How much does building a mobile application cost? How can you make an app successful? What are the mistakes to avoid? silicon.com talks to the experts
In the third part of this silicon.com feature on the business of mobile apps we look at the costs associated with building apps, consider paid apps versus free apps - and throw in some tips on creating a successful app.
The cost of building an app
Costs will be proportional to the scale of your ambition - the more bells and whistles you want your app to have, the more you should be prepared to stump up.
A Forrester report last year set the price of a no-frills app at a minimum of $20,000 - and reckoned a more sophisticated app could set you back up to $150,000. And, according to Forrester analyst Neil Strother, it looks as if costs have, if anything, gone up a bit since then - perhaps owing to the development of more sophisticated apps but also increasing demand for the services of app developers.
"The upper end numbers seem to be getting a little higher," notes Strother. "I think that's partly due to including backend connections to your website or your services and then if you're actually doing commerce that adds more to the cost of building the application - so whenever you get more complexity I think it's going to add to the cost."
However Strother reckons a "fairly simple app" can still be procured for "a reasonable amount of money". But what's 'reasonable' in the app world?
Tim Ocock, VP of business development at B2B app developer Symsource, says the price-tag for a not-entirely-basic app starts at around £15,000: "An app of any quality is going to cost a minimum of £15k to £20k to develop. You can do something less if all it really is is something that launches an existing website or something like that but where all the content is on the application itself and it has some utility, then that's what it's going to cost."
At the top end of the app development scale, costs for the most ambitious app projects can be substantial, as Ocock explains. "The largest and most sophisticated applications in some of the projects we've been involved in - such as flagship newspaper or news service type projects - those are going to cost of the order of £150k, £180k/$200k, $250k to develop because those are apps that are going to have a lot of features," he says.
"They're going to require a very high quality because expectations are going to be very high from users, and they're going to be handling all kinds of different content - video and podcasts and audio streams - they need to have very complex user interfaces, or rather UI that are easy to use but complex to develop. That's been our experience at the high end."
"The cost of making an app is going to vary a lot depending on what kind of an app it is," says Ian Fogg, principal analyst at Forrester. "If you're making an advanced 3D action game that's going to be a lot more costly - for example - than making an app to support a conference."
Costs will also vary depending on the app platform or platforms you are targeting, and perhaps also on how many territories worldwide you want to target. The basic rule is: the more platforms you want an app on, the more money you will have to fork out in development costs.
"App development can be costly depending on the territory you're in and how many devices and the type of devices you want to go on," says music discovery service Shazam CEO Andrew Fisher. "So in Java, for example, you need to certify every handset that your app is delivered to in a certain country and that could cost you £500 per phone. Whereas in the iPhone you're not paying for certification and you can get out to 50 million devices just through one version of your app."
There are ways to reduce the cost of developing an app. Tech companies or businesses with enough tech resource in-house to have a crack team of developers to call their own might be able to build an app on the cheap, for instance. Outsourcing to a professional app-development agency will probably cost more.
Companies with some in-house tech resource may be able to bypass the CFO grilling in another way.
In airline BA's case, their iPhone app started life as the brainchild of two of its developers who initially worked on it in their spare time. The company then got involved but development continued in-house meaning costs were kept to a minimum - "a few thousand pounds", says Chris Carmichael, manager of BA.com and mobile innovation. "We're not talking a large cost at all."
Both in-house technology resources and a tech-enthusiast CEO helped Ocado to build its app, as Jon Rudoe, its head of retail, explains: "In our case [the decision to build an iPhone app] actually came straight from our CEO who is a huge technology devotee. He was one of the first people with an iPhone upon its UK release."
How do you measure success?
"As a department or area within this business we pride ourselves on being able to measure everything we do so we never really encounter any hurdles with regards to presenting new technology or new initiatives," adds Mighty.
So if you can present a watertight ROI you shouldn't have trouble getting the iPhone app past the CFO either. A well thought through app proposition should sell itself.
And while Mighty won't be drawn on the exact cost of Oasis' iPhone app, he does say the app not only pays for itself but is a strong additional revenue stream for the business. "If we were to quote you a number [for the cost of building the app] someone might consider it to be a lot but in terms of what it generates it's not significant," he adds.
Can apps really make money?
It's entirely possible to make direct revenue via an app - and not just enough to cover the costs of developing it. Certainly retailers such as Oasis which already have an online channel and are able to use an app to tie into their existing ecommerce service and increase the opportunities for customers to buy are likely to have an advantage.
Pizza Hut's iPhone app is another example of a multi-channel retailer using an app to extend its business and open more channels for cash to flow in: in their case, $1m in its first three months as discussed in the first part of this feature.
