App development may seem like a perpetual goldmine, but like with all gold rushes, the majority of prospectors eventually leave both empty-handed and disappointed. There’s a joke going around the boardrooms of Silicon Valley and classrooms of Ivy League schools. Perhaps you’ve heard it a time or two:
A young man opens a bar in Silicon Valley. It’s revolutionary—nobody has ever seen or heard of amenities like the ones his bar has. With great fanfare, the young man throws the doors open and endless crowds stream in.
They gape at the beautiful design and the quality products on offer. They give the bar excellent reviews and tell all their friends about it. Soon the whole city is inside the bar, laughing, chatting and thoroughly enjoying themselves. The young man is the talk of the town.
After a good while, people start to stream out again. They leave in droves, heading to new bars. The young man is left alone. The shelves are full. The bottles remain corked. Nobody has bought anything.
Unfortunately, this is more than just a pithy story. For many entrepreneurs and developers around the world, this tale hits close to home. Even the most popular and well-designed apps often struggle to pay for themselves. The worst can bankrupt their creators.
Should I Make a Smartphone App?
There was a time when app building was simple and lucrative. A few years ago, the business world had app fever. Entrepreneurs simply needed to build an application, upload it to the Apple Store and then put their feet up. On the crest of that wave, almost anything would sell.
Unfortunately, those days are over. Apps have lost much of their original novelty. They’re a standard feature on all smartphones. With few exceptions, they no longer elicit wonder and awe from their users. We’ve reached the high water mark.
Yes, there is still a time and a place for app building and a great deal of money-making good that can come from them. However, it’s important to be absolutely certain of your business model before getting involved. The following are a few potential obstacles to consider before you build an app:
High Overheads and Low Profits
A common misconception among novice app-builders is that the process is quick and easy. Simply put, it isn’t—apps require a lot of overhead. A great deal of time, talent and money go into even the worst ones. If you’re looking for a cheap way to raise awareness for your business, you might consider an alternative. For example, for the cost of building one smartphone app, you could invest in a number of highly-targeted social media posts, ensuring that the right eyes are learning more of your business.
Ken Yarmoush, the Founder and CEO of Savvy Apps, has spent his entire career advising clients on the most efficient way to build their mobile applications. He says that cheap development projects start around $25,000. Million dollar apps are not a novelty; they’re a fixture.
Now, for some people this investment pays off quickly. The investors behind Uber aren’t hurting, for instance. However, it’s a mistake to assume that every app story ends so happily.
In fact, Gartner Inc. estimates that less than one percent of all mobile apps ever become financially sustainable. The confidence some entrepreneurs have in mobile apps is founded more in groupthink than it is in research.
The goldmine metaphor holds true. Too many investors assume that a figurative pick and shovel is all they need to strike it rich. In reality they’d probably be better off investing in something else.
The True Cost of ‘Free’
That joke about the young man and the bar might not be all that funny, but it does highlight a very real problem. How do you make money with an app? There are a few traditional options.
For example, you can:
- Charge to download the app
- Make money from in-app purchases
- Sell advertising space within the app
- Charge a subscription fee for the app’s services
Most mobile app developers hope to recoup their investment from a mixture of the second and third options. They let you download the app for free, but not all the features come with it. To unlock premium features, users need to upgrade—for a fee of course.
The same goes for advertising. If you want to get rid of the attention-grabbing ads running across the screen, you need to pay a fee. These models have worked in the past, but there’s a growing body of evidence which suggests they aren’t as reliable as they used to be.
Will Your Users Upgrade?
Flowspark Studios conducted research on in-app purchases and found that roughly 95 percent of users never make them. In the worst cases, less than half-a-percent of your users will ever upgrade. An app can be wildly popular while the developers and investors behind it struggle to make ends meet.
Walking the Advertising Tightrope
Advertising isn’t a safe bet, either. The marketing industry is reevaluating itself as ad blockers and the phenomenon known as “ad blindness” make digital advertising increasingly ineffective. In an industry that famously leaps from trend to trend, there’s no guarantee that advertisers will continue to focus on mobile advertising as they have in the past.
Even if they do, advertisers are interested primarily in impressions. Until your app has thousands of regular users, you’ll struggle to find buyers for your ad space. With this in mind, do you have a way to pay for the app until you get there?
The March of Progress
Mobile apps have captured the imagination of entrepreneurs and businesspeople all over the world. They changed the way we think about gaming, social networking and business. They will continue to be relevant and helpful for a long time, but it’s foolish to assume that they’re the final step of tech evolution.
For users, there are several serious downsides to mobile apps.
- They require constant updates
- They clutter screens with hundreds of icons
- They take up bandwidth
- They have questionable security
- Most mobile games work on a planned obsolescence model
Already, innovators are looking at more streamlined options. Many marketers are moving to browser-based apps, which received twice as much traffic as their mobile cousins in 2015. These apps are potentially cheaper and more efficient than the traditional iPhone or Android versions.
How long will it be before the next step of the app evolution takes over? Needless to say, the indicators say sooner rather than later.
The Bottom Line
Mobile apps are an appealing way to make money, promote businesses and engage potential customers. However, they are not a panacea. They are not a failsafe. Before you rush into app development, make sure you know your boundaries. With the time, money and energy it would take to build a mobile app, you could almost certainly find a more efficient option.