Mobile Software Development: Product Startups vs. Apps-on-demand Business

This is the second article in a series of 3 on developing software for the mobile market. In the first article of this series, I gave my view on the evolution in the mobile apps space, from amateur apps to professional agencies. In this second article, I'll discuss why we don't see that much startups launching killer apps. In the third and last article I'll make 3 predictions on how the apps-on-demand business will evolve.

In this second article on mobile development, I'll delve a bit deeper into the difference between the mobile product startup business and the mobile project business, and try to answer the questions: "Why is it so difficult to make a living off of your own killer app?" and "Why is freelancing and developing for brands such a much more viable short term alternative?"

Let's quickly compare the business of doing a mobile/web product startup with that of building branded mobile apps on demand. I'll use some of the elements of Osterwalder's business model canvas as a frame to do this.

Product StartupBranded apps on demand
Customer segments & value propositionYou don't know your customer segments, you have to figure out who they are, what their top problems are, and whether they recognize your solution as a real solution to their needs. On top of that, you need to figure out if customers are even willing to pay for your app.Big brands know their customers, they know why a customer is choosing for their brand. The idea for a mobile app will most likely be inspired from knowing their existing customers. The app does not necessary need to solve a real problem, as long as it reinforces the brand. You as an app developer do not really need to worry about the end customers, as long as you listen carefully to the wishes of your customer, the brand, you're fine. You will get bonus points for helping your customer (the brand) be more innovative using all possibilities of the new mobile medium.
ChannelsYou can't rely on the app store as your sole channel to your customers. There are simply way too much apps in the app store, all fighting for the user's attention. You'll need to create the channel to your customers yourself. That will almost certainly be a big investment, definitely in time, maybe in cash. You'll need to build your audience, through e.g. blogging and/or social media, through advertising and if possible through some forms of virality and word of mouth. You might need to work with channel partners to create awareness of your customers. This will cost you time and money.Big brands have established channels to their customers. Obviously, they'll use those to promote the launch of the app. As illustrated by many of the presenters on AppsMarathon, such campaigns almost always catapult the app to the top of the app store. You as the software agency might need to help the brand a bit with setting up this promotion, but most likely the brand itself knows that better than you, so again, nothing to really worry about. In the channel department, the only thing you really need to worry about is your own channels towards big brands. Make sure you publicly celebrate your successful apps that you made for other brands and use those as references to convince prospects. Pitching at AppsMarathon is a good starting point ;)
Revenue streamsAgain a big unknown. You will need to figure out how to make money. You'll probably need to experiment with pricing and with revenue models that include some form of recurrent business. You could think of using in-app purchases for premium features or content, or some sort of subscription model. Living off of app sales alone will be hard to sustain a couple of people.Big brands do not necessarily need to make a profit on the app itself. They might want to increase brand awareness or offer their customers some special experience through a mobile app. You as the developer do not need to worry too much about this. Your biggest worry in the revenue department is the fact that you will need to estimate the cost of the individual project. Put a too high price on a project and competing agencies will run away with it; put a too low estimate and you'll not make profit doing the project. In the whole apps on demand business model, I see tendering and putting the right estimate on a project as one of the biggest risks.
Key activity and assetsFinding a business model that works, is scalable and repeatable should be your main concern. Luckily, methodologies as Customer Development and Lean Startup can help you there (shameless plug, at Sirris, we coach startups doing this). It will be your key activity for a long while.A key activity for you will be account management: once you land a big brand, you'll need make sure the project goes right (project management) and that you stay top of mind for that customer. This might result in recurring business whenever the brand decides it needs another app. Your key resources will be your reputation and references. Your people will be a key resource too: projects are very human resource intensive, so you'll only be able to scale by adding more people.

I hope this table gives some insights into why it is much easier and less risky to be in the apps on demand market than in the mobile startup killer app business. Bottom line: the business model for developing apps on demand is a proven one: it is that of a service provider, offering each customer an individual service. A startup with a completely new idea for a killer app is still in search of a business model. Every aspect, from customer segments and revenue streams all the way to costs and key partners needs to be "discovered".