How To Make Freemium Work: Niccolo de Masi, CEO of Glu Mobile (Part 2)

Sramana: You are saying that you identified a macro trend at the very beginning of that trend, correct?

Niccolo de Masi: Yes, and I feel like I have been riding that macro trend for the past eight years. I believe it will only accelerate for the next eight years. We are going to start calling smartphones just phones. We are going to start seeing super phones with even better computing power. Moore’s Law is very active on the hardware side. That is one of the things that I am conscious of that most observers are not, that Moore’s Law is active on the hardware side, not on the bandwidth side.

We are seeing processors double in power and halve in cost every 18 months, but bandwidth takes 10 years. When I started coming into this industry, 3G was just entering countries. Here we are 10 years later, and we are able to comfortably say that the U.S. and Western Europe are 3G markets. Emerging markets are just starting right now, and it is going to take them 10 years to become fully penetrated 3G markets. It will take the U.S. 10 years to become a fully penetrated 4G market. All the while you are going to see handsets double in power every 18 months.

Sramana: The other dynamic and vector in this evolution is the customer base. I am talking about who is willing to pay for mobile entertainment. We have clearly seen that in the smartphone era in the United States that people are willing to pay for apps. It sounds as though Glu was able to build a $100 million company off the feature phone marketplace. What were the payment dynamics, free versus paid, of that market?

Niccolo de Masi: There are 4 billion people who had a feature phone at the peak. At the same time, there were only 1 billion people with a fixed-line Internet connection. Both are growing. The number of people with handsets is growing and the number of people with smartphones is growing even faster. Ultimately, almost everybody will have a smartphone. It is not a question of if but when. Even when we have 4 billion people with smartphones, we will still probably have only 1.5 billion people with a fixed-line connection.

You are going to see two to three times long-term traffic coming from people willing to engage an entertainment experience on a mobile device. Where there are engagements there are revenues. I think you will see the freemium business model become the majority, if not the supermajority, of successful revenues. Ultimately, companies will be successful on that model. The paid business model will survive, but I don’t think that it will be anything but a significant minority.

You have two philosophies: pay now and play for free, or play now and pay later for more advancement. I am bullish that in the long run that you will see various ad models become significant contributors to mobile models just as they have in the online models. This is one of the advantages of the freemium model: big audience reach, big brand recognition, significant advertising revenues and at the same time you are not turning off any players from paying with cash for virtual goods.

This segment is part 2 in the series : How To Make Freemium Work: Niccolo de Masi, CEO of Glu Mobile
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