Pete talks to Mark McDonald of Appster, an Australian company that specialises in Mobile App Development (with a very impressive client list). They talk about the business models behind apps, and Mark gives some tips for creating successful apps.
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Appster, Mark’s App Development Company – http://www.appster.com.au
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Auphonic, online audio processing – http://auphonic.com
Asana, simple online project management – http://asana.com
Article: Avoid Visitor Abandonment – http://preneurmarketing.com/
Article: Contests and Sweepstakes – http://preneurmarketing.com/
The Art of Learning – Josh Waitzkin
Daily Rituals: Daily Rituals: How Artists Work – Mason Currey
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The Business of App Development with Mark McDonald of Appster
Dom Goucher: Hi, everyone. Welcome to this week’s show. It’s Dom Goucher here with Pete Williams.
Pete Williams: Hello, hello.
Dom: It’s great to have you back again.
Pete: It’s good to be back. It’s been a crazy couple of weeks, but I think we’re on top of it all now and back in the usual routines, which is exciting.
Dom: Indeed. Lots of change for both of us, so we’re catching up, catching up. This week, folks, on this week’s show, Pete talks to Mark McDonald of Appster about the business of app development. Now, we’ll get back to that in a minute. But what has been going on, Pete? What’s been happening?
Pete: Lots of stuff. It’s been interesting in the world of the telco group. When someone goes off sick, when someone quits, when people have holidays, and it all happens in the same two-week period unexpectedly, it causes a little bit of chaos. No one’s immune to that stuff.
It’s been an interesting calamity of events recently. Someone went on a much-needed holiday, a 10-day trip which was not planned. Then we had a receptionist quit. And we had our service manager get rushed to hospital and be off for two weeks. So, we had two or three very key positions all collapse at once, which made it a bit crazy. We’re spending a little bit more time than usual in the telco, helping out.
It’s been fun. It’s been interesting, getting back at the ground level a little bit, which is always nice to do. But then everything gets back to normal on Monday, which is exciting.
Dom: Cool. But you have been managing to tick along in the background with some of the Preneur stuff, haven’t you?
Pete: Yeah. I had a couple of new essays go up on the blog this week, as I think a lot of people are noticing. We’re putting a lot more effort into the blog this year. We have some really in-depth, evidence-based essays, full of data and research. Two new ones this week to check out.
So, if you haven’t been across to PreneurMarketing.com, make sure you do. We’ve got an essay on the 4 Powerful Strategies that Dramatically Reduce Website Visitor Abandonment. One of the crazy stats is that 67.89% of shopping carts are abandoned, which is huge. That’s a huge amount of people who add something to a shopping cart on an e-commerce site or click the ‘buy now’ button but don’t actually fill out their credit card details. We cover four different strategies that are going to help reduce that number and at the end of the day, increase the conversions your business has. It ties into the 7 Levers beautifully there.
Another essay that went up this week was all about contests and sweepstakes. It’s interesting to see how these things can actually drive opt-ins and conversions. We share four different tips that can help you grow your audience, grow your community, grow your clients, by using contests and sweepstakes.
Dom: Cool, cool. Well, on my side of the fence, more of the growing of the offline business, as it were. Interesting aside to that, just because we’re scaling, and we’re scaling quite fast, there’s a lot of things to handle, plates to spin, balls in the air, whatever metaphor you want to use. So, we are leaning back heavily on Asana, our favorite go-to project management tool.
Folks, if you haven’t looked at that, do check it out. For the basic, small-scale team, it’s actually a free tool and incredibly powerful. Pete and I have been using it for a while, and it’s really been a godsend in this new setup that I’ve got going on.
Another thing, just a shout-out, and I think this is really important. This is a shout-out. You may have seen on Twitter, I’ve already done this, but Auphonic (link in the show notes, folks, I won’t try and spell it for you), which is an awesome, awesome tool, an online audio tool that we put every single podcast through and it’s what makes us sound so good. Let’s be blunt about it.
They’ve been running now for two years, so almost as long as our podcast has been going, Pete. They’ve been running for two years. They’ve recently just celebrated their two-year birthday as a creation, but just thought I’d make a shout-out to the guys because they really do make a huge difference, not just to the sound of the show, but it’s actually a workflow tool. I won’t go into too much detail right now. Maybe I’ll do something for the blog or one of these in-depth articles about our workflow for that.
Pete: That’d be awesome.
Dom: But it makes a huge difference to the production of a podcast or putting things up on SoundCloud [or other audio distribution platforms]. So, well done guys. Thanks a lot for all your help. I’ll put a link in the show notes. So if you’re into podcasting or thinking of getting into it, definitely check those guys out.
Pete: Oh, very cool. Absolutely.
Dom: So how’s your reading been going, Pete? Because you’ve been a bit wobbly with that, due to the lack of exercise and things the last few weeks.
Pete: Well, the exciting thing is, and I’m opening up my iPhone — you can probably hear the clicks. I have officially finished the Schwarzenegger autobiography, which is nice. That 24, 30-hour epic has been completed, and [I’m] onto two new books.
Dom: It almost deserves a fanfare there, doesn’t it?
Pete: Oh, it was awesome. It was like yay! I was on my iPod running around the other day. The book finished, and I got some music tracks that I have on the iPod as well. It was like one of those victory sounds that I finished the book.
But onto some new stuff now. Two new books have been loaded up that were suggested by Tim Ferriss. The Art of Learning [by Josh Waitzkin], I think, is his Book of the Month. He’s starting a book club. So The Art of Learning, which he’s made public, is one book that I downloaded, and also another one called Daily Rituals: How Artists Work [by Mason Currey] which talks about different artists and what they did to create their craft. It’s interesting to see what habits these old, and new and current, and everybody in the artistic space are doing. It’s a really cool book. So, Daily Rituals and The Art of Learning are the two latest books that I’ve downloaded from Audible.
Dom: Cool. I can speak for The Art of Learning. Folks, you may have heard me talk about that in the past. I read it probably a year or so ago. Awesome book. Really fascinating insight into two different worlds actually: one is, as The Art of Learning, learning any particular skill, but also the guy who wrote it, Josh Waitzkin, was a chess master, and his fascinating insight into that world, which I had no knowledge about whatsoever.
