Chapter 4 Case Study
4.3 SWOT Analysis
4.3.4 Threat
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Value Proposition Assessment
Even though currently Company X can provide with its clients exceptional app framework that has interfaces 91APP cannot compete with, 91APP has an abundance of human and financial capital, their team may be able to catch up with Company X in this field; as 91APP has sufficient capital, if they consider Company X a threat, they can lower their products’/services’ price to compete with Company X; since 91APP would probably be able to develop app frameworks similar to Company X’s app frameworks (With exceptional interfaces), the value that Company X is mainly providing to its clients right now may not be unique in the future; even though 91APP’s app framework doesn’t provide with big data technology features and its client’s hence would not be able to manage and adjust their own apps, it would not be a problem for 91APP to cooperate with Google Analytics and input the big data technologies within its apps. Moreover, 91APP’s team may also cooperate with more professional big data advertisement companies.
Cost/Revenue Assessment (Revenue Steams / Cost Structure)
So far, Company X hasn’t cultivated enough stable and loyal clients, so whether its app users’ subscription commission fees and mobile advertisement fees would be consistent in the future is still in question. This would be especially true if Company X starts to charge fees on more items within its existing services, and lifts its services’
profit margin; as Company X leverages Google’s cloud computation service (Google Analytics) and outsources external experts to develop its Android-system mobile apps, these costs are controlled by outsiders and are also unpredictable.
Infrastructure Assessment (Key Resources / Key Activities / Key Partners)
Company X is totally dependent on the two most important partners: App users
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and app developers. Losing either party would lead to Company X’s sudden collapse for the lack of cash to sustain Company X’s on-going operation; Company X is also dependent on its outsourcing partners: Android app engineers and cloud computing service providers (Google Analytics). For any reasons these two partners stop cooperating with Company X, either Company X would suffer big loss from losing the Android app users’ market, or the whole business would crash as Company X’s app framework/platform bases its operation on big data analysis; also, Company X’s existing app users may turn to other apps; existing app developers, outsourcing partners may have incentives to turn to other 3rd app developers as they may benefit more from them; even though Company X has an advantage of leveraging big data technologies in its projected advertisements, there are even more professional mobile big data advertisement technology companies that can provide more value to mobile advertisement proprietors, implying that Company X’s existing cooperated mobile advertisement proprietors may also leave Company X’s apps; next, as Company X’s team is small and resources are limited, the sudden departure of any members and any loss of existing capitals will harm Company X significantly, especially when they turn to Company X’s competitors; last but not least, Company X’s key resources and key activities can be easily replicated: This implies that potential competitors have low entrant barriers and would be able to compete with Company X easily.
Customer Assessment (Customer Segment / Channels / Customer Relationships)
Company X’s existing clients may have incentives to betray Company X and start working with 91APP or other 3rd app developers, as 91APP’s abundance of resources and reputation might boost the clients’ sales even more; meanwhile, it will be relatively more difficult for Company X to expand its clients beyond those from
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the publishing industry. The reason is because 91APP has already been cooperating and working with most of them already: Company X would need to provide with more value to 91APP’s existing clients in various industries to have them work with Company X. Moreover, as 91APP’s value proposition can be provided to any retail brands that don’t have their apps yet, it is logical to infer that 91APP’s potential clients are plenty and there would be more of them cooperating with 91APP in the future.
Figure 4.2 demonstrates Company X’s SWOT analysis,
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Figure 4.2 Target Company’s SWOT Analysis Key Partners
No Economies of Scale (Weakness)
Merge with Other Bigger Companies for Economies of Scale (Opportunity)
Cost Controlled by External Partners (Threat)
Revenue Streams
Fewer and Less Consistent Revenue Streams (Weakness)
Lower Profit Margins (Weakness)
Add Revenue Streams (Opportunity)
Consistent Revenue Streams (Opportunity)
Improve Profit Margins (Opportunity)
Unable to Gain Future Consistent Revenue Streams (Threat)
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4.4 Scenario Planning
4.4.1 Focus or Decision Area
This thesis’ scenario planning’s goal is to discover and determine the most important external drivers that are meant to be concerned and tackled with in order to survive and prosper in the uncertain and competing 3rd party mobile app developers’
environment. Based on the most important external drivers determined, assumptions’
parameters for Company X’s financial projections would be reasonably determined and future scenario implications would be subsequently derived by combining scenario planning, financial modeling/valuation and business model canvas’s results.
