The way it was: channel sales before app stores

There aren’t a lot of us around who existed selling mobile software before iOS and Android. I believe there is a misconception over the way things were back then though and how we built out sales channels. My history in mobile dates back to 1997. Compaq was still its own company (and producing its own mobile hardware devices), Dell was the king of device sales, and Apple was barely an after thought¹.

We built a multi-pronged channel approach to generate revenue. Channel is the place of marketing’s 4 P’s (product, place, promotion, price). I even had a dedicated sales woman who was a queen at managing channel. It was a big deal back then! Now… well, not much choice. You can sell through Apple’s App Store, Google’s Play store, Amazon’s Appstore, Mac App Store, Windows App Store and maybe your own site depending on the platform. Most other channels are gone, although enterprise sales probably still have value-added resellers and other channels.

  • When I started out we had a partnership with a retail publisher. Macmillan Digital Publishing bundled us with a few other titles and sold through CompUSA, Best Buy, Office Depot, Staples and the like. We received a $1.00 per title, and the bundle, which included about five titles, sold for about $50. All were shareware titles and we did five of these over 3 years. The last one was a suite of titles we developed. It was a good deal for us. It was a channel we couldn’t attack directly at our early age and lack of funding, basically putting us in front of a group of customers who otherwise wouldn’t have known about us. We bundled a lesser product — a Lite version in the parlance — and then upsold our higher end version for $20 more. It didn’t drive a lot of up-sell traffic as we didn’t “own” the customer relationship and really couldn’t promote the higher-end versions effectively.
  • Once this bundle started selling, we started selling from our own web site as well. We sold two versions: the Lite version for $20 and the Pro version for $40. We drove people to the Pro version with ads in a magazine included in the box with each PalmPilot sold. I remember writing my first check — $20,000 — for an ad. My hand shook. Eventually our prices changed. The Lite version became free, a Personal version was $10, and then we had other versions from anywhere from $30-160. Our average selling price was $37 net.
  • We sold through online resellers, most prominently Handango and PalmGear (and a few others I can’t remember on the Windows Mobile side). These guys started our as good partners and a 20-25% cut of the revenues (they received), but they slowly started to raise their prices and, at the end, were demanding 60-70% of the sales revenue. When Steve Jobs stood on stage and said he was only charging 30% and what a great deal that would be, he was referring to these guys. Very little mobile software was ever sold through retail channels. Handango and PalmGear were the go-to places.
  • We, on the other hand, did sell through retail. Not just the aforementioned bundles but also through some very select channels. The Franklin-Covey retail stores were a perfect match. We also sold through (physical CDs, not electronic downloads in those days), Dell’s and Palm’s stores. Each took about a 30% cut. We had the opportunity to go to other retail, especially Costco which did a lot of sales back then, but we turned them down. It wasn’t the cut of the revenues we worried about, which was 30-50%, but instead was the terms. These stores could return the inventory at any time for a full refund and they ordered in the tens of thousands. This meant we couldn’t spend the money until we were certain it all sold, and we weren’t confident enough in our niche, vertical products to expect it to do well in a horizontal market like these.
  • Of the retail we did pursue, Franklin-Covey was the biggest of these sellers, although Palm, Amazon and Dell sold a lot of software for us as well. We sent and they sold thousands of titles through Franklin Covey retail stores. Palm, Amazon and Dell were a little different. They would place smaller orders and we would deliver them, mostly just in time or even drop-ship direct to customers. This mitigated the inventory risks.
  • While it wasn’t a sales channel, our biggest market opportunity came in 1999 when we started bundling with PalmPilots. We were on a CD that came in the box with other titles. The Palm deal led to other deals and at one point were bundled with about 85% of handheld computers sold. We gave away the Lite version and charged for the higher-end products. We even gave customers a little something for free (some extra calculations) if they came to the site and registered.  We built a 400,000 person mailing list and figure we distributed close to 20 million calculators in that time period. This became our primary marketing effort pretty quickly and, it turned out, drove about 75% of our sales. (I only know that because when the deals dried up our sales plummeted by that much.) I don’t think we ever truly utilized that marketing list. That was probably our biggest opportunity wasted. We did occasional mailers but didn’t really understand the impact that attention could have driven for us. It was extremely expensive back then to email them, honestly, and our minds were elsewhere…
  • … like the education market. When we focused on vertical markets and education in the early 2000s we signed up a number of value-added resellers and others that helped generate some income, but most of the education sales were speculative. We needed standardized test approval to be adopted and, well, that didn’t happen in the end. This is a story I’ve told before. We did do some smaller sales to a school or classroom. It was nice to send a single disk and paper saying how many computers it could go on, and get multi-thousand dollar checks in return. With standardized test adoption we would have seen districts and states adopt. That would have been big money, dwarfing all other revenue we had at that time easily.