Pete: He’s the real-life guy that I think the movie Searching for Bobby Fischer was about. Is that correct?
Dom: That is correct.
Pete: There you go.
Dom: That is correct. So, yeah, I think you’re going to enjoy that. When you’ve gone through that, maybe we’ll talk about it a bit more, Pete.
Pete: Awesome, sounds like a good plan.
Dom: Cool. So, onto the main part of the show now, which is a conversation you had a while ago with a chap called Mark McDonald of Appster. Now, what I like about this is, this guy really is running a business, developing smart phone, Android, iPhone, iPad apps for other businesses, right?
Pete: Yeah. If it’s not the biggest, it’s at least in the top two or three of app development companies in Australia. They’ve grown a very successful business building apps, so it’s almost like two conversations in one today. We cover off a lot about if you’re wanting to build an app, what’s the process, how can you get VC [venture capital], how do you pitch, how does that whole world of app development work, as well as a bit about how he grew the business, because he’s got a huge staff. He’s in his early 20s. The whole business has been grown organically.
He hasn’t got any VC himself, which actually surprised me when he told me the story of how big he is, and what they’re doing and who’s on their board. I was quite surprised that it wasn’t a VC-funded business. But it’s all been grown organically, with him and his business partner. They’re about to head over to Silicon Valley and take over the US with their business, which is super exciting. So, he’s got a great little model, which we talk about in the conversation and yeah, it’s almost like I said, two conversations in one today.
Dom: As always, I think you’ve put a good frame on there. There’s the two conversations in one. But it’s not just about app development, it is about business development that you talk about. Just to give you some idea of the scale, just looking at their [Appster] website (I put a link to it in the show notes), these guys have done stuff for — they are Australian and have been based in Australia. They’ve done people like the Herald Sun, The Australian, the Sydney Morning Herald, the ABC Network, but also they’ve done international brands that people should have heard of (if you’re a Preneur Community member) like Lifehacker, WIRED magazine, Mashable.
These guys have some pretty huge clients. So, they know a bit about business, they know a bit about getting in front of people. Definitely, as always, there’s something in this for everybody. Let’s jump in, listen to Pete talking to Mark McDonald of Appster.
[Pete’s conversation with Mark McDonald starts]
Pete: All right, Mark. It’s been probably five or six years at least since we first met over lunch and there’s been very little contact in between. So, I can’t claim any of your amazing success in that time period, unfortunately, but do you want to share a bit of your story about Appster, what you’ve done with that business and how it’s grown to 100 staff in, what, four or five years?
Mark McDonald: Yeah. Actually, two and a half years now, but thank you for that. Basically, Appster is a start-up builder. We’re a company that works a lot with start-up companies, and more specifically, mostly in mobile. We make mobile apps and things like that.
Really, the last couple of years have been pretty crazy. We started off, like most small businesses I guess, with one or two people in a room, and then basically scaled from there. And now we’re in a couple of different countries and yeah, making lots and lots of projects.
Pete: Man, you’re doing a fantastic effort. So, Appster.com is the URL?
Pete: Ah, sorry, mate. I better get that fixed.
Mark: Don’t send them to the competitor.
Pete: All right, cool. So, in terms of app-making, obviously that’s what your primary business is all about. You work with start-ups and help grow the overall business, not just the actual development of the app. But app development is a big core of what you guys do for clients.
That’s where I’d love to take this conversation. I think a lot of people are interested in the app space and monetization of apps, and getting their idea out there. I think that’s really good, but there are some really good ideas that I know you guys have done with clients. I want to talk about that, if that’s okay.
Mark: Of course, of course. I think that there’s a massive opportunity on the app store. Even if you look at not just mobile, but new opportunities like Google Glass, for instance. It’s going to have apps on them. But yeah, a lot of clients come to us and they’re building an app, whether it’s a game or whether it’s some augmented reality utility app they’re going to sell to somebody. I mean, the sky is the limit, really.
Pete: From a very high-level perspective, I know every area of the app store has huge success stories. But is there a particular area of the app store that you think is a smarter place to play, whether it’s gaming or whether it’s a tool or things like that, where it’s actually easier to market and monetize?
Mark: Yeah. I think that there’s a couple. Generically, where most of the money on the app store is actually spent is obviously gaming, both on Android and iOS. There’s a huge amount of money that’s spent on gaming. However, I wouldn’t necessarily say that’s the best place to start on the app store. We actually have a project manager here at Appster that was involved in a large amount of big title games. So typically, a movie comes out or a major character. What they do is they take that movie character or they take that popular series, and they turn it into a game. And based on the franchise value, it really takes off.
The problem with games is that (Flappy Bird is a recent example of maybe an outlier there) a lot of the game part of the app store is controlled by maybe 20 to 50 major publishers that not only have a huge network to inter-promote each other, but at the same time they also have this franchise value whether it’s Superman or something like the Simpsons. They already have these branded apps which they already have licensing deals with.
So, in terms of where there’s opportunity on the app store, there’s always different parts which are growing. The mobile help space is a really big thing, particularly things like alternative medicine, different ways to improve efficiencies when visiting doctors and things like that. We’ve had a lot of clients go into that space.
The payment space is really interesting. It can get very complex very quickly, but even some clients are building simple projects where one person can send the other person a reminder that they owe them money. So, I think that there’s a huge trend towards making stuff easier for the consumer, like taking offline trends, things that already happen offline. Like, you do go to the doctors offline, you do borrow money off a friend when you want to buy a beer.
These things that traditionally were done offline in a more inefficient manner, people are building apps around them. That’s really where people are getting some [success] in the app store, where it’s not just like the hype of an app is popular for a week, and then it just dies off.
Pete: Speaking of Flappy Birds, because that, as you said, was a ridiculously successful outlier, I guess. The story that I’ve heard, and I haven’t delved much into it, is that there was a developer in a Third World country, I think. I could be incorrect.
Mark: I think it’s Vietnam.
Pete: Vietnam? And he made this app that looks very similar to Mario Bros. It was on the app store for quite a while before it went viral. Is that correct?