4.4.2 Key Decision Factors
Diversification across App Selling Categories
In a research that examined key seller and app-level factors that impact success in the app store market, it revealed the fact that broadening app offerings across multiple categories is a key determinant of the app’s sustainability and contributes to a higher probability of the app’s survival in the top charts. Specifically, each diversification decision across a category results in an approximately 15 percent increase in the presence of an app in the top-grossing 300 chart in Apple’s App Store (Lee & Raghu, 2014).
High App Ranks (Ratings)
In another research that observed 49 smartphones users from US and Germany, investigating over 189 total apps from three predetermined categories, over 80% of the observed app selections relied on simple “take the first” (TtF) heuristics. “Take the first” heuristics suggests that once the app users have in mind what type of app
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they need, their selecting process would be simple (Search and stop rules). Typically, they would not conduct complicated and thorough comparative analysis after seeing the first few apps they saw after search. The “take the first” (TtF) heuristics allow smartphone users to navigate the app market efficiently.
Given that app users tend to rely on the default information (Ttf heuristics) on specific app selections, the most critical factor was discovered app ranking. Among all the criteria examined to the participants, 74% examinees chose app ranking and 33% chose the app’s review. This fact applies to almost all selected apps considered in the exam. When small portion of participants have doubts on the app’s ranking, they will then look into additional information, such as app reviews or pictures which accounted for 33% and 17% compared to ranking’s 74% (Dogruel, Joeckel &
Bowman, 2015).
This concept mentioned also aligns with the bandwagon effect (Bellur & Sundar, 2014), which states that, without putting too much effort in doing research and finding alternatives, users tend to follow what other users have used before, in this case, the indicator would be app’s ranking (Rates). This concept can also be backed up by Lee and Raghu (2014). In their research, they evidenced that high app initial ranks, high volume and high user review scores are important app-level attributes that app’s sustainability depend on.
Continuous Quality Updates
Published at IEEE, Huntley (2011) reported his findings after an interview he conducted with a mobile app development company based in New York City, Applico.
During the interview, Applico’s CTO revealed the fact that Applico’s success mainly based on their consistently optimizing its apps’ and service’s quality. Applico’s CTO
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learned from its existing clients who tried going offshore that they actually preferred participating in the whole process and receive better quality in both their apps and the services received.
By satisfying its clients’ need and outcompeting its competitors, Applico provides with its clients onshore services in which its clients may participate in the whole and ongoing process. With this business model, Applico provides with more benefits to its clients in 5 perspectives,
1. Improved communication,
2. Potential for agile software development,
3. Decreased risk—clients can get a much better feel for the project’s current status,
4. Timely resolution of questions since everyone is in a comparable time zone, and
5. Quality control.
In short, offering premium quality apps and service is the main reason why Applico succeeded. This is also evidenced by Lee and Raghu (2014). In their research that continuous quality control is one of the important app-level attributes that app’s sustainability depend on.
High Demand for 3rd Party App Developers
Company X is a Taiwan-based 3rd party app developer. Intuitively, Taiwan’s demand for 3rd party app developers would be a significant key decision factor.
According to a research, the demand for 3rd party developers mainly depends on how
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intense the competition in app development is and the failure rate among mobile app companies. Responding to the fact that top 10% of the apps in popularity account for 80% of all the apps downloaded in the iPhone App Store, many app developers start resorting to third party app development to boost their revenues (Rakestraw, Eunni &
Kasuganti, 2012).
4.4.3 External Forces/Drivers Focusing on “Diversity”
In order to diversify its apps into different selling categories, whether Company X would be able to adjust its business model and consequently expand its customer segments would be a critical external driver. Implementing SWOT analysis, we discovered that besides development fees and licensing fees, one of 91APP’s important revenue streams is sharing merchandises’ transaction fees with their clients (App developers). As long as the 91APP’s clients sell their service or product each time, they would be able to split the profit. This gives 91APP strong incentives and aggression in broadening its app selling categories as many as possible, as they may then receive more customers and consistent transaction fees. Eventually, this business model led 91APP developed a “whole sale app mall” platform. Even though Company X may not receive transaction fees like 91APP, but the more customer segments and customers they have cultivated, the more consistent their revenue streams would be, and the more sustainable their app developers’ apps would survive in the market.
