The only business models I want to work on any more have some mass-market component that is absolutely free, and a niche companion product that makes money off of the exhaust fumes of the mass-market component.
The last two businesses I started are Stack Overflow, which is free, where the careers business on the side makes money on the small fraction of Stack Overflow users who are looking to get better jobs, and Trello, which is free, but the business of providing administrative tools to large organizations using Trello can sustain the whole business.
This is more than just "freemium" or "advertising-supported." Freemium and Ad-supported business models are special cases of this general model. The real insight is that the free product has a chance to reach an enormous audience which provides distribution/advertising/marketing making it trivial to go to market with your paid product.
What Marco is reporting here is that the old-fashioned "make something and get people to pay for it" business is much harder to pull off and likely to always be left in the dust by someone making the same thing for free, getting 100x the user base, and getting 1% of them to pay for some value added feature.
Demonstratively, you are right, as you have shown with Stack Overflow and Trello. But, I think it will take a while for developer mindset to adapt to this new idea. While in reality it may be more difficult to execute on the "old-fashioned" model, in concept it seems much easier to approach. I build something, and then people pay me for it, simple. The new model of I build something, give it away for free, and then come up with a way to make money from a niche part of that seems like a huge risk to take, especially for someone who has not had the previous successes that you have had (using the old-fashioned model) and so doesn't have the same reputation, connections, and capital to support their new venture.
Right. It's not so easy to pull off for someone bootstrapping (but then again, rich players / people with audiences / people with social capital will always have an advantage, this is no different)
Agreed, it's completely unintuitive to a lot of software developers. I run a revenue API company for app developers to help them monetize free apps, and in three years, of all the paid app developers I've spoken with, exactly zero have initially believed me that free App Store apps can generate revenue to even approach the revenue they think they'll capture with a for-pay app. They don't realize that the avalanche of free apps is going to crush them like a Mack truck.
Common sense, creator's optimism, and B-school economics all suggest that paid beats free, I get it. But, sh-t's changed. Chris Anderson wrote Free: The Future of a Radical Price five YEARS ago, but I wish more creators and developers on HN took the ideas described there to heart.
On the other hand, many self-funded businesses are doing quite well charging for services targeted to non-mass markets -- for example, SmugMug (for professional photographers), FreshBooks (for invoicing & accounting), 37 Signals (for team productivity), etc. Some of these businesses are essentially one-person operations -- e.g., AppointmentReminder.org.
I would include FogBugz in this list.
"Make something and get people to pay for it" seems to works well for many vertical/specialized markets, some of which are quite large.
n.b. I'm honored to be included in that august company, but just to avoid people getting the wrong impression, Appointment Reminder is quite a bit smaller than every product on that list.
With regards to the larger point: there are many, many ways to successfully take money from customers.
If you want to build a business mostly on the $20 to $50 per month low-touch SaaS model, you can do that, quite successfully. (ConstantContact, 37signals, SmugMug, etc)
If you want to build a business which addresses customers with low-to-medium touch sales and costs between $25 and $X,000 per month, you can do that.
If you want to build a business which dogfights for $75k to $250k a year enterprise deals, you can do that. (Welcome to the world of boring enterprise software, where there exists surprisingly little visibility since the relevant people don't blog so often, but it basically makes the world go round.)
If you want to do a hybrid low-touch model in the $20 to $50 space, mid-touch in the $X00 to $X,000 a month space, and high-touch in the Enterprise space, you can do that, too. (Some companies move there after discovering that the mathematics of the low-end model are a bit painful if you happen to hit constraints on e.g. market size.)
Point being, these are "old" business. If you are starting something today with all the hundreds of thousands of free apps and freemium based models, the same lessons would not apply.
All of these are also apps for businesses, not casual entertainment for consumers. Also, they are mainly delivered via web, not Apple or Google app stores, which makes it possible to offer a time-limited free trial with no free plan.
I'd hypothesise that both of these are more important factors than being started in 2003 vs 2013.