Mark: Yeah. The guy had been a developer for a while. My understanding is that he’d actually been a developer of a number of other projects. They were all relatively successful but Flappy Bird was, of course, his big hit and I think it was making $50,000 to $100,000 a day.
Now, the interesting thing about Flappy Bird is that this is what we call, what we tell clients, the ‘law of opposites.’ You look at what all your competitors are doing on the app store, whether you’re making a game or whether you’re making a new way to pay people, like a payment system. No matter what you’re building, like what your app idea is, you always look at what all the established people are doing, and then do the opposite.
One of the really interesting things about Flappy Bird was it was really hard. It was not a simple game to play. The reason it became so popular was the fact that it was so hard. The ground level where you have to be, is you have to make a quality product. There’s over a million apps between the two app stores, and gone are the days where you can put up a crappy, amateurish thing and expect it to generate an ROI because that’s just really not where the app store market is.
So you make a great product, that’s step one. But then the question is, how do people talk about it? In the old days, and Flappy Bird is perhaps a better example of this, people would just tell other people about it because it was something that was really good.
If you look at Spotify for instance, it’s a Web app. It’s also a desktop app, and it’s on mobile as well. A product like that, people tell other people about it. But the way it’s shared is actually intrinsically built into the product. So, if you look at every time you play a song on Spotify, it actually will tell your Facebook friends. In a more simple way, and I don’t recommend this for all apps — in fact, the actual creator of Flappy Birds said it was a bit of a fluke that the app took off, to be honest. But what he had going for him was the fact that it was the exact opposite of most games, which generally, the best practicing games is make it really easy for a couple of levels, get them hooked, then get harder. That’s the most common way game designers produce products.
What’s really interesting is, he did the exact opposite and was very successful, because people talked about it. People shared their scores on Facebook, and he went social that way. I think that the big question, whether it’s Flappy Bird or whatever you’re doing, is how do I make a product where the outcome of what I’m doing (whether it’s playing a game, or whether it’s bragging about eating healthy vegetables, or whatever the outcome is), there has to be some content or some output that’s produced that it makes me look better if I share it, that I can brag about to my friends, that’s elite or rare.
You look at Farmville or you look at any of these really successful apps and fundamentally (whether it’s on web or mobile or wearable technology, whatever platform they’re working on), the principles stay the same. I think that’s why Flappy Birds was successful. But I think that in a lot of ways, the developer really got lucky as well.
Pete: I do find it bizarre. I’d love to hopefully read a story one day, after someone’s able to get this guy in a room to interview him, and work out why he decided to take that down if it’s making $50,000 a day because it’s very counterintuitive for us entrepreneurs. If you’ve got something making $50,000 a day, why would you stop that?
Mark: ‘Are you crazy, man?’ I think it’s an interesting thing. In our office, for instance, there was a lot of conspiracy theories: “Oh, did he take it down because the Vietnam government was on to him?” Or, “Did he take it down because it was a marketing stunt, he’s drawing out five or six more? I guess no one will ever know until we ask him.
Pete: Absolutely. One of the things you mentioned there is the in-built marketing that you try and do. The term of the moment is ‘growth hacking,’ which, in my opinion, is just smart marketing. It has been for decades. It’s just now got a name to it as a new division, or marketing, or direct response marketing, or measurable marketing. But I think Ryan Holiday’s recent book, Growth Hacker Marketing, sums up it all very well and is definitely worth a read on the Kindle.
But besides just trying to be smart about your app development and baking into it some of this social sharing identification-type models, what are the best ways to market an app that you’ve seen your clients do? Is it a matter of getting on the app store and buying a whole bunch of reviews? What is the smart and integral way to market an app these days?
Mark: Yeah, like you said, it very much comes down to building a product that wows people. I think that it’s very hard to market something that’s really crappy. A lot of times, people make really crappy games, and they come back and get in touch with us and say, “I made this game with this other developer, but how do I promote it?”
I think that’s the wrong way to do it. First of all, if you look at anything, whether it’s Flappy Bird or Spotify, or anything that really rose up in the app store rankings, and was there for a long time, and became a sustainable business, the product is very different and it’s much better executed. So I’d say start there.
When it comes to marketing it, there are so many different ways. I recommend that if you’re interested in trying to learn how to market a product, you read a book called Lean Analytics because I think that marketing an app is very scientific. The clients that do really well, they test a lot of things in really small ways, whether it’s Facebook ads or social, or whether it’s even buying media space and other ads. They test a small amount, and then they basically scale that based on the data.
I think that you go through a couple of different stages before you just randomly market and scale things. The first thing you start off with is what they call empathy. You figure out, is what I’m making something the market genuinely wants? Then you’re trying to look at something like retention. There’s no point building this app and spending a lot of money on marketing, or spending a lot of time doing free marketing, if people aren’t going to reuse it again. If there’s a fundamental problem with how the app works or if it’s just not addictive enough, or if we need to optimize it so people keep using it, that’s what the analytics will tell us.
Then, once you have the retention, people are using it and you’re happy, people are coming back — by the way, one of the stats I was reading recently, 95% of apps are abandoned after the first month, and about 50% to 60% after the first time somebody uses them. So, the abandonment on most apps is really high. I think that that’s an easy win for people before they go and scale. And most people have no idea because they’re not using an analytics package.
Then, once you have that and you’ve got people using it, you have to look at the virality side of things. That is, how do we get one person in our app to tell six other people? In my opinion, it’s not worth scaling marketing (and I will talk to you about the marketing strategies in a sec), but there’s no point in even going to that stage and spending all of your money until you can legitimately say, and you’ve got actual data in your analytics that’s saying one person is bringing in five, six, seven (whatever the number is) people into my app. Because if you look at Spotify, if you look at any of these huge apps, they don’t advertise on other sites. They don’t get TV ads. Their best advertising is the fact that one user tells X number of other users, which is inherently built into their model.
