Continue Reading]]> In the early days of the App Store, search wasn’t really that important. With relatively few apps (and very few good apps), the directory/browse experience was ideal. For those of you who were around/pubescent during dotcom #1, that might remind you of a nimble upstart at the time– Yahoo. They proposed to categorize and organize all of the worthwhile content on the internet and did a truly outstanding job– for a while. Eventually, the web got too big and Yahoo Directory collapsed under it.

Enter: Apple. Proposing to categorize and organize all of the world’s apps. You can see the cracks forming. So what will Google do?

Mark my words, Google will onebox mobile app results. Hell, it might (should?) add an “Apps” vertical. If it did, it’d almost instant eclipse the App store in importance for most developers.

I know, I know.  It’s a bold prediction.  Hear me out.

Google has been working on search innovation for a decade and they’re getting damn good at ferreting out intent from your search queries.  In recent years, they’ve done what’s called oneboxing.  If they can confidently guess what information you want (or at least what search vertical you’re interested in), they tack it onto the top of the search results.  You’ve seen it thousands of time now.  Search for “weather seattle”, a stock ticker symbol like AAPL, or append the word “video” to any search.  Despite their brutal campaign against the folks in the world of SEO, Google is still better at search than anybody.

If you’re searching in a mobile browser for “Angry Birds”, there’s a pretty good chance that you’re looking to download it– and Google can trivially know what platform you’re searching on and which version might be best for you.  If you search for “currency converter” from your mobile phone are you well-served with a JavaScript-driven converter on an ad-infested web page (or worse yet, a non-functioning Flash/Java applet)?  Or would you be better served with a link to the best native app for the job?

You’re probably as disgusted with App Store search as I am– it’s fine for brand searches (like “Angry Birds”) but painfully bad for category searches.  The App Store is using ridiculous algorithms, forcing developers to stuff keywords into titles and giving us the equivalent of meta-keywords to help our cause.  Hell, the App Store even uses the developer’s company name as a meaningful factor (congratulations, Currency Converter, Inc., your shot at ranking for that search term just went up!).

What it should do (which would require a Google-sized index of the web) is the same thing that Google does– rank based on number of links (to the app store page), the quality of those links, and the anchor text used for those links.  It could also layer in social data, ratings, active usage data, and other things that only Apple has at their fingertips.  But they probably won’t– Apple is not a search company.

But Google is.  They could be a better way to find/buy apps almost overnight.  And it’d be a huge boon to app developers for all platforms.

The Rub

The big problem here, of course, is that Google will be helping Apple sell more apps (at least when people are viewing onebox results on an iPhone).  And Apple will still be hauling in their rapacious 30% (a fair fee if Apple is bringing the customer to the table– less so if all they are doing is handling the purchase/update process).  So even if Google includes a paid spot or two in their onebox, is there enough revenue room for Google make a buck?  With game developers paying $3-5 per install on the marketing front, I think so.  Outside of games, it’s a little less clear.

So what do you think.  Will Google do this?  If they do, would it be the right move? If Apple manages to do something productive with their Chomp acquisition, will it matter?

Continue Reading]]> As I mentioned in my first post in this series, we dove into the App Store with a ($2.99) Productivity App called TouchBase Calender.  It was a part-time effort as we were wrapping up other commitments, with the goal of learning about the App Store, getting up to speed on the iOS SDK and Objective-C, etc.  This post details what we learned about the paid apps market and it contains data that I don’t believe exists anywhere else.

First off– let me say that the paid side of the App Store is not where the real money is being made.  While you can churn out paid apps and make a handsome living, it’s not where you want to be if you want to impact the highest number of people and it’s (paradoxically) not where you want to be if you want to build a big business.  Let me explain with a handy screenshot of the top grossing apps in the App Store today (courtesy of App Annie).

Apps with a blue-ish background are free apps.  Apps with a green dollar sign have in-app purchases.  So there are *3* paid apps in the Top 20 Grossing List.  Things are only going to get worse for the world of paid apps.  Here’s a snip from a really awesome infographic from App Annie:

So why are free apps outperforming paid apps?  That deserves its own post.  In brief, it comes down to ARPU (average revenue per user).  Farmville-style games can pull in an ARPU $5 or more per month.  In fact, there are reports of $13 ARPUs.   Per month!  Per user!  Average!