For a freelancer, $100/month is a good deal if it allows you to get a few more billable hours per month. For a larger established business, $500/month is pocket change that nobody will even notice (and the customer who signs up isn't even spending their own money).
>What Marco is reporting here is that the old-fashioned "make something and get people to pay for it" business is much harder to pull off and likely to always be left in the dust by someone making the same thing for free, getting 100x the user base, and getting 1% of them to pay for some value added feature.
Joel, do you see bootstrapping as viable in your ideal market or does it become a VC only game?
Stack Overflow benefits from network effect, and in the "sharing economy" of people contributing their knowledge in exchange for "internet points". Thus, you do generate value (not necessarily monetarily) off of even free users, if they contribute to discussions.
(I can't speak to Trello as I haven't needed/used it)
I'd argue that the success of the IAP model used in the app stores is much more of a response to the lack of free trial versions, which is kind of like the drug pusher "the first hit is free" sales method...
But it's worth warning founders that choosing where to draw the line between free and paid is the life-or-death tricky part, and it's not always obvious.
I would go even further and say that this model is a special case of the more general advertising/marketing model of "Give Valuable Stuff Away For Free". As an example at a smaller scale, content marketing (in terms of blog posts, videos, pdfs, and other informational content [1]) is a great way for businesses to get eyeballs on their page and establish themselves as authority in a particular subject.
This even works on an individual level. I would say that contributing to open-source development on Github is a great way for individual developers to "Give Away Valuable Stuff" and in term become more visible and attractive to respected software businesses who may want to hire them (as full-time employees or freelancers).
What are your thoughts on say something like a video course? i.e giving it away for free and doing an upsell on consulting or stick to charging for the course?
That's the twitter/blog model for a lot of people. They give away really great content, build their brand, and then hold conferences/sell t-shirts, etc...
The only challenge with that is you have to be really skilled/gifted to get traction in a very noisy environment.
The other challenge with something like "consulting" - is that you don't get a lot of opportunity to scale - you are limited by the number of hours a day you can work (as opposed to conferences, where you are limited to the size of the venues you can book/fill)
>The other challenge with something like "consulting" - is that you don't get a lot of opportunity to scale - you are limited by the number of hours a day you can work (as opposed to conferences, where you are limited to the size of the venues you can book/fill)
Ideally, you do both. One fills in the gaps for the other depending on the cycle of product/service you are in.
I did what you outlined in the first paragraph in a niche market. I have huge foothold, though it took me 4-5 years to get here, and there's a lot of upward mobility to still be had.
I travel a lot during the fall/winter for conferences and large group projects, and do a lot of consulting during the spring/summer. That tends to be how my industry cycles.
IMO, you want to have a broad service offering behind a veil of a major product. For example: Giving talks and conferences is my main product, fueled by a book/DVD set. Profit margins are highest there and scale well. However, this just doesn't work for certain segments of the population, so doing high-priced consulting to pay the light bills is always good - or my current strategy: Doing consulting for a discounted rate while taping the conference for later use in products.
Yes, the brand value approach I understand. Thing is, I don't really want to upsell to events and I agree regards consulting not being scalable, but i have a dilemma regards pricing for my course.
You know best - but don't overlook the possibility of in-person training for groups. It's halfway between an event and a training course.
I just spent a couple weeks with 7 other people learning about Cisco Routers from a single instructor - Total cost was $7300 each - so, $50K for a two-week class.
There's really good money in in-person class training.
The kicker is that this plays really really well with established companies. Pretend you're hypothetically a Cisco Routers consultancy. Parachuting into a random company and solving their Cisco Routers problems requires a very experienced consultant, both in terms of technical mastery and in terms of soft skills like interfacing well with clients' technical staff, dealing with political problems where you have imperfect background of who the key players/concerns are, and generic client relations.
Presenting about Cisco Routers (after the presentation has been substantially pre-written) and talking about them intelligently in response to audience questions requires a more limited, and far less expensive, skill-set.
This allows operating consultancies to do training offerings using more junior staff than they use for their consulting offerings, but to sell them at rates and quantities pegged to their consulting reputation rather than at the rate/quantity suggested by the person who will be tasked with delivery. And customers will often be quite thrilled, because training existing employees is often far, far cheaper than hiring pre-existing experts on the open market.
