Lots of small ways apps can make big money

The Seattle Times
Sunday, March 20, 2011
By Julie Weed

When Apple announces its 10 billionth (yes, billionth) app download, and a 14-year-old boy creates the most popular free game in the App Store, it’s hard not to resist the urge to join the growing legions of developers making games, utilities and other offerings for the iPhone, iPod touch and iPad.

After all, the number of active users worldwide is 160 million and growing.

For those who want to create something new but don’t find the same lightning-strike success of that middle-schooler, there are a few basic ways to make money.

All apps for iPhone, iPod touch and iPad are available for download through the App Store, so distribution worldwide is automatic. Beyond choosing whether they will charge money for the app or it will be free, creators can sell advertising space inside the app or offer “in-app purchases” of add-ons or other products. They can also translate the app into other languages to broaden their audience. Apple takes 30 percent of all revenues.

The most appropriate and lucrative moneymaking method depends on the app, the audience and the competition. Each app creator chooses his or her own path to potential success and the results can range from modest personal incomes to robust, fully staffed businesses.

BuddyTV, created by local entrepreneur David Niu, lets people create preferred channel guides to find their favorite TV shows, then comment about them online with a virtual living-room full of other fans. To maximize his revenue stream, Niu will offer his service, currently in its pilot stage, free and sell ad space inside his app.

Customers are used to seeing TV shows and communicating with each other free online, Niu said, so it would be hard to start charging for those kinds of services. Instead, he will tap the advertisers who want to connect with his audience of viewers, who, in turn, can be targeted based on the TV shows they watch.

For “Dash and Ditto,” a preschoolers game where hand-drawn bunnies teach basic skills, Snohomish-based creators Carisa and Marc Kluver eschewed ads inside the game because they would be distracting or confusing for the young children playing. Instead, they chose to offer the product free for a week, then charge $2.99 to parents who want to keep it. Their revenue stream is small, but they are planning to come out with other products and games.

Andrew Short of Bellevue has gone a different direction with his children’s apps. He has a hot-selling educational app called “Jungle Time” that teaches kids how to tell time — in Dutch, along with English and several other languages. Developing for the iPhone and iPad, Short paid roughly $100 per language to localize his apps for foreign markets. When he localized them into five European languages, his revenues doubled and he says he now makes about enough money to live on. He is translating the apps into Asian languages.

The service Short uses, ICanLocalize.com, is a site that matches small businesses with translators for apps, websites and documents. Short said he found the process of localizing apps straightforward and cost effective because his apps are aimed at young children and so there was very little text to translate.

‘In-app’ sales

Another moneymaking variation, “in-app purchases,” offers users extra scenarios, items, game play variations, etc. for a fee from inside the app. When the original product is free, charging for these add-ons is a popular way to generate revenues.

Seattle developers Randy Chung and David Tsai launched the free game “High School Hero” about a year ago, offering users the chance to adopt a high-school persona with charm, smarts and strength to try to become popular and play games with others online. An instant hit, more than 1 million copies of the game have been downloaded and the company expects a seven-figure income this year, according to Chung.

To earn revenue from the free offering, Chung and Tsai added the option for players to buy accessories, such as a muscle belt or new outfit and extra game points used to win battles against other players. Chung estimates that 10 to 15 percent of users have made an “in-app purchase,” and that has been enough to make the small company profitable.

Charges to avoid

Each developer also thinks carefully about revenue streams they should avoid. Short and Kluver didn’t offer in-app purchases because children might mistakenly buy something.

For “High School Hero,” Chung felt the preponderance of American slang and cultural references made the app too cumbersome to translate into other languages.

Tom Kerrigan, a Redmond developer whose “tChess” is a top-50 board game in the App Store, keeps advertising and in-app purchases out of his chess games to keep user distractions to a minimum.

While some larger companies believe 30 percent is too big of a revenue cut to give Apple, and others object to Apple blocking the sale of apps it finds inappropriate, the programmers and entrepreneurs interviewed here say they don’t mind paying the fees Apple charges to distribute their product to a large potential audience worldwide. “I’m happy to pay it,” said Short. “They give me a channel, and without it, it would be almost impossible to sell my apps in a cost-effective manner.”

More important than the type of revenue stream is, of course, the product.

People have gotten Apple’s marketing message “There’s an app for that,” said Kerrigan, so they will look to their iPod touches, iPads and iPhones to fill a need. A physical metronome for example, might cost $30 or more, while an iPhone metronome app could sell for $3.99. Once the need is identified, go the extra step to find a competitive advantage. Kerrigan says, “If there are already a dozen metronome apps, figure out how to make yours unique and better.”

Kerrigan advises developers to use their expertise. Before he wrote his popular “Learn Chess” app, Kerrigan had made a hobby of high-level, chess-engine programming for 15 years. A novelty app like one that makes bodily noises or displays racy photos might be easier to create, said Kerrigan, “but someone has probably already created it,” along with 350,000 other apps available now.

Sometimes it takes a number of tries to make a product that people want. Before “High School Hero,” Chung and Tsai spent time on a photo-morphing software that didn’t get off the ground. Now they believe in the venture-capital concept “Fail fast, fail cheap.” If an idea isn’t working, move on to something else before you spend a lot of money on it.

App-building resources

For programmers who want to try their hand at creating apps, the Apple website offers extensive resources to get started and also to solve issues along the way. Books like “Advanced iOS 4 Programming,” by Maher Ali, can help, too.

Forums are available for developers to answer to each other’s questions online, but they occasionally provide incorrect information, said Short.

While he translates his other apps, Jungle Coins and Jungle Fractions, into Asian languages, Short is thinking about what he’ll do next. Whichever revenue route he takes though, he says he’ll have to keep in mind that customers are used to paying little or nothing for apps, so he’ll “squeeze out the revenue opportunities” wherever he can.


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