by Cesare Rocchi
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Building a Business outside the App Store

by Cesare Rocchi

Tags: business pricing iOS

Written by a solopreneur, this article is not just for solopreneurs, but for everybody noticing that something has changed in the App Store.

Introduction

I must say it’s easy to stare at a shelf and complain about the price of a product. I did it many times and I still do it sometimes. Whenever I see a high price it’s kinda hard to not think the producer is cheating on me and charging too much. I have started changing my mind when I began building products, thus becoming the guy to makes the product that get placed on the shelves. I have always been a “what’s behind” kind of guy, trying to imagine the production process behind a product and making guesses on the production costs, but I have never been an active part of that process. Since 2008 I have been an active (and sometimes the only) contributor to digital product (mostly apps) and my perspective has changed radically. When I got started I thought designing and coding were the most stressing tasks, now I find them the most relaxing. Pricing, besides marketing, is probably the most demanding activity when I build a product.

Pricing

App pricing is a kind of science. Finding the “right” (whatever that means) price for an app means dealing with a mix of competitor analysis, time you spent actually building the app, fixed costs to keep the app running, plus a surcharge to keep paying your bills. In the mobile community the discussion about pricing takes places every two or three months, usually triggered by some bold blog post or a report. A few months ago, Jury’s presentation and Cingleton 2012 was the trigger for the discussion. The morale was “we should charge more”. A few weeks ago the discussion has been revived by a Flurry report, whose conclusion is essentially: ad supported apps are the future. I totally disagree. The 90% of free apps mentioned in the reports includes apps with in-app purchase. That’s very misleading, but still a detail compared to what I am gonna say.

Applications in the App Store are too cheap and developers behave like they are doing a clearance sale. Hey guys, wake up! I don’t believe you didn’t spend at least a night pouring sweat to get that feature working as it is meant to be. If you did, and you are selling your app for free, look in a mirror and you will see a jerk. Raise the damn price of your app, do it right now. I am not saying that because you are ruining my market and forcing me to charge less. I really don’t care. Even if the conclusion of the flurry report were true (and it’s not), I could not care less. My goal is to build a long-term business and I think it does not get along with selling apps in a one-shot fashion. I was very glad to see that Apple charged a full price for a completely new version of Logic Pro. I was also very happy when the guys at MartianCraft charged 199$ for the Briefs app. Those are the prices I’d like to see but I realize both are complex and hard-to-build-solo Mac OS X applications. On the iOS side I know of a few solo devs that make a living off of the App Store. One is [Loren Brichter](“https://twitter.com/lorenb"). There are probably a few more, but I think it’s fair to say they are a handful.

Building a Sustainable Business

If you want to raise the sustainability of a long-term solo business, in my opinion you should not focus on the app. iOS and the ecosystem behind it has payed my bills so far (building apps for clients), yet I can’t picture building my core business on it.
We can’t beg users to help us fixing the price on the App Store. Customers pay because we make decisions on their behalf, and price is included in that bunch of decisions. The App Store model was devised six years ago and the options are still the same: sell apps one shot, use in-app purchase, include iAd. Six years is a century in the technology field. Apple has improved a lot of its devices and development tools. I am really thankful for that, but now we need a revamp of the App Store. They have had the guts to radically change the design of iOS with the seventh release. If some of that boldness is left, please invest it on a revolution of the App Store. If they introduce a recurring subscription fee for apps I’d jump on immediately. Let’s hope for that. In the meantime here is how I plan to build a sustainable business.

A Long-term View

At the moment I see two winning pricing models for a long-term business: consumable in-app purchases and recurring fees for a service. Both are aimed at getting in a situation where there is a constant stream of incoming money in the pockets of the developer. The first is probably best applied to games. The app is free, the first levels are free, to go on with the game you have to buy something recurrently, e.g. food for an animal, a virtual coin to build a new farm in a village, etc. People that get engaged with the game will progressively buy more assets. People who don’t like it won’t. It’s a win-win situation, in which you get the attention (and money) of those who care about your app. As “Underscore David Smith” points out, [there might be moral concerns](“http://david-smith.org/blog/2013/07/23/honest-consumable-in-app-purchases/") related to the way you sell consumables. At the moment I have no plans for games and this brings me to the other option.

