Is Buying an App Businesses Risky? Or Are They a Profit Machine?
Every day in 2014, $946,788 bought lollipop hammers, extra lives and a bracelet called “Charm of Life” in the mobile app game, Candy Crush. While profits have dropped in 2016, the colorful game is still driving $418,116 revenue a day.
While it’s true that only 1 percent of apps ever realize revenue, it is hard to ignore the potential. After all, the 1 percent number is not so different from money-generating websites. The question really comes down to which is more risky: niche websites or niche apps?
Apps have been growing entire markets for years now. For instance, the sharp increase in gaming is mainly coming from mobile app gaming.
Zynga, known for games such as Farmville, recently did the largest IPO since Google in 2004.The IPO made Zynga more valuable than Electronic Arts (EA) in revenue with its whopping $1 billion dollar offer. That means Zynga made more money from games like Farmville than EA does from insane cinematic games like Mass Effect and Dead Space.
The market has spoken very clearly… there is a lot of money to be made in the app business.
The question is: how do you do it?
If you are a seasoned purchaser of websites, you might be wondering this exact question. The truth is, websites and apps have a lot in common when it comes to monetization. While apps rely on developers more than content creation, both apps and websites are still there to accomplish one goal: satisfy their readers / users.
Whether this comes in the form of entertainment like Angry Birds and Candy Crush, or in the form of a revolutionized service like Uber and Lyft, at the end of the day, the business model for an app is very similar to the business model of a website: solve problems.
While apps are in your phone not on your laptop–though you could argue the majority of websites are actually viewed via the phone nowadays–there are many other similarities that go beyond the catch-all “solve problems” line.
The truth is, apps are very similar to websites. They each benefit from similar traffic sources such as Facebook ads, and they each come with a plethora of monetization options that are often comparable to each other.
While some things differ (such as SEO, which we will get into below), you might be surprised at how similar apps are to websites at the end of the day. There are still new risks introduced by owning apps over websites, but there are also new advantages that come into play as well.
Introducing App Store Optimization (ASO)
Typically, those looking at buying a website understand the power of SEO.
Did you know that the apps marketing method is similar to SEO? It is called App Store Optimization (ASO) and it is important.
If you look at what Forrester Research has published on how apps are discovered and downloaded, you will find that a whopping 63 percent of apps are found through the organic app store search. This is great news if you are looking at buying apps and fear that you always have to be appearing on the New & Noteworthy tab or some other “hot list”.
This is simply not the case.
It goes to reason that if you are looking to buy an app, try to buy one after it has left any noteworthy list and see how it is faring after the buzz from the launch is over. You can see what kind of organic downloads they are getting and a more stable picture of their monthly income.
ASO does differ from SEO in that it is not just about keywords; it is also about the visuals. After all, apps are super visually tied to us and if they don’t look good, there is a strong chance no one is going to download them.
Just like when you were learning SEO, you might need to roll up your sleeves and learn some new skills if you are looking to invest in some app businesses.
Luckily for you, there are plenty of places where you can glean a treasure trove of knowledge.
App Annie is a service that gives you the top keywords for apps ranked in the USA app stores, and Sensor Tower’s keyword research tools offer all the fine details you could ask for, including search volumes and how competitive those keywords rank in the App Store.
Are you noticing how similar this sounds to SEO tools?
One of the best things to look for when investing in an app business is to look at the usage rate versus the download rate. Are people using the app a lot? Or are they just throwing the app away once it is downloaded?
If an app is being used a lot and it is not being downloaded much, this is a really good sign that there is a lot of opportunity for growth using proper ASO strategies. You could split test different designs, find new keywords to rank for on the App Store or…
Find entirely new traffic mediums to grow your app.
Once your app has proper ASO, it is time to turn on the real power of how the 1 percent of profitable apps grow wildly: word of mouth referrals.
Since apps are inherently more social (or tend to be) than websites, it makes sense to create a solid social media ad campaign that will target the right demographics for your app.
For instance, you could create a Facebook ad campaign to send traffic to your app after proper ASO is done. If you target it right, you could find yourself starting to appear on the New and Noteworthy sections for the app store you are competing in or in other lists that are driven by downloads over a short period of time.
What Does Running an App Business Look Like?
There are actually surprisingly few differences between running an app business versus other online businesses.