Given the endeavor to diversify across app selling categories, it is also crucial that Company X takes a lead in the less popular app categories and the game category.
Lee and Raghu (2014) evidenced that investing in less-popular app categories is an
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important app-level attribute that app’s sustainability depend on. Last, “game category”
generates the most download in both Google Play and App Store. It is the largest app category (OECD, 2013).
Focusing on “App High Ranks (High rating)”
In order to have high app ranks & ratings, Company X would need the ability to perform “Copycat strategy” when it needs to. In a research, Lim and Bentley (2012) investigated common mobile app developers’ strategies, evaluating them by downloads received, app diversity, and adoption rate. Lim and Bentley (2012) used AppEco to conduct this experiment. AppEco is the first Artificial Life model of model application ecosystems. Among all the experimented strategies, the Copycat strategy performed the most successful. The Copycat strategy received the highest average downloads, total downloads and average downloads per app. In this paper, Copycat strategy refers to developers copying apps in the Top Apps Chart. The developers are less creative but aim to achieve as many downloads as possible.
Focusing on “Continuous Quality Updates”
In order to provide with continuous quality updates, Company X would need the ability to perform “Optimiser strategy” in the long-run and maintain its talent pools.
Under the research conducted by Lim and Bentley (2012), they revealed the fact that
“Copycat strategy” enabled individual developers to be most successful in the short run (mentioned previously). However, it is the “Optimiser strategy” that enabled developers to become more successful as they develop more apps. In this paper,
“Optimiser strategy” refers to the developers making adjustments on already-developed best apps each time. The developers would learn from and improve on the existing best apps. In other words, they would continuously update their apps’
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qualities. In their experiment, they evidenced that developers who performed
“Optimiser strategy” based on download feedback increasingly met the needs of the users. In addition, among all the strategies, “Optimiser strategy” offers the highest number of features desired by the users. In order to implement the “Optimiser strategy”
and provide with clients continuous quality updates, right talents recruiting would be a critical external driver (Huntley, 2011). More importantly, right talents staying in Company X is critical, too. As mentioned in SWOT analysis, Company X’s team is small: The sudden absence or departure of their talents would harm Company X significantly.
Focusing on “Demand for 3rd Party App Developers”
Since the demand for 3rd party app developers mainly depends on how intense the competition is and how high the failure rate among mobile app companies is, and that Company X is a Taiwan-based company, an important external driver for Company X is the extent of Taiwan’s app development market’s competition and failure rate among mobile app companies.
Axes of Uncertainty
After determining the external forces’/drivers’ analysis illustrated above, this thesis aims to evaluate their attributes by the following two indicators:
1. Impact Level: This refers to the impact that the external force poses on the decision area. If the external force’s impact level is high, then the external force has critical influences on the decision area.
2. Uncertainty Level: This refers to how unpredictable the external force would be after being influenced by the overall external environment. If the
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uncertainty level is high, the future outcome of the external force would be hardly predictable.
After discussing with Company X’s CEO who has deep sophistication within its industry, the external forces/drivers with the highest impact and uncertainty level are summarized in Figure 4.3,
Impact Level
High
Expand Customer Segments
Less Popular Categories
Competition &
Failure Rate Medium
Low
Low Medium High
Uncertainty Level
Figure 4.3 Target Company’s Impact-Uncertainty Matrix
The axes of uncertainty are chosen among the external forces/drivers with the highest impact level and uncertainty level. According to Figure 4.3, we would choose the three external forces/drivers at the upper right to serve as the three dimensions of the axes of uncertainty. With the chosen forces/drivers, we would have 23=8 basic scenario logics serving as the scenario writing’s core framework.
4.4.4 Scenario Writing
Scenario writing can be divided into two sections. The first section is to confirm each scenario’s consistency and rationality, avoiding situations where the end points of the axes of uncertainty contradict. The second section portrays and describes the scenarios for the consistent and rational scenario’s left. The goal is to demonstrate
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how the external forces’/drivers’ future evolvements influence Company X financial projections’ assumption parameters.
