Birding Apps – Part 3. But You Only Sell Electrons
In our last installment about pricing an iPhone app, we had put together regional versions of iBird at $9.99, considerably less than our $19.99 app, as a way to help people with tight budgets. Apparently that was still not low enough.
I wont’ say that birders are tightwads, that would be harsh, but I will say they are very cautious about spending. Someone in our group had what seemed a brilliant idea at the time: why not create an app devoted just to birds found in the backyard at bird feeders and cut the cost in half again. This led to iBird Backyard with 80 popular backyard birds for $4.99. By now there were a lot of small birding apps in the app store priced at 99 cents. Many were free and in general they did not have all the features of iBird and were nearly devoid of depth of content (It was starting to feel like we were in the boutique coffee business; selling a mocha coconut frappuccino in a market that was use to buying a tall cup of joe.) To make the backyard bird product more attractive we added an additional number of popular birds taking it to 234 species and lowering the price to $2.99. We changed the name to iBird Backyard Plus and finally hit the sweet spot – sales picked up to the point it became one of our best selling apps.
The Real Cost of Apps – Starting with Apple
Let me toss some cold facts on you about the profit of Smartphone apps. There are lots and lots of people who have their fingers in the pie. First you have Apple taking out 30% of every sale. Now I am not complaining when you consider what Apple does for their third: they host the app on their servers and always provide a wide bandwidth on the net for you customers to download it. (For Android Google doesn’t let you have apps larger than a megabyte and iBird is almost 500 megabytes so we have to host our database on our own server). Apple also interfaces with the customer and there credit card collection, cutting down on a ton of support and collection issues. And Apple provides a great market place for your app in the App store, meaning that you don’t have to worry about people finding your app. If they know how to type “birding” into the search box your app will appear.
The Hidden Cost of Development
Most of our customers have no idea what it costs to develop an app. First you have to get the content together. That means artists to paint the illustrations, writers to create the text, editors to review the writing, testers to make sure the text is correct. Art is expensive and will be the subject of an entire other blog but for now just keep this in mind: feathers are one of the most difficult objects in the world to paint realistically. Very few people are good at it so that narrows the number of painters down to a small group.
Then there is programming of the app. You have a lot of people calling themselves iPhone developers today but let me tell you a secret. Very few of them can write good code. I lucked out and found myself a very good developer early in the game. But I also gave him a big advantage which was we had a complete working version of iBird running on Windows Mobile platform. So he could see how we did things and at least had a clear specification of how iBird should work. We also gave him another advantage; the entire content for iBird lived in a time test SQL database on the web called Whatbird.com. Therefore all he had to do was write code to take the contents of the database and display it on the screen. Not a trivial job but at least one that was manageable.
Next we have to pay the people that test the app, plus the people that manage the entire process of content creation, and then there is the need for accountants, and attorneys for the contracts. Perhaps now you get the idea; app development is very expensive. I wont give you our profit margins but I can tell you this much, its not anywhere as lucrative as I had expected.
But You Only Sell Electrons
I’ve heard this argument a lot. In fact recently an attorney told me “you are not publishing anything material like a book or a CD ROM so your cost of goods is zero, therefore your profit margins should be huge.” My answer was “in your dreams.” The truth is all the costs of development for something like a book are put into the hands of a single person; the author. Sure you have editors and production people but they are only responsible for managing words created by a single creative writer. Software on the other hand is a complex synergistic hyper managed process with all the costs I have listed and this makes the it 10 times more complex and more expensive.
Licensing and Royalty Costs
Additional costs come into play for things like bird calls which in our case we license from the Macaulay’s Lab of Ornithology at Cornell University. Other licensing costs can be in the photography, illustrations, and other areas of content. You may also have to pay royalty to programmers and artists, depending on how you negotiate your payment process.
If you want to make sure people know about your app you can’t just rely on word of mouth. You need to attend shows like MacWorld, which are very expensive. We have been to Macworld in San Francisco two times and we will be there again in 2012. Magazine ads, Internet advertising, brochures, and other materials all cost money to develop and print.
One More Critical Element
So now that you know a little about the expenses in producing an app. And for this entire formula to work you need one more major ingredient to avoid bankruptcy: success. Success in apps is getting tougher every day. When we started at the end of 2008 there were 5,000 apps. Today there are close to 450,000 apps on the iPhone and thousands of new apps everyday!
A few months after iBird Backyard was out and we understood all the costs I have described above, we realized there needed to be a way to get people to discover our apps without spending the money to buy them. Sounds like the impossible dream but there is a way. We called it iBird Lite. We gave it all the features of iBird Plus but just 30 birds, which was enough to get the idea across and help people make a buying decision. As soon as we published our Lite edition it’s downloads were huge. We saw an immediate jump in overall sales. After welcoming iBird Backyard and iBird Lite to the family we had 8 versions of iBird for the iPhone. Time to stop?
Tune in tomorrow for our next installment: iBird Pro and Whales.