Why Trial Apps Won’t Save Mobile Indie Developers

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4 Ps

With all the discussion this week about iOS indie developers and how hard it is to make a living, I was asked whether trial versions would help developers out. My answer is that I am skeptical that it will help¹.

First, refer to the graphic above. This is the classic marketing mix as taught in every college for the past sixty years. In short the marketing mix has four pieces: the product itself, the price you charge, the place where it is sold, and what promotion is used to help people find it. It is often referred to as the 4-Ps.

In the old days of selling software, we leveraged all four of these components. We developed a great product at multiple price points with varying features, promoted it through partners, trade shows, publications, direct sales and various advertising campaigns, and sold it in as many outlets as we could. At one point or another powerOne calculator was sold via our web site, value-added resellers, retail stores, catalogs, online resellers and via other partners. We were particularly good at “place”.

Now, though, you have one choice for place and one choice only: the App Store². This puts insane pressure on the other components of the marketing mix. Because there is only one place to purchase iOS apps, everyone looks there. This means that outside promotion — short of a few well-read publications during the launch — fails most apps. Long-term the App Store is the only place to promote, and there isn’t much room for promotion there. A few pictures, a title, an icon and a description, soon a video, is all we get. It is very hard to differentiate any application with only that. And since differentiation is very hard, prices drop. In the end it is one of the few ways a typical app can differentiate: price.

Why don’t I think trials will impact revenues substantially³? Because nothing about this equation changes. There is still only one place to buy apps, and that one place puts pressure on all the other marketing mix components.

It does offer more promotion opportunity, though, my questioner pointed out. Won’t it mean that high quality apps will rise to the top and lesser apps that aren’t as good will disappear, making it possible that the high quality apps get found more and more in the future?

Maybe, but I’m skeptical. The problem is that the volume of apps in any one category is overwhelming and when supply outstrips demand as it has in the App Store, a minor promotional opportunity like trials won’t make that much of a difference. There are literally hundreds if not thousands of products in some categories, like calculators, note-taking apps, and task lists.

Even in niche markets like podcast clients there are ten or more solid choices. When one solid choice is $.99 and another solid choice is $9.99, the $9.99 app has to be 10x better than the $.99 app to even get consideration, and that’s hard to do among tens or hundreds of alternatives. A little 30-day trial isn’t going to be enough to make the difference for the “expensive” app. Thus the race to the bottom is back on, and indie devs still can’t pay themselves a reasonable rate to make it a full-time job.

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¹ Although I hope I’m wrong.

² Android is slightly better but not much. There you have Google Play, Samsung Apps and Kindle Appstore, plus a bunch of smaller players that don’t amount to much.

³ And by substantially I mean enough to make a bunch of indie developers revenue successful when they weren’t before.

 

The One Who Owns The Customer Wins

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Once upon a time software developers owned the customer relationship. We knew who purchased our software and could talk directly to them. We lost in mobile when the app stores became the only way to sell software because we no longer had a direct relationship with our customer. We had to jump through hoops to get responses to product questions, even to understand why a customer purchased and how we could get them to buy more. Apple and Google, the primary providers of app stores, owned that relationship instead.

Every industry has suffered. Why do musicians still make money from touring and, except a rare few, not from album sales? Because musicians can talk directly to their biggest fans through concert venues. It’s the only way for independents to survive and thrive.

When I think about the IBM-Apple deal, I only need the answer to one question: who owns the customer relationship? If it’s IBM then long-term the deal will fail for Apple. IBM’s ownership means they get to understand what the problems inside the enterprise are, they get to understand what additional things the enterprise needs and IBM gets to sell it to them, which builds a stronger relationship. If Apple owns the relationship then the primary benefits will accrue to them instead.

A friend who had worked at Apple during the time period told me a story: in the late 80s and early 90s Apple put lots of money into Aldus and Adobe and other companies focused on the desktop publishing market. This was not just in the form of investment but also in the form of co-marketing and promotion. By 1995, though, Microsoft came calling and despite the money invested by Apple, Aldus and the rest all jumped at the chance to prioritize Microsoft and their 95% market share. Apple was left holding the bag.

