President Obama Challenged
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(this piece also appeared on Silicon Alley Insider)
As a number obsessed techie and ex-management consultant, market sizing and research were a big part of my launch preparations for Exit Strategy NYC. Since launch, I’ve received many questions from people struggling to estimate the market for their iPhone app ideas.
I’ve put together this document as a guide for entrepreneurs considering developing an app. Below, I’ve compiled some up-to-date numbers about Apple devices. I’ve also laid out a framework for estimating what kind of sales can be expected from a paid app.
Right off the bat, there’s a few back of the envelope calculations to make: 54% of the 45M devices are in the US which means ~ 25M devices. The US has about 300M people. That means about 8% of the general American population has one of these devices.
How To Use These NumbersCombine this data with your own numbers about how large of a market your product is addressing. For Exit Strategy NYC, our addressable market consists of all subway riding New Yorkers. In 2008, there were about 5M weekday riders and about 3M Saturday riders [MTA's ridership numbers]. The Saturday number is the more relevant one as it better captures subway usage by NYC residents rather than regional commuters. Neither number counts unique riders though, and given that there are 8M residents of NYC our addressable market size is probably somewhere in between these numbers. Let’s say 6M subway riders.
New Yorkers probably skew more techie than average, so let’s assume 10% (rather than 8%) have an Apple device. Also, Exit Strategy NYC works on both iPhone and iPod Touch devices. If your app requires phone/gps/camera/internet to work well, exclude iPod Touch users from your calculations.
How many Apple device toting subway riding New Yorkers are there? Well 6M subway riders with 10% penetration = 600,000 potential users.
Entrepreneurs are optimists by nature, and it’s tempting to think that 100% of people will buy your product. After all, your product is awesome, right? But reality is a quite different story. In fact, only about 3% of users have purchased the most popular paid apps. To determine that number, I used sales figures from one of the all time best selling paid apps, Firemint’s Flight Control game. According to Firemint’s Alexandra Peters, sales to date have been 1.4 million. As a percentage of the 45M Apple devices, this is ~ 3%.
You should expect a similar upper bound of 3% to apply to whatever market vertical you’re addressing. Of course it’s possible that your app meets some crucial compelling need and therefore achieves a higher penetration rate in your vertical. But don’t count on it — it’s equally possible that your app gets lost in the noise and can’t get traction. Flight control has held a constant spot on the top paid app list for months now. Few others have this advantage.
Returning to the Exit Strategy NYC figures, we knew that if we had an effective marketing and press strategy, we could probably achieve something close to this 3% penetration figure — perhaps higher as many New Yorkers are very passionate about the subway (see? there’s that ever-present entrepreneurial optimism!). 3% of the 600,000 subway riding devices would mean 18,000 unit sales. Does this translate to $18,000 total sales? Our maximum penetration figure was based on a 99c app, but what effect would Exit Strategy NYC’s $1.99 or $2.99 price point have on total sales figures?
Factoring in price into market sizing is difficult. Based on our own informal market surveying, we estimated that the most profitable price point would be $2.99 or $1.99. Around 75% of people willing to pay 99c would also pay $1.99 or $2.99. So 75% of 18,000 units at those prices works out to an ballpark range of around $27k – $40k. Like all software, the app’s unit costs are zero, it’s important to focus on maximizing dollar sales rather than unit sales.
One thing to remember is that the user base for apps is growing by leaps and bounds. In their latest quarter, Apple sold 5 million iPhones and 3 million iPod Touches. This means that the potential market for an app grew by more than 20% in only 3 months!
One last thing to note: The iPhone certainly dominates headlines, but it’s not the only game in town. In fact, Blackberry outsells the iPhone every day. And in a town dominated by Wall Street, it seems like everyone and their mother owns a Blackberry. Realizing this, we carefully designed Exit Strategy NYC to be easily portable across different mobile platforms. Our app is available for iPhone, iPod Touch, Blackberry Bold, Curve, and Storm, Android Phones, and even as an e-book on Amazon Kindle. Combined, the Exit Strategy App reaches a significant portion of New Yorkers.
But are device sales a good indicator of a platform’s expected app sales?
04.17.09, 6:00 PM ET
As the iPhone App Store swells to more than 30,000 applications, mobile app analytics firm Flurry has some advice for iPhone developers: treat applications like songs.
Like a song, a standout mobile app needs a good artist, a good producer, a strong distributor and plenty of promotion, says Flurry President and Chief Executive Simon Khalaf.