However revenue generated via an app is not necessarily additional revenue for your business: beware cannibalising another channel. Would your customers simply have used the phone instead of an app?
Paid apps vs free apps
Many smartphone platforms support paid for apps as well as free apps. Paid for apps have an up-front price-tag, which either goes entirely to you the app developer or comes to you minus a fee (Apple takes 30 per cent). But it's also possible to make money - albeit indirectly - via a free app. So what are the issues to consider when choosing between these models?...
While having a free/very cheap app should mean more downloads (and eyeballs) than if it had a higher price-tag, it will still have to compete for attention with all the other free/budget apps out there (and on the iPhone platform that means a lot of competition). There's an argument, therefore, that a quality app with a reasonable price-tag might actually stand out.
"The actual consumer is being conditioned to download applications on their phone in much greater volumes than they have done previously," says Shazam CEO Andrew Fisher. "The downside of there being thousands and thousands of apps is that it can be challenging to differentiate yourself. The good news is that consumers are increasingly willing to pay for quality and if you can develop something that people see value in there's no reason why you can't build a successful business from it."
However the watchword there is "quality". iPhone apps at least have to work hard to get noticed in the first place, be innovative enough to get downloaded and keep on innovating to stay on devices - which is a pretty big to-do list for a business wondering if it has an app inside it.
But if you're able to produce a quality iPhone app there is some good news: Apple wants to help it do well. Forrester's Fogg points to the update to the App Store that added a 'Top Grossing' category. "That's going to help companies that are charging a bit more for their app to put more effort in, get more revenue back. Because those apps going to be easier to find."
Consider TomTom's Western Europe iPhone app - a GPS application that turns your iPhone into an in-car sat-nav. Its current price is a whopping £59.99 yet it's number one in the UK App Store's 'Top Grossing' category. TomTom's UK & Ireland app (£49.99) is second, with a cheaper rival (Co Pilot Live UK & Ireland - £26.99) coming in third.
"[TomTom's £59.99 app is] a lot of money to pay for a mobile app but it's obviously been successful," notes Shazam's Fisher. "That actually sets a value on mobile apps."
Next in the Top Grossing list are two games apps: one from the big-name Call of Duty franchise, priced at £5.99, and a game version of the Where's Wally? books (£1.79). A National Rail Enquiries app, not exactly cheap at £4.99, makes an impressive showing in sixth place, followed by Jamie Oliver's 20 minute meals app (£2.99). And so the list goes on, fleshed out by apps in the entertainment and lifestyle categories.
For some brands and services iPhone users are prepared to pay. And it seems that return on investment potential on the iPhone App Store currently outpaces the rival Android Marketplace, according to Tim Ocock, VP of business development at B2B app developer Symsource. "To date what we've seen is those people who are in both iPhone and Android do something in the order of 100 times the revenues on App Store than they get from Android right now," he says.
However it's also worth noting that all apps currently in the 'Top Paid Apps section' cost less than £2 each. So if it's maximum downloads you want - perhaps for a brand extension play or marketing push - free (or very cheap) will always be the best bet. In a report into this month, analyst house Gartner predicts worldwide downloads in mobile application stores will surpass 21.6 billion by 2013 but the vast majority (87 per cent) of these downloads will be free.
As the smartphone market expands, and devices are adopted by more and more people, the analyst believes the average user will become less tech-savvy and less trusting of billing mechanisms so more reluctant to pay for applications than the early adopters have been.
Even so, in today's smartphone market, if your business has something really valuable or unique that it can offer up in app form then don't be afraid to stick a price-tag on it. The size of this tag will depend on two things: the size of your brand, and how much money you're willing to spend marketing the app.
What about freemium?
Going down the 'freemium' route might mean offering two versions of your app: one that's free, to maximise the number of people who download it and thus draw in crowds to try out your great service. Think of this as the taster (it may or may not be ad-funded). The second prong of this strategy is to have a premium, paid-for version of your service - perhaps a paid for app - which offers loyal users additional features and functionality. Shazam's 'Shazam Encore' premium app (priced at £2.99) is an example of the freemium model applied to apps. The company offers a less feature-rich free app as well.
"We see [paid and free] models very much coexisting," says Shazam's Fisher. "We think the model for now in terms of the app world is to have a freemium model where you give some element of your service away for free and you generate revenues from advertising, and then you can also offer a premium service to users who really like what you do."
Forrester's Fogg points to another interesting freemium-style development in the app world - online music streaming service Spotify which offers 'free' iPhone and Android apps. However they're not actually free as these are only available to premium subscribers of its service - which costs £10 per month.
So in other words Spotify is exploiting the appetite for apps and mobility as a tool to drive its primary web business: a paid-for music streaming service. A clever response to the business of apps - an almost upside-down way of looking at the app world that may turn out to be pretty savvy.