Once you finally crack the code on that, then you figure, out how much is each user worth to me? That’s very simple. It’s really simple if it’s just a paid app. If we’re selling this thing for $0.99, it’s obvious that the value of the customer is $0.99 minus Apple’s 30%. So, you figure out what your lifetime customer value is, but that’s not always so obvious with free apps. For instance, a freemium app (where the actual app is free, but you’re making money on maybe in-app purchases or some backend monetization there as well), it takes a little bit of time and data to figure out what every person is worth. And if you don’t know that, once again, it’s very difficult to jump to the next stage of scaling marketing.
So, by that time, before you’ve even thought about marketing, you should have only spent a tiny little bit of money on marketing and testing. You finally get to the stage where you’re marketing. You know what your customer is worth, you know the virality of your project, how many people one person is telling, and you also know the retention. People are coming back, they’re using it. There’s nothing fundamentally wrong with your product. By the way, a lot of people don’t even get to marketing. A lot of apps decide to close down and not even continue because they don’t get there. Or, the worst-case scenario is they just throw a bunch of money at it and it’s like, let’s buy some ads. They get some downloads initially, but then it dies down.
Now, in terms of the final stage, when you get to marketing, at that stage, what you need to be looking at is what works for you. It’s really an analytics question. Test small and figure it out. In terms of what clients have used before, we’ve seen business models where mobile Facebook advertising is really huge. I know a lady that’s getting 3,000 to 4,000 downloads a week of her app at about $0.20 a pop. Basically, the interesting thing about that is she knows her lifetime customer value is about $2 or $3, so she’s buying them really cheap and it’s scaling. But it makes financial sense for her so she can buy advertising.
Some other people, it has to be a completely free model. Like, they’re contacting influencers in social media. Often, people on Facebook or maybe YouTube aren’t particularly interested in promoting something because these are top-tier social networks. If I’m an expert on fishing, I’m probably getting approached all the time by fishing people trying to sell me, “Promote my book,” “Promote my app,” that thing. They get that all day. But if you look at other, smaller networks, say Tumblr — I’ve got a client right now in fashion, and she’s trying to scale something in fashion. Their strategy is, let’s go to all of the girls and boys that have Tumblr fashion blogs and get them onboard, make them VIPs, make them an important part of the app. Recognize them and get them to promote it to their list.
So, I think that there are so many different ways to market a product. I would say that a lot of this stuff is not really rocket science. The actual real challenge is actually the steps before that. Because if you gave me a million dollars today, I could get you a couple hundred thousand of your downloads. The problem is, is that million dollars well spent, or how are you going to get that million dollars, because a savvy investor’s going to want to know, how scalable is your project? How many people are reusing it? What’s the virality of your project?
I’ll give you just one more example. We had a person come in, and I won’t mention names. They basically built an app. If I said the name, you’d probably know about it because they were a fast-growing social network in Australia. These guys were signing up I think between 10,000 and 15,000 users a week. It was really insane at the peak. But then they went and they were sure, oh we’re the next Silicon Valley. We’re going to be big. We’re going to raise a bunch of capital overseas, and grow and scale and do the marketing thing, but they actually didn’t get any capital. My understanding is that they didn’t raise anything just purely because the savvy investor said, well, the retention’s not good enough. Not enough people are telling another person about it. So, they’re important as well.
Pete: I think that’s an important thing. A lot of people, when they write a blog post, want to go out and find, where should I market my app? They go to Facebook and buy these ads at $0.20 a click. That’s the easy stuff and the sexy stuff to hear about and read about, but you’re right. You absolutely have to know what your metrics are all the way through. And I think a lot of people don’t think about the retention side of thing.
I’ve spoken to a lot of people and done some app development myself, and the retention conversation is something that very rarely pops up in the low-level conversation around app development. Once you get to the point of talking about VCs and trying to raise some capital, that’s what these people want. They want to know the metrics.
Mark: Yeah. Sorry to cut you off. Even if you’re a one-person or two-person team just trying to launch an app, or you’re a couple of friends, you need to do that analytics from Day One. We definitely deal with the high-end projects, but we also deal a lot with clients who are just starting with an idea. The biggest mistake they make is they just don’t know their numbers. So they say, how do I get users? I can give you 100 different ways to get users.
I’ve seen everyone do things. I’ve seen clients rent out amusement parks, throw huge parties with thousands of people. I’ve seen people spend hundreds of thousands of dollars a day on marketing. I’ve seen a lot of different ways to promote an app. But fundamentally, they always fail or succeed based on the numbers. Because the thing is, marketing isn’t this creative pursuit where it’s just, I feel like this will work, or my gut says this will work. It’s really scientific, especially in downloads and getting this acquisition. It’s like, here are the numbers, here’s what it says, and let’s scale this way.
Pete: Yeah. It’s something I think a lot of people just don’t think about, because it’s not spoken about enough in that lower-level app development world, which is such a shame because it is really a key fundamental to a lot of things.
Moving on from the marketing side of [app development], you touched on a lot about monetization. I’ve got a big pet peeve with the iTunes Store, and the way it has affected monetization. I really do ‘blame’ iTunes and the app market for the lowering of prices and increase of expectations. If you look back five, six years ago, what people would be willing to pay for a software application like OmniFocus or a game like Candy Crush was $15, $20, $30, $40, because the quality of the application justified that investment of money.
I still think it does. But in my opinion, people who are technically savvy, they’re not marketing savvy originally. They created these apps out there. And the only way they could think of to market it was to put bare-bones pricing against it, and just have that race to the bottom. I think that shifted the market significantly. It has created a lot of opportunity, don’t get me wrong. But I have a fundamental issue with that from a marketer’s perspective.
Now, economics, industries and markets change quite regularly, and so I get what it has caused. I’m keen to hear your take on that, having your marketing background before going into Appster. But also, what I want to talk about is monetization in general for apps. There are so many different ways now, but what’s your take on how the industry has shifted the perception of value and also, what are you finding is working really well. You can sell the app at a price point, you’ve got apps that are free and then are monetized by in-app purchases. Then there are apps that are free that are monetized by advertising. What seems to be working in what space?
