App Stores Are No Place To Make Money

If you are following along you will know that the latest iOS App Store changes caused us some (hopefully temporary) misery. Instead of doing what I was supposed to do yesterday, I spent the morning getting new revs of powerOne back into the App Store so we can change the keywords. Apple’s end-of-week changes meant that we were no longer found for searches like “mortgage calculator” and “rpn calculator” although we were front-and-center for searches like “mortgage” and “rpn.” In the end, the changes will be a good thing for customers and us but the near-term pain is a 30% drop in sales.

I’ve been at this a long time and app store changes wreaking havoc is nothing new. In the Palm OS/Windows Mobile days, we worked with two primary e-sellers, PalmGear and Handango. As sales slowed for all handheld devices, these two decided they would jack up the rates they charge developers. Instead of 25% it soon became 35% then 65%, which was more than our physical product resellers were charging. Handango also served as the back-end for Palm’s website. I was so annoyed that I lobbied Palm to switch to PalmGear. What’d I get? Worse terms when they switched. Not only did they keep the rate at 65% but they also forced everyone to remove their own website links from their apps.

When we rely on a third-party to make our sales, we are just asking for trouble.

In a nutshell, here is the vicious loop of what has happened: with the iOS App Store being the only source for sales to iOS customers, every sale goes through it. Because every sale goes through it, all customers search there for the product they want. Because distribution is restricted and marketing in the App Store is limited, competition starts revolving around price alone. Prices get compressed and with lower prices the opportunity to spend money on marketing the app is limited, forcing us to focus on the App Store for our marketing, which reinforces to customers that it is the only place to find apps.

This isn’t exclusive to iOS. Android has two leading stores, Google Play and Amazon’s store. (Yes, there are a number of vendor sponsored ones as well but the reality is the same: customers search for apps in these stores.) Microsoft has one. RIM has one.

Furthermore, this not a rant against any of the app stores and providers. There are good things to this, too. Installation, reinstallation, and purchasing are all so much simpler than they were back in the day. With smaller volumes than we have now, we used to need a full-time support person who spent 80% of his time handling install and reinstall problems. We even needed telephone support with 800 numbers because many of the issues weren’t resolvable via email.

Nor is this a problem for all kinds of apps. Games, for instance, seem to thrive in this environment.

But what it leads me to conclude is that app stores are no place to make money. Not real money, anyway. App stores are great for distribution. App stores are extremely efficient for the process of transferring money from customer to vendor. But what they are not is a great place to differentiate, a great place to market. We are too much at the whims of the app stores.

We are working on something new (I have hinted a hundred times and will share very soon). We are exploring a freemium (get some for free, pay for more) subscription model. The pricing and recurring revenues would actually support us marketing and selling the product outside of the app stores. No surprise, there will be a heavy mobile component to this app and we look forward to offering pay options through Apple’s, Amazon’s, Google’s, Microsoft’s and other stores.

But in no way will I restrict myself to those channels. The opportunity is too great.