What it takes to build a financially sustainable app business

There's a new software business model arising, supported by cloud, service oriented architecture, and mobile, that enables software creators of all stripes to get their services out to the market. What does it take to build a financially sustainable app software publishing business?

Consider that an average app posted may bring up to $4,000 to $8,000 to its publisher. Get up to 100 apps in an app store, and you have a decent-size startup. Mark Maunder, founder and CEO of Feedjit, made an effort to add up all the possibilities a few months back, calculating the potential income a developer shop could make from posting an app at the Apple App Store.

He calculates that on average, each app posted brings in $4,000 to $8,000 to its publisher. He bases this calculation on the $3.64 average price for each paid apps, along with 244,720 paid apps, published by 85,569 unique developers. With app stores, there is the potential for creating software startups that no longer require bank loans and venture capital funding — just a lot of micro-streams of revenue.

Apple is riding the wave of a new realm.  We’re evolving into a technology economy in which companies and individuals alike are accessing on-demand services from a range of providers, including one-person development shops, small ISVs, large ISVs, systems integrators and consultants, and even the IT departments of non-IT companies.

But, as with anything in business, there is no magic bullet; just a lot of hard work, positive attitude, perseverance -- and marketing. That's the same lesson that's been learned over and over again in the software publishing business over the past few decades. App Promo (who, as their name suggests, is in the business of helping software authors bring in revenues from their apps) recently conducted a survey of 100 app developers and came up with a bunch of sobering findings, displayed in their infographic, below.

For example, 59% of the app publishers surveyed don't generate enough revenue to recoup their development costs.  And 80% certainly don't generate enough revenue to support a standalone business.  Most made less than $5,000 with their app.

Not yet. Not yet. One more time, not yet. This is still a nascent industry. Things are still in flux, things are still churning. But the business model keeps bending in favor of this model.  Call it "Micro ISVs," generating "micro-revenues." But things begin to add up.

There is that 12% who reported earning more than $50,000 in revenues from their projects. What are they doing differently? These top earners spend at least 14% of their time marketing their software.  App Promo says spending money on marketing makes the difference -- true, but that's what they're selling.

Also key to building a business on apps and services is having a vision, and a cohesive plan that you can take to the bank or to investors.  (Even if you don't want to get banks or investors involved at this stage, build and plan and forecast as if you were pitching to them.) And, very importantly, develop a vision as to what you want to change or improve within enterprises or peoples' lives. The previous generations of software publishers who built businesses in the 1980s, 1990s and 2000s learned these lessons well.

(Cross-posted at ZDNet Service Oriented.)

This post was originally published on Smartplanet.com