Tuesday , November 26, 2024

M-Commerce: App vs. Browser

Karen Epper Hoffman

Mobile-commerce developers are finding more ways for shoppers to make purchases without ever leaving the application. But will this approach outpace the mobile Web?

As smart phones and tablet computers grow in processing power, screen clarity, and ubiquity, the question of whether people will buy goods and services via their mobile devices seems to have been replaced by a more relevant one: How will they buy via mobile?

At present, online mobile purchasing is fragmented. A few people use a short message service-based system (the technology behind text messaging), some buy through the browser on their phone, and yet another segment of mobile shoppers does their buying within the application in which they are shopping.

This final option, in-app mobile payment, arguably is gaining steam among companies that would like to maintain more control over their shoppers’ environment by keeping them locked into the same application through the entire payment process.

‘Interesting And Powerful’

More than one-quarter of mobile-phone subscribers, 28%, have made an online purchase through the browser or mobile application on a smart phone or tablet in the past year, according to a September report from Javelin Strategy & Research. The report focused on browser- and app-based payments among nearly 3,500 randomly selected mobile-phone owners in June.

“The proliferation of smart devices has enabled the increased interest in mobile commerce,” writes report author Mary Monahan, executive vice president and director of Javelin’s mobile research. “The portability of smart phones without loss of processing power has allowed for consumers to browse and shop instantly.”

Over time, many mobile-device owners have used more than one purchase method. Javelin found that one in five have made a purchase within an app, while nearly one in four (24%) have used the mobile browser to buy something.

Kent Griffin, senior product manager of PayPal Inc.’s mobile team, says he is seeing mobile commerce grow in apps and on the mobile Web.

“[They are both] growing really fast because they offer experiences that customers are familiar with,” Griffin says. “For those familiar with a payment experience on the Web, it’s a nice transition for them to use something similar on a mobile device. Having to enter full credit card details, including billing-shipping info, is a pain on the Web, and this is even more painful on a mobile device.”

In a plug for his service—PayPal expects to process $10 billion in mobile payments this year, more than double 2011’s volume—Griffin adds: “Being able to pay just by entering a PayPal PIN or password really speeds up the process for customers.”

While in-app mobile payment lags behind browser-based payment, industry observers believe that this method of commerce presents much potential.

“In-app purchases are an interesting and powerful thing … they offer things you can’t do over the [mobile] Web,” says Ben Milne, chief executive and founder of Des Moines, Iowa-based payments provider Dwolla Inc. Dwolla uses the automated clearing house network and sidesteps credit cards to allow online and mobile shoppers to make purchases for a small fixed transaction fee.

According to Milne, ease of use and security rank high as reasons for supporting in-app mobile payments.

“Native applications can send push notifications … three clicks to buy something and done. And native apps are more secure,” he says.

The Versatile App

Much of the focus on in-app payment, however, also is about the “issue of control,” according to Richard Leyland, head of communication for United Kingdom-based Bango.net Ltd., a mobile-payments company that recently partnered with Facebook and has a U.S. office in New York.

“A lot of larger developers want to control the entire process from discovery [of a product] to purchase within the application,” he says. “They want control of what it all looks like.”

Tightly managing payment within the application may help developers and retailers control this burgeoning corner of mobile commerce—especially now that more than half of mobile-phone users are carrying smart phones and more than one in five (21%) of mobile users are toting tablets.

Pleasanton, Calif.-based Javelin estimates the total mobile retail payments market will hit $20.7 billion by year’s end. Shoppers seem to be eager to use their devices more actively throughout the whole shopping process: 60% of mobile consumers would like to use their phones for price comparisons, 34% to browse Web pages, and 31% say they would use geo-location features to shop, according to Javelin. And in-app payment has the potential to leverage much of what makes mobile commerce appealing.

“Apps can be used to encourage impulse buys, capitalizing on emotional reaction to a product. Promotions and offers can encourage consumers to purchase,” Monahan says by e-mail. “An app increases engagement and maximizes screen real estate. Advanced functionality such as geo-location can be integrated into the mobile app, helping to improve targeting and increase spending.”

Monahan adds that in this rapidly emerging market, mobile purchases made online—rather than wirelessly at the physical point of sale—currently account for the lion’s share of mobile commerce. Of the nearly $21 billion in mobile retail payments this year, Javelin estimates that $20.3 billion will be made online through browsers and mobile apps; only $400 million will be spent through mobile devices at the POS.

Mobile commerce represents a fertile new opportunity for developers and retailers alike—an opportunity to connect with prospective purchasers everywhere, any time, where they are. And because of this, it’s natural that m-commerce purveyors would want as much control as possible over the most pervasive mobile-payment method.

Right now, in-app does offer control, although, as noted, it is not the most popular of the online mobile-payment options.

Not only that, but mobile shoppers are spending more when buying through a browser than when buying through an app. Javelin estimates the average spend on a mobile-browser purchase at $37, compared to $30 on average for purchases made within mobile apps.