(There exist many other ways to do it. Pure-play training companies exist, for example, and there are companies which focus on synchronous online training, asynchronous online training, hybridized models, etc etc.)
Yes, just went on the similar thing for Elasticsearch - and a number of my colleagues did the same. It was around $800/day, and the class was about 20 people - so there's definitely some money in it.
Totally doable. People are very willing to pay for personal training as a supplement to a video course. I've done this before, except I also charged (much less) for the non-hands-on part, but the far more expensive 2 hours of one on one training sold out first.
Another interesting example in this area is Michael Hartl with http://ruby.railstutorial.org/ which is now perhaps the most popular Rails tutorial out there. You can read it all online for free but he makes very good money selling the PDF and screencasts of it.
Hmm. My course is on Udemy (i didn't want to create my own platform). I've got over 1.5hrs of video content, worksheets, examples, quizzes and live workshops. I'm struggling to quantify the right amount to charge for it.
>Everyone outside of the immediate Apple tech sphere assumes, since I make apps for iOS, that I work for Apple.
Interesting. I've never heard anyone having this misconception. Everyday people seem to know that app developers are completely different from Apple or other mobile phone manufacturers.
I think one of the main reasons it's so hard for new developers to make money is that -- as has been said so often -- discovery is broken on the App Store. The "new" category basically doesn't exist anymore, and even if it did there are a ton of new apps being released _daily_.
For everyone's complaints about Apple's stringent review process, there's a ton of crapware on there, which makes customers really hesitant to buy.
In [some] ways you're better off charging _more_ money and targeting a highly specific user base. Then you at least have a good shot at reaching the top-grossing lists in niche categories and gaining visibility.
Edit: to be clear, there's a lot of different types of apps and the free or IAP route can be the right choice. But, IMO you need something that has mass appeal if you're going to rely on converting small percentages of free users to paid users.
I disagree. The issue is not exposure to customers, it is the mindset of customers. The market has matured as smartphones have become ubiquitous and free apps have come to dominate the market. Direct sales have simply faded because they are less lucrative at the highest level, and users have re-based their perceptions around that. Even if you could get your paid app to the top of the charts and attain maximum exposure, you would still make less than if you had used a fremium or ad-based model. Why do you think all the highest-grossing apps are free?
I don't think this is a particularly surprising phenomenon. People work very hard for their money and have far too little of it. If they can get something for free, why would they not? Moreover, if everyone else is distributing their thing for free, why on earth would people pay for anything?
Money is valuable because it is scarce, and if people can avoid paying, they will.
While I agree, I think the bigger aspect of maturity is people understand their own usage. In the beginning it was cool to pay a dollar to try a new app. Now people have learned their lesson and understand the value these apps are quickly fleeting. They will open an app maybe 1 or 2 times and never find it useful again. This goes for games as well.
Free apps that target massive volume are unquestionably the heavy hitters, but a point I was making was that there can be a value in targeting a niche market with a paid app.
A moderately profitable app can give an independent developer the runway they need to bootstrap and follow up with more mainstream ideas.
It's not just discovery. The land grab is over and established apps are well entrenched. There was a huge first-wave advantage for mobile apps. We just barely caught the end of it ourselves, so we're doing ok.
The quality apps will always stand out. I'd tried a bunch of note taking apps before vesper came along - and it put them all to shame. I think I've tried every podcast app out there - and they are all really, really cruddy. I spend 10-15 hours a week with iCatcher, and it reminds me of my Palm Treo 650 - It's the best of the bunch (for me), but it still manages to seriously annoy me every time I use it.
If marco gets good traction with his design team (Pacific Helm again?), I'm sure he's going to blow away the "quality" podcast-player market. Only problem is, the market for people who are looking for quality podcast players is probably in the tenths (or even hundredths) of a percent of the iOS users.
But, if he makes Overcast free....
I'm very interested in seeing how he manages to In-App charge for a free podcast player.
