How to Succeed in Apple’s App Store

| Hidden Dimensions

"If you're attacking your market from multiple positions and your competition isn't, you have all the advantage and it will show up in your increased success and income."

-- Jay Abraham

A few developers may be feeling both swamped and stranded by Apple's App Store. While it has been enormously successful from Apple's standpoint, prices are low and competition is keen. The challenge for developers is to approach the App Store with the right kind of thinking.

One of the curses and blessings of the Apple iPhone SDK is that anyone who has the experience and skill to build a small application for the iPhone can do it. The curse part is that developers who believe that developing the app, submitting it to Apple, and sitting back to wait for the checks to arrive is all there is ... are in for disillusionment.

To be sure, there have been some notable successes, especially in the early days of the App Store. However, like the Klondike Gold Rush of the 1890s, many launch out on a venture; only a few get really rich.

Of course, the expectation of becoming wealthy and having it fall flat could lead to rationalization and bitterness, likely directed at Apple and the competition.

The Trap

I started thinking about all this when I ran across a blog entry from developer Craig Hockenberry who was concerned about the low price of apps in the App store. He called them "ringtone apps" because the cost of the app, $0.99, is the same as a ringtone. He argued that it's hard to recoup the development costs of quality software in a flooded market, a Gold Rush market, with the current costs of doing business. He pointed put that, at US$150-200 per hour for a good software engineer, a three month development project would cost $80K. He'd have to sell over 115K copies at 99 cents to break even.

Later, in an e-mail exchange, Mr. Hockenberry said, "We feel very positive about the business opportunities in the App Store. Apple has also been very good about making changes based on feedback from the developer community. We're all learning new things at this point." Even so, he expressed concern about the current favor for lower price apps. "We're setting the price first, then matching the amount of development to that price. It's pretty clear that the sweet spot pricewise is 99 cents." That's a tough situation to be in.

Chuck Soper with the Vela Design Group had similar feelings of optimism, opportunity and dismay.  He told me that competition is driving prices too low. "The sheer number of apps in the App Store make it difficult to gain much visibility. Many of these apps are simple and have limited functionality. Higher quality apps with more functionality and value are often difficult to find."

On the surface, then, it would seem that while experienced developers remain optimistic about App Store opportunities, they are concerned about how difficult it is to charge more than the going rate and obtain some visibility for their quality software. That's the depressing, first blush reality: making a living on quality software for a buck.

Is that the end of the tale? I might have stopped there, but like any emerging story, I suspected that there is a hidden dimension that hasn't come to the surface. So I set out to find out more.

Value in a Free Market

First, I suspect that the earmark of any good, free enterprise system is that the ground rules afford lots of opportunity for both failure and success. In that sense, we should be thankful for developer failure; it certifies Apple's wisdom.

Apple's agenda is to create a market opportunity, sell a lot of iPhones, solidify the developer base, get a leg up on the competition, solidify the next major platform, and make money doing it. There's nothing wrong with all that.

However, when some developers complain that prices are too low and that they can't easily get rich or even sustain their business, that's not a symptom of something Apple did wrong. Rather it's a symptom of a really open, free market. An analogy might be miners from the Gold Rush complaining that the roads were terrible, that they had to buy a mule and supplies, and no one was clearing the snow from the mountain passes.

I spoke with Jan Füllerman from nova media in Germany about this on the phone. He agreed with the dismal situation of too low prices in the App Store, but added that his company takes a broader approach. They're working with Deutsche Telecom, the parent of T-Mobile, on a project that has taken years of preparation and trust to close the deal. In addition, their apps right now are on the Mac where profitability and uniqueness are easier to come by. Their goal is to have such a broad base of opportunities and revenues that if they do sell an iPhone app, they'll be one of the last iPhone developers standing.

I also chatted with Dan Burcaw of Double Encore, Inc. right here in Denver. "Developers are pricing their apps too low when it's not necessary," he said. "Some apps are designed to be volume apps, but others shouldn't be. Understanding the customer's needs is vital."

He told me that in one case, in consulting with a developer who was selling an app for $0.99, raising the price to $1.99 actually increased sales. After all, if the developer doesn't value the product, why should the customer?

In fact, App Store developers who lower their prices too far aren't even learning the lessons of Apple; they're thinking more like Dell.

Really Good Business Models

There's a lot more to selling in the App Store than a simplistic development effort and then dropping the app into Apple's hands. "The real battle is getting eyeballs on the product," Mr. Burcaw said. And there are ways to do this. One developer built a viral YouTube video that whetted people's appetite for the app even before it shipped.

A broad, well thought out business model is alien to many young developers, but if they're truly in business for the long haul, there are some things that just have to be done according to Mr. Füllerman and Burcaw. It's work:

  • Build a great supporting Web site that drives customers to the App Store. Don't wait for them to simply stumble around, unguided, in the App Store.
  • Understand the customers' needs and values. If those are met, the app will merit a fair price.
  • If possible, develop a synergy with Macintosh apps. Customers who trust and depend on a Mac app will tend to buy an iPhone app from the same company.
  • Develop multiple revenue sources with different kinds of customers: corporate, consultants, other developers, and end users.
  • Work in partnerships, perhaps with other developers, so that awareness is spread. Advertise in the right places. Create viral advertising.
  • Figure out a way to build a brand that sets the company apart from the amateurs looking for one-shot riches.

A great example of this is the mSecure app that I reviewed at the iPod Observer recently. The developer understood that the single most important thing about his app was the security of the data and trust that the data would remain under the control of the user. He charges $2.99, not $0.99, and indeed any app that sold for the lower amount really wouldn't be taken seriously when it comes to the critical nature of personal, sensitive data. His understanding of his market and customer dictated an appropriate price. It could have been even higher.

Only Rats Win the Rat Race

There are a lot of young, solo developers out there. Each is looking to make the maximum money for the least investment. Often, an immature understanding about value will lead to cut throat competition. Some of the apps are 99 cent crapware. Or greedware.

Apple didn't get where it is by selling junk to the lowest common denominator and neither will successful iPhone developers. In time, the Apple App Store will settle out. Even as the number of available apps soars yet higher, there will be a day of reckoning. Those companies that develop a solid brand, deliver quality products and construct a solid, long term business model will survive. The rest will have served their short term goal of fanning the flames and giving Apple a head start against the other mobile phone makers -- but they will quickly pass into history.

They will be just like all those Macintosh Classic apps we no longer use but remember fondly. Some not so fondly.

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Comments

Bosco (Brad Hutchings)

Three things:
1. You don’t need to pay $150 - $200 per hour for a top notch software engineer to build an iPhone app. If your model as a developer is to outsource coding and then make money selling in chunks of $x.99, you’re screwed anyway. I’ve seen many small developers try this route over the years, even when it was chunks of $29.99 and $39.99 and bleed money.
2. Other than a few random stars, the developers who will do well with the iPhone are probably linking their apps to existing online services that already have a value proposition. The app that identifies songs featured in the app store advertisement is a key example. Freemium model probably applies first. There is value in having your app on a potential customer’s phone.
3. Apple would do well to “make periodic hits” rather than be driven by what emerges as popular. If the app store is textbook long tail, with a handful of big winners and most apps not producing revenues or downloads, it’ll get stale quickly as developers realize it’s already too crowded. If Apple can promote a long front, where lots of apps do fairly well, by setting tastes rather than just reflecting them, there will be continuing incentive for innovation by new and existing players.

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