Some of this could be due to the fact that the mobile-buying experience, especially within an app, is not as great as it could be. Monahan says that since more mobile consumers are accessing sites through their browser than through an app (an estimated 49 million versus 40 million) and their mean spend is higher, the browser is likely to be the initial way that consumers engage in mobile commerce.

Removing Friction

That’s why optimizing their Web sites for mobile thus far has offered retailers “the biggest bang for [their] investment dollars,” she says.

But that may eventually change as more retailers and developers look to capitalize on making payers out of consumers who currently don’t generate revenue.

“Mobile online retail represents a significant opportunity that is not being fully addressed,” Monahan says in her report. “One in three mobile consumers is browsing the mobile Web, but the mobile-buying experience is not keeping pace with consumer activity. Many retailers are slow to recognize mobile online shopping trends and are missing the opportunity to convert browsers into buyers.”

Indeed, industry observers say that in-app mobile payment could fill a critical role in converting prospects into paying customers. Offering mobile consumers the ability to pay for a game or a song or an item within an application conceivably could lower the barrier for them to buy something that they might otherwise use for free, just pass over, or decide not to purchase because it’s too much of a hassle to leave the site to buy, then come back.

As Bango’s Leyland puts it: “Monetization has been one of the central challenges of mobile commerce.”

He adds that unlike PC-based online commerce, mobile sellers and developers cannot expect to make as much revenue from advertising because the screens are smaller and less conducive to banner and pop-up ads. This, he says, puts all the more pressure on companies to “convert free users into paying users. We’re all working on that.”

PayPal’s Griffin believes that in-app payment offers some distinct advantages to developers trying to make the buying experience as easy as possible. PayPal has been offering in-app payments since 2009, now allowing developers options on both Apple Inc.’s iOS and Google Inc.’s Android apps.

“In-app solutions can actually use Web solutions inside their app, as you see in the case of Starbucks or Fandango, or more native code,” he says.

“The advantage for developers in keeping the customer inside their application is maintaining a seamless branded experience from browsing to purchase transaction,” he adds. “In doing so, the merchant increases their potential of converting the customer from browsing to actual purchase as they do not risk losing them when they are redirected to another site or app.”

Todd Ablowitz, president of Double Diamond Group, a Centennial, Colo., payments consultancy, agrees that, “The reason you’re [taking payment] in the app is [that you’re] mainly trying to monetize the process. The goal is to make as much money from as big a population as [you] can.”

Ablowitz sees a strong connection between in-app mobile payment and virtual currencies that are tied to particular sites or gaming platforms, like Facebook Credits, which have helped create new streams of revenue for those platforms.

Leyland believes that offering in-app payment may indeed help convert browsers to buyers, especially in the arena of mobile or social gaming.

“Anything that takes the friction out of the process … that makes the spur-of-the-moment purchase more viable will be the focus,” he says. “That could lend itself to in-application purchases. The bottom line is that it’s very quick.”

The percentage of paying players for leading online-game developer Zynga Inc.’s games has been in the low single digits. Zynga’s chief distribution outlet is Facebook Inc., the social network that recently surpassed the 1-billion-user threshold. Both Zynga, which would not comment for this story, and Facebook are trying to grow the ranks of paying game players.

Link to POS

The debate about the comparative utility of the browser versus the app in monetization is likely to continue for some time. But it’s clear that apps have some work to do to gain wider acceptance. While there is crossover, nearly twice as many online m-commerce consumers are using only the mobile browser as those making purchases in mobile apps (27% versus 14%), according to Javelin.

Monahan says in her report that the “reliance on the browser is likely a force of habit carried over from PC behavior. While smart mobile devices have browser access, devices without keyboards don’t lend [themselves] to efficient typing. Fat fingers and low economy of movement make typing in the URL less convenient on a mobile device compared to a laptop or desktop computer.”

Monahan thinks mobile merchants should encourage moving their users from browser to apps not only to make the shopping process easier but also to leverage the aspects of in-app payment that simply don’t exist on the browser.

In her report, she states that applications are better designed for m-commerce, since they use simple screen setups and large buttons that make them more user-friendly. The app’s presence on the mobile device’s home screen also serves as a reminder of the merchant, which in turn may spur more regular shopping hits and purchases in the long run.

“An app offers the potential for a deeper relationship with the user using tools unique to the mobile device,” Monahan says in her report. “Services such as geo-location, cameras, and deeper user authentication using device fingerprinting are ways to enhance the user experience on the mobile channel that can’t be easily duplicated using a PC.”

In turn, Javelin’s research found, there is also a strong connection between those mobile online buyers and eventual mobile POS purchases. Nearly all of the mobile consumers Javelin surveyed for its research who had made a mobile contactless payment at the point of sale in the past year had previously made a mobile online purchase through an app or their mobile browser. Supporting easy mobile online commerce will likely boost other mobile buying as well.

“It’s a market that’s only going to grow as the number of devices that support it is going to grow, and the companies that focus on it are going to grow,” Dwolla’s Milne says.

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