How is it possible that mobile app developers are making record profits while, at the same time, the number of free apps on the market continues to grow? The answer’s simple. Most app developers don’t make very much money.
According to VisionMobile’s latest Developer Economics report, 50% of iOS and 64% of Android developers are operating below the «app poverty line» of $500 per app per month. And that’s not even a bad rate of return!
In fact, just the top 1,6% of developers take home the majority of the app store revenue, while the remainder doesn’t make a dime. If you think that the mobile app business is El Dorado, then you’ve got another thing coming.
It’s one thing if you’re developing a mobile app as a hobby, but it’s another story entirely if you’re planning on building a business. Let’s take a look at a few ways to help your startup thrive.
There are three factors you need to consider when looking to build a sustainable product capable of generating revenue. They are the right timing, the right market, and the right place. In other words, you need to find a product/market fit to develop a mobile app startup.
Marc Andreessen was the first to use this term, interpreting it thus: «Product/market fit means being in a good market with a product that can satisfy that market.» Airbnb even surpassed this definition by developing an idea that allowed them to hit two markets at the same time within the hospitality industry — those looking for hotels and those looking for paying customers.
According to the Business Model Canvas, a template for developing business models created by Alexander Osterwalder, product/market fit is a fixed combination of a business model’s value proposition (what distinguishes the product from its competitor), customer segment, relationship, and channel.
If we use the term product/market fit in the context of mobile app development, it will translate as creating a Minimum Viable Product that solves a problem or addresses a need within a particular audience.
Why am I talking about MVPs and not a fully developed product? Because good product/market fit is not a foregone conclusion. It can emerge, evolve, and sometimes disappear. That’s why it’s smarter to start with an early version, which can be developed much faster, and with a smaller budget, than a full-fledged release.
Twitter is really impressive in terms of its evolution. It shifted its concept through at least 7 different markets over time until it found a way to monetize by offering brands and businesses their APIs and third-party apps as a means of learning from user behavior.
Another clear example is the Instagram, which started as a location-based service swooping in up the cultural phenomenon of check-ins introduced by Foursquare. Instagram didn’t have any monetization model for a long time until Facebook decided to roll out an indirect advertising strategy. The owner of the picture sharing app profits from videos which brands create on Instagram, and then, share on their Facebook pages. These videos can be distributed as paid ads on Facebook newsfeeds, just like the social giant boosts other branded content. According to AdAge, Facebook will go even further and use targeted advertising based on Instagram hashtags. If I post a photo with #yalantis to Instagram, for example, I might see a Yalantis ad in my Facebook Newsfeed.
If you google how to find a product/market fit, you will come across a lot of advice telling you to avoid creating a product that fills only a marginal niche. The Accent Kit app that we developed for the acting community is a good example of a niche product. But such cases are rare in the mobile app development landscape since most apps are oriented at mass markets.
Product/market fit is all about discovery, rather than certainty. It’s like playing roulette. The first target audience for Twitter was status-updaters. Had they built out features to support their early audience exclusively, they would have missed out on much larger markets.
Most startups want to fund in exchange for nothing but a good idea. Though it’s a hard truth to bare, I’m just going to say it — ideas are worthless on their own. Implementation is everything. Even if you have come up with the most innovative idea in the history of the world, there is a huge probability that somebody has already been the first to implement it.
When WordPress started there were lots of other blogging sites, but somehow WordPress came out on top. One of the reasons for its success was choosing the right community — a steady stream of people who began to rely upon WordPress as their primary source of income. This community gave rise to the «Premium Themes» idea, which became a viable business model.
The only reason a startup exists is to serve its users. However, many startup founders get distracted by the fundraising process, which usually takes their time and attention away from building a great product. Сreating a successful mobile startup requires you to have a great team, a great business plan, a great market opportunity and paying customers. Having these things also doesn’t hurt when it’s time to pitch your app to investors.
Let’s say, you end up having all those factors working for you. But how do you know you’ve found a winning combination from the start? The truth is, you can’t.
Andrew Mason had a startup called The Point before creating Groupon. The Point was a precursor to Kickstarter and Indiegogo. It was a social platform that allowed people to participate in a collective action or give money to something. Mason received about $1M in funding even before his idea was implemented. Luck? More like a miracle, I’d say.
Mason’s team spent 10 months building The Point only to realize people weren’t using it. However, this experience led the team to shift their focus completely and create something which eventually became Groupon.
Inability to adapt kills startups who would have survived had they not been too stubborn to see what their users were telling them. An MVP gives you the opportunity to listen to your users. That’s why you need one in order to create a successful app.