Mark: Yeah. That’s a very interesting point actually, because value hasn’t fundamentally changed, in my opinion. I think people have different values. I think that what the app store did was it made software more readily available to more people. For instance, software developers. Our CTO has been programming longer than I’ve been alive. I have had a couple of chats with him about this thing and a couple of topics that we’ve talked about, and one of them is what software used to be like 10, 20 years ago. I think the big thing with the app store is that when you launch a product, the world is really your oyster. Like, are we going to sell this in Vietnam? Are we going to sell this in the US? It’s not a matter of physically setting up offices or building a sales force there, or getting distribution in retail stores. It’s really just a matter of clicking a couple of buttons and maybe some translation.
So, of course, I think the business model is fundamentally, in general, changed from being high-ticket items with high margins, through smaller projects with more competition. That’s for sure. But I think it comes down to target audience and also how they’re going to use the product. I’ll give you an example about target audience versus features. So, target audience, there’s a pretty famous DJ app on the app store which I can’t remember the name of. But basically, they have two versions of this app. They have an iPad version of the DJing app and it’s like a mixed tape. I’m not a DJ, so my lingo’s probably off, but it’s got the basics that you would need to start DJing at a party.
Pete: So, it’s not a game. It’s an actual utility?
Mark: Yeah, it’s actually a utility. Absolutely. A really nicely made app. The thing is, the iPhone version, last time I checked, was $0.99, but the iPad version was around $20 or $30. But if you think about that, that’s quite intelligent because the people that would use the iPhone version are very different to the people that use an iPad version. For instance, the iPhone user might be a kid or they might be someone like me who’s like, oh, I’m a DJ, I’ll check it out. But I would never get up at a party and start DJing because I would look like an idiot. But the iPad version, it could legitimately be like, not a professional DJ, but someone who’s trying to learn and play around with it, and the value to them is much higher.
So, I think it comes down to the feature set but also who is using it. I’ll give you another example. We had another client. There’s a way of training doctors on certain medical devices. The problem is, when a junior doctor’s learning, my understanding is that they don’t really have that much fake equipment to test on. It’s either the real stuff or not the real stuff. They don’t really make fake demo equipment, especially in places like when they’re training in the middle of a war or in a battle where our client was serving the US Army and others.
Basically, they couldn’t really drag this million-dollar, $10-million equipment over to the middle of Iraq or Afghanistan because it was just completely unfeasible. The cost proposition there, you can spend hundreds of thousands or millions of dollars, or you can buy an app for $10,000 or $20,000. So, it’s a value proposition. What is the actual value to the user? Someone who’s purchasing in the military medical wing, do they think $10,000 is expensive for this app when it does exactly the same and it replicates to a T what a real device would do for training simulation purposes? A lot of time it comes down to value.
The other thing we’ve seen a lot is re-branding [products] for different audiences. A lot of clients, they might find that their product — say we’re making a time-management software, for instance. The value for a time-management software for a student, for instance, it could be a free app. They might just say, I’m not paying for that. But the value for a great time-management software for an entrepreneur — I’ve got an app on both my phone and my Mac called Things 2. I think it’s about $50, and I would pay that over and over and over again because the thing is, the amount of productivity I get from using that software is so high. Honestly, my whole life is planned in this thing. So, if Things came and said, oh, by the way, the update of Things is $300, I would pay that in a heartbeat.
It comes down to value. But I guess to answer your question a bit more specifically about different monetization models, I’m not really a massive fan of $0.99 apps, to be honest. I think that that’s the default that a lot of clients and a lot of people who are trying to build apps fall to. They say, I’ll just start with $0.99 and I’ll see how it goes, and they never install analytics, they never test any other prices. They just assume that $0.99 is the number, put it up there. Maybe they get brave and put it to $1.99. But then they just wonder why their app isn’t successful.
Pete: Sorry to cut you off, Mark. But I think this is the problem, they think, if I sell it for $0.99, we’re going to sell twice as much because it’s cheap and it gives me a bit of freedom to be lazier with my marketing. That’s just a crime on your business.
Pete: And that’s my fundamental issue, so agreed.
Mark: Yeah, and I really agree with that. I think that a great marketed app and a great product at $10 or $9.99 is always going to sell more than a product that is $0.99 with no marketing. A lot of these great apps are quite expensive, not all apps are cheap. But also, I’m more interested not in the price, to be honest with you. I’m more interested in the average value per download.
This is coming back to the analytics in me. How much is a person worth? If you don’t know that, that’s silly. For instance, what we do know from the statistics is that if you have a limited audience, let’s say I’m selling an app for gardeners with left hands in Geelong. It’s probably a small target audience. What I do know what that audience is I would probably go towards a paid app with premium pricing, because the actual value per download is much higher because you’re getting all the money upfront.
However, if I’m looking at something like it’s mass market, let’s say for instance Dropbox actually decided to charge money upfront for it. It would never have been the success that it is today. Because, fundamentally, Dropbox is a very different beast. It’s a mass-market product and you need to think, is my product so niche that there’s only a small amount of people? I need to maximize the value per download upfront. Or, is it something where there’s a huge target market (and this doesn’t matter if it’s a game or if it’s a utility, or whatever)? What if I give it away for free? And obviously, something free is going to attract more people into it to try it. If I can get 1%, 2%, 3% of those people that convert across into paid clients or paying customers, that would be worth it to me.
I’ll give you an example of that. Like I said, one of our project managers worked on a big project. It was basically a big, famous TV series for little girls called My Little Pony. You’ve probably heard of that. I only found this out recently, that if you’re a guy, an older guy that likes My Little Pony (and apparently there’s a lot of them), you’re called a Brony. All the developers on My Little Pony, by the end, were converted across to it.
But the interesting thing about this project is, it was free. They didn’t charge money upfront because they knew that, if we give this app away for free, kids will download it because their parents only download the free apps. But what they also knew is that if they designed the product the right way, and if they got people coming back over and over again (that’s the retention thing), then we would have more people upgrading, buying coins, buying extra things and stuff like that when their parents let them.
Obviously, that’s an ethical thing. At what stage do you warn children? I’ve written a little bit about that on our blog and spoken to a couple of other media sources about that, but that’s a separate issue. The point is, my product something that’s so mass market that I can give it away for free and if I just get 3%, 4%, 5% across, that will make me a really successful business or is it such a niche product where I should be charging upfront and maximizing the value per download upfront.