How is this possible?  Virtual goods elegantly fill up the demand curve for an offering.  In other words, they accommodate customers who can happily spend hundreds or thousands of dollars (“Whales”, in Vegas parlance) without having to give up mainstream users (who can still be valuable as evangelists beyond the fact that they give the whales someone to play with).

With all of this revenue comes tremendous marketing power.  If you’re pulling in $5-10 per user, you can afford to “buy” a download via CPA or CPM marketing campaigns (which can cost $2-5 for a free user and a helluva lot more for a paid user).  With more users comes higher rankings in the app store, which brings more organic users.  All of the pros in this world buy their way up the Top 25 Lists until the next rank gets a bit too expensive and then float back down slowly, milking the free downloads while they are there.  Rinse, repeat.

It’s no wonder paid apps can’t compete.  How many users do you think you can buy at a $1.99 price point after Apple’s 30% cut? (hint: the answer is zero).

Okay, okay– back to paid apps, which is what this post is supposed to be about.

Sizing a Paid Market

Apple makes ranking numbers available, and a few great services (like App Annie) make it easy to look at historical performance of competitors on the app store…  But only in terms of rankings, not in terms of revenue.  Even though our first app was meant to be a part-time “fire and forget / learn the ropes” effort, we didn’t want to waste our time.   In short, we didn’t want to limit ourselves to pennies by picking a crappy market.  So we set out to understand the relationship between Top Grossing ranks and revenue.

First off, some category analysis.   Let’s take the #5 Top Grossing App in each category and see how they fare in the overall Top Grossing list (note: I’m grabbing the #5 somewhat arbitrarily because it’s a better reflection of the category– #1 might be a mega-outlier like Camera+).

So, yeah.  The App Store is really mostly a game store.  And a free game store at that.  But you still want to build paid apps?  So did we!  We had a nice tractable project we could build in our spare time, but we still wanted to be sure that it was worth our while.

Connecting the Dots – Ranks to Dollars

Our app was firmly in the Productivity category (good news– it sucks less than most of the other non-game categories).  But it probably makes sense to dig a bit deeper than just category (Apple is notoriously lax about policing categories, by the way– expect to compete with “OMG FREE MUSIC DOWNLOADS” apps, whatever category you end up competing in).  Our app was a calendar replacement app with a bit of a twist, so here was the big question.  If we had a hit and were the mack-daddy of calendar replacement apps, what’s in the pot of gold at the end of the rainbow?  We can see that Week Calendar is the top ranked calendar app in our category, with an overall grossing rank of #200 or so at the time (it’s more like 500 now).  We all know that hanging around the #1 spot on the Top Grossing list can get you about $7M in revenue in one Christmas month (ho ho ho!), but how could we get a sense of what a rank of #200 or so means in terms of dollars?  Google didn’t help much, so we started doing good old fashioned investigation.  We combed the web for blog posts where people where transparent about their numbers (like this one).  We asked friends and mailing lists for revenue/rank correlations for their apps.  We got about 15 good data points, which allowed us to create a rough power curve that looks a bit like this.

(Y Axis is gross revenue from App store only, X axis is rank on the Top Overall Grossing List)

Big fat disclaimers on this graph.  Many of these data points were received second-hand, were from old blog posts, etc.  Also, consider that some apps could have alternative sources of revenue (ads, notably).  And we’re correlating US App Store rankings with overall revenue– some of these folks might do well internationally and others might not translate so well.  But it got us in the ballpark of understanding just how steep the power curve was and how long the tail of app success really was.  Armed with our handy power curve, we drew a vertical line at Rank #200 and saw that we could, perhaps gross ~$70k/month in a best-case-scenario.  Not a big enough opportunity for a protracted/full-time effort, and certainly it was unlikely that we’d “win” the market, but fine for a part-time project to learn the iOS ropes.

So, should you launch a paid app?

Maybe.

Every entrepreneur is different.  If you want to build a big/impactful business, it’s not the right path (I explain why with a mess of data when I announced my newest venture to launch free travel apps for the iPhone).  If what you want is a bootstrapped freedom-from-employment effort or are passionate about an idea that’s a lousy fit for in-app purchases, paid apps are a great path.

