Executive summary: App economies
This article in The Verge by Casey Newton is a useful primer on where apps are now. It tells the story of a small company called Pixite that makes mobile apps, and is facing declining revenues from the Apple app store. The app stores are now enormous, flush with product, and smaller companies are less likely to achieve hits. Games with in-app content, not utilities that you sell once and support forever, sell the best.
In the article there’s an illuminating two-paragraph comparison between Pixite and an Israeli company that pursues a marketing-first strategy:
It didn’t have to be that way. Lightricks is an Israeli company that resembles Pixite in some respects. It also makes photo-editing tools, gives them distinctive names, and sells them for a few dollars apiece. But Lightricks also invested years in building its signature apps, FaceTune and Enlight, and spent heavily on marketing. It wrote software to predict how much it needed to spend on Facebook ads to stay on the bestseller charts, where the added visibility generated additional sales. Its marketing is overseen by a co-founder whose background is in artificial intelligence, and the marketing team is largely made up of engineers who run dozens of campaigns around the world 24 hours a day.
The result: FaceTune, an app for taking better selfies that sells for $3.99, sold more than 3 million copies in its first two years and was the sixth-highest grossing app in the App Store in 2014. Enlight, a comprehensive photo editor that combines a wide variety of filters and effects, saw similar success. By last year Lightricks had hired 45 people, was on pace to earn $10 million in annual revenue, and raised $10 million in venture capital.
One surprise since starting Postlight is how often we’re asked for marketing support. Five years ago it was rare for a product-focused digital firm to help with marketing. But about half of the people who come to us today ask for guidance and recommendations on their marketing and messaging strategy on top of building their website or apps. It took us a while to notice. We’re adapting.
There are a lot of people trying to make apps easier to develop — according to this article, Thunkable, a drag-and-drop app builder, has four million users, and prototyping tools are making it easier to communicate design and features than it used to be. The way the app economy is working makes me wonder if some part of app development will simply become more like book publishing — you (or your agent) brings an idea to an app publisher. The publisher gives you a relatively small advance; you deliver the software, the publisher does all the marketing, and there’s a small-percentage royalty kickback to the author after the advance earns out.
It’s hard to overstate how much we’ve learned, and how Firewatch’s success (or failure!) could chart our future. Of course, our goal is to break even, flush with knowledge of a new industry. But if Firewatch does more than just break even, it opens up major questions for Panic: do we want to publish more games? It’s possible — it felt really rewarding ‘nurturing’ this game into existence. How do we do that and maintain focus on apps? What if we just lucked out with the greatest possible team for our first game and that will never happen again? And if we don’t recoup our investment, how does that impact our future? A lot of questions will be answered…
And for more confusion you can look at the Chinese Android app market, which is apparently so bad that people are desperate for Google to come in and take their money:
One of the biggest factors here is that developers often have to split their revenues with far more partners in China than compared to other regions. After the publishers and Android channels get their cut, the studios frequently end up having to give up more than 50 percent of their revenues.
“[Android is in] a terrible situation,” Netease international business manager Gary Huang told GamesBeat. “From Netease’s perspective, we are happy if Google comes back. It’s good for publishers and developers. And the Chinese government probably knows this.”
So when Wish, a new shopping app created by engineers Peter Szulczewski and Danny Zhang that has raised $600 million from investors, began advertising (incredibly heavily, mind you!) on Instagram and Facebook, I’m sure some people thought, How can a smartwatch possibly cost $11? Why is it being sold next to a pair of tight men’s harem pants with cargo pockets and a pair of knock-off Yeezy sneakers? Who in the world would buy a gigantic thumb ring that doubles as a bottle opener?
But I’ve spent enough time in the shit-world to know a portal when I see one…
Re/code recently called Wish “the next Walmart,” reporting that the app had secured a huge amount of money from investors, taking “the direct-to-consumer fad to the extreme [by] connecting buyers directly to Chinese manufacturers who ship to customer’s doors from factories, cutting out middlemen and markups along the way.”
The Wish article was published by MEL, the magazine of Dollar Shave Club.