My friend told me this is why Apple has such a mixed relationship with developers. On one hand Apple needs them to be successful; on the other hand if any of them are too successful they could leave Apple holding the bag again. As my friend put it, Apple wants to keep developers bare foot and pregnant.

I think the lesson learned wasn’t that the developers could jump ship and leave Apple holding the bag. Instead it is that Apple couldn’t have anyone standing between them and the customer. Direct sales, Apple stores, staying in consumer markets, iTunes, the app store, these are all things Apple did on purpose to maintain their strangle-hold relationship with the customer.

This is Tim Cook’s challenge with IBM. Logically IBM has the customer relationship in this deal. After all it is IBM who have sales people standing inside the companies it is trying to sell. Did Apple give up too much control over that relationship or just enough?

Interestingly, this is also what all of us mobile software developers need to do, too. If we can wrestle back control of our own customer relationship, at least we have a fighting chance to succeed again.

Barnes and Noble Splits In Two

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In their fourth quarter financial report yesterday Barnes & Noble announced it was spinning off its Nook business into a separate, wholly-owned subsidiary. My first thought was, “about time.” Barnes & Noble should have never had the Nook business as apart of its primary business. The only way to disrupt yourself at that size is to run the new business on its own, completely separate from the politics of the primary business, which in B&N’s case is retail book sales. Being an upstart, it is ripe to be squashed. Keeping it separate would have helped, or at least given it a fighting start.

The question is can the Nook business survive on its own? I don’t know. Many people made a bet on e-book readers already and bet Amazon. I did. Because of that decision, I make a concerted effort to buy books for only that device. On top of that, we have a couple of them around here, all linked to the same accounts. If my wife wants to read a book that I’ve read, she can just by downloading it from the Amazon store.

Then I saw this: “Any separation of NOOK Media and Barnes & Noble Retail into two separate public companies …” (emphasis mine). Oh, that’s not good. The Nook business has been blamed for years on dragging down Barnes & Noble’s earnings. It’s been a money loser. Instead of given it room to grow and then go public on its own, Barnes & Noble is attaching an anchor called quarterly filings to it and setting it to sail. I have a hard time seeing how it survives that.

The last remaining piece, of course, is the Barnes & Noble retail stores. Supposedly this is still a profitable business. I’m not surprised. Almost everyone else is gone except a few hold out independents (like Portland’s very own Powell’s). For many many people holding a book in one’s hands is still magic. We have hundreds of books in our house still, even after going mostly digital, although most of them are kids books. e-books don’t really cut it in many cases.

Is that enough to sustain a business? I’m skeptical but I guess we’ll find out. Apple has figured out how to make a physical business survive and thrive in a digital world. Can B&N figure this out, too?

John Day Fossil Beds

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My family and I spent the past few days in North-Central Oregon in the John Day Fossil Beds. This is a part of the state I had never seen before and was surprised at how different it was. I have now explored most of the western and central parts of the state and am surprised at how diverse it is. I’ve easily seen eight completely different landscapes in those miles.

In the age of the dinosaurs, most of Oregon (in fact most of the US) was at the bottom of the ocean. 40 million years ago this part of Oregon was actually a tropical land not unlike Panama today. 30 million years ago massive volcanoes dominated the landscape. The mountains we know as the Cascades (from Canada to California, with peaks including Mt. Rainier, Mt. St. Helens, Mt. Hood, Mt. Jefferson and Mt. Lassen) migrated west. Over time the earth cooled and eroded and left an unbelievably varied and beautiful landscape behind just 3.5 hours from Portland.

Given enough time, everything changes.

I hope you enjoy a few photos I took, all with an iPhone 5s.

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What If Apple Is Actually Better Without Steve Jobs?

