VCs not interested in iPhone apps ad models?

John Shinal · July 28, 2008 · Short URL:

Menlo Ventures Shawn Carolan says business models will have to be hybrid

With all the excitement surrounding the launch of Apple's iPhone apps store, some are wondering whether venture capitalists will start pouring money into iPhone app startups.

Not ones that give away their app for free and rely on advertising for their revenue, according to Menlo Ventures Shawn Carolan.

Speaking on a panel at the MobileBeat conference last week, Carolan laid out a hypothetical scenario for an app maker to argue that ads alone won't be enough to sustain a business on the iPhone app platform.

An app maker who gets on 1 million iPhones and gets 100 page views per month on each phone and gets $1 CPM will only generate $100,000 in monthly revenue.

That's not an interesting business for VC investment, says Carolan, whose firm has made investments in mobile firms TeleNav, MobiTV, and others.

"The business models will have to be hybrid," he says.

Carolan's comments are a reminder that when Kleiner Perkins launched its $100 million iFund in March, it didn't break out advertising as a distinct category of investment, but instead lumped it in with payments as part of mobile commerce. The other areas areas for iFund investment include social networking, communication, entertainment and location based services.

Outside the iPhone platform, there's no shortage of VC money being poured into mobile startups that are working those same markets.

Content aggregators that have scaled to tens of millions of users, like mobile entertainment startup Thumbplay, have raised huge rounds of capital. 

Mobile ad networks like AdMob have also drawn VC investment, because they're working with brand advertisers willing to pay much higher CPMs, as AdMob CEO Omar Hamoui told us last week.

Others have had to be more nimble. Loopt, which started out looking like a mobile social-network application, is now trying to position itself as a platform that other mobile startups building location-based services can build on top of. 

Last week, Loopt signed a deal which will have it pay a flat fee to Qualcomm and Sirf Technologies to acquire GPS data, which can be prohibitively expensive when purchased a la carte.

Richard Wong of Accel Partners  said on the panel that he sees three areas beyond advertising that will sustain mobile startups: edge services, or "helping manage bits better," discovery, or "making it easier to find good apps," and identity.

"Someone who creates the right identity service will have a good shot," says Wong, whose firm has invested in AdMob.

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