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Photo by John O’Nolan

In the nearly 1.5 years since leaving RescueTime (still growing and profitable– woot!), it could reasonably be said that I’ve flailed about with my career.  I’ve done a few gigs at existing startups, ranging from discreet projects to try-before-you-buy gigs that could’ve led to leadership positions.  I helped build Cubeduel.com (read about it on GeekWire or TechCrunch) with the eminent Adam Doppelt (it was a blast) and helped build TouchBase Calendar, a part-time effort to learn iOS development.  As far as flailing goes, I suppose I’ve been pretty effective (in terms of learning and effective hourly rate), but I failed at what I was really shooting for: To find my muse.  To find something BIG to really sink my teeth into.

I wanted to find my next startup mission– something I think that gets more difficult the smarter you get about startups (and the smarter you get about what drives you).  I’ve learned that I’m mostly driven by “give-a-fuckness”– I get excited by software that I’m going to use, that’s going to make people happy, and that’s going to make the world (in some small way) a better place.  If you think about it, that’s a pretty limiting litmus test by itself.  But as a guy who has been around the startup block a few times, I have a few other tests that I care about.  Here’s a quick list:

• Tractability – I blogged about this years ago– I like business ideas where you run meaningful experiments in the first 6 months.  There are great ideas out there that require 2 years of deep geekery before you can come in contact with the market.  Not for me.
• A Big idea – This is a new one for me.  I’ve built and sold a mess of companies and projects.  I’m pretty confident I can get a business off the ground and profitable.  I want to aim bigger now.
• Early & clear monetization – pure-consumer startups where you have to rely on ads (or “we’ll figure it out”) aren’t for me.
• Cult-able – Besides me, are there a subset of people who dream of working in this market?  If you can imagine a truly passionate core of users, it makes it easier to find users and employees (see Justin Kan’s epic TechCrunch post: Trouble Hiring?  Create a Cult!)
• Fundability – While I’m generally wary of early funding (I like to prove a thing or two first), I do believe that raising money makes sense for big opportunities.  I’m honored to have a mess of people who have already expressed a desire to bet on me, but they wouldn’t if I was going to open a bakery or taxi company.

So what makes the cut?  First, it’s got to be Mobile.

We started with the “Mobile First” assumption.  The mobile internet is going to make the old Internet look tiny by comparison– as Amir says, you’ve probably underestimated how big this is.  If you’re a free-floating entrepreneur who is still flexible enough to learn new skills, throw yourself into the mobile maelstrom.  Skate to where the puck is going to be.

But as you start sizing mobile markets, you learn a few ugly truths.

1. First, the App Store is dominated by games.  Absolutely dominated.  I have a post written about this that I’ll post in the next week, but here’s a tidbit of data:  The #150 ranked top grossing game makes more money than the #5 top grossing app in any other category (if you want to catch the post when it comes out, subscribe via RSS or follow me on Twitter).
2. Second, the App Store is dominated by free apps.  I’m not just saying that people prefer to download free apps.  I’m saying that free apps are dominating the Top Grossing Charts (yep– free apps make more money!).  As of this writing, 16 of the top 20 grossing apps on the App Store are free (19 of the top 20 are games).
3. Third, single-app strategies are extremely high risk.  The best bet seems to be a “portfolio” strategy– plan on having a stable of apps.  I’ve watched extremely high profile, venture-backed apps that were lauded by critics fall down the rankings charts into oblivion.  The Top 25 charts are dominated by incumbents (who’ve spent months or years getting the marketing flywheel turning), web giants (who have massive traffic they can push towards their mobile apps), featured apps (Apple tries very hard to get new folks visibility, but that only gets you in the spotlight for a week or two), and “Unicorns” (new apps that catch fire entirely on a combination of merit and luck).
4. Winners have solid ARPUs (avg. revenue/user) to bolster customer acquisition.  In almost any category, you are competing with people who are making real money from their users (again, with free apps) and are spending that money to buy more users (which artificially drives them up the charts).  Unlike the web, you don’t have much in the way of SEO opportunities, viral channels are less open and users are more reticent to create most content (typing on the phone is a pain in the ass, right?).  So unless you have an amazing customer acquisition hack that no one has thought of on mobile, you should expect to supplement your organic downloads with paid acquisition.
5. There are a few great apps that are making great revenue driving offline revenue.  Look at Uber, Hotel Tonight, or Postagram.  Their ARPUs can support paid acquisition (they are also all great apps who’ve earned organic downloads).

So, after a lot of hand-wringing, we settled into a belief that our mobile ideas should be limited to either games or driving offline revenue.  We should have a credible story how our users could result in a sustainable ARPU.  If possible, we should be able to imagine a stable of complementary apps.  And most of all, we needed to actually give a fuck about what we were building.