"The question there is does that help Spotify drive adoption - drive customers to switch over from the free service to the paid service? Because this is something that's new," says Fogg. "It's a new addition to the paid offering."
How do I build a successful app?
Firstly how are you defining and measuring success? Success will also vary by platform - getting thousands of downloads on the iPhone won't mean anything if the app gets deleted by everyone immediately.
"A year ago or two years ago if you had a Java download you would measure its success by the number of successful downloads you got," says Symsource's Ocock. "It's such a hurdle to overcome, getting somebody to download it in the first place, once they've got it on [the device] then you could consider that's your 'win'."
But Ocock reckons tens of thousands of downloads can come "very easily" for a free iPhone app. So a better measure of success in that ecosystem is 'stickiness' - how long the app stays on the device and whether people are still using it months later.
"If you have [an app that gets] 100,000 downloads but they all delete it two days later I wouldn't call that a success," he says. "[But an app] that people download and are still using six months later or three months later then I think that's a much better metric of success for an iPhone application because there's so much choice that if they're still using that then clearly it's giving them some value that means they're continuing to engage with whatever brand or service that app is associated with."
You should be prepared to set aside marketing resources for the app, even if the app itself is free. With so much choice you should not expect users to find it themselves.
"You have to announce [the app] either through mobile ads, online ads, television or print, somehow to alert people that 'hey my brand over here has an iPhone app - go download it now it's free and does all these cool things'," says Forrester's Strother. "It's not something marketers should shy away from it's just something that you have to consider when you say 'OK I'm going to build an app and you have a good idea' - just remember that you have to promote it."
So what tips does Shazam's CEO have for companies hoping to garner even a fraction of its success?
Fisher says it's about having a clear app strategy and knowing the difference between an app that's fun and one that's useful: "A fun application - which is really for entertainment - [is] going to have a very short life cycle but can be incredibly viral. You can build high volumes in a short period of time but it's not going to be sustained. So your strategy then needs to be around building other applications."
But if perpetual app development doesn't sound like much fun - and to most businesses it probably sounds anything but fun - then your best shot is to make an app that people actually need and therefore want to use. Or in Fisher's words: "A utility application - where the problem that's being solved for the user continues over a period of time. It doesn't diminish. And if anything people actually use the application more and more."
Forrester's Strother makes a similar point: "I think the trick is, from a corporate standpoint if you're a business and not necessarily doing an entertainment application it's trying to build an app that will be sustainable and has legs over time - and I think that's where the value is built. So I can come back to that. If I think about banking or airlines or something that I'm going to use on a regular basis [an app for that] makes a lot of sense."
A glimpse of the future - what's next for apps?
As this three-part feature has shown, apps are not only marching onto more and more handsets they are continuing to evolve as phone hardware and ecosystems evolve. With the rise of GPS and other location-positioning technology, some interesting developments are already afoot involving location-based services - especially in the US.
Apps such as Foursquare not only enable groups of friends to find each other when out and about (useful) but are also giving bricks-and-mortar businesses an opportunity to make themselves more visible on smartphones and engage mobile users with discounts or rewards for loyalty. Even a basic Google Search done on a GPS-enabled smartphone offers localised search results meaning a mobile user who is thirsty for coffee can easily find a local café.
Customisable widgets and in-app purchasing offers the promise of apps that are more addictive and sticky still: if a user has bought a subscription within their app they're not going to be dragging it to the recycle bin tomorrow. So the best apps are going to get a lot better at embedding themselves into users' lives, becoming indispensable even as users become more discerning and demanding of what they put on their phone.
Integration with camera hardware is another area that offers exciting potential to apps - meaning a mobile user out shopping can snap a picture of an item they're interested in and be shown similar products for sale (The Amazon Mobile app for iPhone already offers this functionality).
Barcode-scanning tech that also makes use of the phone's camera (found on apps such as RedLaser and ShopSavvy) already allows quick on-the-fly price comparison - the user can then choose to buy the product via the phone, rather than there in the shop. So the mobile app already looks to be changing how we shop - and this looks set to accelerate. Another future tech likely to be embedded in phones is NFC (near field communications) - which will allow contactless payments for cash purchases, ticketing and other small ticket items to be done with just your phone in your hand.
Mobile apps are also offering an increasingly joined-up experience to the user - mobile mash-ups and integration with third party web services mean smartphone users can do more without having to cut out to another device, driving app usage and potentially revenue too. How long before users can do anything and everything they want with that thing in their pocket they used to call 'a phone'? It's a thought.
Want more apps? For parts one and two of this feature, see the links below:
Mobile apps: Does your business need one?
iPhone apps: British Airways, Ocado and Oasis explain why they did it