Evaluating App Store Opportunities

We had an awesome discussion about App Stores at Mobile Monday SV last night:

Mobile Monday Silicon Valley - August

Thanks to everyone who came out to participate and made it a fantastic night, it was a great set of conversations! Much of the conversation focused around distribution and monetization, those are the hot button items generally speaking. There seemed to be a decent amount of doubt from some of the audience however that one could put together a profitable business in mobile. Chris Dury from GetJar had a fantastic summary of the options a developer has: get featured, get targeted, get viral.

The featured one is usually the first one everyone talks about. How do you make it into that coveted top 25 list on the AppStore? Have a great app, make something with wide appeal, time your marketing and PR pushes for maximum impact, price appropriately for large download volumes. Lots of folks get ruffled feathers about this setup by the way. It’s called a hit-driven marketplace, borrowing a term that seems to have been reserved mostly for the gaming industry previously. Which means if you’re at the top of the pile you make a whole ton of money, but if you’re at the bottom of the pile you don’t make crap. And with more and more titles in mobile app stores, and big corporations with deep pockets participating, people argue that there’s no way for a small independent developer to make money in the app store any more. Bullshit – but still, it’s what people say. It just means there’s competition now, and that you can’t release junk and expect to make wads of cash. Most of us don’t expect that though, so it’s just a point to consider and not a market killer.

The second method is to figure out a segment of users you’re going to be generally appealing to, users who are willing to pay more than the general population for what you have, and spend some money to reach those users in a targeted fashion. For a fantastic writeup of the principles in practice, checkout the blog posting from the iTeleport folks about how they’re making money despite never making it up into the charts. They’re never in the top 1000 apps actually in any region. But they manage to make north of $1000 a day through AppStore sales. Really this is about basic business principles. I’m surprised how often I speak to folks looking at doing a mobile project who don’t have the floor nailed down here. The major questions you need to answer here are: how many users are there out there who match your segment, how much does it cost to reach a user, and how much do you make from each user. If there are enough users, and you make more off of them than it costs to get them, you’ve got a business. There’s nothing magic about this on mobile though. This would be the same if you were running a boutique clothing store, selling decorative masks on the street, creating a new line of dietary supplements, running a restaurant, etc. It’s just business. And good business is good business no matter where you do it, just as crappy business planning is crap no matter where you do it. If you decide to release a poorly implemented application with no differentiating features for $5 on a mobile app store and fail to make money, that’s not the app stores fault. If I decided to try to sell twisted paperclips for $10 a unit in Union Square and didn’t make money would it be the fault of Union Square as a business venue? No. It’s because you’ve built a business that isn’t good enough to compete. Own up, it’s a necessary part of progress.

The third method is to go viral, which really means not relying on the app store itself to get you in front of new potential users, but to rely on your current users “getting you new users”. I don’t want to get into this whole area of how viral transmission works, explicit sharing vs. data exhaust based linking. While it’s a great topic, it’s just too huge and complex. But if you want an example the most relevant today is probably FourSquare. I will point out however that viral can actually lie in perfectly well with getting featured or being targeted. Running a good viral campaign could get you the download velocity to get up into the charts and propel you even higher. And a well structured set of viral features could lead to you getting in front of additional targeted users if you plan things in a way so that your viral hooks tilt usage in the direction of a behavior you’re trying to support. Horrible simplification, I know, But that’s all I’m going to say.

So where does that leave us? How do you evaluate the potential of developing a mobile application as a business? It depends which of those vectors of transmission you want to appeal to. If you want to shoot for getting featured you really need to plan what you’re doing more like a physical goods business than in internet business. Way back in the dark ages of computers, before most of you were born probably, a major part of what software vendors used to have to worry about was distribution. There were physical boxes with install media in them sitting on shelves in a computer store. The concerns of software providers included things like shelf placement and how many stores they could get placed in. It’s still the way the console games industry works. And really, its the way a lot of the application stores for mobile work currently. It’s not that they’re physically limited the way that a store is, but by deciding to lay out their online store so that there are a limited number of slots they’re effectively taken digital distribution and forced it back in to the physical square-footage model of software distribution. Along with all the benefits and detriments that go with it.

If you don’t want to just spin the wheel on getting featured you’re going to have to do some additional planning however. We’re at the very beginning of a pretty major shift in the way that services are delivered. A few years ago it was a very small minority of folks who were thinking about how ‘mobile’ fit into their overall service plan. Now it’s pretty much taken as a given. Simply put, the model hasn’t been able to absorb the interest. Some of us are working on trying to figure out how to bridge that gap. How do you wring the inefficiencies out of the app world and allow for an environment that can see the kind of proliferation of services we saw on the general internet? We’re not there yet. So it takes some additional planning to avoid getting lost in the noise of the marketplace. But the potential is very real. Just take a look at the usage and adoption numbers. If that’s not a market worth going after I’m not sure what is.

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3 Responses to Evaluating App Store Opportunities

  1. Great read. Shame I was in the UK this week. Thanks for the great summary.

  2. Pingback: McGuire’s Law » Blog Archive » Observations: Applications - August 25, 2010

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