You have the same core concepts of:
- Solving your customer’s’ problems
- Ranking high organically where people might be searching for those keywords
- Marketing your app in different channels such as Facebook
- Optimizing your app for highest conversions
Buying and selling apps is still relatively new, in an already pretty new space (website brokering). It was only in 2013 that Apple allowed developers to start selling their apps to other individuals and businesses.
However, if you want to compare an app business with other styles of business, running an app most closely mimics running a SaaS (Software as a Service) business.
Because once the app is actually up and running, there is not a lot of work that goes into it.
Unlike a content niche site, you are not typically adding new content or doing SEO. With an app, the content is done and the ASO is a one-time task.
Your main mission is to market the app, or buy an app that is producing a good amount of income and add it to your portfolio.
Of course, there are updates you can make to the app, such as new features, like making it more user-friendly and so on (finding more efficient screen space use, forcing the user to use the touchpad to type, or eliminating splash screens). If you don’t have any technical expertise, then you will need to hire a developer to implement these updates. It is best to use the same developer that developed the app if possible, so that way they have good working knowledge of how the app works in the first place.
While updates can be important, your main mission is to keep growing the user base of the app.
What Are Some of the Monetization Methods with Apps? What’s Working?
Just like with websites, apps have a lot of different monetization options.
Here are just a few different ways you can monetize your app business:
- Ad Networks (such as with AdMob or Adfonic) – this works similar to how AdSense would work on a content site. If you have ever played a game like Words with Friends, you have probably seen these kinds of ad networks in action.
- Buy to Download – in order for someone to actually use your app, they have to pay money to download your app. You want to be careful with this strategy, as you will sacrifice downloads even at a cheap price of a couple of bucks. Many apps find it to be more profitable to offer a free download and monetize with ad networks. However, if you have a premium app you could charge much more than $1-2 per app download and people would be happy to pay for it. You just have to have a good value proposition for it, such a medical app or language learning app as an example. Some of these styles of apps can go for over $10 and people are more than happy to pay for it.
- In-Store Purchases – remember Candy Crush with their $900,000+ revenue generated on a daily basis? Most of that revenue likely comes from In-Store Purchases. This is an awesome app monetization method if you have the right kind of app like a free-to-play game or something similar where in-store purchases make sense.
These are just 3 different ways to monetize your app; there are a lot of other ways, too.
You can even use an app as a “lost leader”, where you use it to promote other digital assets you might have. For instance, if you have a bunch of apps in the sports niche with each dedicated to just one sport, you can use those apps to promote a sports authority site you have been creating.
Of course, the more apps you own, the more your apps should promote each other.
Many apps do this by having a “Recommend Apps” section built within their app that will lead visitors to the other apps you’ve created or just apps you find would have genuine value to offer to your audience.
Since traffic is always paramount whether you own an app or a website business, it is important to master sending traffic to your app to increase your profits.
You could find apps that other people have created with an audience that would love your app, reach out to that developer and see if you can get your app on their recommended apps list, too.
A good analogy to this strategy is the very common SEO strategy of guest posting, only with apps instead of blog posts.
Why Apps are Like Niche Sites in Your Pocket
A good way to look at apps is the same way you would look at a niche site. Each app is designed to do specific tasks, just like each niche site is really designed to target one category, niche or demographic.
When it comes to building niche sites, you want to leave room to eventually grow it into a full-blown authority that dominates that niche. This is where apps start to really differ.
You see, by growing a niche site into an authority site, you stand to make more revenue. However, with an app business, you want each app to become ridiculously good at one very specific task and you want them to accomplish this specific task in a visually pleasing way.
Evernote is a good example of this. At the end of the day, it is a place to keep track of your notes. However, Evernote has drilled down on this subject to the point where they have zero competition operating at their level. Their ability to create keyword-based folders, organize thoughts, share documents, and more makes your base iPhone Notes app look sad in comparison.
When you do start running an app business, keep this in mind. Do not look to exactly expand into new areas related to what the app already does, instead seek to dive deep into making the app the absolute best in the marketplace at the few specific tasks it accomplishes. Evernote could have expanded into doing photo filters, but instead they drilled down on being the best of the best at taking and organizing notes.
This constant refinement is what makes a great app a “sticky” app that people use over and over again.
Risks of Buying or Running an App Business
It is one of the main reasons why many veteran website buyers won’t even bother looking at an app business. If you have read this far into the article, it is probably safe to assume that you agree that running an app business is not really that different of a risk than running a website or a SaaS or an FBA Amazon business.
It is a different model though, and with different models come different kinds of risks and skill sets (though, with a lot of overlap).