The second way of building a long-term business is the one I prefer and keeps the core outside of the App Store. It is based on selling a service for a monthly or yearly fee. You can even sell the app (Instapaper did it), but the core thing is the service. Even if the App Store closed tomorrow you’d still have your service working and you could write apps for other platforms. Some services following this business models are FeedWrangler, Cheddar and Instapaper (all built by solopreneurs). Customers are billed for the service. The App Store gets wiped out? The service is still there, and you can use it via a web app. In this case the app in the store is just a view, a kind of accessory if you like. This model of business seems very viable to me, and has a series of advantages.

  • You are in touch with your customers. You can talk to them via email.
  • The income is steady. You are not selling a product once, you are selling a service recurrently. The customers that go for the yearly fee will give you room to improve the service and add new features.
  • The core is the API.
  • There is no 70⁄30 split. All you charge is yours (minus the maintenance costs of course)

There are also disadvantages:

  • You can’t be just the front-end guy. Either you partner with some server guy or you need some competence in server stuff.
  • the initial investment (either time-wise or money-wise) is a bit bigger
  • you have to deal with house-keeping stuff like invoicing and payment processing.

There is a third option, but it’s a very long run. The fact that Logic Studio Pro was a brand new application for which people had to pay the full price is a clear move. Apple is trying to educate people that upgrades are not free for life. Everyday new people that have never bought software are getting on board thanks to the iDevices and iOS. They will get familiar with a different pricing for software, one in which you pay full price for major releases. In my optimistic view this might take more than five years, and honestly I can’t wait that long.

Time to Broaden your View

Once the App Store was announced I was extremely happy, for a 30% of the income Apple managed payments, hosting and a part of marketing. A heavily guarded little place, where people went to buy good stuff, seemed a great idea. In the beginning things were great, like the in gold rush, there was some golden dust for everybody there on day one. Things have changed a lot since then. The App Store just had a face lift but it’s essentially the same. Competition has grown a lot, along with crappy released-once-and-never-updated applications. Like Adam and Eve, everything looked great in the walled garden. Now there are ways to cheat on search results.

Outside of the App Store, things moved on. We now have services like Stripe or Paymill that dramatically simplified the processing of payments. Web frameworks have improved a lot and allow you to build and refine a product very quickly. The price of hosting has plummeted. For example Amazon announced an 80% drop of the cost for reserved instances. Spinning up new server machines to enhance the performance of a web application is getting more and more easy.

Curiously, two of the web applications I have mentioned (Instapaper and Cheddar) have been sold. As far as I understood, in both cases that was due to the fact that running them as a solopreneur was very demanding. That does not mean the business model was wrong. Indeed, if they were sold it’s because the business model was working. You’d not buy something if it’s not well done and in good shape, right?

Growing up

All this considerations make sense if I also put myself in the mix. I undoubtedly changed. Six years ago it was ok to rush for one week, get an app in the store and cash in some money without any plan after that. It’s not my mindset anymore. I prefer to cultivate my business day by day, get in touch with people, talk to them, grow gradually without feeling the need to rush. Family changes you, for the better. I still enjoy rushes from time to time, I like the thrill of short deadlines to get the vibe of self-evident progress. But every step, in a hurry or not, is part of a bigger plan for a sustainable business.

You might wonder: why are you building Neater, which is meant for the App Store? Because App.net is an awesome platform, focused on enabling developers to build a sustainable business. They have a Developer Incentive Program which is a great idea to sustain the business of apps built on top of it. It’s the only platform that does that, as far as I know. That’s why I am building Neater. Just to be clear: it’s not for the cash per se. It’s for what an incentive program like that enables: a long-term view.

The rest of my efforts are geared towards a web application based on a subscription-based business model. I can’t provide many details at the moment. I am working on the infrastructure and experimenting with different architectures. I’ll keep you posted, don’t worry.

I know it’s weird but here is my suggestion: if you are a solopreneur, struggling to find a decent spot in the App Store my suggestion is … don’t do it. Don’t focus just on the App, focus on a core that can live even if the App Store is shut down tomorrow. Build a business.

I am happy to review my opinions if Apple revamps the App Store and introduces new business opportunities like recurring fees, although I have the feeling that most of the applications I have in mind will need a back-end, thus will involve some fixed costs for server, thus won’t get along very well with the one-sale-free-updates-forever model.

References

Here are a few articles that I kept around while writing this post:

As usual, I’d like to discuss this topic on Twitter or App.net.