With smartphone penetration increasing steadily, mobile applications are on brands? radar as a necessary complement to their overall marketing strategy.

From pay-per-download, in-application micropayments and subscription models to free/ad-supported and branded/promotional, there are different types of applications to meet various brand objectives. And while SMS and the mobile Web still provide the widest reach, applications provide the most optimized rich media experience and help brands reach desirable affluent demographics.

?We are seeing a higher spend in the production of the application and an increased awareness from our customers that a bare-bones entry or application no longer meets the expectations of the consumers,? said Scott Michaels, vice president at Atimi Software, Vancouver, BC. ?As such, the budgets to produce applications have been rising, along with the associated traditional and digital marketing spend to promote that the new app exists and has value.

?The second trend is the much tighter relationship between the more traditional desktop applications and mobile, as mobile is no longer a nice-to-have?it is a core component of most modern applications being developed,? he said.

?Software with or without a mobile component has really been seen as a decision factor to purchasing.?

Google?s just-approved acquisition of AdMob and Apple?s still-pending acquisition of Quattro Wireless, as well as the announcement of the iAd network, are proof-points that applications' revenue-generating potential is real.

Apple Inc. plans to charge $1 million for in-application iAd packages and $10 million for launch campaigns, and many in the mobile industry are waiting to see which brands pony up and what the campaign creative will look like (see story).

If a rising tide does indeed lift all boats, then the entire ecosystem will benefit from that major injection of marketing dollars into the mobile channel.

That type of investment on the part of the biggest brands in the world validates mobile advertising as a whole, and in-application rich media advertising in particular.

Mobile OS wars
Curiously, however, some brands have been late to the party. For many, the fragmentation of handset platforms is overwhelming, and they do not know where to begin.

?Apps are a mandatory for publishers, but brands are still working out how to implement them effectively and are often unclear on how they fit into a broader mobile strategy,? said Alex Hall, executive vice president of global strategic relationships at TigerSpike Inc., New York. ?Although the opportunity is now greater in terms of reach, the decision is arguably more confusing for brand owners since there are now more app platforms to choose between.

?On a positive note though, we?ve had over 12 months of app hype and mobile apps are definitely here to stay,? he said. ?It?s not just Apple anymore.

?Android, BlackBerry and Nokia are starting to develop their offerings a lot more aggressively, with major plays from Samsung and others also being made in the global arena.?

In the United States, there has been a relatively clear order of deployment of smartphone platforms to date.

?This starts with the iPhone, and has been followed by Android and BlackBerry,? Mr. Hall said. ?However, Android is gathering momentum, with Google announcing [last week] that they?re selling 100,000-plus Android handsets every day in the U.S., with global mobile Web surfing higher on that platform than any other.

?It seems likely that this momentum will spill over into the world of apps, especially with OS 2.2 being released imminently,? he said.

Many brands are still focusing solely on Apple. However, the current level of dominance cannot be sustained.

?The clear winner is still Apple and the Apple App Store?the demand is the greatest, as the user-base and acceptance of applications into the users? day is well established,? Mr. Michaels said. ?Secondarily now is Android, which replaced RIM/BlackBerry in the last year or so in regards to greatest demand from brands and publishers.

?As for the greatest growth, it is still the Apple App Store for growth, as I would expect continued exponential growth for applications under that platform, helped by the iPad and the additional functionality one can have on said device,? he said.

?We expect moderate growth for Android and no real change for BlackBerry.?

App monetization models
Once a brand decides that it does in fact want to participate in the applications space, where does it go from there?

Many brands have chosen to sponsor an application, making an in-application media buy to reach a built-in audience instead of building their own application from the ground up.

Those that do decide to create an application need to keep in mind the purpose they want the application to serve?what specific objectives will the application address for the brand?

?Again using the Apple platform as the main focus, the most common method now is the free application that has monetization via in-app purchase,? Mr. Michaels said. ?Secondary monetization is the straight fee to download and finally the free ad-supported/sponsorship model.

?With the introduction of iAds soon, there will be a resurgence of the free-with-ads model,? he said. ?However, overall the expectation is for in-app purchases and direct fees to download to continue to be the most common methods of monetization.?

