|Mar 11, 2008, 09:50 AM||#1|
Starting Your Own iPhone App Business Ė a Roadmap
As soon as the SDK came out, I naturally thought of what cool app I could come up with. Iím not a coder, so I thought about others ways to get into the business, and I came up with the idea of selling apps in a bundle. Which basically led to this post. At first it was just another silly idea to make money, I come up with them all the time in my head (and I mean all the time, I canít stop). It seemed like it would be a great way to go, so I started thinking about it some more. But I decided that while I come up with tons of ways to make money, but Iíve never actually started a business with any of them. And I probably wasnít going to start this one.
So why not get it out there and see what other people can do with the idea. Someone would have done this by the time the store debutís anyway, but I think it would be great to see some entrepreneurs (maybe even someone from these forums) figure out what to do with it, and hopefully make it big.
As many of you know, Iím a kind of quiet guy on the forums, but my thinking just got right out of hand, one thing led to another, and I ended up starting a blog to put all my thoughts down. Iím hoping to cover the basics of the iPhone app business and where it might be going. Its mostly directed towards entrepreneurs, since I think this is one of the best opportunities that start-ups have ever has in a very long time. Anyways, enough jabbing, you can find the blog at www.iphoneappentrepreneur.com. Lets get down to the roadmap.
First, some definitions:
A bundle is a collection of small apps sold as a package. For lack of a better word, the person who collects, packages and sell these apps is a ďbundler.Ē
Should you even bother?
Apple hasnít said it will allow apps to be sold in a bundle, but Iím predicting they will, if not initially, then soon, and hereís why:
First, the infrastructure is there. A bundle is comparable to an album. You can sell five applications separately or together just as easy as you sell music.
Second, its cheaper for Apple. Have you ever wondering why you donít get billed for buying a song each day? Apple waits (or tries to hold out long enough) until youíve bought a few songs, to lower the costs associated with credit card transactions.
Third, it helps the consumer. If youíre trying to find solutions to your problems, wouldnít it be nicer to find that bundle of apps than having to search through thousands of single apps researching each one?
Why would you want to sell you apps in a bundle?
As a developer, why would you want to sell your app in a bundle and (presumably) give some money to a middleman and share revenue?
The most obvious answer, I believe, is visibility. If your app is done by June, this isnít really a problem, go it alone, you have a good chance. But what about next year? Say you make a small game. How many competitors do you think youíll have next year? What if you could combine your game with 4 others and sell as a package? Or better yet, 10 others? I think a package of 10 games is much more visible and easier to market than 10 separate games.
What will you sell?
Figure out what kind of company you want to be, and how you will market it. Take the form you think will work the best in building your business. Will you be a developer who looks to others to sell your app? Or do you want to get apps from developers, and put them together to make money. Maybe you want to be a developer cooperative, eliminating the middle man.
Take a different form:
Most people think of bundles as a lose collection of software all having the same theme, sometimes from different companies. But really, a bundle can take many forms (and provide opportunities to entrepreneurs to make money with those forms). Itís a new world out there, so throw out the old conventions and start new ones. Lets use the game example again. What is a game company, really? A game company is someone who hires developers and makes and markets a game. Well, start your own. Instead of hiring developers, find them and get a hold of their great new games. Put them in a package with your brand on it, and voila! Youíre the newest game developer on the block. You do the marketing and the promotion. Build up your brand with a collection of game bundles, and you can be competing with the big boys.
I think this is where the opportunity for entrepreneurs really comes about. What kind of company could you start? What industry could be served better by some small but separate tools rather than one large application? How could you put all those tools together and create value?
For example, maybe you notice that a lot of people sell things on eBay. What kind of tools could help them out immensely? More specifically, what would they want to do on their phone? You could develop a set of tools that lets someone take an emailed picture of an object, add a title, description and price, and upload it to an eBay Store. The bundle could include a series of apps, like a basic photo editor that automatically matches the dimension you use in your store, an auction starting app that allows you to enter the information and start selling, and an auction tracking app, that tracks your store stats, your competitors and selling trends. People will use the different apps at different times, so one big app might not be the best thing. And, they finally get out of their house! What could be better.
Bundles of good:
The idea of a bundle doesnít have to be purely commercial. The idea can work well for non-profits and general fundraising. Just like MacRumors sometimes sells a bundle of software, they could sell a bundle of iPhone apps as well. Non-profits could sell bundles to raise money.
Marketing (finding your niche):
How do you differentiate yourself from the rest? The more people who write the same software, the harder itíll be. So if you sell productivity software, maybe you concentrate on a certain segment, like salespeople, or lawyers. Maybe you cater to a specific audience, like lovers of trivia games. Or maybe you fill a small gap and have no competitors. Be the best at a small thing instead of mediocre at a big thing. Find something that you can do that will get you noticed.