Developing an MVP is not as simple as it sounds. When I interviewed Matthew Tandy — one of our clients — about the MVP version of his time-tracking app that we helped him create, he said that the biggest challenge was paring down the features in order to showcase the core concept.
People get attached to the features they plan to develop, which makes it hard to identify the core idea of the app. If you think an MVP is a minimum set of features, you’re wrong. It’s about testing your idea, whether you’re giving the world a function that’s unique, or one that makes your business model feasible. We follow this approach when we help our clients map out their MVP.
In order to create an early version, Snapchat outlined one particular focus — their core concept. They launched an app that allowed users to send temporarily visible images to other users. Only after the initial launch and product validation, did it make sense to start working on more features and ideas?
MVPs can be different. Some developers use landing pages, but that’s more appropriate for web-based startups. Buffer put up a single page website that described what the product was about so that people who got interested could leave their emails. After that, Buffer tested users’ willingness to pay for their still service by adding pricing plans to their landing page.
If you decide to create an MVP for a marketplace, you will need to do a lot of work manually. Rent the Runway, the online dress rental company tested its model in person before building the original concept online. They just offered college students the chance to try on dresses, and then asked if they’d be willing to rent them. Word has it, 34% of the girls walked away with dresses, validating the Rent the Runway’s MVP.
Airbnb used a door-to-door approach in New York. They recruited new users and helped existing ones improve their listings by visiting each of them personally. Y Combinator’s Paul Graham says: «When I remember the Airbnbs during YC, I picture them with rolly bags because when they showed up for Tuesday dinners they’d always just flown back from somewhere.»
Instacart started as an iOS app which allowed users to order groceries from a list. There was no notion of stores or retailers yet. For the first three or four months of the app’s existence, the founders of Instacart would pay visits to a Safeway supermarket to execute the orders. They didn’t even have any drivers working for them.
See also: Video. MVP explained by Yalantis
If your MVP passes muster on the market, it needs to be developed further. Here is when many startups start thinking about monetization. However, focusing on making money, rather than growth may doom an early-stage startup from ever achieving scale.
Had Facebook applied an advertising business model early on, I doubt it would’ve reached the universality that it enjoys today. Instead of focusing on money from the outset, they grew a larger user base, collected detailed demographic information, invested in building a powerful platform, and only after that started displaying highly-targeted ads.
Facebook’s experience suggests that you need to focus on your product and its users. The ultimate revenue model, when you create a mobile startup, may differ greatly from what you planned. Before launching our countdown app, My Day, we intended to profit from the pro version for unlimited events. However, this idea didn’t work out. After our attempts to monetize My Day failed, we made the app completely free and started working on its improvement. This resulted in users staying with the app, which led us to consider other monetization strategies like advertising and in-app purchases.
A defunct startup called Springpad, which was once considered an Evernote rival, has an interesting story to tell. The app was designed as an organizer for recipes, movies, home improvement projects, and interior design schemes and was expecting to monetize just like Pinterest — through an affiliate program.
On Pinterest, if you pin an item from a site with an affiliate program such as Amazon, Pinterest modifies the link and adds its own affiliate tracking code. As soon as somebody clicks on your pin and makes a purchase on Amazon, Pinterest gets paid. Pinterest’s visual discovery tool does great using this strategy, but Springpad could not reap the same benefits. They launched in 2008 before the mobile app economy fully bloomed.
Springpad arrived on the scene too soon, and after Pinterest entered the market it was already too late for them. You need to offer something your users want now.
Read also: Quality standards in Yalantis
A lack of determination to lead a startup through to the end, which is often called an «exit», is not rare. Unless you grow, you are not a startup. However, growth can be deceptive if you measure the wrong metrics. We suggest you to stick to the pirate AARRR startup metrics model developed by Dave Mcclure. AARRR stands for acquisition, activation, retention, revenue, and referral. But you should also figure out what exactly it means for you to grow. Does it mean increasing your user base, making the loyal users happy, making a larger profit, developing your technology, etc.?
According to Paul Graham, a good growth rate during Y Combinator, an American seed accelerator, is 5-7% a week. He says if you can hit 10% a week, you’re doing exceptionally well. If you can only manage 1%, it’s a sign you haven’t yet figured out what you’re doing just yet.
If you don’t feel like you have a good handle on what it takes to develop an MVP for your game-changing idea, reach out to the Atlantis team. We offer to consult services to startups looking to make a splash.