The Rise of Vertical Apps: Why Niche and High-Monetizing Apps Are the Future
Daniel Levi
Posted On September 9, 2024
Remember when creating a widely-used app seemed like the ultimate goal? Back in the day, it was all about hitting the billion-user mark, just like YouTube or Instagram. But those days might be behind us. With the mobile app market reaching its peak and 15 years of iPhone innovation, launching another massive, all-encompassing app might be next to impossible. Instead, the spotlight is shifting to “vertical apps”—those designed for specific niches but with powerful monetization potential.
Last week, Andrew Chen, a General Partner at Andreessen Horowitz focusing on tech and gaming, posted an insightful essay on X about the changing landscape of app development. Andrew highlighted the challenges of creating horizontal consumer apps like YouTube and Instagram, noting that the market is saturated and competition is fierce.
He pointed out that success now hinges on attracting high-value users rather than sheer scale, and it’s not necessary to have everyone on board. Chen concluded that the future lies in vertical apps—those with specialized networks, utility-focused features, and innovative payment structures. Below is a condensed version of Andrew’s insights.
The End of The 1 Billion Active User Ad-Supported Consumer Startup
“It’s been a long time since we last built a broadly horizontal consumer app like YouTube, Instagram, Linkedin, or Snapchat. In fact, I’m convinced it may not be possible anymore, because we’re in the final years of the mobile S-curve and 15+ years after the launch of the iPhone, there are major hurdles to apps to broad, billion user horizontal apps. Instead, the next generation might be “vertical apps” — appealing to a vertical segment of the market, like Monopoly Go, Draft Kings, Canva, etc — that are smaller audience products with higher “whale” monetization (sometimes even workflow/B2B).”
Why the Shift?
First off, the magic of novelty has faded. Over the years, we’ve seen countless variations of social, photo, and video apps. The excitement has worn off, and users are less inclined to try something new unless it offers a real benefit.
Retention is also tougher than ever. In the early days of mobile apps, simply being more entertaining than waiting in line was enough. Now, apps face fierce competition from highly addictive platforms like TikTok and Instagram. To stand out, apps need to offer daily value, or users will quickly move on.
Building an ad-supported app is like trying to pull off two miracles. The first is attracting millions of users to make ads profitable. The second is creating a complex ad marketplace to bring in advertisers. It’s a tough and time-consuming process that requires years of effort.
“Building an ad-supported startup is sort of a “two miracle” problem, as they say. First, there’s a miracle of getting to 10s of millions of users — enough scale so that ads can even be a revenue generator — and then a second miracle to build an ads marketplace, targeting systems, bidding systems, etc, to attract millions of advertisers. It’s a great system when it works, sort of a secondary network effect on top of an existing network — but it takes years to build these ad systems.”
Moreover, easy growth tactics are becoming obsolete. Mobile ads are pricey, viral invites barely work, and traditional web channels like SEO or press releases are losing their effectiveness. Getting users to join and stay on your app is now harder than ever.
What’s Next?
Enter vertical apps—products that cater to specific segments of the market with high monetization potential. Think of games like Monopoly Go or Draft Kings, or productivity tools like Canva. These apps offer distinct advantages:
- Direct Monetization: Instead of relying on ads, vertical apps often let users spend money to enhance their experience. Free-to-play games, for example, use “whale monetization,” where top players can spend thousands of dollars. Apps like Draft Kings follow a similar model, focusing on users who drive significant revenue.
- AI-Powered Productivity: AI advancements are opening up new possibilities for productivity tools. These tools often feature tiered pricing for teams and enterprises, driving direct monetization. Plus, interactive AI tools generate shareable content that helps with growth.
- Network Effects for Specific Interests: Unlike broad social apps, vertical apps can build networks around particular activities or interests. Dating apps and multiplayer games like Valorant show that success doesn’t rely on having all your friends onboard but on creating a vibrant community for users to engage in.
- Single User Utility: We’re also seeing a rise in apps that focus on individual utility, using game design elements to create engaging experiences. Apps like Duolingo demonstrate how a single-user approach can be highly effective, offering value without needing extensive social interaction.
“Rather than ads, these products often let customers spend big dollars directly to upgrade their experience. Free-to-play games often have “whale monetization” mechanics where the top users can spend $100,000s of dollars if they want. Same for a betting product like Draft Kings. If the top 10% of your users drive all the monetization, then it’s the quality of users (and their ARPPU) that matters, not just the scale of users,”
In a saturated market, vertical apps with high monetization and focused user experiences are emerging as the next big thing. While I hope for a breakthrough in broad-based social apps, it’s clear that niche, high-value apps are set to lead the way.
Conclusion
In summary, future apps are likely to be more vertical, targeting niche markets with higher spending and smaller, more engaged user bases. They will focus on delivering useful and individual interactions, often driven by productivity and utility, with AI playing a significant role. While broad-based social apps are still in development, a more focused approach may be increasingly successful.