Here are some risks to watch out for when you are buying an app or looking at starting an app business:
- Don’t buy an app that is newly launched. Most apps get their peak downloads from the launch and so it can skew the numbers–sometimes in a big way. It is best to wait till the “waters have calmed” before looking at an app’s statistics on usage, downloads and income.
- Don’t rely on being on lists like “New & Noteworthy”. While being here is fantastic for more exposure, it is a short-term win and not a long-term win. Similar to the launch, being on lists like this might skew the numbers from the baseline.
- If you are creating an app, you must be aware that technology is changing constantly, same with people’s desires. Most apps are never used again after 3 months of being downloaded, with only 9 percent usage retention, and even worse retention with gaming apps at 3 percent.This is why it is so important for an app to become the very best at the specific tasks it was designed to do, so it is a no-brainer for their users to keep using it.
Of course, there are other risks, such as a competitor optimizing their ASO in a stronger way than you, displacing you in the organic search with the app store. However the above risks are the big ones to watch out for, since so much of an app’s success is really based off buzz versus baseline numbers.
When it comes buying an app, definitely look at the baseline numbers and take a good look at the retention rate. You might end up only having a 20 percent retention rate after three months, and while this might sound bad, it is more than double the majority of apps.
The bottom line is the app making money. Since the vast majority of apps never make a dime, buying an app that is producing a consistent, steady income puts you leagues ahead of the competition because that app has already figured out the hard portions of the app business.
Ultimately, while the risks are somewhat different, they’re very much the same as any niche site you might do your due diligence on. Someone might outrank you using ASO, just like someone might outrank you using SEO with niche sites. Some people might appear on new and noteworthy or “hot” lists, just like some people get mentioned in guest posts or on highly-trafficked blogs.
The risk appears in different ways, but does not look altogether different than any other digital business you might purchase.
The Benefits of Owning an App Business Portfolio
With risk, comes reward.
There are a lot of benefits that come with owning an app business. As mentioned before, the majority of apps need very little maintenance once they are up and running. This means the majority of the income being earned (as long as you avoided the “launch” and the “hot” list apps) is pretty passive and consistent.
One of the really cool things you can do with app businesses is that every time you buy a new app or create a new app, you can then promote that app to your current user audience.
Many apps do this by having an “Other Apps” tab within their user interface. Some developers will even pay you to put their app in your “Other Apps” or “Recommend Apps” tab if you have a big enough audience, creating a potential new stream of revenue.
So each app you have, acts as a mini-promoter for your next app, allowing you to boost all of your app earnings by interlinking them.
Since apps are also inherently social, your app stands a chance of going viral across various social media channels just by you focusing relentlessly on providing the best service possible.
Overall, you can create a pretty nice passive income that is largely hands-free if you build the right kind of app portfolio.
Who Should Buy App Businesses?
Being an appreneur is all about thinking ahead, including refining your app’s service to be the best of the best, and doing it in a visually appealing way that is user friendly.
You might have to learn a few new skills such as ASO, but the basis of how apps make money is not so different from other online businesses either.
In some cases, they make money in the exact same way websites do in the case of using ad networks on your app, which is similar to putting AdSense on your website.
Since the rise of new software tools that allow you to see how many people are using your app, how they are using it, ASO ranking and keyword finding tools, it all starts sounding pretty familiar to any veteran website investor. However, you should note that some new potential revenue streams that are totally unaffected by Google updates can often come in and kill businesses overnight with algorithm and manual penalties.
If you are someone interested in expanding your revenue stream into a new area, apps might just be the right investment for you.
You might have to learn a few new things, and perhaps learn how to hire a developer to add fixes and updates to the actual app, but if you have already been investing in websites for a while, then you probably have the skills needed to run a successful app business.
If you are a newbie, buying income-producing apps could offer an “ease of entry” by the fact that most apps do not require much work once they are completed.
This allows you to focus mainly on the marketing portion of the app to get more downloads and users.
So buying an app can give you a “shortcut” to starting an app business, and buying an app that is already making some money gives you another “shortcut” in the app business building world, as it puts you ahead of 99 percent of the competitors by having a business model that has been proven.
What do you think?
What traits or skills do you think are needed to run a successful app business?
Are they riskier than websites, or do you feel they share more in common with website businesses after reading this post?
Would you buy an income-producing app as part of your online portfolio? Comment below with your thoughts.
If you answered “yes”, that you would love to check out an app business that has been proven to make money, then check out one of our latest seller’s interviews on the app business he is selling.