On the iPhone, Apple ably fills the role of distributor. The developer is, of course, the artist. The other two roles–production and promotion–often get skipped as an app rushes to market. But Khalaf argues that expert guidance from firms like Flurry can make or break an app, much the way a seasoned A&R team guides the launch of a new musical act. The payoff is potentially huge. Khalaf says a developer with two best-selling apps can make as much as $10 million to $15 million over the life of the apps if they are well-marketed.
There are plenty of start-ups focused on making iPhone apps pay. Flurry differs from others in a few key ways. A former developer itself, it is smaller than rivals like AdMob and Pinch Media. Unlike those two firms, Flurry does not connect developers with advertisers. Instead, it focuses on “deep analytics” for apps. Khalaf, who likens the firm to a Google Analytics or Omniture for mobile content, says, “We enable developers to build better apps by helping them understand how people are using them.”
So far, about 5,000 developers, representing 3,000 apps and several mobile platforms (iPhone, Google Android, BlackBerry and JavaME) have signed on. Flurry’s main focus is the iPhone, as most of the applications it supports (about 72%) are iPhone-related. (See “Gaming Apple’s App Store.”)
Like songs on iTunes, sales in the App Store are hit-driven. Rapid turnover–around 130 new apps a day–means the average iPhone app or game sells strongly for just three months, often peaking four to six weeks after launch.
Flurry’s job is to push that abbreviated “sales curve” up and out with its software, which is free and embeds easily into existing applications. “People mistakenly think of the App Store as a marketing machine because it’s a virtual store,” says Khalaf. “But just like in a store, consumers get fatigued and lose interest.”
Reaching out to consumers is one way to increase sales. Flurry helps by telling developers when to contact their users to yield the best results. The developer of a free game could program a message to pop up at a certain point that would encourage players to purchase one of its paid games. Flurry’s software assists by tracking when most users stop playing a particular game–on level 5 in a 10-level game, for instance. Developers can use that information to serve up an invitation at the appropriate moment. Flurry says some developers, including a videogame publisher with a casual puzzle game, have already adopted this tactic. Flurry estimates that a well-timed invitation could increase weekly revenue for a particular app by as much as 40%.
Developers with only one app could use the same tactics to promote other people’s apps, for mutual benefit. In June, Flurry plans to add a feature to its service called AppCircle that would launch a menu of agreed-upon apps within the original app for this purpose.
Established publishers like ngmoco, Digital Chocolate and Gameloft do these kinds of cross promotions already. But small and mid-sized developers traditionally haven’t had the resources to do this. Flurry also plans to provide its developers with additional data, such as which apps garner the most interest from users, even if they ultimately don’t purchase them.
Flurry’s second rule for success: get as many users as possible to rate and review apps. Currently, iPhone users are prompted to do so (by the App Store) only if they are deleting an app from their handsets. Peter Farago, Flurry’s vice president of marketing, says developers should solicit feedback well before that point. Even a negative review, he says, is better than no review, reasoning, “You want to seem popular.” (Another Flurry observation: most apps in the App Store are rated, overall, three out of five stars, with paid apps garnering slightly higher ratings than free apps.) Similar to the games invitation, Flurry’s software will be able to help developers pinpoint the optimal time to ask users to write a review. The idea is to catch them in a good mood–after they finish a game level or complete a scheduled task, for instance.
Under the same philosophy–that getting noticed is the most important step–Flurry also plans to support viral invitations by June. Farago says developers could design apps that give users points or other incentives for inviting people to download and try the same app. Or they could just build in prompts, with Flurry directing where to insert them. Such tactics are rare now, but in the new, multi-tasking version of the iPhone operating system (3.0), slated for official release this summer, e-mailing friends from within an application will be easier than ever.
The iPhone’s 3.0 upgrade will also enable developers to sell subscriptions to their apps. Farago says Flurry will help developers decide whether to offer subscriptions by measuring the size and loyalty of their audiences.
Flurry plans to support all these services with its analytics data, which measures everything from the number of times consumers use an app to how long they use it, and their location (by country). Several features go deeper, tracking how users navigate apps, logging each move they make in sequence while keeping the data anonymous.
Khalaf says Flurry’s combination of data and recommended actions benefits developers (who stand to make more money), Apple (who will sell more applications) and Flurry itself (which plans to charge for data and research reports outside its basic analytics). But some of Flurry’s competitors say the firm’s service isn’t complete without some type of advertising partnership. Says Greg Yardley, co-founder of Pinch Media: “If I didn’t touch the ad world, I wouldn’t be doing my job as an analytics provider.”