Channel was a big part of our marketing strategy and, frankly, besides bundling, channel was our biggest strength and catapulted Infinity Softworks into being one of the best revenue businesses in the handheld era². Unfortunately it didn’t last long — our peak revenues were from 1999 to 2004 — and we never did figure out a way to break out into massive growth. The world was very different back then.

¹ In 1997, when graduating college, I thought I’d either develop Mac software or Palm software. The PalmPilot had just come out a few months before and it seemed like it had more promise. Oh well.

² That’s not saying a lot, although much better revenue then today for an indie developer with a small team.

Upgrading our thinking on App Store revenues

Every four to six months we get on another round of “Apple’s screwing developers without trials and upgrades.” While I agree it would be awesome to have, I’m on the record as believing that it is too late now. The expectation game was set long ago and App Store prices aren’t going up. Furthermore, the glut of App Store apps makes it hard to raise prices. iOS software has been commoditized.

The real question is how can we, as developers, use what’s given to us to build effective software sales. (Effective meaning “achieve our goals.”) I believe that trials and upgrades, two commonly requested features, are within our reach.

Whether we like it or not, Apple controls what we can do for business models. This is what they give us for purchasing:

  • Pay Up-Front: The first model. This shows the paid amount on the button in the App Store, you buy it and download it and it is yours forever.
  • In-App Purchase: Buy things once the app is downloaded and running on your device.
  • Subscriptions: Renewable purchases that can either be renewed manually or renewed automatically.
  • Free: No cost at all to download.

I will also note that we can use advertising in our apps and purchase physical goods within our apps.

There are some App Store review guidelines that are worth considering in this discussion.

  • 2.9: Apps that are “demo”, “trial”, or “test” versions will be rejected. Beta Apps may only be submitted through TestFlight and must follow the TestFlight guidelines
  • 11.1: Apps that unlock or enable additional features or functionality with mechanisms other than the App Store will be rejected
  • 11.2: Apps utilizing a system other than the In-App Purchase API (IAP) to purchase content, functionality, or services in an App will be rejected
  • 11.3: Apps that use IAP to purchase credits or other currencies must consume those credits within the App
  • 11.9: Apps containing content or services that expire after a limited time will be rejected, except for specific approved content (e.g. films, television programs, music, books)
  • 11.13: Apps that link to external mechanisms for purchases or subscriptions to be used in the App, such as a “buy” button that goes to a web site to purchase a digital book, will be rejected

Really, section 11 is the big one and these are the applicable rules, I think. It also appears that section 11.9 allows subscription software services as well. There are lots of examples of mobile apps that extend web apps that do allow trials that expire after a period of time or a subscription where the app stops working once the subscription ends.