Pete: Absolutely. I think that’s the thing, you’ve got to be strategic about it too in terms of what it is you’re trying to do with the business model, and what is the perfect message to market-match or the marketing to market match. I think that’s really savvy.
Mark: Yeah, and I think that there’s different tactics for each different one. For instance, like the stats show us, and the research that we’ve done and other research by big analytics firms in the US, says that (I’ll just throw in two tips here) if you’re going to do a paid app, make sure it has paid but you also have in-app purchases on top of that. Because, the thing is, I think it’s around 30% to 40% more revenue per download, just by putting in in-app purchases, which is crazy.
You’d think people would get angry because they’ve already spent money and you’re trying to ask them for more money in the app. But if they’ve paid for your app, they’re more likely to use it. And if they use it, they’re probably going to want to upgrade to different versions. For instance, perhaps I’m using a time-management tool and I need more space, I need more file storage. These kinds of things are natural upgrades. So if you’re doing paid, don’t be afraid to do in-app purchases.
The second thing is if you’re doing freemium, you either have to do two things. Number one is you have to get people using your app in such a way where, if you’re doing a general utility, you have to find a way that people buy into it and start putting stuff in it as soon as possible. Evernote, for instance, is a free product. Basically, the great thing about Evernote is that you keep using it. They get you in. You create one note, they remind you to do something else. They know that if they can get you just to make one note or do one thing, you’re more likely to continue to use it. And if you use it for five or six months, then you’re more likely to pay for upgraded storage.
You either have to become an integral part of someone’s process, whether that’s in health, whether that’s in productivity, whatever app you’re making. You have to get in. I would say the best strategy to do that is just get a little bit of micro-commitment. Don’t worry about teaching everyone about the whole app. Just get them to enter a date in or write one note, or do something, because they’re much more likely to be engaged. And like I said, 95% of apps aren’t used after the first month, so you’ve got to keep getting them back.
The second thing is, if you’re building a game in this space and you’re doing freemium, two things. Number one is you need to have some element of chance in it. If you look at like the My Little Pony app that we didn’t make but one of our producers made, basically they had the question, how do we keep people coming back over and over again? So, if you look at anything like the Hobbit game or My Little Pony or any of these franchise games, they always have an element of chance.
In the Hobbit game, you win tokens so you can get more swords and things like that. And it’s just a way, because they know that the more time someone comes back to it, the more likely they are to get involved, the more likely they are to continue to purchase more things. In My Little Pony, I think the developers were saying, how do I do this ethically? These are kids. We can’t put a casino in this thing because you can’t do that. It’s really unethical. But what they found was, we’ll make a carnival. They can win prizes and tokens and things like that.
Like I said, that comes back to a big ethical debate in the app development industry right now, [which] is monetizing to children. Because a lot of people come back and they say, my kid spent $900 on apps so I decided I’ve got to make an app. That’s my advice. Broadly speaking, monetization falls into those two platforms. Is it going to be free or is it going to be paid?
Pete: Yeah. I love it. One thing, if we talk about money, you touched on this earlier Mark. The value in the app needs to increase, the cost of development has to increase as well. It’s basic economics of business. So for a lot of people, you hear about all these apps and these start-ups who are mobile-based, raising a lot of VC and angel investing. I know a lot of your clients have done a lot of that and you help them out with that in various ways.
I’d like to just talk about the whole VC world and the angel world, in terms of mobiles and apps. You touched on it. You need to have your analytics correct to know the value per download, and the value per client, and your retention rates, and all that data that is going to be of interest to an investor. But what are investors looking for? At what stage can you go and raise capital? What’s the best way to go and raise capital? Who do you talk to? Where do you go if you’ve got an idea or an app in some development stage?
Mark: Yeah, that’s an awesome question. To be honest with you, that is a huge problem. We run our own start-up events and stuff like that. I go to all of these events that we run, a couple hundred people. I speak to dozens of people every night and basically one of the really interesting thing is, I’m like, what’s really holding you guys back? What’s stopping you from going to the next level? And it’s never like, oh, we can’t get our app developed properly, or it’s rarely, oh, we need marketing. It’s always, if we could just get a little bit more money, man, we’d get to the next stage. We could hire the marketing guy. We could spend more in advertising. We could get our analytics in. We could upgrade these features.
I think that when it comes to, ‘I’ve got an idea for an app,’ to actually want to make it, there’s two paths people usually go down. The first path is, I know realistically I could get together $5,000, $3,000, $4,000. I’ll just get a couple of friends together. We’ll save up, we’ll put some money in, and then we’ll get it done on something like Elance or oDesk. I’m not bad-mouthing that, because I think that does work for some people. But I think there’s been a real big trend towards (especially a lot of media channels have talked about) making an app for $500, doing this or this on these sites.
To be honest with you, that’s just not my experience. Basically, I think that even the best developers in India — I was just chatting before we jumped on this podcast. Some of the developers that we have overseas actually are getting paid more than our developers in Australia. It’s like good development, no matter where they are, whether you’re outsourcing to India or wherever, they’re going to be expensive because great people are wanted all over the world in different places. So, it fundamentally comes down to the quality of the people you’re producing.
So, then, how do you get the capital to do that? Well, I think that, if you’re staying away from the, let’s do it cheap, and let’s do it the right way, which personally for me, if you’re going to do it, you better do it well. You need to understand what stage you’re at, and you need to understand the value proposition you’re bringing. We hear from thousands and thousands of people about different ways to get an app, and they want to do an app. They want to build an app. They’ve got this idea for an app. But the biggest thing is, they’ve got no commitment. There’s no one who’s actually going to do it. Only a small amount of people who say, ‘I’ve got an idea. Let’s commit to making it.’ Probably one in 100, to be honest.
So, when you go to an investor with nothing and you say, ‘I’ve got an idea for an app,’ there’s no value in that. There’s nothing stopping them from doing it themselves if they’re an unethical developer. You’ve got no intellectual property. You’ve got nothing. So I think that it comes down to trying to build the value up as long as possible. For instance, like my company. We grew ourselves to eight figures a year without raising venture capital, and we’ve got stakes in a whole range of different start-ups. We were able to do the work (which is ultimately the best thing) which is not actually take on investors. If you can get away from investors, that’s a good thing.