I never understood why in-app purchases have been branded as "evil" in the first place. As long as Apple doesn't offer developers a way to do trials, it's the closest way a customer can get a taste of an app's features, esthetics before deciding whether to pay or not for an app.
EX : I wouldn't have paid 10$ for flighttrack pro without the in app purchase option.
I would go as far as theorize that the main reason why the average price for an app has remained stuck at 1$ is exactly that fear of paying for something worthless without much of a recourse.
It's not In-App purchases, per se that are evil - I've spent around a hundred dollars on new levels (great use of In-App purchase - you reward the developer for creating new content), new tools, new capabilities in the last few years (much less than the the close to a thousand dollars in "up-front" app purchases I've made) - and I think I've gotten real value each time.
What's truly evil, is the cognitive manipulation that "free" games engage in on those who are most vulnerable to those manipulative techniques. The "Candy Crushes" of the world.
You want there to be a virtuous circle, in which developers are rewarded for creating new, and improved apps; not for buying extra boosters so you can clear the jelly without developing the skill required to (or wait long enough for an easier level). How stupid do you feel purchasing "Diesel" for your "Tractor" in a game? Particularly when you consume it and just have to buy more diesel to continue at any reasonable pace.
That's the evil part of In-App purchases - I can show you a dozen places where In-App purchases and/or subscriptions have been very well executed to the benefit of everyone. (LetterPress, Flickr, Whatsapp, Path, evernote, Pioneer Lands, Paper by Fifty-three - just to name a few)
It would be more helpful to show examples where IAP/subscriptions were well executed by your standard and still made it to / stayed in the top grossing list.
ghshephard gave a good answer to the question "why do many people consider in-app purchases evil".
However, there is no doubt that "evil" approaches are more profitable than the doing the right thing.
Techniques such as the ones described in http://www.gamasutra.com/blogs/RaminShokrizade/20130626/1949... are very effective, and developers who do use them are likely to make more money. But that doesn't mean that any means necessary to make it into the top 10 grossing apps list must be considered ethical.
IAP in general is fine, but a lot of these apps are bait-and-switch. They do not make it clear up-front that unlocking critical features requires payment. Games are the worst. There are so many "free" games which simply do not allow you to have fun without spending money. They claim to be free, but then it turns out you have to grind pointlessly unless you pony up the cash. It's gotten to the point where I won't bother with any free app that's listed as having IAPs.
I much prefer the "Lite" model, where you basically have a functional demo for free, then a separate paid app. Offer the paid features in the "Lite" version as an IAP too, if you think that helps.
What it comes down to is that a good transaction should be a net gain for both sides. I give you money, and in exchange I get something that's worth more to me than the money I give you. We both win! But the way many of these games are done, the creator deliberately makes their game less fun in order to make it more lucrative. It's no longer mutually beneficial. Rather than adding value to get more money from me, they actually reduce value to try to extract more cash.
Seems like an argument for a sensible trial system, not IAP. I've got no problem with using IAP for a sensible trial system, but it is much more commonly used for smurfberries.
Flip-side on the IAP suggestion: I despise ads, but if I have an app with ads I can't bring myself to buy an in-app purchase to remove them for an app I probably won't use that often. Whereas if the app was just $.99 to start with, and it looks decent, I'd happily buy it even if I don't use it much.
I wonder how this attitude would differ depending on whether you're an early adopter of the technology or whether you're just getting your first smartphone. I come from the Mac sphere where it's entirely reasonable to spend a lot of money on a good app (I'm considering paying $90 to upgrade to the latest OmniGraffle for example), so buying apps on a phone where most are super cheap doesn't seem so bad to me.
Either way, I think losing the paid app market is a Bad Thing. Quality apps are expensive to make, but I have an expensive phone; I don't then want to load it up with cheap, ill-designed apps. It doesn't matter how good the phone is if the apps are crap.
> I don't then want to load it up with cheap, ill-designed apps.
