Anyone can join a bandwagon as it rolls past
The iPhone / iPad hype is now reaching its peak, with a
flood over 100,000 applications to the iPhone App store, and a closed financial
system controlled by Apple, the market is effectively closed to new entrants.
“What?” You say, “have you gone mad? Apple has the lowest
barriers to entry and easiest monetisation of any platform, surely the ride has
just begun!”. We’ll I disagree. The ride has indeed begun, but only for a very
select few. Those few have some key attributes and are already in the market.
Their key attributes look something like this:
- at least one 1m user or more product
- at least 3% (and probably 5% or more) of their niche in the wider App market
- at least $20m in funding or available credit lines
- an ‘inside track’ advantage with either Apple or a major IP house
- they are working with strong partners for other services
Here is why each of those attributes are important.
Having 1m or more users means you can learn an
awful lot about user behaviours and user requirements. As ever, it is easier to
judge the market when you are in it.
Having a strong market share means you can set
the pace. At 5% of a market that is shared among some 125,000 developers
(rising daily), they are massively fragmented. Even a 5% share means you are the
dominant player, and your share will rise rapidly (the “diver’s bubble” effect)
past the competition.
Access to cash means you can make mistakes,
learn, and relaunch. You will have to, and probably already have, done this
several times. It also means you can advertise; and in a world where the ‘cost
of customer acquisition’ is headed to a $1 for a $2.99 sale, that is becoming
critical. Moreover, the fact you took that money gives you “the FEAR” as your
investors are baying for blood and whipping you on with barbed lashes. They
might even be helpfully brokering deals with major partners for you…
You need the inside track. It is no good
starting an iPad application now if you wanted launch hype – you needed to
start in January, which means you needed Apple to help you. Similarly, if you
want to avoid having to fix costly changes, you need to be right on the inside
track, at least 6 to 9 months ahead of all public announcements of movie
releases, hardware changes and other opportunities.
Profits mean you are masters of your own
destiny. I mean real profits here, the ones that turn into real cash within 12
months of earning them. Profits mean you have the confidence of suppliers (as
you pay them), staff (as they can relax and innovate), executives (as they can
plot their exits), and the media (as they will get paid for writing about you).
It is the largest mark of virtue in this space.
Having partners for other elements (payments,
user support, art, metrics, and so on) means you have a team looking out for your
interests, and that team is more agile that one company that tries to do it
all. In times of change, risk reduction and agility are part of the success
In bringing down the technical, financial and commercial
barriers to entry, Apple has massively increased the noise/signal ratio in the
area. New companies are increasingly finding that they cannot get heard. New
ideas are hard to find (“it has already been done”) and the customers have
become jaded grazers on a diet of 45-minute applications that are tried and
thrown away. The developer and publisher pay for that, and the customer pays
Advertising cannot save you (as your share of eyeballs is
asymptotically approaching zero%), and sponsors and brands are quite able to do
it themselves now. They no longer really need you. If they do need help, they
can get it rock-bottom prices as the sheer number of developers has driven
development costs through the floor (down from £50,000 in 2008 to £30,000 to
£5,000 per App now according to one private conversation about a specific sort
of App recently).
So, basically, I don’t think a new entrant can, after today,
come to dominate the App space. Well, not without $100m and some serious luck.
Given my biological bent, consider that Apple created a huge area of fertile soil (a market) on banks of a tropical river, downwind of a huge forest bearing fruit and seeds of software companies, then poured water (marketing and PR) and fertiliser (app tools and platforms) onto it. They kept out other farmers with a fence, but the fence allowed the wind and seeds to pass through.
Now, that market has already been heavily colonised, the first climax ecosystem is already evident as it grows and shades out the under-story. New entrants will find it easy to take root in the open soil, but will rapidly be shaded out and absorbed by the dominant species. Quite soon, the market will stabilise and only catastrophic change (analogous to a hurricane) will clear gaps into which new species can colonise.
All of which does not mean that I am recommending avoiding
the Apple App Space, quite the contrary. You can get in, attract attention,
make modest profits and learn a lot. But Apple is only about 14.4% of the OS
market space for mobile devices right now, and is merely doubling market share
year on year.
If you want to build a really strong business, however, you
are going to need to spread your roots into other spaces. Which means having a
strategy for deployment on Nokia, Android, WebOS, Microsoft Windows Mobile 7 and more.
It is up to you where you put your effort. Few, if any
start-ups can cover all the bases. Right now, however, you need to do some
serious thinking before putting all your eggs in one Apple basket.