Software startup spring partners had 40,000 customers in March 2010. Fourteen months later, it had 1.6 million.
The 3,900% increase in business is far from unusual these days. The Charlestown, MA-based company is just one of thousands of mostly small, entrepreneurial firms that have by-passed traditional methods of development, marketing, and distribution in favor of the new online app stores run by Apple, Google, and a few other software and communications giants.
Market-research firm Gartner predicts that mobile app stores will serve 17.7 billion downloads this year, up 116% from an estimated 8.2 billion last year, and that application downloads will soar to 185 billion by 2014. Developers will see more than $15 billion in revenues in 2011 from their mobile online apps, both from download fees and advertising linked to the down-loads, according to Gartner.
Today, a stroll through the app stores is a little like visiting an urban flea market, where there are first-rate products but where low-price goods of dubious value abound, and support is practically nonexistent. But suppliers to app stores say the sophistication, utility, and price of the software is increasing, crowding out the junk. As a result, the nascent business model can be seen as a warning to consumer software companies that today sell shrink-wrapped software and whose development cycles are often measured in years.
The financial models and philosophies of the mobile app companies vary widely. But they all cite the same benefits of the online stores: low operating costs for development, marketing, distribution, and support, and low capital requirements for getting into the game. What follows are mini-profiles of three very different companies—Spring Partners, a venture capital-backed startup; Instant Cocoa, a hobby turned two-person startup; and Nuance Communications, an established software company—that claim success at the online app stores.
Spring Partners
In mid-2008 Spring Partners landed $5 million in venture capital and in January 2009 launched a free Web-based application called Springpad, a service for “saving anything you want to remember.” Things you see online, such as a recipe or a book review, can be cataloged and saved in a personal data-base. In March 2010, Springpad for the iPhone was launched at the Apple App Store; in May 2010 it appeared at the Google Android Market; in June 2010 Spring Partners had it for the iPad; in December 2010, v2 of the Web app launched in the Google Chrome Web Store; and in May this year Spring Partners announced support for Google Android tablets and offline access through Google’s Chrome browser.
All versions of Springpad are free. Spring Partners says its revenue, which it won’t divulge, comes when users take action on something they have saved in the Springpad database, such as buying a book. It says 2%3% of its users generate tiny slices of revenue that way each month.
Although online stores take a cut of the sales price, which is typically 30%; they are otherwise a free distribution mechanism for software developers, and that is perhaps the greatest enabler for small startups. But, says Jeff Janer, cofounder and CEO of Spring Partners, it can take substantial effort to get a product high enough in a store’s rankings to keep it from getting lost among the competition. “We reorganized the company last summer so that everything we do, whether product development or business development or marketing, is focused on getting ranked as high as possible. We spend a fair amount of money on public relations.”
Springpad was developed as a single service, then ported as a native application to the various mobile and Web operating systems by using the application programming interfaces (APIs) and software development kits (SDKs) provided by the manufacturers. In addition, the company has built connectors to more than 100 services such as Facebook and Groupon. Eight of the company’s 13 employees are developers, including Java programmers. Programmers with mobile application development skills are expensive and in short supply, says Janer.
But companies like Spring Partners can catch a break on the cost of computer resources by going, at least initially, to a cloud service. The company has no data center and uses Amazon’s pay-as-you-go cloud service. “For our 1.6 million users,” says Janer, “we have one person on staff to run our IT operations.” Amazon’s big outage in April knocked Spring Partners offline for 30 hours, which was painful, says Janer. Still, he says if Spring Partners goes in-house for processing, it will be based on the economies of scale for a larger company, not the risks of being based in the cloud.
Instant Cocoa
This Seattle-based startup is not so much a company as it is a hobby started by Eric Maland in his spare time while working full time at Google and then Twitter. But Maland, who is currently unemployed, says he’s devoting his efforts to taking Instant Cocoa to a new level.
Several years ago while at Google, Maland took an Apple Mac programming class and for fun wrote a desktop application called Wordplay that would solve crossword puzzles. He put it on his Web site, free of charge. When Apple introduced the iPhone, he started developing for iOS. “I didn’t actually have an iPhone,” he explains. “I just downloaded [Apple’s] SDK and wrote my first couple of apps in that.” He spent a week writing pTerm, a simple SSH (Secure Shell protocol) client and terminal emulator for the iPhone, and he placed it at the Apple App Store.
