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If you are an iPhone or an Android user, we are sure you have also had the forehead-slap moment when you tried an app and wondered why in the world had you not thought about it? If you also paid for that app, we are sure the slap would have been much harder because you probably just made that app-maker a better businessman than you.

The business of apps is a real one, no matter what the dinosaurs from the bricks and mortar days tell you. There is real money to be made over a long-term period. Successful, sustainable businesses are already there based on nothing more than one or two mobile apps. If you were to ask any of the market research guys, you’d get the billion dollar outlook, which would vary depending on who you ask.

According to the most authoritative voice in the market, that of research firm Gartner Inc., apps downloaded from online stores will be a Rs.2,61,000 crore worldwide business by 2014, up from the Rs.23,400 crore spent on apps in 2010. In 2011 alone, there will be 17.7 billion app downloads this year, more than double the 8.2 billion in 2010 across platforms.

Another prediction, this by Markets and Markets, the total global mobile applications market is expected to be worth Rs.1,12,500 crore by 2015 up from about Rs.30,600 crore in 2010. Whichever prediction is closer to the bull’s eye, at least we know there is a billion dollar pizza on the table. Now, what is stopping you from taking a slice?

An idea is all it takes
Apps represent the fastest-to-market opportunity even if you are nothing more than a serial thinker of ideas. Your idea could be anything—perhaps you want to do something for Indian med students studying in Russia; or want to spread your love of Bengali food into homes, or want to take Indian board games to kids overseas, or even make a Pacman 2020.

Apps are not the toughest software you would ever develop and make a business around, once you know your idea. A good example to give here would that be of David Estes, a University of Washington student, who created SoundNote last year, a Rs.225 iPad app that lets you take audio notes.

As a budding journalist, Estes knew the pain in going back into your recordings and looking for a detail you might have missed. Since SoundNote matches your notes with the timeline of the audio recording, you can just click on a word in your notes to jump to the related point in the audio. Estes developed this app solo with just a lot of tinkering around and nothing more.

In the end, it is about finding your sweet spot. Much like Estes, whose practical experience directed him towards SoundNote, Pune-based Rolocule Studios Pvt Ltd was founded on the back of a love of games and fulfilling a gap in the games offered on the Apps Store.

CEO Rohit Gupta and COO Anuj Tandon were both avid gamers and techies who always wanted to make games. Thinking over their first product, they saw that there was no game for the sport of Squash on the App Store, while there were others for lawn tennis and table tennis. Touch Squash hit the App Store in 2010 and became one of the fastest downloaded racquet games.

Gupta tells us that their eventual aim with Rolocule is to make games for console platforms like the PS3 and the Xbox, and that the App Store represented an important stepping stone towards that aim. He agreed that the entry barrier to the business of making and selling apps is low, but the ceiling for success is high.

A ready route
According to Rohith Bhat, Founder and Chief Executive Officer of Udipi-based Robosoft Technologies, the best bit about apps is that your channel of distribution is ready. Robosoft is a maker of apps for the Mac
and iOS platform.

“Unlike with other IT products, you do not have to cross legal, marketing and sales hurdles of the aspirin-taking kind to get your product to the market,” he says. “In fact, once your app is published you effectively become a global player with your product,” he added.

Your app could be bought in Fiji as well as Finland if it works for people. And then the choice in channels of distribution are also so many. From two to three years ago, when you only had Apple’s App Store, you now
have the Android Market, Windows Marketplace, Nokia’s Ovi Store, BlackBerry App World and Samsung Apps.

However, the App Store is what new developers should always look at first, according to Bhat. “The App Store is the best platform for new developers to look at. The return on investment on an app for the iOS would always be higher than other platforms, given the demographic of the users of the iPhone.”

Bhat agrees that the Android Market is catching up with the App Store, solely because of the fact that the Android OS is now the leading OS among smartphone users by market share. “You cannot ignore it,” he says, adding that his company, which started off by making products for the Mac and now makes both iPhone and iPad apps, will soon venture into the Android market as well.

The OS market penetration that Google’s Android has achieved cannot be denied. As of July 14 this year, Google claimed that it was handling 550,000 new activations each day, far outstripping the 160,000 activations it was handling around the same period last year.

But as of May this year, the Android market had 3 lakh apps and had recorded a total of 3 billion downloads, as against the 4.25 lakh apps available on the App store that had recorded approximately 14 billion downloads. Does the skewered ratio tell you anything?

A report from the research firm Distimo also further panned out why for app developers, the App Store is still probably the best bet. Amongst the many findings on the report, one which stood out was that out of the 72,000 paid apps in Google’s Android Market, only two have sold more than 50,000 copies. Put that against the App Store, where all of the top ten paid Apps for iOS have sold more than that, and you get an idea where as a developer you should going first; perhaps Android second, and all the others only if you have the budgets to.

How does the moolah flow?
But that also begets the question of what kind of model should you look at once you have developed your app? As it stands, there are three ways you can make money with your app. The first is if you offer it free with in-app advertising.

This method is slowly catching up amongst new developers and it may have something to do with the growing clout of the Android OS, whose demographic is different from other users. According to the same Distimo report, in the Android Market, the percentage of all free applications that have been downloaded less than 100 times is 24.8 percent, while the same figure for paid applications stands at 79.3 percent.