This is the framework within we must work. So now we need to mix-and-match this framework to get the desired results. A few suggestions of ways we can make money:

  • Charge up front: many of us have been doing this for years and is causing all the consternation so let’s not beat this horse.
  • Advertising: integrated ads, while anathema to so many of us, actually generates good money for the right apps.
  • Donation: give away the app, ask for “tips” to help keep it going.
  • Freemium: have a free app with some paid features.
  • Paymium: have a paid app with additional paid features.
  • Trial: if coupled with a web version, the mobile version can have a trial period.
  • Upgrades: use in app purchase to charge for new features added to the app.
  • Subscription: charge to use the app for periods of time. (For those that hate Apple’s 30% cut you can charge for this on your web site and activate with a login and password in the app. You can’t advertise that fact within your app, though.)
  • Free: give away the app and charge for something else.
  • Physical Goods: make something and use the app to promote it.

You’ll notice Trial and Upgrade can be done if we think through our business models carefully enough, and are willing to take the plunge into expanding beyond iOS development.

As Rob Rhyne said at the Release Notes conference, it’s not too hard for independent developers to make money on the App Store. It’s just hard for independent developers to make money.

Holding My Breath

We are so close to launching Equals now. Earlier this week I thought we’d be inviting a few people to try it out this week. And then Tuesday happened.

We finally got everything pushed up to the server, code that had been working perfectly for the last week or two on my Mac. Honestly, it was amazing! In five-six days worth of testing I only found a handful of issues, most of which were really small issues that were fixed in a day or two. There was no crashing at all.

Keep in mind this was a far cry from the prototype we worked on last winter. That prototype crashed constantly and the bugs were nasty. Rick spent three months tracking down and fixing four crashing bugs, all of which were non-repeatable and all of which were crashing on some systems and not others. To make matters worse, it always seemed to crash on the platforms where we couldn’t step through the code with a debugger. So when we ran the engine on our Macs and nothing crashed and things worked, we were both celebrating!

So we pushed to the server on Tuesday and the first thing I did, the first calculation I ran, crashed the server! The first thing!

I held my breath.

A little bit of panic set in. A little bit of depression, too.

We had clearly hit the high point on our rollercoaster called launch and was turning the corner to plummet back down into the pits. I hate this ride. Maybe it’s time to walk away. Maybe this is a sign from the gods that it isn’t meant to be.

Luckily I wasn’t in charge of finding and fixing the bug. So we sent off some feelers to the hosting company to see if there was a server issue we needed to know about and get some pointers on how to debug the issue. Wednesday night Rick narrowed the bug down to a third-party library we are using in the engine and Thursday night he found and fixed the problem. Meanwhile, I was tasked with “doing other things.”

I woke up this morning to a fixed and running engine, and suddenly the rollercoaster is going back up hill again and all is right with the world and we might be able to invite some people to try it out today anyway.

I’m breathing again.

Trials and Upgrades Won’t Save Independent Software Developers

Every six months or so a new round of discussions about how Apple is killing independent developers arises. Many argue that Apple has hurt independent developers by not allowing upgrade pricing and free trials. The belief is that this would help indie devs make a living because free trials raise prices and upgrades allow for an on-going revenue stream, one that pays for developers to continue improving their software.

Lately, this has become the latest thinking for why the iPad is not doing well. The thinking goes that there is little incentive for independent developers to write world-changing applications for iPad because there is just no money to be made, and without those world-changing applications the iPad languishes with few reasons to purchase. After all it is neither an iPhone nor a laptop, sitting somewhere in between without a truly compelling reason to purchase a new one every year. After all, I can consume content (news, movies, tv shows, etc.) on a three-year-old iPad almost as well as I can a current one.

I’ve long argued that, while Infinity Softworks has as good a reason to support trials and upgrades as anyone, it won’t make a difference to the independent developer today. It’s too little, too late. If there had been trials and upgrades in 2008 or 2009 maybe it would have made a difference (I’m still skeptical), but not today. It’s a matter of expectation and the realities of numbers.


Customers are trained just like anyone else and the baseline becomes the expectation. Here in the United States we expect lights to go on whenever we turn on a lamp. When the electricity goes out it makes major news. Remember the blackouts in California just a few years ago? Yeah, that was huge news. People were frustrated and lots of ink was spilled (can we say that anymore?) talking about how this will be the future, rolling blackouts and other electrical grid problems caused by climate change and an increasing population.