Meanwhile, he met a woman named Eliza Block who had written a program for retrieving crossword puzzles and solving them, and the two of them launched Instant Cocoa and published her product, 2 Across, with pTerm, at the iPhone App Store.
“The first week or two the sales were mind boggling,” Maland recalls. Four thousand people downloaded pTerm on the first day, and he says he now sells 1,5002,000 copies a month at $4.99 each. He says 2 Across, at $5.99, has done almost as well. He says he enjoyed two big advantages: There was only one other SSH client at the App Store and it didn’t support terminal emulation, and in 2008 he was an early publisher at the App Store.
And, he admits, “what I put out there in a week, I wouldn’t put out today, because it would be embarrassing.” He is now improving his products and says a month of development work is about right for products like his. Software can be written quickly for this market, he says, because so many conventional items—documentation, help menus, and support—are not demanded by users.
When Block wrote 2 Across, she was a graduate student in philosophy and, although she had a background in math, she had no formal programming experience, Maland notes. “She sat down with the documentation for the SDK and just wrote it in something like six weeks,” he says. 2 Across went on to win several notable awards from Apple, including “Best of iTunes: Puzzle Games” and “Staff Favorite.”
Instant Cocoa has no formal user support system, says Maland, but he keeps up with email queries and participates in a pTerm Google Group. “A lot of the emails are, ‘How do I do this or that,’ but somewhere in there is a signal that tells you where you have not done a good job. You get a pretty good sense of what people want in the next version.”
Nuance Communications
Unlike Spring Partners and Instant Cocoa, Nuance’s history goes back decades. The Burlington, MA-based company has sold its Dragon speech products via retailers and resellers long before app stores existed. But now Nuance has begun offering a few products—most notably Dragon Dictation and Dragon Search—for Apple mobile devices. Nuance also recently began publishing an SDK and APIs to its core speech recognition software so that any developer may easily incorporate Nuance speech into its products.
When Apple introduced the iPhone, Eric Maland started developing for iOS. “I didn’t actually have an iPhone,” he says. “I just downloaded [Apple’s] SDK and wrote my first couple of apps in that.”
Nuance charges nothing for its online Dragon apps and derives no revenue from them, at least not directly. According to Aaron Masih, director of the Nuance Mobile Developer Program, the idea is “to prove to the marketplace that speech technology really works and is ready for prime time.” A second objective is to learn how people use speech in mobile environments and to learn more about how people speak, especially in foreign languages. Third, it is to increase the brand recognition for the Nuance name and to encourage users to try the Dragon desktop products.
Masih says that as the online app stores become more flooded with offerings, a shakeout will occur, with the products of dubious quality and utility disappearing. The survivors will grow in complexity and will less likely be free, he says.
Maland at Instant Cocoa agrees that mobile apps will gradually move up-scale. “It will be harder for the little guy with a good idea to get something in the store,” he says. Maland also thinks the model will increasingly invade the desktop realm. “I can’t imagine people going to Best Buy to buy software in five years,” he says.
Further Reading
Laudon, K. and Traver, C.G.
E-Commerce 2011 (7th Ed.), Prentice Hall, Upper Saddle River, NJ, 2010.
Lee, B.G., Lee, G.H., Shim, Y.H., and Choi, A.
Let developers run the app store by lowering the barrier-to-entry, International Journal of Electronic Finance 4, 3, July 2010.
Mahmoud, Q.H., and Popowicz, P.
Toward a framework for the discovery and acquisition of mobile applications, Proceedings of the 2010 Ninth International Conference on Mobile Business, Athens, Greece, June 2729, 2010.
Stark, J.
Building iPhone Apps with HTML, CSS, and JavaScript, O’Reilly Media, Sebastopol, CA, 2010.
Yarmosh, K.
App Savvy: Turning Ideas Into iPad and iPhone Apps Customers Really Want, O’Reilly Media, Sebastopol, CA, 2010.
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