It turns out that mobile app acquisitions aren’t just for the Instagrams and Casey’s Contraptions of the world. In fact, pretty much any developer can be part of this emerging second market for apps.
As selling the full ownership of an application is still a really new concept we wanted to help you understand some of the most common use cases we have seen over the last 8 months. After conversations with nearly a thousand developers and a deep study of the market, we came back with six major reasons why a developer would sell their app (i.e. ownership, code, users, IP, etc.).
1. They have a “better” idea
Many developers launch an application with the hope of making a million dollars (if not more). Often times when that doesn’t organically happen, they will move on to the next idea. The funny part is that a lot of the time, the developer will have actually built a really solid app. However, as their interest or motivation shifts, selling their app provides many developers the necessary capital (and time) to devote to their next project. Selling is an unbelievable stepping-stone to a potentially bigger and better destination.
There are plenty of poorly designed apps out there with little to no hope of success. On the other hand, there is also a sizeable chunk of apps that are incredibly well built and simply haven’t taken off because of insufficient marketing. Poor marketing isn’t necessarily something to be ashamed of; after all, more than half of developers set literally zero dollars aside for it. But marketing is absolutely key for an app’s success – just think how a successful business is dependent on solid performance from both its technical and non-technical counterparts. The good news is that a unique, incredibly well designed app that just hasn’t been put through the paces has a greater valuation potential than one that has and fell short. Good things happen when savvy buyers with great distribution networks come in and buy a great, silent app for a fair price.
3. Someone else can do better
This one is actually my favorite use case. A lot of blood (and well, Red Bull) goes into developing apps. These apps are not always defined by their download numbers or rank history – developers really care about their work. And while every mobile developer who creates an app wants to be the one to take it to the top, in many cases, it’s just not likely, if at all possible. If you have a second, read the Casey’s Contraptions acquisition I mentioned in the beginning of this post. What’s moving about that acquisition wasn’t the fact that Noel sold his app to a buyer with a huge checkbook. Noel knew that Rovio was the answer to putting his app in the hands of millions and making the absolute most out of a creation he could only take so far. (Note: he also cites reason #1 as a huge influence for selling.)
4. Sell high
Sometimes it can be very difficult to see beyond the moment. It’s why older, happily married couples laugh at newlyweds. It’s also why the average person who invests in the stock market ends up losing money. Most people who invest in stocks, think the high points will never end, and that eventually the downturns will stop. End result? Most people ride their stocks to 0 because they can’t see past the honeymoon period.
Surprisingly, owning a mobile app is very similar. As an Indy developer, you might fall into the awesome situation of getting a solid push for your app, whether it’s from great press coverage or even a feature on the AppStore! But then it gets hard to see past the big checks from Apple. Most developers forget that sustaining this user base and level of traction requires even greater levels of time, money, and experience. If they can’t live up to that, they’ll end up leaving a lot of money on the table. By selling at the right time, they make the most and transfer over all of the risk of further success at the same time.
5. Risk management
Bridging off the last point, selling one (or many) of your apps to specifically combat risk is a quite real and powerful strategy used more and more by developers here on Apptopia.
Developers come to market with large portfolios of apps. Much like an investment portfolio, it’s important to constantly be evaluating your investments to make sure you yield the greatest overall return possible. In fact, one of our own sellers said it best, “Selling apps, for me, is a way to recycle the apps that don’t fit into my business model…it’s a terrific way to mitigate my own risk while providing a really valuable tool to someone else.” There’s nothing like getting paid to trim your own fat.
I saved this one for last as you would think it’s the most obvious, but it’s actually not! Mobile app developers have an inspiring amount of passion. Their work often creates a certain emotional connection that can only be compared to that of a childhood stuffed animal. But the bottom line is that developers do what they do to make money…and most of the apps out there simply don’t. One reason is that after a developer’s app gets installed (if it ever does), chances are that he or she are monetizing only about 10% of the users. When they sell an application, they’re monetizing 100% of the users, as well as 100% of the application. Even if their app makes no money, it’s still worth something.
Here’s some simple math. Apple and Google charge 30% on every dollar you make through them. I can’t speak for other services, but Apptopia only charges 15%. So if you make $10,000 in app sales through either Google or Apple…you get $7,000 (over the course of months and months). But if you sell your app for $10,000 on Apptopia, we send you a check within 7 days for $8,500.
There’s something to be said for putting money in your pocket up front. This way, a developer won’t have to wait 9 months to a year to accrue it, and can hence put that money to more effective use today (reason #1) or simply ensure that they get that money (reason #4/#5) without having to go through the hassle and cost (reason #2) of upkeep. There are instances where an acquisition will actually produce more money than the app has ever produced in its lifetime. No-brainer.
An Exit for Developers
There are still plenty of other reasons that developers have approached us to value their application and help them sell it – but these are the most consistent. Just like business owners, developers are looking to exit at one point or another. While an acquisition may not result in millions, or even thousands, we’ve seen it provide a gracefully exit for developers, putting more money in their pocket than they otherwise would have.