In brief
A successful app business starts with a strong idea and effective execution, supported by a clear business plan, financial discipline, a capable team, and intuitive design. Competition is fierce, and exceptional financial success is rare.
The rise of mobile computing and technological innovations such as cloud computing have helped spur a new round of high tech entrepreneurship in creating apps. Few new companies or products actually makes it, but considering the characteristics of the most successful recent tech firms can be helpful in turning a good idea into a great company. The app industry is highly competitive and consumers are increasingly distracted and fickle. A successful app, however, can provide a great deal of wealth for its creators and its developers.
SUCCESSES IN THE APP BUSINESS, RISK AND REWARD
Apps can be a very large profit center. Apple reported in 2013 that customers spent in excess of $10 billion in its App Store. Today, there are tens of thousands of app developers around the world working independently, with start-ups, or big established companies all trying to come up with the next big thing. The competition to develop a successful app is certainly fierce, and there is no guarantee that even a great idea that is executed well will catch on and bring financial success. Even though some apps have made their creators multi-millionaires, the great majority of developers will not strike it rich. The odds of making it big in this business are depressingly small. Less than one hundredth of one percent of the millions of apps that are available will benefit from any sort of financial success.
According to Forbes, the average app developer produces somewhere between three and five apps, each one bringing in an average yearly revenue of $1,125 on Google’s platform, and $4,000 a year on Apple’s. A diligent programmer with five apps can thus expect around $20,000 a year before taxes. That amount does not account for the money and effort invested in creating those apps. With such meager earning potential, it can be difficult to build a team of talented developers and to create advertising campaigns aimed at increasing product recognition and boost the number of downloads. And then there is outside competition. For every category and sub-category of app, there exist numerous options to choose from. Making yours stand out and be the one to gain traction can be hit or miss.
Rovio, the maker of Angry Birds, was touted to be worth $6 to 8 billion by analysts in 2012, but by October 2014 the company had planned to lay off 16% of its workforce. Many other apps have seen their valuations drop as users’ short attention spans and increasing access to new offerings make them passé in shorter periods of time. In 2013, TechCrunch published a study which showed that 80%-90% of all downloaded apps are used just one time before being deleted.
KEYS TO A SUCCESSFUL APP BUSINESS
With that in mind, the best place to start is with a good idea. While this may appear obvious, nothing dies harder than a bad idea. There may be a flaw in the logic of the concept, or it may not be feasible when put to use in the real world. Improving and building upon existing ideas can also be lucrative. Many first movers have found themselves overwhelmed by better copies.
Once the idea has been fleshed out, a business plan should be thoughtfully written and followed. A clearly defined business plan or strategy does not have to be complex or overly imaginative. It should be easy to understand,well thought out and easily implemented to describe how the business will function, earn money and grow. A sound financial discipline with budgets, realistic deadlines, and cost-benefit analysis, is critical. Many successful apps are free to download and may generate revenue by offering in-app purchases or through hosting advertisements. Some app developers offer a free version and then allow users to upgrade to a more feature-rich premium version which they can download after purchasing.
Co-founders, employees, advisors, and equity investors all are members of a team being formed to operate and manage the company. Having outside advisors who can give good, unbiased advice will often help take the firm to the next level. Advisors should not be afraid to challenge and hold founders to a high degree of accountability. New employees should be talented and ambitious, but also be a good fit with the developing corporate culture.
For an app business, computer programmers and developers are vital to creating bug-free and reliable pieces of software that can be installed on a variety of popular platforms including iOS, Android, Microsoft phone, and Amazon Kindle. In addition, skilled designers that understand consumer psychology and what they demand are essential. The app must be intuitive, easy to use, and pleasing to look at. With so much competition, apps can’t just look good, they must look amazing. Branding and promoting the app in a unique and catchy way is important. Even if two or more companies offer basically the same service, individual apps can be differentiated by the design, look and feel of the interface and user experience.
Customers also demand that apps be easy to install and to use. People do not have the time or patience to learn how to navigate a complicated app or website when a competitor may offer a much more intuitive version. Keeping the app as simple as possible while conserving its usefulness and design features is key. It is also important to ensure that the app or site doesn’t force users into long, drawn-out sessions when time is of the essence. Making the interaction time-efficient and concise adds to the ease of use and overall user experience.
THE BOTTOM LINE
It starts with a good idea, followed by effective execution of a stand-out app, website, service, or product. By learning the lessons from winners and losers of the past, new startups can be better equipped to achieve success in an increasingly competitive environment.
Apps of all shapes and sizes are now commonplace, and the typical mobile device owner interacts with multiple apps on a daily basis. Some apps have ended up becoming runaway successes bringing in millions, or even billions, of dollars for their creators. These rags to riches success stories, it must be cautioned, are the exception and not the rule. The unfortunate truth is that most app developers will work very hard to create the next best thing while barely scraping by in a world of increasing competition and consumers with short attention spans.