Leverage your strengths:
If youíre going to sell a bundle, use the built-in strengths in your marketing. A bundle solves multiple software problems at once. A bundle provides more value than a single application. A bundle might be cheaper than buying your competitionís applications one by one. A bundle provides the press an opportunity to recommend more things at once to their readers. A bundleís software works well together, while apps from separate competitors might not. A bundle lets you build a brand, which can build trust and reputation. So when version 2.0 comes out, people will know that buying your stuff is likely going to provide them with value. It prevents them from having to seek out other alternatives and waste time.
Donít forget the obvious
In all the excitement, donít let yourself get caught up in the numbers and forget the basics. Your apps still have to be good. They still have to work well and provide a great user experience. They still have to be a good value compared to the free apps out there. Marketing, in my view, can never make a bad product good. Start with a great product first.
Put in some numbers:
As an end note, just in case you were lacking some motivation, Iíve done some simple calculations on what the market might be worth. Iíve broken it out better on the blog, but hereís one example.
Lets say you wanted to start a game company business, lets call it myiPhone Game Co. Youíre likely to have stiff competition, so you narrow your focus (niche marketing) to trivia games. Specifically, music trivia games. Now, they take many forms, so you decide to find 3 good developers, and get them to make three different music trivia games. They turn out great, and youíre ready to go. You decide to sell your three games for $4.99. The basic breakdown will look like this:
Price Appleís cut Total made on each sale
$4.99 $1.49 $3.50
Now lets assume the structure of the deal looks liked this:
Each developer gets 25% for their contribution. You get the last 25% for your marketing and promotional work and for putting up the upfront costs (the $99 developer fee).
Therefore, each person gets roughly $.87 for each copy sold. 87 cents? Sound like much? Weíll see.
Lets see what some mildly successful (or unsuccessful) sales numbers will equal.
100 copies sold = $350.00 in revenue (after Appleís cut) = $87.5 per person
Youíve practically made back your developerís fee.
200 copies = $700.00 in revenue = $175.00 per person
500 copies = $1,750.00 in revenue = $437.50 per person
1000 copies = $3,500.00 in revenue = $875.00 per person
5,000 copies = $17,500.00 in revenue = $4,375.00 per person
10,000 copies = $35,000.00 in revenue = $8,750.00 per person
50,000 copies = $175,000.00 in revenue = $43,750.00 per person
100,000 copies = $350,000.00 in revenue = $87,500.00 per person
So, for 3 developers and a promoter, 100,000 copies at $4.99 looks like the sweet spot to provide everyone with a nice yearly salary. But thereís more. What if:
You put out a pack of games each 6 months. Can you double your income?
You successfully build a brand around your games, becoming known as the best brand of successful music trivia games. How would your future packs do?
You sold updates to your old games every 6 months.
Lets look at the updates more carefully. People eventually get tired of a trivia game because they know the answers. What if you put out an update with new questions and answers. Lets say you sold an update for all three games for $1.49. On each update, after Appleís cut, you will receive $1.04 (rounded). Say you got 10% of people to buy an update. So, from the chart above:
If you sold 100 original copies, you sell 10 updates (10%) = $10.40 in update revenue (after Appleís cut) = $2.60 per person
200 original copies, 20 updates = $20.80 in update revenue = $5.20 per person
500 original copies, 50 updates = $52.00 in update revenue = $13.00 per person
1000 original copies, 100 = $104.00 in update revenue = $26.00 per person
5,000 original copies, 500 = $520.00 in update revenue = $130.00 per person
10,000 original copies, 1,000 = $1,040.00 in update revenue = $260.00 per person
50,000 original copies, 5,000 = $5,200.00 in update revenue = $1,300.00 per person
100,000 original copies, 10,000 = $10,400.00 in update revenue = $2,600.00 per person
Doesnít sound like much, does it? Thatís just 10 percent. What if you could get it up to 20, or 50? (at the 100,000 copy level, selling an update to 50% of your customers will net each person an extra $13,000.00). Furthermore, what if youíve successfully developed 5 other game packages. Each game builds on the last, and releasing 5 updates over the course of the year multiples that income.
Updates gives you other opportunities besides making money. It gives you something to yell about (read: sending out more press releases, getting yourself more attention). It keeps people coming back to your brand, instead of getting bored and finding something else new. Plus, if you incorporated the new answers into the original game, you might see a bump in sales of the original, since people who may have been on the fence will be getting both sets of answers. That bump will enlarge your customer base for the next update, and so on. Essentially, your games never die.