Obviously, as you scale and get bigger and bigger, the further down the value line it takes to take on investors, the better it’s going to be for you. So, I think that at the early stages, who you’re speaking to, a venture capitalist or an angel investor, is really not going to be the person for you when you’ve just got an idea. You need to get it down the page a bit further. You need to get a business plan perhaps. You need to go and do a prototype. You need to do something where there’s some value.
And at that stage, the best investors for you are co-founders, to be honest. I would never recommend building an app without having one or two other people and they have complementary skills, because they can put in a little bit of money too. You don’t want to take on investment too early, or you can get kicked out of your baby and you can burn and destroy what you’re building really fast.
So, the best money comes from friends and family at that stage. Put in $5,000 here, put in $6,000 here, that thing. Then you get your product out, you build what’s called a minimal viable product. The big mistake a lot of development companies do is they try and commit clients to making these huge versions of their product. Instead of saying, what is the absolute core of what we’re trying to create here, let’s actually make the whole thing.
Facebook didn’t make the whole thing when they started. The first version of Facebook wasn’t that good. But for some reason, most new clients think, let’s make the whole thing. So, the first thing you need to do is cut it down to its core, and that will reduce your development costs upfront. Let’s say you’ve got your MVP. You’ve launched your product, and you’ve got some money from friends and family. Then it becomes more, let’s approach angel investors. These are typically guys that’ll put in $300,000, $400,000, and I’ll give you an example of that.
One of our clients recently was called Bluedot. You can read about them. They were featured in The Australian as a potential billion-dollar start-up. What’s interesting about these guys, (I know Filip and Emil, the founders, quite well), what they essentially did was they started off doing exactly what I’m telling you. They got friends and family give a little bit of money upfront, and they built a prototype. They built a very small version of that. They built an MVP, and they didn’t even have an app at that stage. They just had a little bit of code and something they could patent.
Then they basically went along and they looked for investors. They showed them what they did, and they grew and they got some momentum, signed some MOUs, got some potential clients. They had two banks bidding against each other to acquire the technology they were building, which was interesting. And then basically, at that stage, they were ready to go to investors, because they could say, we’ve got a track record here. We’re building something great. At that stage, you’re not begging investors. They’re keen to get involved.
So, I think it really depends, to answer your question more succinctly. It really depends on where you’re at in the funding cycle. To be honest with you (it sounds probably not what you were thinking), but I wouldn’t tell people to go and get an investor or a VC or an angel investor from Day One. The longer you can do what’s called bootstrap, which is build off sales, build off sponsorship, build off friends and family, that thing, the longer you can hold out investment from external parties, the more you can control your vision, the more you can make a better product. And the more you can stay focused on building something great and not get distracted by the glamor and the distraction that sometimes investors bring on.
Pete: Yeah. I couldn’t agree more. I think something that I was thinking about as you were talking there when it comes to this, is like a lot of people I know would be like, I can’t ask my family and friends for money because what happens if it goes wrong? They think of this VC and angel world as Monopoly money with no risk attached. It’s like, I’ll get some random VC’s money. They know it’s a risk. They’re going to throw money at it. They know they’re only going to have one win every 100 investments. And that’s not the way you should be going into business, is it?
Mark: No, absolutely not.
Pete: If you really believe in your business and you are going to play full out in your business, then getting money from family or friends is a good litmus test to see how serious you are about the idea. I’m not saying everyone should go and get money from family and friends. There are pros and cons there, and I can see the value in it. But I think if you’re not willing to even entertain that idea of getting money from family and friends just to help your start up business, that should say a lot to you about how invested you are in this idea. When you have to play full out, believe in its success.
Mark: You’re so right. It fundamentally comes down to commitment. I’m not advocating that by any means, go create a war with your family by taking their money. It has to be the right decision for those guys, and they need to know the risks associated with it. But to be honest with you, if you think that investors are going to be nicer to you if you fail than your friends and family, then you don’t understand start-up. You don’t understand venture capital. If you’re woefully negligent to a VC or someone like that, they’re going to sue you. They’ve got expensive lawyers and they’ve done this before. They’re huge firms.
I think you’re right. The attitude that somehow these investors, that they don’t really care, they’ll blow the money, it’s just not the thing. These often are professional managers. They’ve owned businesses before. They’re really savvy, often they’re ball breakers. Investors, the reason they have money is they’re savvy investors. They don’t just throw money around willy-nilly. I think that’s just a common myth out there. I would also say, I love what you said about commitment to it. Because for some people, it’s an idea or a dream. I’ll just make an app, and I get that. For some people, it’s not like that. It’s actually really hard work.
I look back at the guys and girls that have succeeded and done well in this space, and clients I’ve known and colleagues. These guys, they’ve been so committed to it, it hasn’t just been sold on the app store. It’s been like, we’re flying to this country to pitch this potential customer on a partnership. We’re going to go and meet this potential executive. Whatever it takes. I think that some people (and it sounds counterintuitive because I own an app development company myself and I’m in a number of start-ups), what everyone’s saying is it’s easy. It’s really simple. But it’s actually absolutely not. You have to work so hard for it.
I can only speak for myself (but we own stakes and help build up start-ups myself as well as own a development company), and the reason we have staff that are willing to leave their families and travel to the other side of the world to work in our development centers or move to different countries –for instance, I was talking to you before I was on this call about [how] we’re setting up in the US. We’re opening an office in New York and Silicon Valley in about a month or two. The reason people are so committed is because they know how committed myself and my business partner Josiah are, as well as all the senior management team here. It takes a certain level of commitment to pull this off.
It’s not like you throw it on the app store and it’s done. If you look at some of these big developers like Clash of Clans, you see all these people making $100,000 a day, $50,000 a day, these kinds of big people. They’re not amateurs here. They’re actually running as businesses. They have marketing people. They’ve built a team. They started just like you and I would have started, one or two people, some friends, building the company up. But as they got more and more into the business, they got more and more serious. They brought on the right people.
