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Secret Recipe for an iPhone App

Posted on Saturday, Jun 13th 2009

By Guest Author Saad Fazil

The current economic climate has several people pondering whether to become rich by selling iPhone apps. Like anything else, making money by creating and selling iPhone apps is no easy task. If it were, most people would do it, thus increasing the competition and bringing down the revenue to zero. Sure, it did make some people rich instantly — Steve Demeter made $250,000 in two months — but that is an exception and not a rule.

With very low barriers to entry, over 35,000 of apps and over a billion downloads, the market is extremely crowded. Very few of the 35,000 apps sell at all. A thirty-fourth position app Zen Jar earned just $20 a day!

So if you are an indie developer or have a team of two to three people, you must be thinking whether it’s worth the time to develop an app, and if you do, what are the questions you should ask yourself. Here I try to answer a few critical questions that must be taken into account before you launch or develop an application.

What category should I develop an application for?

There are several categories in which applications can be developed: Books, Business, Education, Entertainment, Finance, Games, Healthcare & Fitness, Lifestyle, Medical, Music, Navigation, News, Photography, Productivity, Reference, Social Networking, Sports, Travel, Utilities, and Weather. There are a few distinct “areas” the categories can fall into. Is the software for fun (one out of three apps is an entertainment app or a game) or does it enhance productivity (weather, productivity, utilities etc.)? More than 50% of the top 20 apps, when measured by total number of installations, are games. The other applications that dominate are generally iPhone version of an existing website or product, such as Facebook or MySpace. Several other popular apps are in the media or entertainment category. When looking at total usage, ranking changes slightly. Weather and Facebook apps (both can be considered “productivity” or “utility” apps) dominate big-time.

Which category you choose can have profound effects on pricing and marketing strategies. For example, if you choose a utility category, you might not expect a huge number of installations, but you could expect heavy usage by the users who do use them. This could perhaps give you an opportunity to charge a little higher, considering that the demographic that buys this app is less price-sensitive. An example would be a project management application targeted for businesses. These business users would most likely pay a few dollars for an app.

Contrast it with a game. Unless the game is exceptional, it will be extremely hard to charge above 99 cents. A game might get huge number of downloads, but would lose its top rank pretty soon as more games come out. This could mean that you would have to keep upgrading the game and developing new games more frequently.

Another important issue to think about when deciding the category is whether you want to build just an iPhone application or develop a “standalone” business. For example, if you want to develop a food-ordering service, the iPhone would be one of several platforms for which to develop the application. This is certainly much more complicated to develop than a client-facing game, but could also mean a sustainable business model. You could venture out with the iPhone app and if it does well, extend it to an independent business. Another way to look at it is that many successful apps on iPhone (Facebook, MySpace) were popular before they were launched on iPhone, primarily because they provided utility not just on iPhone.

How should I price my application? Should I give it out free?

Though it’s going to be different for each app, this case study gives some clues as to how many downloads to expect from a free vs. a paid app. Let’s say the ratio is 100:1. That means for a $0.99 app, you would have to have a CPM of $9.90. However this assumes that one download on average will amount to one impression, but if you take into account several user interactions per download, and three to five impressions per user interaction, the CPM required to exceed the sales revenue is far less than $9.90. In fact with a CPM of about $2, your ad-based revenue could exceed that of selling the apps in the long run. AdWhirl reports an eCPM of $1.90 for top apps. Moreover, you could have both a free and a paid version to price discriminate. Make sure not to make the free version too basic as that would amount to far fewer downloads, thus affecting the popularity of the app.

How do I market my app?

This would also depend on what kind of app you are developing. If it is a project management app, you would have to market it to consultants who are more likely to use it. If it is an app that increases productivity for doctors, you would want to market it to big hospitals and doctors. You obviously do not need to make it a top 100 app in that case, since your success doesn’t depend on how well the app is received by masses. If it’s a game, you will have to aggressively use social media marketing. Based on several interviews, I have found that getting an app in the top 100 is difficult, after which it sells itself if well designed. The following strategies will help push your app to the top.

  1. Create a website of your own showcasing the app and reviews. Brand your studio even if small. Create an attractive bio.
  2. Create a free and a paid version. If users like the free version, they will be tempted to upgrade to the paid version.
  3. Reviews are important. Reach out to demographic you are trying to target. For example, if you are developing a car race game, seek out online forums discussing car games and ask those people to test and review your game. The more people review it, the better the chances it will get noticed.
  4. Advertising using Google AdWords might not be a bad idea. You can have a small budget, and based on results you can increase the daily budget.
  5. Blog about your app. Use other channels such as Twitter, Facebook, Digg, Delicious, Reddit, and StumbleUpon to create buzz about your app. Follow Twitter users who are tweeting about our or similar apps.
  6. Look out for potential sponsorships with big Corporates and names. They will get their name out and your app will get more downloads.
  7. Openfeint is a great channel to market your games. It enables online community for your games, thus making it easier for your games to be discovered.