So how big is the market?
Well, time for some fuzzy math.There have been 4 million iPhones sold that we know of, and an undetermined number of iPod Touches. Apple want to sell an estimated 10 million iPhones by the end of 2008.
Lets go conservatively. By June, 2008 lets pretend there will be 5 Million iPhones and iPod Touches sold combined.
10% of 5 million = 500,000
5% of 5 million = 250,000
2% of 5 million = 100,000
1% of 5 million = 50,000
So basically, your target number is 2%, if you want to earn $87K a year. How will you reach those customers? Start planning now
|Mar 11, 2008, 12:32 PM||#2|
Hey, this is useful!
Im 13 and am looking make apps for the App Store to get some cash, plus its good practice for my GCSEs as im doing ICT and business!
EDIT: Your blog is interesting, and the "How much money can I make from my iPhone/iPod touch app?" bit is very useful!
Last edited by PowerFullMac; Mar 11, 2008 at 12:56 PM.
|Mar 11, 2008, 12:42 PM||#3|
So I don't get it. Maybe because I only skimmed it but... why the heck would I give you a portion of my revenues for doing nothing? Aside from the $99 cost which for most programmers I would guess isn't much, it's completely free for me to develop and put my app on the iTunes store. I can see where it is advantageous for Apple to bundle apps and they may do that on their own but where do you come in and why am I giving you money for the app I coded?
My 24 hour web cam!
|Mar 11, 2008, 01:03 PM||#4|
Thanks PowerFullMac. I'm hoping I can develop it into a real resource for people who want to start a small business around the iPhone platform.
SilentPanda: I believe the answer breaks down into two parts. First, the basic idea of a bundle helps out anyone. So you're right, you wouldn't have to give any of your revenue away. If you develop three apps and bundle them together on your own you can provide more value and hopefully make more sales, without giving up revenue.
The answer to the second part is that hopefully they won't be doing nothing. Not every coder wants to spend time promoting their app, some just like to code. I think people discount how many apps are going to be out there and how quickly yours will get lost in the mix. Having someone on your side spending time to promote it while you work on your next project might appeal to some developers out there.
Secondly, a bundler can bring multiple apps from different developers together at once. You could do this on your own of course, you just call up another developer and say "I think we should sell our apps together, they compliment each other well, and I believe people will buy it" I don't necessarily advocate that there should be a middleman every time, I just advocate the power of selling more than one app at a time.
Lastly, I believe you're only thinking about a middleman who has no value to give on his or her own. You're right, you should question why you would want to give them some of your revenue. But in my example, the game developer could develop value in their brand separately from the games they sell, and that would provide the reason a developer would want to partner with them and give up revenue. If you developed a game and EA or Sega said they wanted to include it in a bundle, would you say they provided no value?
|Mar 11, 2008, 02:51 PM||#5|
1. Just because the infrastructure is there doesn't mean they'll use it.
2. If you're talking about a $20 app rather than a $0.99 track that kind of reduces the impact of the CC charges.
3. I don't think this does help consumers that much, because bundles only solve a problem if you want all the apps in the bundle: otherwise you're wasting money. Also, Apple doesn't really gain anything from "helping the consumer" in the way you describe, so why would they bother?
Given that I think you're wasting your time. I guess we'll see in June....
|Mar 11, 2008, 03:14 PM||#6|
I can't see many applications being priced at $20.00. I can see a lot being priced at one to two dollars and up. I only listed $14.99 as an upper limit in the tables on my blog because I just can't imagine many apps that I would pay for being priced above $14.99. I'm sure there will be a few, mostly business ones in my view. But I think people have a perception that apps on their phone shouldn't cost as much as apps on your desktop. If you include that developers who want to sell their apps will have to compete against completely free apps, I think there will be downward pressure on app prices.
And yeah, until Apple decides to sell like I'm suggesting, anyone would be taking a big chance. Still, I think if they do you could make it work well.
Last edited by Greencardman; Mar 11, 2008 at 07:50 PM.
|Mar 11, 2008, 06:34 PM||#8|
A couple of immediate thoughts spring to mind:
1. You are saying that with a bundle of apps you can throw in some less popular apps in with something more popular so that people will buy it. If I wasn't going to buy the less popular app on its own then why would I pay extra to have it in a bundle? Also, do you not find bundled software that you don't want to be an annoyance? Think of the rubbish photo applications that you get bundled in with printer and camera drivers.
2. You are going to have to give a big discount. If you have four apps in a bundle and I only want three of them then you are going to have to give more than 25% off in order that I won't just buy them separately. Take out any cut that you are going to take and you are going to have to pay the people who wrote the apps quite a bit less than they would get going it alone. Are the developers going to be keen on this? In order to persuade them you will have to prove that you can shift the numbers and this is not going to be easy as this is untested water.