This model would only work however if you truly have an app that will be downloaded in huge numbers, according to Rolocule’s Tandon. He gives the example of Angry Birds, the very popular app game that comes free now on Android because its volumes make its advertizing-supported model sustainable.

Indeed, as of last count this game from Sweden-based Rovio Mobile has been downloaded 12 million times just on the App Store where a paid version was available. On Android then, Rovio made the game free with ads and the game remains the top free app downloaded on the Android Market. Rovio recently said that it expects to make Rs.4.5 crore per month from its free version on Android.

Then there is the second version is the freemium model where developers offer their core product for free and then offer in-app purchases. This model works best for games where the developer will offer the gaming experience for free, but if you want a more enhanced playing environment, better features, and if you want the game to move at a faster pace.

This model comes directly from Farmville, the Sim City-type farming game whose developer Zynga is about to go public. Other good examples of this model are very popular games like Army of Darkness and Contract Killer. The good bit about these are that it the games are downloaded pretty quickly, but whether there is any traction in terms of purchases is depended on how addictive the game can be. It certainly worked for Zynga, though on the Facebook platform.

The most straight up way of making money though is offering a paid app, accompanied with or without a free version. If your product is really good and you are confident that people will pay for it, there is no reason you should explore other avenues at all.

According to Rolocule’s Gupta, the toughest question a developer must ask himself is if a user will pay for the app. “The best way to understand is to first check on what people are missing on other apps of similar types by checking on app reviews and customer feedback on the stores,” he says. “If you are solving a problem or providing something others are not, then your user will pay.”

Robosoft’s Bhat says that a good product will always be paid for and this stands true for apps as well. Bhat’s company has released three odd paid apps till now, all for iOS, which have been taking advantage of features lacking in the iPhone. For example, their Camera Pro app is an app that provides a zoom feature, which the iPhone camera cannot. The users lapped it up.

That free-paid bit
Offering a free version and a paid version both, like mentioned above, is very popular and many developers go for this model for their apps. The idea is to get their users to experience what they offer before paying up for a better version. This is a very popular model, but it is not one that is always recommended.

In this issue, Phil Libin of Evernote explains how making your free version is always the best way to go about it. If you try to limit the user in anyway, it immediately creates a negative impression, which will eventually matter in the long run, he has said. Evernote has a very handsome conversion ratio and it is done with a free version that on its own is good enough for almost everyone.

In a very popular blog post, Marco Arment, the founder of Instapaper which lets you save webpages for reading later, explained why he removed the Instapaper free version from the App Store and the problems going with a free-paid model.

Arment explained how when he once removed the free version from the App Store, he almost immediately sold more paid versions than before. In fact, very few people noticed that the product was gone. This was one direct reason, but there were many other indirect reasons why he dropped the free version.

For one, it created direct costs in terms on maintaining another version and the free version was always the one that would get the worst reviews, spoiling the brand’s reputation. He also found that nearly all paid-app customers went straight to it without stopping at free along the way, he noticed, further solidifying his belief that the product was good enough to stand on its own.

Rolocule’s Tandon and Gupta have had a mixed experience with the free-paid conundrum. Their first game, Touch Squash, saw the free versions being downloaded in above average numbers and reached the top ten game apps as well worldwide. However, the paid version did not sell as well. This dented them a bit as the developmental costs were high. Thankfully, they found a sponsor in Dunlop, a maker of squash equipment, which helped them sail through.

Tandon tell us their second app, Super Badminton 2010 however sold like hot cakes and they were able to break even on it within a three odd weeks. The experience they had with making their first app and
selling it had helped them and now they are much more confident about a new app they will launch soon.

Little jumps here and there
As we have mentioned earlier, the entry barriers to the business of apps is very low, and as such the challenges you would face are
not many in number. Indeed, it could be said that your biggest challenge would be getting the users.

However, there are still some small niggles you would face while developing your app if you went for it. Developmental costs of apps are not normally that high, but even then you can have some complex apps that may require a lot of funding. We all know that Angry Birds is pretty awesome, but it also took at least a million dollars to make.

A good chunk of this money goes into hiring and retaining talent. Rolocule’s Gupta tells us that getting coders for apps on a fulltime basis, as is needed by his studio is not always that easy. “Particularly, since we need game programmers, which are in scarcity in India.” On the flip side for him though, there are many game designers available thanks to recent animation rush.

Robosoft’s Bhat agrees that there is a shortage of talent in terms of programmers who can think beyond just coding and understand how the work they do will eventually present itself in the long run. “Coding anyone can do, but to do it beyond just a project and thinking of it in terms of design and user interface is what is required of programmers.”
Barring this, the business of apps is an easy started one, founders of both companies agree. All it needs is a bit of gumption, confidence in the idea, and an ability to think as a user first, and a developer second.

©Entrepreneur August 2011

Tags:
Android, Angry Birds, app, app store, application, business, customer, developer, download, Evernote, farmville, game, Gaming, idea, iPhone, Mac, marco arment, markets, opportunity, OS, phil libin, revenue, rolocule, Rovio, smartphone