The depressing thing to me is how much of a minority thing this is. It's not platform-specific; Android sales have always lagged iOS in general, but the aggressive ugliness of Android apps and cheapness of Android users (don't get me wrong, fellow Android people, I use them as my daily drivers, I prefer them) has now just made the jump to iOS.
People say they are willing to pay but more often than not they look not to pay. Same as airlne tickets. Everyone complains the service and quality is terrible yet everyone is always looking for the cheapest price. It's the real consumer behavior drives the markets rather than our idealized behaviors ;)
Without reliable (and valid) data about service and quality, it is impossible for consumers to make intelligent purchasing decisions based upon those criteria. Without differentiation in the market along those criteria, there is no decision to make.
We cannot really know how many customers might make such decisions because such information is not readily available. Even when the information CAN be found, there is a cost to finding it (i.e., in time and inconvenience, usually). As best I can tell, there differences in quality across airlines is very low, and they actively try to hide information about prices.
Might app users be more willing to pay for apps if they REALLY knew the $1 or $2 was better than the free version?
It appears to me that this behavior is a rational response to a lack of reliable information. IAP purchases come after the customer has tried out enough of the app to have an informed view of its quality.
I general Marco's points seem accurate, except for the first one. I've mentioned to many people that I build iOS apps and never have I had someone assume that I work for Apple. There are certainly various misconceptions about the app business (ie. it's an easy ticket to millions), but assuming I work for Apple is not one of them. These are "regular" people that have no knowledge of the Apple or tech sphere, other than owning a smartphone. Doctors, teachers, retail employees, elderly relatives (who have no idea where I work), all sorts of different people. There is definitely some interesting psychology going on with regard to the amount anyone is willing to pay for an app, but I really don't think believing the developer works for Apple has anything to do with it.
On Windows Phone, every app has the ability to offer a free "trial" version. So you can make a paid app, but still let the user try it (with less features, or ads). I think this mechanism is ideal.
Windows Phone has the best mobile programming environment there is. The tools are much better than anything you can find for iOS and Android. I know, I programmed apps on all major platforms.
So is it a developer success? I would think so. Is it a consumer success? Not really. But it's consistently gaining marketshare, and is becoming quite popular in Europe.
In my experience it's gradually gotten worse over time. Up until someone in 2010 charging people $1-3 up front worked well for me. Then sometime in 2010 it slowly stopped working as more of the 'top' apps switched to a free with IAP model. Consumers didn't want to pay up front for an app from an unknown developer when people like EA were giving their apps away for nothing.
In Europe, 2010 is when people lost their jobs because of the 2008 crash. I bet people like EA switched to IAP because they felt it was a way to bypass the newly-developed austerity mindset.
Is there anything in the app store TOS preventing developers from releasing, for example, free versions that are 14-day trials, that are upgraded to full version in-app, or else stop working?
I have nothing against paying for apps, but after having been totally burned a bunch of times, I refuse to pay for an app I can't even try out first. Lots of people say "just look at the reviews", but they usually don't tell you what you want to know -- it's not a substitute at all.
IMHO this (disallowing trials) is a big mistake. I very rarely would buy an app that I can't try. Of course I can afford to lose $1 or whatever - it's not the cost but the fact that I had been scammed what would infuriate me. It would only make sense for the app makers to turn my loss aversion against me - if I already used the app for a couple of days and liked it, now the choice for me would be "lose it or pay measly $2" - and that would be completely different game. Given that Apple exercises total and absolute control over the whole ecosystem, it could easily make trial system that makes apps free for 3 days (or 15 days if the developer chooses) and then makes them stop working until you pay. I think it would make Apple ecosystem much more friendly to the user, because frankly reviews are usually worthless and screenshots etc. are not much help either.
Time trials are not allowed, if they completely disable the app's use. Also restrictions such as limiting the number of runs are not allowed. Apps should have core functionality that does not expire. However, you can use In App purchase to let certain features expire and then charge to unlock these again.
There's really nothing new here. There was only a brief window during which you could immediately charge for mobile apps. Desktop software has relied on try before you buy for a while now. Mobile has simply matured.