3. Will people be buying that many apps? I don't think a massive bundle is going to appeal to that many people. I might want a single music trivia game but I don't want 10 of them!
4. What's to stop a bigger company stealing you idea and running you into the ground? If Apple started doing bundles then you could be out of business almost immediately.
5. If this is such a great idea then why aren't there any big companies doing this on other platforms? You can't get bundled games on XBox Live for example. Why not?
6. You give the impression that the best thing that the developers get out of this is visibility. However, you have given no detail on how you are going to improve their visibility. How are you going to advertise and how are you going to fund the advertising? You will need to be able to pay for adverts and still offer the software for cheap!
|Mar 11, 2008, 09:03 PM||#9|
I just updated the blog with a post on why you should consider a pre-release walk-through video on YouTube.
Interesting points richardjames. I try cover your comments by number
1. I don't think you would be able to throw in crappy applications and get people to buy them. I agree with you there that it wouldn't work. If you look at the roadmap, you'll see that I mention that you can't ever forget that you will still need to develop a good product. I find software bundled with a camera or a new PC a huge annoyance, but I don't think its right to compare the two. I never wanted the photo application software when I bought my camera. Presumably, people who buy the bundle will be at least interested in all of the software, or else they would buy it separately.
Also, the above statement only applies to some software. Take some small productivity apps for instance. From the outside, you can generally tell how well they would work for you, since the descriptions and reviews of previous customers would give a good idea of how well the apps work. So in that case, you would buy the bundle and be interested in all of them
With games, on the other hand, you might buy a bundle without knowing how well they will work for you. Its inherent in games that they are fun for some people, but not for others. You might buy a bundle and end up not liking one game. But if the rest of the games provided enough satisfaction that you thought the whole package was a good value, then you would presumably try that company again when they released another set. A totally different person might buy the same bundle and dislike a different game, but still end up being satisfied for the same reason you were.
A good entrepreneur would slowly drop apps that did not provide value and pick up others that did. Which is one of the reasons I think this idea is so great. Bundles don't have to be static. If they don't sell good one month, revamp and sell a different combination the next month, until you find the combination that appeals to the most people. That’s what being an entrepreneur is all about.
2. You've got me on this one. But are you sure you'll have to give a big discount? I say it depends on the market, and we don't know what type of consumer the average app store buyer is likely to be. It will be trial and error for everybody. Until people start to get a basic idea of what they will pay for the different apps out there, I predict you'll see a lot of divergent pricing numbers. In fact, I think it would be awesome to get a hold of developers and see how they're working out what price to sell their app at, their reasoning and how well it works. It would make great case study material. Email me if you think you might be interested.
But the discount question you raise is a good one. What should it be? I think you'll be surprised at consumer behavior. People may download an application like crazy when it's free, but won't touch it when it's $1.99. So what's a developer to do? If he bundles his app with three others for $2.49, is he going to make more or less money? He will be getting less on each sale, since the $2.49 is split three ways, but he might end up with more money if the application sells better. There's a ton of guesswork and trial and error ahead of developers, and what may work for one won't work for another.
I do want to say that what I wrote depends on making some assumptions about the iTunes App Store and what sort of programs we'll see. Like I mentioned earlier, I'm predicting many small applications. I think a lot of small developers will release some great programs. But the iPhone has limits. It's not a full size keyboard, the screen isn't 19 inches. I don't think you'll have the giant apps that you use on the desktop trying to get themselves onto the iPhone. Instead, you'll have smaller, lighter versions coming out.
3. I'm not sure how many apps people will be buying, but I'm sure that different types of software will have different magic numbers. You might not want 10 trivia games, but you might buy a pack of 10 small games (hearts, spades, solitaire, FreeCell, spider solitaire, pinball, Backgammon, Minesweeper, pong and blackjack). The point is some bundles will be big, but others might be small. The market will dictate how many apps people want to buy and at what price.
4. There's nothing to stop competition, you have to be good. Big companies will always try to muscle in on smaller companies if they think the money is there.
5. What makes you say there aren't big companies selling bundles? I don't know about what X-Box Live looks like, but Adobe sells its programs as Creative Suite 3, in different combinations to appeal to different audiences and as stand alone programs as well.
6. I haven't really covered how to increase visibility. I'm hoping to work on coming up with a few good blog posts. Maybe people here have some good ideas as well. I'm really just getting started, so I don't have all the answers yet.
What do you think?
P.S. And yes, I do think about this an awful lot
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