Other platforms are making moves, trying to court developers, publishers, brands and marketers.

?On the Android platform, the lack of true global publishing paid applications via Google Checkout is a limiting factor to paid application growth?however, the expectation is that will be resolved in the near term,? Mr. Michaels said.

?On BlackBerry, finding a smoother, faster way for the end user to buy applications is a critical component to the BlackBerry App World taking off?there are just too many barriers to entry currently to gain the mass adoption such as you see on the Apple platform,? he said.

Reach, discoverability, monetization
While the continued growth of Apple?s App Store makes headlines, some see the eye-popping proliferation of applications available via iTunes as a downside, making it easier for new applications to get lost in the shuffle.

?With the number of applications already available in the Apple App Store, the consumer is arguably already suffering from too much choice,? Mr. Hall said. ?It?s getting harder to differentiate and harder to create new content that is going to be useful for extended periods of time, even if you manage to make it through the clutter.

?Currently there is far less clutter in the other app stores, which means it can be very effective to work with those stores for good placement,? he said. ?However, this may be a short window to work with depending on how much momentum each store gains.? 

The lesson? Act now before fast-moving competitors become first-to-market, capturing coveted handset real estate.

?Monetization of apps is a hybrid world of free and paid,? said Neil Strother, Kirkland, WA-based practice director at ABI Research. ?Most brands will continue to give away their applications for free and monetize via a commerce engine or deep server access to video.

?The big exception is the Kraft iFood Assistant for $0.99, but now there is a free lite version,? he said. ?From a brand?s perspective have to have good justification to charge, so free is probably their best bet.

?The freemium model is gaining ground?brands are starting with free for a lite version then as companies develop more robust apps, they have a paid version.?

Publishers are increasingly focused on mobile as a way to supplement their dwindling traditional revenue streams. However, they are still tinkering with various monetization models.

?Monetization from a publisher perspective is still a difficult beast,? Mr. Hall. ?Ultimately, it is critical that the model chosen doesn?t compromise the quality of the app in any way.

?Newspapers, for example, have a huge opportunity to steal share, if the time is spent working on a better UI/ UX than the competition,? he said. ?If it?s easy, consumers will come?if consumers come, so will advertisers.

?That said, apps should have a consumer value to them and will continue to do so.?

Revenue forecasting might be easier with guaranteed revenue per application, but total downloads will be down.

?TigerSpike advocates medium-term sponsorship for a fixed fee to get new apps off the ground, also ensuring a quality product is developed,? Mr. Hall said. ?In terms of content, increasingly utility and usability are the keys to success.

?Does your app provide a value adding service or is it inherently entertaining?? he said. ?Possibly more importantly, is the user interface and experience intuitive to the device that you happen to be using?

?This is critical to achieving any kind of longevity.?

Integration is key
Brands must not think of applications as a stand-alone pillar, but rather as a complement that can enhance a multichannel marketing strategy.

Applications must also be promoted in as many consumer touch points as possible in order to gain visibility and stay top of mind.

?Apps should be at the level of quality that provides a true brand extension,? Mr. Michaels said. ?Doing anything less is harmful to the brand or publisher.

?With the continued trend of users consuming more and more content and producing more work from a mobile device, brands and publishers should not just have applications for consumption of the content, but look at the enterprise side of the mobile applications and have content production applications, be it from the very obvious citizen reporting, to the more sophisticated training and mobile worker applications that exist but are not on the app stores,? he said.

With advances in the mobile Web allowing for far richer mobile interactions, there is a wider debate to be had again on applications versus the mobile Web.

?However, once decided on an app strategy, the key consideration has to be around how you can achieve brand objectives and really gain traction amidst all the competition,? Mr. Hall said. ?The marriage of brands and publishers is an obvious solution to this.

?Publishers have proven content, whilst brands that should be loath to invest in gimmicky apps nowadays can bank on that content to provide long-term value to their consumers,? he said. ?The marriage of Smirnoff and Time Out in London has been a triumph, with great user reviews, many repeat visits and really intuitive deep branded engagement.

?Expect a lot of more of these kind of partnerships in the coming year.?