Build a financially viable app business? Writing the app is only step one

Build a financially viable app business? Writing the app is only step one

Summary: Most app publishers make less than $5,000 in revenues from their apps. This can go up, if they look at the lessons already learned by generations of software publishers.

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What does it take to build a financially sustainable app software publishing business?  Many times at this site, we've talked about the 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.

A few months back, for example, we published estimates that show an average app posted brings in $4,000 to $8,000 to its publisher. Get up to 100 apps in the store, and you have a decent-size startup, we surmised.

But, as with anything in IT, 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.

Topics: SMBs, CXO, Software, IT Employment

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7 comments
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  • Are App Publishers geared towards profiting from the app itself?

    There are lots of free apps that are tied to ad revenue or free apps from companies that use the app to reach out to customers. For example, e-trades app is free in the hopes that you buy and sell more stock. e-trade could have made $5 or they can make the potentially thousands of dollars by customers using their services instead of their competitors.
    Your Non Advocate
  • 14% = interesting figure

    A time & motion survey of 500 top managers several years ago found that there were two types:
    a) Successful = promoted rapidly
    b) Effective = preferred to finish the job at hand.

    Of couse, it generated a lot of discussion about what type of manager a company should prefer, but the significant figure here is that the 'successful' managers spent 14% of their time actively networking.

    The other takeaway was that the average time spent on any one task was 9 minutes, which means that they must be making gut decisions, and that presenting anything more to them than a couple of distinct choices or anything too deep (like technical) is likely to not result in a decision.
    Patanjali
  • App programming like music business = stars in the eyes = 15 min of fame

    I think most app programmers will likely make more money, and certainly have a lot more time for their families, if they bet on the lottery instead.

    Like any small business, if you are serious about programming, you have to skill up on a lot more than the core competancy. Also, one must be realistic, and know how to accept rejection, otherwise you will not have the strength of character to persevere.

    There is a lot of glamour in having a successful app, and in many ways it is like the music business, where many have dreams, but only a very few will achieve runaway success. Many who achieve 'runaway' success in the music industry have been plugging away in the industry for years, facing an uphill battle.

    Those that will be successful in a years time (music or apps) are those that have a long term plan to consolidate their career and wealth into providing continued value for their customers. That is building a sustainable business model, not just an opportunistic moneysink.

    The average may be $4k, but most will get a lot less than that.
    Patanjali
    • Marketing is extremely important for app developers

      Marketing is an extremely important term of the equation for success for app developers. A brand is like a gravity well, that pulls in and keep customers stuck to a business. It is vital that app developers establish and maintain this.

      Tech companies like MS, Google, and Apple can grow their ecosystems, if they make it easy for developers and other participants in their ecosystems, to address this issue. E.g. MS can really grow its Windows Phone and Windows 8 ecosystems, by making it relatively easy for developers to obtain investors, to at least pay for marketing, and build up their brands. I believe the same is going to be true for apps on MS' Xbox Live service. I believe artists of various kinds can come together and form networks, and release apps for users to access their networks' products, but many will need help from investors, to fund at the very least, marketing.

      E.g. MS could create a program where many top singers from popular music contests shows, could come together and form networks. These networks could produce Internet radio services, live shows, archives of these shows, recordings of original songs, recordings of cover songs, special interactive live pay-per-view shows, game shows, interactive games and other experiences, etc. The program could include relatively easy access to investors to fund their effort, including marketing.

      I believe a network of 10 - 20 great artists, could e.g. charge $3/month, and work to achieve and maintain an audience of at least 100,000 subscribers, in order to achieve success. New and established networks could continually audition new artists, to refresh or increase their ranks.

      The above would be a great environment for artists, to make decent money - at least if they are really good.
      P. Douglas
      • Marketing in a very big internet sea

        While the internet has opened up a lot of opportunities to tap much bigger markets for music and apps, it has also scaled up the advertising required to reach that expanded market.

        For music, CD Baby and its network provides the single best means for indie artists to distribute their work, and has a lot of helpful info to promote it.

        YouTube is the new 'live', but to market on it, one needs to understand how to use keywords to make sure one is legitimately in people's searches. SEO is just one of the many new skills required.

        With the rise of app markets with their search engines, SEO is also a new skill for lone app programmers to learn. The trick is to not annoy people by ending up being irrelevant references that they have to ignore when plowing through all those apps. The internet has bred a new lot of people that can quickly visually pick out what they are interested in. It is understanding how they do that that matters to SEO
        Patanjali
      • I'm talking about something new

        @Patanjali,

        Actually I'm not talking about artist networks existing on the web; I'm talking about artist networks existing on platforms such as Xbox Live, Apple TV, and Google TV. Also networks should be large enough to keep subscribers interested in the long term, but small enough to ensure that all artists receive at least, livable minimum salaries. The staple of a typical artist's income should come from his performances, not recordings of original songs. The networks should obtain licenses for their artists to perform cover songs, and have their artists perform them on network produced audio and video shows, have the artists record the songs, etc. The networks should also find first rate songwriters, and have artists make recordings of their works, and promote the results as much as possible. (I don't see the point in pushing artists to write songs, when very, very few of them can do this successfully.)

        So I'm talking about a significant restructuring of entertainment. There can still be very large networks which push the most popular music and video recordings. I believe many new ones should be viral like YouTube, but accept only properly licensed materials. The viral networks could produce continuous streams of autoselected performances, or create custom streams, based on user created playlists.
        P. Douglas
    • True for many businesses

      A small few that are well funded make it, the others move on. Under-capitalization is a problem for most businesses. The costs of getting the business up and going consume most of the capital and they either cannot get the revenue generating fast enough to continue or did not plan on how to get the customers through the door (most think being up an running is enough).
      happyharry_z