Where did we land?  Mobile Apps for On-the-ground Travelers!

Strangely, we landed on an idea that’s been bouncing around in my head for years.  Like a lot of good ideas, it wasn’t really that good until it collided with our mobile thesis (bonus footage: I love the idea that great ideas come from the collision of lesser ideas– check out this video).

For more than a decade, I’ve been a voracious traveler.  And I’ve watched startups grow up to help travelers with their efforts.  But if you look at where startups have focused, it’s always on the holy trinity of pre-trip decisions– airfare, hotels, and rental cars.  This actually makes a lot of sense.  The internet actually sucks for helping you with decisions you have to make while on your trip– largely because you don’t have the internet with you.  Normal people don’t, anyways.  So we all dutifully buy a Lonely Planet guide ($20 for a book– which is probably the worst form factor I could imagine for what is largely a curated catalog and a series of maps).  Or we rely in digging up local wisdom at our destinations.  Or we sift through the SEO’d muck looking for credible information and print it out.  We’re still printing web pages in 2012?

With the growing ubiquity of smartphones, there is a new opportunity for software to help the on-the-ground traveler (where, incidentally, more than 50% of travel spending occurs).  And, while our focus is on being an awesome resource for travelers, we believe that mobile allows for elegant monetization beyond simply selling that content or slapping an ad on it.  More on that soon.  So here it is– a public declaration of intent.  I haven’t been this excited about work in, well, forever.  World, meet Tomo.  Tomo, meet world.

Continue Reading]]> (We’re two web software geeks who decided to make a move to mobile. Our first app– built mostly on a part-time basis while we were wrapping up other commitments– is TouchBase Calendar, an iPhone Calendar app (iTunes link). It’s #5 or so in Paid Productivity as I write this. This series is about what we’ve learned so far.)

Post #1: Genesis & Backstory (note: a little light on data/techniques)
Post #2: Evaluating a (Paid) Mobile App Idea: How Much Could it Make? (coming soon)
Post #3: Launch Strategy & Sales #s (coming soon)
Post #4: Ongoing Marketing (coming soon, if we learn anything interesting)

Genesis and Backstory
(note: post 2-4 will be a little heavier on data/techniques, if you’d like to hear when those posts go up, follow me on Twitter Got questions you’d like addressed in upcoming posts? Please let me know in the comments.)

When I stepped down as CEO of RescueTime (now profitable, still growing like gangbusters, yay!) I entered a weird time in my life. I didn’t know what I wanted to do next or who I wanted to do it with (I obviously couldn’t recruit co-founders out of RescueTime), so I started having lots of “coffee dates”. It was exhausting stacking up half a dozen meetings a day with a broad assortment of folks.

It was a big transition from being a “maker” (on a maker schedule) to a guy who would meet with anybody. One thing that I came to realize (like a lot of people) that calendars suck– mobile calendars especially.

Mobile calendars fail to take advantage of the fact that they are on an amazing communication and mapping device.

Say I’m in the car driving to a meeting and realize that I don’t recall the exact address of the place I’m going. No problem! I’ll just pull up the event. It turns out that even if you’ve taken the trouble to add location to the event, your calendar doesn’t give you any way to get a map for that. Here’s what you see:

Even if I did go to the trouble of inviting Paul to the event when I created it (which I rarely do), I’m still 4 taps away from being able to compose an SMS.

And typing a coherent message on a touchscreen (often in a hurry or at a red light) ranges from painful to downright dangerous (texting and driving is a killer). Which is silly, when you think about it– communication around your calendar is generally limited to some very common messages, like:

• I’m here, where are you?
• I’m running X minutes late.
• Hey, I just wanted to confirm our X o’clock meeting at Y
• I need to postpone our meeting a little bit because I’m behind schedule.

When I looked at my SMS logs, I realize just how many of my messages were (usually typo-ridden) variations on those messages.

After almost a year of coffee meetings (and a few fun projects like CubeDuel), I found a co-founder close to home. Montana Low (who I’d worked with a bit at Jobster and RescueTime) had been freelancing for a few months and was looking to jump in as a founder. We both had some commitments to wrap up but wanted to get our feet wet with a tractable mobile idea.

We wanted to build it, but the big question lingering in our mind was “would it be worth it?”. If we did build it and “won” the category we were shooting for, would it be worth spending a few months of our free time? We’ll explain how we answered that question in post #2 of this series!