So, to be honest with you, the biggest challenge, and I think you tapped on it straightaway with venture capital, is that they can smell straightaway if you’re committed. In the early stages of business, it’s very difficult to bet on the business. Honestly, I hear really great ideas every week. If someone could execute them, they would be game-changer ideas. The thing is, it’s always about the people and investors always bet on the people who are the people involved in your project. Are you the guys and girls that refuse to give up? Are you the people that are so committed to this that this is something that you’re going to work on 80, 90 hours a week and just work 100%, 10,000%?
I think that’s what a savvy investor is trying to smell out in somebody, and that’s why I always say the first round, if you can get to MVP without bringing on external investors, you can do that through bringing on friends and family as co-founders or shareholders, and you can have a little bit of flexibility without someone like that breathing down your neck. That’s probably a good thing. Maybe that’s not the circumstances a lot of people can do. In that case, yeah, you’ve got to go find investors. Just be aware that it’s just not free money. These guys will hold you accountable. You just can’t be like, I’m too tired. I don’t want to do this start-up anymore. It’s not like that. Once you take money, you’re committed then.
Pete: Absolutely, Mark. Absolutely. So, let me ask you the one question that I ask every guest we have here on PreneurCast at the end of the conversation, and that is what’s the one question I haven’t asked you that I probably should have?
Mark: Wow. That’s a tough question. To be honest with you, I think that the question that you really should ask, and this isn’t about app development as much, but it’s about what it takes to be successful. That’s what I talked about before, what it takes to build a start-up. It goes so much further beyond monetization and app development. That’s where you start at. But if your app becomes successful and takes off, then it becomes a matter of growing a start-up. So, I think the question is, what does it take to make this happen? Because that’s not always a pleasant thing to hear. A lot of people hear that, and they’re like, well, this isn’t for me.
Pete: Absolutely. I completely agree. A lot of people look at the outliers like Flappy Bird, and think that if I create an app for $1,200 on oDesk, I can throw it out there and I might start making $50,000 a day. But you really look at the science and the analytics behind it. It’s not how it is. These guys are seriously running serious businesses and treating it as such.
Mark, thank you very much for your time. It’s been good to catch up. We have a lot of water under the bridge over the last four or five years, mate.
Mark: It has been. Thank you.
Pete: Congratulations with Appster, mate. It’s been awesome to watch it from afar — 100 employees across a number of countries and going to the States. I’d love to get you back on one day and chat, not about app development and such, but what you did to grow the business so well, so rapidly. I’d be keen to hear how you grew the business, how you marketed it, how you deal with the headaches of managing 100 people and how you found great staff and great board members and all that stuff.
Mark: Yeah, I’d love to. I’d love to speak about that. Thank you so much for having me.
[Pete’s conversation with Mark ends]
Dom: So, Pete again, you managed to get some great stuff out of Mark there. As you said at the beginning, you framed it well that it was the two sides of it. The building of the apps, which great advice from somebody who does it all day every day and has made a business out of it, but also the growing of a business. It really came out really well, that one.
Pete: Cool. I appreciate it. And speaking of appreciation, everyone who tweeted and e-mailed and hung out with us online in various places this week, we do appreciate the love. Obviously, the show’s free. We share this and invest our time for free, and we do appreciate everyone paying us back in Twitter comments and social shares, and iTunes reviews. So, if you do love the show, we would really appreciate it if you do let us know, in one form or another. With pretty much every iPod, iPhone, Android app that plays podcasts these days, you can click a button and leave a review or share something socially really easily.
So, if you can, take a moment right now and grab the device you’re listening to us on, and just click that social share button. Let everyone know that you listen to the show and that you enjoy the show, and some of your biggest takeaways. It would mean the world to us, to hear what you guys have to say about the show and what you enjoy about it. Please keep in contact on all the social platforms and leave reviews. It does mean a lot to us.
Dom: Definitely. Folks, wherever you’re listening to us, please just press that feedback button. You can also go to the website, PreneurMarketing.com. The whole podcast library is there, with all the show notes and links, transcripts of all the shows. You can download the files or listen to them live on the page there.
And there’s comment boxes below each podcast episode. You can leave us a comment there. You can even leave us a little voice message if you’ve got a microphone on whatever you’re visiting with. There’s a little box on the side of the screen. Leave a voice message. So, there’s loads of ways to get back to us. We love your feedback and we do really appreciate you folks being a part of the Preneur Community. So, Pete, what are we doing next week?
Pete: So, next week, we’re continuing on our conversation in the theme of the 7 Levers. Remember, we were talking about — is it conversions or opt-ins? What’s next week? I’ve actually gone blank.
Dom: Well, hey, everything matters and you can do it in any order, but we’re going to go to opt-ins next week.
Pete: Beautiful. So we’re talking about opt-ins, about how to increase the opt-ins of your business, whether you’re a retail store, whether you’re a consultant and service provider, like an accountant, maybe you’re a tradesman. If you’re an online-based business selling e-commerce-based products or information products. We’re going to be covering the whole gamut of increasing opt-ins. And no doubt, there will be at least one thing you can go and actionably implement into your business after listening to next week’s show, to work towards that 10% increase goal, which is the aim of the 7 Levers framework.
Dom: That’s right. We always try and make sure you’ve got something that you can take away from these shows and implement.
Pete: Now, speaking of taking away and implementing, if you are new to the show, a first-time listener, welcome. Welcome to the show, but do check out 7LeversReport.com. You can download a free 39-page PDF which covers the 7 Levers framework. It’s the core framework that pretty much everything we do in our business projects, in the businesses I advise, that I invest in, that I own myself and also everybody who listens to this show, it’s the framework that we all listen to and work from when we’re trying to grow our business. It just covers the seven very easy 10.38% increases that you need to work on that will double the profit of your business. So, check out 7LeversReport.com. If you haven’t already downloaded the report, we encourage you to do so because it’s really a lot of people’s businesses all around the world.
Dom: Okay, folks. Thanks for listening. Thanks for joining us on the show this week, and we’ll see you all next week.