Lately I have been thinking a lot about the giant leap of faith you have when installing an app. There is no free trial, and most apps you can't understand until you start using them. One of the biggest gaps is games - most promotional videos do not even display in-app activity.
I think most of us would pay for instagram and twitter now. I would have to think twice about it above 20$/month. I don't think they could get to where they are with a paid app model.
I tried out a few ways to solve this problem. Better app landing pages. Better app videos. Nothing works, apps are an experience. Also their utility skyrockets in certain situations.
Twitter is essential when something major is happening, like an earthquake in your area.
Instagram is essential when you want to e-brag.
Yelp is essential when you have a group of people deciding where to eat.
The barrier to pre-installing the app needs to be incredibly low, and the ease of use for a noob needs to be low.
I think its a little naive to think that users wouldn't jump to another network, if they started to charge. I think what mobile has proven is that the micro social networks are easy to start and can get big fast because of people reluctance to stick with a single solution.
On Android a common method is free / prime. A free version has basic features while a paid prime apk acts as an unlocker for advanced features.
Haven't heard of removing a free app and replacing with a paid. That doesn't make sense or work for anyone. That free app is an essential promotion. The only downside/difficulty is all the user support. Free users can be pretty rough.
The two removals mentioned by marco in his article were not a case of removing a free and replacing with a paid. In one case, it was removing the free competition to an already existing paid application. (Only works if there isn't other free competition in the market)
The other case has started to really annoy me - it's where developers are starting to remove their version 1 application, and replace it with a version 2 which you have to purchase. The only problem with that, is if you were perfectly happy with version 1, you can no longer migrate it to your next Laptop/iPhone - because it's been removed from the market. Somewhat defeats the value of keeping your content in the "Cloud" - you are back to square one where you have to have local copies of everything because you never know when the developer is going to yank your functional version.
You can transfer the apps from iTunes even if they are no longer available. You can even keep old versions if you copy the .app files or rescue them from the recycle bin after the updated version is available. I suspect you can only install them on devices attached to the correct account and I'm not sure what happens with the Mac App Store (or Google Play, Windows store etc.)
It's all about value-add really regardless of whether someone assumes it "comes from Apple" or not. If it's obvious what the value-add for your application is in the app store, then pay-up-front works. One problem is, 5 screenshots and non-rich text descriptions really make that hard.
To the App Store developers out there: is it even worth getting into this market? I've dabbled in Objective C/iOS development, but never built a full app. Never released anything into the app store. I've been looking for something to direct my free time toward and was thinking this would be it, but I've read an increasing number of articles like this essentially stating that the single-developer part-time app model is dead and you'll be lucky to make enough to pay the $99 to Apple every year.
Dude made searching my own instapaper articles on my own device a "subscription service", I switched to Pocket just for that. Unforgivable existing-customer f*king.
Keeping the app free for its first week on the store. This gets the app in the hands of the right people, the "early adopters". If the app is good, they'll use it and recommended it to friends long after the promotion week is over.
People are not afraid to pay when the trial was confirmed as a success by their friend (who is an iPhone genius).
Can't provie it, but I'm seeing this for my own app (It's in Hebrew and quite successful in Israel http://bitly.com/DriveModeHeb ) and other previous apps.
One thing I think he overlooked was the benefit of cross-promotion through a proven track record. Had he held on to his old apps, he would have been able to leverage them to promote his new app. Now he has to start from scratch, using only his blog to promote it.
The last two businesses I started are Stack Overflow, which is free, where the careers business on the side makes money on the small fraction of Stack Overflow users who are looking to get better jobs, and Trello, which is free, but the business of providing administrative tools to large organizations using Trello can sustain the whole business.
This is more than just "freemium" or "advertising-supported." Freemium and Ad-supported business models are special cases of this general model. The real insight is that the free product has a chance to reach an enormous audience which provides distribution/advertising/marketing making it trivial to go to market with your paid product.
What Marco is reporting here is that the old-fashioned "make something and get people to pay for it" business is much harder to pull off and likely to always be left in the dust by someone making the same thing for free, getting 100x the user base, and getting 1% of them to pay for some value added feature.