Sales at Apple’s App Store exceeded $10 billion last year, with more than two-thirds of that sum finding its way to developers.
By Jacob Serebrin
That indicates there’s big money to be made in the world of mobile apps. But generating a return on the countless hours invested in coding takes careful planning, a well-designed and well-executed business model and a lot of luck.
While it may have been easier in the past, these days “it’s very difficult to release an app and make money at it,” said Brent Mondoux, CEO of Ottawa-based app and web development company N-VisionIT Interactive.
“These marketplaces have millions of apps,” said Mr. Mondoux. He said that every day there are between 600 and 700 apps approved on Apple’s store alone.
“You can’t just put it up there and hope,” he said. “Your monetization strategy must be solid.”
Large app makers, such as Gameloft and EA, employ behavioural economists and psychologists to improve their monetization strategies, a talent base that might be out of reach or impractical for a small software maker or an established company developing its first mobile app.
That means it’s especially important to start developing an app with a clearly defined purpose or function and a target market in mind, said Rob Woodbridge, an Ottawa-based mobile consultant and founder of UNTETHER.tv, which is focused on mobile strategies.
Apps are most effective when a developer already has clients ready to download and make use of the product, he added.
He pointed to Ottawa-based e-commerce platform provider Shopify, which recently launched a mobile app that acts as a point-of-sale system on a user’s mobile device. Mr. Woodbridge said he thinks the app will allow the company to leverage its already large customer base, giving it another way to make money from existing users, some of whom may be using other mobile payment processing apps, along with drawing in new customers.
Mr. Woodbridge said companies can also use apps as a form of advertising to existing customers, rather than simply as a direct revenue driver.
“You’ve got to craft your mobile experiences, not just (focus on) collecting a dollar,” he said. “(It’s) about maintaining existing customers, about putting products in their face.”
This can take a variety of forms. A retailer, for example, could allow customers to make purchases on a mobile device in-store, allowing customers to skip the line and preventing the company from potentially losing sales when a customer pulls out their smartphone in line and finds a better deal somewhere else.
Apps can also save a business money while improving service, Mr. Mondoux said. The LCBO app, for example, allows users to see if a particular product is in stock at a specific location. This means that the company is “not paying staff to answer phones and run around looking for products,” he said.
There is also the ongoing brand presence that an app delivers, said Gary Yentin, the CEO and founder of Toronto-based app marketing company App Promo.
“It’s valuable real estate. Your icon is there on their phone,” he said. “People are very loyal to their applications.”
But what about a company that wants to build a money-making app?
“Currently, the market that’s generating the most money is free apps with in-app transactions,” said N-VisionIT’s Mr. Mondoux. This model, known as freemium, could be anything from a free office suite with paid templates, to a subscription service that is free to try, to a game in which users can buy more time to play.
While ad-supported apps used be popular, Mr. Woodbridge said it’s very difficult to turn a profit, even with a large audience. Even Twitter, one of the largest ad-supported services, with more than 200 million users, has failed to translate that into a profit.
Mr. Mondoux said he’s seen a lot of startups try to go the ad-supported route through his work with startup accelerator Exploriem, but he warned that they “overestimate what they’ll get from ads” and expect that an advertising-based model will actually support a business.
Regardless of the model, planning is key, according to Umar Ruhi, a professor at the Telfer School of Management.
“Most developers use a combination of strategies,” he said. Just what combination, though, will depend on what the app does. An ad-supported weather app might make sense, while an ad-supported productivity app wouldn’t, due to the higher development costs involved.
“The reality is that it’s a tough battle,” said Mr. Yentin. Apps only have about 16 to 18 months to get noticed because of changing technology and the growing number of competitors, he said.
“The moment you launch an app, someone else is launching a similar app,” he said. Marketing is key, he said, but it’s hard. App developers need to use social media, reach out to reporters and bloggers and use app-store optimization and paid advertising if they want to get noticed.
App developers also can’t forget about maintenance and updates, Mr. Yentin said. With new operating systems and new phones coming out on a regular basis, “building an application is just the beginning.”