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Last one, I promise, on Apple and its worldwide developer conference. This one, though, from Ben Thompson was too good to pass up:

What is critical to understand about Steve Jobs’ Apple was how much it was rooted in fear. Not fear of Jobs, but rather, the abject terror of the company ever finding itself in a similar situation to the one Jobs stepped into in 1997. A company bankrupt technically, and on the verge of being bankrupt financially, deserted by the partner it had made into a powerhouse (Adobe), and forced to accept a loan from its oldest and most bitter rival Microsoft. Jobs, and all of those closest to him, swore never again.

And so, Apple hoarded cash like a depression-era grandma; every new Apple product was locked down to the fullest extent possible, with limitations removed grudgingly at best. This absolutely extended to developers: not only were apps originally banned from the iPhone, and later on subject to seemingly arbitrary limitations and restrictions, but even today it’s unclear if non-game apps can be the foundation of sustainable businesses because of Apple’s restrictions.

There has been a lot of press discussion the last few years about how Apple will fail without Steve Jobs, its undeniable leader. But what if Apple can be a better company because Steve Jobs is gone?

I believe that there is a time in every company’s history when it is time for founders to step aside. Companies change drastically as they grow large and often times the man or woman who started it from scratch and ran it when all hell was breaking loose, when no one knew whether it could make payroll, when its future was uncertain, often times that man or woman is not the right man or woman to run it once its a 30,000 person behemoth.

Steve Jobs was clearly a brilliant man but the company that is Apple today is no where near the company it was when Jobs returned in 1997.¹ In 1997 Apple had $7 billion in revenue for the entire year. In 2013 Apple’s revenues were $171 billion. In fact, Apple’s fourth quarter profit — PROFIT, not revenues, and only the fourth quarter — was more than Apple made in all of 1997 ($7.5 billion Q4 2013 profit versus $7.1 billion 1997 entire year revenue).

Apple, as Ben points out so well, was near failure in 1997. It had been abandoned by almost every big software company. If it wasn’t for one government anti-trust lawsuit it might have been everyone. Jobs had to figure out how to keep Apple alive, and then had to figure out how to grow it. As someone who just went through a life-and-death situation with his own company, albeit no where near the size and scale of Apple, I can tell you how focusing it can be. It was definitely an all-hand’s-on-deck, batten-down-the-hatches experience. It made me fearful for every penny and mistrustful of every “partner.” It instilled loyalties in me that I never thought I’d have for non-family and made me hateful of people I felt abandoned me or didn’t believe in me. I understand completely that “abject terror” of ever finding myself in that situation again.

For Apple, though, that was 17 years ago now. Since then Apple has given us iPods, iTunes Store, Apple Stores, Macbooks, iMacs, iPhone and iPads. It has gone from an after-thought to a leader in the stock market, a thought leader on design, a king of technology, and the envy of retailers everywhere. Millions stand by waiting for what Apple will do next and hundreds of thousands of developers and artists rely on Apple for their living. In every way imaginable Apple is not even close to the same company it was back then.

And that’s exactly what I mean: maybe it was time for a change? Maybe it was time for the fear and loathing that served the company so well in the late 90s to move on? Maybe the ideals and perspectives of Steve Jobs are no longer the right ideals and perspectives for Apple?

We are seeing that now. The management team has changed substantially in Tim Cook’s few years on the job. People who attended WWDC are saying they saw a different side of the people who work for Apple, more open, more cooperative. The features and capabilities announced certainly are a sea change from the Apple of old.

There’s no denying that Steve Jobs was an incredible leader. He ran a team of five and a team of 50,000. That’s a rare skill duplicated by few. He was an amazing thinker, a fascinating strategist, a top-notch designer and technologist. And that was exactly what Apple needed for many years.

But maybe, whether sick or not, his time to lead Apple was coming to an end. And maybe he knew this. Maybe that’s why he established “Apple U” and hired top-notch professors to run the program. Maybe Steve Jobs knew, one way or another, that his time as CEO was coming to an end and that it was important for him to instill in Apple a legacy and mythology that could be carried forward without him.

 

What if Steve Jobs’ last brilliant move as the founder, recoverer and guardian of Apple was to leave Tim Cook to run it?

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¹ It isn’t even the same company literally. Apple was Apple Computers, Inc. in 1997; now it is Apple, Inc.