Making money from iPhone apps was much easier when the App Store came out. With time, it has become a lot more competitive. Like anything else, you will have to go through several trial and errors before you come up with a hit. Get started before the market becomes even more saturated!

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Saad, good article. Like I said when we chatted, I still think applications are about who you target. It’s fun to build games, but most casual gamers are inherently cheap. I believe there are app buyers out there to be reached who are less price sensitive. They will need to be educated I suspect through the regular web though. As I mentioned, I’ll be testing this hypothesis shortly…

Ted Chan Saturday, June 13, 2009 at 9:24 AM PT

Thanks again for the interview Ted, it was insightful! My hypothesis/analysis is that if you can get a game in top 100 (by no means an easy task), you might be able to make it pay for itself based on CPM. To get in top 100 in the first place, it has to be either damn good (very hard for an indie developer to differentiate), or at least free.

Let me know how your app goes.. it will be great education for me and the readers.

saadfazil Saturday, June 13, 2009 at 11:46 AM PT

Superb article. congratulations!! Games are a very tricky market with very high or no return possibilities. Average selling in my mind does not exists in mobile games market. if someone is creating games for iphone , my 2 cent is to get that out and keep their finger crossed and wait for it to get popular.Normally for a mobile market simple games are the one which tops the list.

ujjawal Sunday, June 14, 2009 at 12:52 AM PT

[…] Secret Recipe of an iPhone App | Sramana Mitra on Strategy […]

Rolando Review | Online Gaming News Sunday, June 14, 2009 at 7:01 AM PT

“my 2 cent is to get that out and keep their finger crossed and wait for it to get popular”

Ujjawal are you suggesting one doesn’t do anything try to push ones game to the top

saadfazil Sunday, June 14, 2009 at 11:21 AM PT

Hey Saad, I am not suggesting that you do nothing to try to push the games on the top, of-course do as much as you can to push the game. Through, at the end of the day, games get popular by word of mouth (more true for iPhone games), this commodity is cheap and buyer doesn’t have to think too much to get it, so usually he/she decides based on someone’s opinion on it, mostly the ones who are using it already in their close circuit.

ujjawal Monday, June 15, 2009 at 2:23 AM PT

Saad, I’d love to hear about the tricks used by some of the most popular applications on the iPhone … games, as well as productivity apps.

In other words, can you follow this article up with some case studies of how certain iPhone apps gained momentum?

Sramana Mitra Monday, June 15, 2009 at 9:16 AM PT

Coming soon Sramana

Saad Fazil Monday, June 15, 2009 at 11:52 AM PT

[…] to the RSS feed for updates on this topic.There is this beautiful article by Saad Fazil on Sramana mitra’s blog, Reading which I thought why can’t one can still build a good iPhone application, ideas of […]

How to build a business around Apple iPhone | U J J A W A L Tuesday, June 16, 2009 at 10:13 AM PT

I found your article very interesting. An app is usually designed to fill a need or serve a purpose, as you said. I found an incident from about a year ago to be very interesting in that respect. A developer created a $999.99 app that even in his own words was “A work of art with no hidden function at all.” It was simply a glowing red icon that did nothing. It was the “I Am Rich” application. Within a day of being posted for sale, it sold eight copies, despite providing no reasonable utility at all.

Apple removed the application from its store the day after it was initially entered for sale, most likely because at least two people thought the application was a joke until they purchased it.

This application’s purpose was to show that the owner of that iPhone could afford a $999.99 application that did nothing. It sold so well because it was the direct opposite of a utility application.

When deciding what type of app to design and how to market it, as mentioned in the article above, this is a very inventive new app that if left on the market could have sold well among wealthy people and made a lot of money for its developer.

Ilene Silverman Tuesday, June 16, 2009 at 10:40 AM PT

Hi Ilene, the app you mention was mind boggling and perhaps counter intuitive to how most people think of making money or serving a “need”. Moreover I think an app of that sort has negative externalities – namely the more people have it, the lesser its value. The ridiculously high price tag ensures that just enough people can afford it to keep the app attractive.

Saad Fazil Tuesday, June 16, 2009 at 5:07 PM PT

[…] of your making enough money to build a sustainable business or even survive are slim (see my earlier article on iPhone apps). Read the full article » blog comments powered by Disqus var disqus_url = […]

LIFE BEFORE APPS STORES « Planet Saad Tuesday, January 5, 2010 at 1:28 PM PT