Section 1 – Consistency and Rationality Confirmation
The 3 axes are “Expand Customer Segments,” “Less Popular Categories,” and
“Competition & Failure Rates.” Every axis has two end points and hence derives 8 (23) different scenarios, illustrated in Table 4.1,
Table 4.1 Scenario Choosing Scenarios
Expand Customer Segments
Less Popular Categories
Competition &
Failure Rates Scenario 1 Expanded Invested High Scenario 2 Expanded Not Invested High
Scenario 3 Expanded Invested Low
Scenario 4 Expanded Not Invested Low Scenario 5 Not Expanded Invested High Scenario 6 Not Expanded Not Invested High Scenario 7 Not Expanded Invested Low Scenario 8 Not Expanded Not Invested Low
Among the three axes, “Expand Customer Segments” and “Less Popular Categories” axes are intimately related: In a study, Lee and Raghu (2014) evidenced that sellers who provided apps in various categories typically had larger selection of their selling categories as well. Also, as mentioned earlier, the 8 scenarios are based on the “end points” of each axis, implicitly indicating to more extreme scenarios.
Therefore, in this thesis, we believe that when Company would be able to expand its customer segments, less popular categories would automatically be covered, and vice versa. Based on this logic, Scenario 2, 4, 5, 7 would not be considered consistent and would not be discussed in the following section, leaving four scenarios left. This
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aligns with the suggestions from several studies (Mercer, 1995; Van der Heijden, 1996; Simpson, 1992).
Section 2 – Scenario Context Writing
Table 4.2 turns Table 4.1 into a more precise and focused table. It summarizes the four remaining consistent and rational scenarios with their names and characteristics. Brief descriptions would be followed after Table 4. 2.
Table 4.2 Consistent and Rational Scenarios’ Summary
Scenario 1 Scenario 3 Scenario 6 Scenario 8
Name Growing Shark in a
Stagnated Pond Good as it Gets Crippled Hunter in Amazon
Sunset before Darkness
Customer Segments Expanded Expanded Not Expanded Not Expanded
Less Popular Categories Exploited Exploited Not Exploited Not Exploited 3rd Party App Market
Competition/Failure Rate Low High High Low
Scenario 1: Growing Shark in a Stagnated Pond
Scenario 1 is an ideal but maybe not the best situation that may happen to Company X in the future. In this scenario, Company X’s services provided would be successfully demanded in various industries and customer segments besides the publication industry. However, given the current and future mobile app developing environment, whether the demand for Company X’s services in the future would be consistent and growing is still a question.
Scenario 3: Good As It Gets
Scenario 3 is the optimal situation that may happen to Company X in the future.
In this scenario, Company X’s services provided would be successfully demanded in various industries and customer segments besides the publication industry. Given the
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current and future mobile app developing environment, the general demand for 3rd party mobile app developing companies would be consistent and growing.
Scenario 6: Crippled Hunter in Amazon
Scenario 6 is an unappealing but not the worst situation that may happen to Company X in the future. In this scenario, Company X’s values provided are not recognized and acknowledged by customer segments beyond the publishing industry.
Therefore, Company X would find it hard to expand its customer segments by themselves. Given the current and future mobile app developing environment, the demand for Company X’s services would be consistent and growing.
Scenario 8: Sunset before Darkness
Scenario 8 is the worst situation that may happen to Company X in the future. In this scenario, Company X’s values provided are not recognized and acknowledged by customer segments beyond the publishing industry. Therefore, Company X would find it hard to expand its customer segments by themselves. Given the current and future mobile app developing environment, whether the demand for Company X’s services in the future would be consistent and growing is still a question.
4.4.5 Scenario Implications
This part would be skipped as this research attempts to develop scenario implications after combining the results from business model canvas, SWOT analysis, and financial modeling/valuation.
4.5 Financial Modeling/Valuation
This section reports and explains how this research gets the critical
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assumptions/drivers behind the financial model in 4.5.1 and behind the financial valuation in 4.5.2. After demonstrating the model’s/valuation’s legitimacy, this research interprets the financial results for the four scenarios in 4.5.3.
4.5.1 Financial Modeling Assumptions
Historical income statement and balance sheet data: Due to the fact that Company X is not yet obligated to provide with financial statements to the public, and that it may be a financial burden for them to resort to accounting/auditing agencies to
Historical income statement and balance sheet data: Due to the fact that Company X is not yet obligated to provide with financial statements to the public, and that it may be a financial burden for them to resort to accounting/auditing agencies to