Our expectation here in the States is that the electricity is available whenever we need it. That is not the case in other countries. We worked with a company in India a few years ago. It was often we had to postpone a meeting or adjust our schedule to accommodate their electrical situation. While it left us wondering, none of the developers in India blinked. Their expectation was that electricity was intermittent. Use it while you’ve got it, save and backup often.

Already in 2008, when the iPhone launched, the landscape for software was changing. More and more companies were becoming successful with web services, which necessitated subscriptions and advertising. There were fewer and fewer success stories of packaged goods, one-time priced products. Apple walked into the middle of this with the iPhone and shortly thereafter so did Google.

The expectation die was already cast, however. When the iPhone launched, apps were priced with a virtual ceiling of $10. That was the price of the first game and many of the first applications. A few years later Apple launched their Office-suite of apps (Pages, Numbers, Keynote) at $10 per app and then free. In customer’s minds, a very polished, professional application from a well-known developer for an iPhone or iPad was $10 at most. From anyone else that premium price was $5. Sure there were a few niches where the developer could still get more but those were far and few between. The expectation was that apps were somewhere between free and $5. In 2009 we experimented, raising the price of our top 5 finance app from $5 to $10. Our sales completely disappeared.

That expectation, for iOS and Android, has lived on now for eight years, cementing itself in the mind’s of app buyers. It is unlikely that would change with trials and upgrade pricing, especially when most categories readily have at least a half dozen alternative applications to choose from.

The Role of Scarcity

In 1998 we launched our first application for PalmPilot, a financial calculator called FCPlus (later renamed to powerOne Finance). We charged $39.99 for the application in those days, a high but not outlandish price for a handheld software title in the late ’90s. Average prices for Palm software was $10-20 per title. We priced at $39.99 because our only competitor, Landware’s Financial Consultant, was the same price.

Read that again: our ONLY competitor. There were not ten alternatives. The expectation was that a good software financial calculator for Palm OS would run a buyer $40 (or more). But even $40 was cheap by desktop software standards. Other products in the Windows calculation space were hundreds of dollars and even hardware calculators cost more.

We can’t say the same today. There are no less than 20 alternative financial calculators in the iOS App Store. While demand expectation of low prices remain, the plethora of undifferentiated competition puts pricing pressure on the supply side of this equation as well. And let’s face it: it is nearly impossible to differentiate when you have only a few screenshots, a description (that no one reads) and a few reviews to go on.

Software’s Changing Face

In the late 90s/early 2000s I had a theory that the price of software for mobile would remain at about 10% of the price of desktop software titles. After all the price of mobile hardware was about 1/10th the price of desktop computers and the screen real estate was about 10% of a typical monitor. Again, expectations, this one dictated by its relativism to other computing systems.

A typical Windows application was somewhere between $100 and $400. A typical Palm or Pocket PC title was $10-$40, right about 10%. The price of a desktop computer was $2000-$4000 while the price of a PalmPilot, by 2001 or so, was $100-$400, or roughly 10%.

Soon thereafter, though, laptop and desktop prices fell. Now a high-end, high-quality laptop can be had for $1500 with Windows laptops as low as $500. And software prices have fallen alongside. Apple used to charge $100 for its desktop Office suite, which became $20 per title then free. A $400 Microsoft Office suite became $80.

It isn’t stopping there, though. In 1998 when I wanted to understand the software business I looked to Microsoft, Adobe and Intuit. Each sold their software one-time with upgrades. Now, not so much. All three are moving to subscriptions and Intuit just announced it is trying to sell all their products that don’t have subscription pricing.

