Category Archives: Success Factors

General writings on building a successful business.

Upgrading our thinking on App Store revenues

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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.

Trials and Upgrades Won’t Save Independent Software Developers

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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.

Expectations

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?

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

The trade-offs of changing people’s lives

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I’m going to say it: I want to have influence. I want to change people’s lives. I want to help people learn and work more efficiently than they ever have before. I want to leave my mark on the world.

We’ve had over 2 million downloads of our powerOne products on iOS and Android now over almost 8 years. Believe it or not this is far behind the pace we set for ourselves in the earlier part of the decade on Palm OS and Windows Mobile, where we had close to 15 million downloads over 5 years. 2 million, 15 million, though, is only a (good) start. There are over 1 billion people carrying around an iOS or Android smartphone, which means only 0.2%, roughly, even know about us.

The hardest part about building a business is getting people to know about the product. It is clear that charging for apps keeps people from using your products. But if we don’t charge for our software — that’s charge real, sustainable subscriptions, not these ridiculous $1 or $5 one-time price points — means we can’t afford to be in business.

Without funding it feels like we only get to pick one: 1) scale and have influence, paying for our families to live through some other means, or  2) charge a subscription, limit our influence ambitions but have the potential to make sustainable revenues near-term. I don’t want to pick but I can’t find a middle ground. I want my cake (influence) and eat it too (revenues).

Indie Game: The Movie

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Indie Game: The Movie is an incredible documentary on the making of indie games. (I saw it on Netflix.) This documentary followed a couple of game developers as they worked toward release. They each worked on their games for years, often five or more. These aren’t fail fast inventions. They are full of love and attention, a craftsmanship that we have lost in other fields.

I love this quote from Jonathan Blow:

Part of it is not trying to be professional. A lot of people come into Indie games trying to be like a big company. What those game companies do is create highly polished games that serve as large of an audience as possible. The way that you do that is by filing off all the bumps on something. If there’s a sharp corner make sure that’s not going to hurt anybody if they bump into it. That creation of this highly glossy commercial product is the opposite of creating something personal.

Things that are personal have flaws, they have vulnerabilities. If you don’t see a vulnerability in somebody than you probably are not relating to them on a very personal level. It’s the same with a game design. Making it was about, let me take my deepest flaws and vulnerabilities, let me put them in the game and see what happens.

I spent years worried about appearing small. But I’ve come to understand that being small is fine, and in some ways has its advantages. We are small. Being who we are is perfectly fine.

“Mobile First Cloud First”

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Ben Thompson’s Mobile First post is an interesting read and his perspective is always fascinating. (I pay $100 per year to be a member. I can’t recommend it enough.) It’s not the post itself that has me thinking, though, specifically, it’s footnote #4:

Microsoft’s “Mobile First Cloud First” strategy makes much more sense now, no?

Here’s the thought: can you really be mobile first without being cloud first? Mobile first means everything you do is different because people have a computer in their pockets all the time. (And by people, I mean all people on the planet in the next few years.) What enables mobile first, though, is that every one of these devices is connected to the cloud, and its the cloud that lets us connect outside the device.

So can you have one without the other?

I think a lot of us indie developers have tried for years to be mobile first without being cloud first, and I think that is part of the reason it has been so hard to make a living. Infinity Softworks is a perfect example of that. It came to be in the mobile era. I wrote my first apps for PalmPilot and later Windows Mobile, and we have made the bulk of our revenues over 18 years from selling apps for mobile devices.

The first generation of our products were fixed. It had a certain number of bundled calculations and that was it. But that was okay. The devices were underpowered and completely disconnected from the Internet.

The second generation of our products had some bundled calculations but also allowed customers to write they own. They were still on disconnected devices, though. Yes, you could email a file but that is a far cry from being Cloud First. Again the devices were largely disconnected though, at least they were until 2007 when we wrote a BlackBerry version, and then 2008 when we could write for iPhone. Over the past few years, though, those connections have only gotten better and more pervasive. Our apps have not.

Even to this day powerOne is primarily a stand-alone application that has very minimal connection to the outside world. The only cloud connection it has at all, besides emailing results and formulas, is an in app library of calculations you can download from, but even that is buried at the bottom of the home screen in a tiny button. It’s hardly front and center in the product.

These first two generations were Mobile First, but neither one was Cloud First. Over time, as the devices have gotten better and faster connections, our revenues from powerOne have waned. I’m thinking there’s a connection.

A few years ago we set to work on the third generation of our products (a little at a time). We started out writing mobile apps but about a year ago we switched and started developing the web version first. While I didn’t have words for it at the time I sensed that the cloud was important to making a sustainable product and that by developing a web version first it would help us shift our mental framework.

Now we think in terms of systems rather than mobile apps. For the first time I believe we are thinking Mobile First Cloud First, and I believe it will have a huge impact on our fortunes.