on App Annie’s Board of Directors.)

Here’s part two of that conversation. You can view part one here.

Danielle Levitas: So when you look at the app space, what major factors do you believe will drive market growth?

Eric Liaw: It’s hard for me to say ahead of time, other than to say I think growth is going to be driven by things that some entrepreneur thinks of that hasn’t happened yet. No one thought it made sense to buy your books online until you started doing that. Well, now you’ll buy anything that Amazon sells you.

What are things mobile can do best? From a commerce standpoint, I think you can take advantage of the fact that this is a computing device that people have with them at all times. A location element is something that could not have been included previously with just a laptop or a desktop.

Again, I’ll put transportation in that category of a service that’s fundamentally different and a better experience on a mobile device than what you can get even on your desktop.

I’d also say entertainment apps. For instance, if you’re a person who uses public transit, the fact that you can download a book and read an e-book was great for a while. But as connectivity has gotten better, you can actually watch that episode of whatever your favorite show is now on your ride. That’s a better experience.

Travel, too. If you’re going on vacation you’re probably still planning that ahead of time and using a laptop or desktop. But if you’re on vacation and looking for a random restaurant because you wanted to kind of get lost in a new city, that’s a mobile-enabled experience, which is better. What would have been the alternative? You had to plan it out with your Zagat guide or you ask the local resident on the street corner and hope that you get lucky.

Danielle: I think we’d agree that transportation and entertainment are particularly exciting spaces we’ve been monitoring closely.

How do you think macro factors may accelerate or alter how the market evolves? For instance, changing macroeconomics, the build-out of 3G, 4G and even 5G networks, etc.

Eric: Along those lines, I think the payment structure that Apple pioneered with the iOS App Store really helps. So being able to consume and pay for things in sort of bite sizes, that’s pretty neat.

So back to gaming: If you were a console player or you wanted to buy a PC game, it’s $60 or more. For a lot of people that’s a big number, particularly when you start getting into emerging markets and think about that as a percentage of household income.

But with mobile gaming you can buy things in bite-sized increments. Now remember that in many parts of the world people are consuming mobile via pre-paid methods. They’re making transactions multiple times a month, but less than a dollar at a time. If that’s how people are used to buying things, or that’s the ability they have to spend, matching your disposable spending pattern to what you can actually afford is probably going to grow your addressable market.

If I have to choose between two roughly comparable forms of entertainment and one I can buy immediately and use that day, as opposed to having to save up for months to buy that console title, I’m probably going to start committing my entertainment time — and eventually dollars — to that bite-sized option.

I think the pricing in the entertainment model that the App Store enabled was a pretty big driver. And people at Apple should get a lot of credit for that. I think people forget to do that.

Danielle: One of the comments you made is that this device is always on us, right? It enables us to have a communication, computing and entertainment device — all in our pocket. What gets you excited about where apps will go next?

Eric: I think a good example would be a service that brings you across devices. Take music, for example. You have your Pandora account and you can play that on your smartphone, your car, your phone and your computer. Something that can tie your identity across multiple devices and be appropriate for the use case of environment you’re in. Now that’s interesting.

Think about it: You’re going to have this collection of services that you like to use, but you’re going to want to use them in different places. And you’re going to have slightly different preferences at each point in time.

What might be an example? Let’s say you’re flying back into San Francisco and you’re accessing some service through the airplane’s Wi-Fi. No matter the device you’re on, whatever service you’re using can figure out that you’re on your way home, because you live in San Francisco, and it will behave differently.

So Uber could take that information and access flight data and figure out which flight you’re on and when you’re supposed to land. Then it could go and pre-order your ride home so you don’t have to wait those 10 minutes at the terminal.

It could even be something as simple as your smartphone’s screen changing its lighting at different points of the day. It’s not that advanced, but your phone should probably do that.

Danielle: I’d like to continue talking about what’s next. Hope you don’t mind me putting you on the spot! Well, being a VC, I suppose you’re a betting man.

Eric: I try to be an educated bettor.

Danielle: When you look at wearables, virtual reality, connected TV, home IoT and home automation and automotive … where do you think apps are going to be the most impactful next?

Eric: I think virtual reality will be a big deal one day, and I think apps are going to play an important role in that. Because you’ve got to have something to do once you’re in that universe or ecosystem.

Take, for example, education. What if you could put people who are in medical school into their surgery rotations via VR, instead of having them learn on the job with real live human beings? That’d be neat.

Or what if, instead of taking your class science trip when you’re in elementary school to a planetarium, you just immerse everyone in something similar via VR? I think there are applications for education that can be really interesting in VR — just much more immersive. And some that give a different kind of training.

And they kind of do this with flight simulators already for both commercial and military applications in aviation. Better to get someone trained up before you put them in a $150 million F-35.

Danielle: This has been a fascinating conversation, but I think it’s about time to wrap. Is there anything we didn’t get to touch on that you’d like to close with?

Eric: Again — and I don’t mean to sound overly self-interested as an investor and member of the board — but I’d like to go back to our earlier conversation about the app economy being more than just the in-app store part of it. I think that’s probably the thing people haven’t realized.

The early adopters in App Annie’s customer base, they probably get it now. There was a study earlier this year from SNL Kagan where they looked at usage of mobile banking apps. Of the respondents, 57% said they would consider switching banks to get a better app experience and 11% already had.

You think about how much money is at stake when banks are losing customers and deposits just on the basis of a mobile app — that’s something people have got to pay attention to.

A lot of these services end up being somewhat commodities. United versus American: Is there really a big difference? The loyalty programs keep you there, but if mobile is the primary interface for companies to interact with their customers, they’ve got to be focused on that experience. And how are you going to know that unless you have the data to tell you how you’re doing compared to your competitors? And I think that’s probably not fully appreciated yet.

Eric Liaw joined IVP in 2011. He is focused primarily on later-stage investments in high growth companies across a variety of sectors including enterprise software, Internet, and mobile. Eric serves as a Board Director or Observer for IVP portfolio companies AdRoll, App Annie, Mindbody (MB), OnDeck (ONDK), RetailMeNot (SALE), Supercell (SoftBank), The Honest Company, Wikia, and ZipRecruiter and led IVP’s investment in GitHub and Klarna. He previously served as a Board Director for Dropcam (GOOG) and was actively involved with DeNA, HomeAway (AWAY), MarkMonitor (TRI), and Varolii (NUAN).

Eric holds a B.A. in Economics with a minor in Computer Science and an M.S. in Management Science and Engineering, both from Stanford University.

Originally published at blog.appannie.com on March 11, 2016.