Apps as Terminals vs. Apps as Destinations
Two types of applications have dominated the mobile era.
What makes the application that you are building valuable? Is it the access to a broader service system, or its role as a destination?
Some apps that are successful are just terminals for broader service/logistics networks; e.g. Uber isn’t used for the purpose of playing around in the Uber app; it’s a modal touch point to get access to the broader vehicle/driver/transport marketplace.
Other apps are destinations; apps that you use for the sake of the app itself, e.g. Flappy Bird, which is downloaded for pure tap-tapping fun.
Similarly, Google Maps isn’t designed for users to spend an inordinate amount of time in it — even though it does have a large innate social opportunity — it’s to access the broader service network of satellites, reviews, ML, and transit status. In contrast, Instagram is used to spend time and play around with; uploading photos, DMing, liking, etc., all in the service of being a platform for creating and distributing status.
In fact, it’s this dichotomy between apps as terminals, and apps as destinations that has struck at the heart of the difference between Snapchat and IG; is Snap designed to be a destination? Or a terminal to photo augmentation? (filters, etc.).
An easy heuristic that can guide what type of application you’re building — or investing in — is to ask, how much time are users supposed to spend in the app?
This has downstream impacts on how product teams think about their go-to-market, distribution, and monetization paths.
If you are a Destination…
The primary driver of your success is user engagement with your service. This means that not only do you need to acquire users at a sustainable rate — to a larger degree than terminals — but also deliver compelling experiences that keep people wanting to come back with minimal churn.
What’s most important for your product then becomes the following key components:
- Customer Acquisition: downloads directly translate to revenue, so *competitively* acquiring users on an attractive unit-economic basis is central to maintaining the sustainability of your app. Optimally, your customer acquisition costs should decrease over time with each successive user. More often than not, the majority of your users will come from a handful of major channels. Test and iterate until you find your 80/20 source.
- Onboarding: Onboarding is one of the largest areas of user churn. How early are you communicating the value you provide? Ideally, you’re beginning to solve a user’s problems before they even make an account. Onboarding is important for all application types but is especially salient for destinations because by default, keeping users in an application for longer means more intricate features that require greater user education. Onboarding to check the Weather Channel’s weather network is simple, onboarding to spend time in HQ Trivia is much more complex and in HQ’s case, existential. The Weather Channel’s service network can be accessed on different platforms, HQ only on smartphones.
- Monetization: How are you monetizing the user’s time in-app? Advertising and subscriptions are popular paths but exploring new means of monetization — as Connie Chan of a16z outlines in this excellent post — can unlock new product differentiation. Clever business models can leapfrog your solution above others. In the same vein, vertically integrating operations as much as possible both builds a moat and gives you more control over your ability to generate accretive margins.
If you are a Terminal…
You want as many people as possible to access your service network as seamlessly as possible. In fact, we’d go so far as to suggest that you should not have “just” an app but should have a Chrome Plug-in, a CarPlay experience, an SMS line, etc. The point being that as a terminal you want to be accessed in all available contexts, not just the ones that apps provide.
What’s most important for your product then becomes:
- Distribution: Are you anywhere and everywhere? Can users access your service network with minimal friction whenever you can address their needs? Easy on-ramps to your service network are critical. The ability to access Google search on any computer in the world greatly increases my use — and the network effects that Google enjoys are predicated on that horizontal integration.
- Experience Consistency: Is the user experience the same on each new platform that you are on? Even if I am in another application, Mapbox always looks the same. This consistency in accessing its service network builds muscle memory, which results in an active preference for your service.
- User Efficiency: How few user actions (button presses, swipes, keystrokes, etc.) are needed to get value from your service network? With a consistent experience across multiple platforms, you can build a UX moat that maximizes how quickly users will ultimately pay for access to your service.
When designing, building, or investing in new applications — understanding what type of product that you are working with is key, and with a focus on some of these components, we believe that outsized returns in terms of user engagement, and returns on capital will manifest at scale.
Taking a step back though, the ways in which apps have been built over time hint at a broader, structural trend in how we have come to engage with personal computers. We believe that this future lies at the convergence of APIs, Blockchains, and the unbundling of the smartphone.
We are actively designing, partnering, and investing in that future, and if you’re curious about learning more, subscribe below and reach out at info@mutablematter.com.