The Financial Reality

My problem is not that it hurts to try trials and upgrades, my problem is that there is too much hope in a solution that won’t pay off. The reality is that smartphone and tablet software pricing is so low that even trials won’t help us. If a premium application is $5 today, what do trials buy us? If we can raise the price at all (too many substitutes as discussed above), can we raise the price to $10? How about $20? A typical paid app in the store will generate a few thousand downloads over the course of a year. In the financial category, 10 units per day is able to keep you in the top 50 paid apps in the category, which is not an easy task to accomplish these days. That’s the equivalent of 3650 units per year. We’ll use 5000, a 33% premium, instead to make the math easier:

  • 5000 units × $5 – 30% = $17,500
  • 5000 units  × $10 – 30% = $35,000
  • 5000 units  × $20 – 30% = $70,000

Even the $20 price is definitely not enough to support even a single developer in most of this country. But what about adding upgrades? From my days selling one-time with upgrade products on platforms that supported it, I know that roughly 10% of the customer base would upgrade to the next release:

  • 5000 units  × 10%  × $5 – 30% = $1,750
  • 5000 units  × 10%  × $10 – 30% = $3,500
  • 5000 units  × 10%  × $20 – 30% = $7,000

So year 1 is $70,000 gross, year 2 is $77,000 gross. And that’s gross revenue! None of the expenses of running a business are taken out yet. While these might be great hobbyist revenues, they still don’t mean enough money to inspire a team of people to write incredible software that changes how people use iPads.

To make a full-time, independent software business work in the United States, I estimate (based on experience) that we need to generate roughly $150,000 per year per employee before expenses. Adding trials and upgrades, frankly, aren’t going to get us there.

Duck and Weave

I surmise that the business of being an independent developer is much like the job of an NFL running back. The backs job is to find the holes left by the 400 pound lineman and charge through them.

As mentioned in 1998 we launched our first Palm title: FCPlus financial calculator. A year later Palm came to us and basically told us to give them a financial calculator free or they’d go get one from our only competitor. Microsoft at that same time had launched PocketPC and included a financial calculator. Palm needed one, too¹.

We really had no choice. Relying on the fact that Palm just wanted to check a box that said “includes free financial calculator” we created a Lite version of FCPlus, gave it to Palm to bundle and then sold upgrades to the full Pro version for $19.99. (Remember, the full price was $39.99). These bundling deals worked quite well for us, actually, and we eventually developed a product specifically for bundling (powerOne Personal), which was included, at its peak, with nearly 80% of all handhelds sold. The traffic derived from those bundles accounted for 75% of our revenue.

The 400 pound lineman created a hole and we, the 200 pound running back, had to find a way to charge through.

On To The Future

The business of software keeps changing. We need to change with it. As much as we all think it will solve our problems, yearning for a world that has passed us by won’t help. Trials and upgrade pricing are from an era gone-by. They aren’t coming back and, if it did, it wouldn’t have the financial impact we all wish it would.

If we want to thrive, let alone survive, we are going to have to change with the industry. Again, I look to Microsoft, Adobe and Intuit. Their future is clearly subscriptions. Is that our future too?

¹ Yes, the company was that horribly run after Donna, Jeff and Ed left to form Handspring.

Intuit To Sell Quicken

I missed this news two weeks ago but apparently Intuit is selling Quicken, its consumer-grade financial tracking software. In fact Intuit is dumping all of their businesses except their tax filing package, TurboTax, and business-accounting package, Quickbooks. Quicken was Intuit’s original product. It was the centerpiece of their fight with Microsoft. Quicken was a huge deal in its day. I remember reading strategy books about it and Intuit’s rise as a company.

If it wasn’t clear before, traditional software sales are dead, and Intuit dumping Quicken is the final nail in that coffin. Microsoft has moved Office to subscription, so has Adobe with its Creative Suite. Intuit is focused on Quickbooks and TurboTax, both products that are perfect for subscriptions. These were the Big Three software companies when I first got in the business 18 years ago and every one of these products were sold for a one-time price at the local store. Now, none of them can be bought this way.

18 years ago I followed Intuit’s (and Microsoft’s) lead, developing reasonably priced software, selling it for a one-time + upgrades price. I think it’s high time I follow their lead again.