Under the Radar

Under the Radar 71: Apps as Annuities

 

  welcome to under the radar a show about

  independent iOS app development I'm mark

  Worman and I'm David Smith under the

  radar is never longer than 30 minutes so

  let's get started so today we wanted to

  start what is largely going to be a kind

  of the two-part series about I guess

  more the financial business side of

  being an app maker and specifically

  we're going to be talking through

  viewing your apps in two different so

  sort of in turn through two different

  lenses one we're going to talk about

  today is kind of viewing your apps as

  though you're creating annuities that

  pay you back over time and then in next

  week we're going to be talking a little

  bit about viewing your apps as sort of

  assets that you are building up for the

  purposes of selling down the future data

  down the road and they're just kind of I

  think this is one of those topics that

  is very much outside of the typical like

  developer II kind of topics and the kind

  of things that we would normally you

  know discuss in the sense that you know

  we're not talking about xcode we're not

  talking about design there's gonna be

  AWC session about how to sell your

  business yeah like this is a topic that

  is very much you know this is like a

  business topic you could be we could be

  making anything it doesn't the fact that

  it's an application is in some ways kind

  of immaterial but I know for myself when

  I started off being um you know started

  off doing this I gave no thought to this

  these types of topics at all I was

  focused entirely on the development side

  of things I was focused on the design

  side of things and the marketing to some

  degree but like thinking of these kind

  of broader business things wasn't really

  you know something that was on my radar

  at all and now you know whatever eight

  and a half years later it is something

  that I think about more and I realized

  the importance of thinking through

  mostly just because depending on what

  how we will you know what you want your

  business to look like how you want it to

  pay you and again both now and in the

  future you know what your ultimate goals

  are you know will impact the types of

  business the types of apps that make

  sense for you to build you know

  different apps have very different like

  revenue curves you know if you make a

  I paid upfront app UUM far more likely

  to have a big burst of Revenue at once

  and then it will fall off you know

  fairly dramatically if you have free

  with at you know free with ADD or free

  with in-app purchase application you're

  more likely to have kind of this slow

  hopefully growth of revenue that is

  fairly stable over time or at least you

  know shifts in these kind of more

  seasonal you know in these kind of

  seasonal waves and depending what you

  know what you like there will make a big

  difference but you know for the purpose

  of today what I'm going to talk about to

  start off with and this got started for

  me by I've been doing a lot of work

  updating my app audiobooks which I think

  I've mentioned a few times over the last

  few episodes and as part of it I as part

  of this update is it kind of the

  realization that I haven't done a real

  up haven't done any work on this app

  realist really for about 18 months which

  is not a good idea isn't great you know

  but is because other opportunities they

  presented themselves have been doing

  much more work on the health and fitness

  side of things recently in this app that

  for a while was like my bread and butter

  was the thing that was paying you know

  sort of like paying my mortgage each

  month it kind of had fallen a bit to the

  side but as a result I got this

  opportunity to have some really

  interesting data about of course I did I

  made a spreadsheet I took a look at just

  what just just one you know or two or

  three it's fine I don't have a problem I

  can stop anytime the I took a look at

  the revenue of this app over the last 18

  months because one of the things that

  I've always been curious about is what

  happens to an app you know when you stop

  working on it when you stop maintaining

  it when you stop marketing it when you

  stop doing anything with it like what

  does that actually look like because in

  the back of my mind I've always had this

  thought of like you know sales won't

  immediately drop to zero like that is

  you know that's just not the reality

  because you know I go for weeks or

  months between updates typically you

  don't you know let them go out to 18

  months but you kind of get the sense

  that over time you know sales will

  likely fall if they don't like stop

  working on it you know if doing nothing

  makes your revenue go up and like you do

  nothing that's awesome but that's not

  realistic and so

  what I did for audiobooks is I took a

  look over the last 18 months and looked

  at what the revenue curve looked like

  you know for this app with no

  maintenance no anything it just been

  sitting on the App Store and the app

  makes its money from advertising and a

  small very small degree is some a net

  purchases for some kind of like premium

  ebooks and what was interesting to me is

  that the the curve that the revenue took

  matched pretty closely to kind of a

  exponential decay curve like I said

  around with some best fit lines and

  things and essentially what it meant is

  the sales went down by half a percent I

  think it was per day sort of compounding

  and so you know say for argument's sake

  the app had been you know selling for

  $100 a day a day and then I stopped

  working on it like the next day it would

  lose 50 cents in revenue and the next

  day like night noon for a forty nine

  point eight cents and then forty nine

  point five cents and so on like it it

  loses less each day because of there's

  less from it and that that curve of

  about a half a percent a day seemed to

  match fairly closely to it and which

  meant that obviously as it falls down

  you start losing less and less and you

  per day and you become it almost surf

  starts to stabilize and level out

  obviously it's still losing as it goes

  but it gets slower and that was really

  interesting to me because that you know

  like that number and that that

  multiplier is I'm sure very variable

  based on a lot of things but it's

  instructive to think about how an app's

  revenue will sort of to have that almost

  certainly have that kind of a decay

  curve and like the the slope of it and

  the steepness of it will change but

  that's a really helpful tool for me as I

  think about apps because now I have I

  can sort of I have some data to back up

  this notion that I've always had that in

  many ways the business that I like to

  build is I want to have you know a

  steady even income from my applications

  that in an ideal world requires the

  relatively small amount of constant

  maintenance and input I'm coming from a

  background where I used to do consulting

  where I all of my income was

  I guess you could call it like prepaid

  in the sense that I see I have a

  contract with someone that says I'm

  going to work for them for you know I'm

  gonna work for them for 80 hours and

  they're gonna pay me $100 an hour so

  they are going to pay me $8,000 and

  that's the contract and that's the most

  I'll ever make from that project and

  it's all kind of prepaid and shifting to

  a world where everything's postpaid

  where in the I do all this work for

  nothing essentially I would released the

  app and then hopefully it pays me back

  over time and in many ways that's the

  kind of the same kind of a thing that if

  in the financial world that you would

  call something like an annuity which is

  where you take ace a large sum of money

  and you give it to a bank or an

  investment institution and they pay you

  a you know a mint amount of money back

  each month that you know you're shifting

  the risk for them generating that money

  onto them and you're getting a steady

  stream of income and like that model for

  what an application is I find is really

  kind of nice because you get the sense

  of my goal is just to build up a broad

  diversified pool of these little income

  streams that each individual one is kind

  of slowly decaying over time and my job

  you know is to I can increase the or

  reduce that ability the degree to which

  they're decaying or in some case

  hopefully grow them you know by putting

  in work but if I don't if I want to go

  on vacation or if I get distracted or

  things happen my income will very slowly

  decay over time but in general we'll

  keep going and we'll have a pretty long

  runway um and I think this is actually

  before under the radar but back when we

  were talking about it on my old show

  developing perspective where there's a

  period of time a couple years ago where

  I had to take for a variety of kind of

  personal reasons I had to take that six

  six or so weeks off of work basically

  and it was lovely that during the course

  of that my income didn't fall off

  dramatically it wasn't like all of a

  sudden you if I'd been a consultant that

  would have been a really big problem

  just suddenly just like not have any

  income and so instead like my income

  fell and it kind of slowly decayed but I

  still had this kind of annuity that was

  paying me back

  and you know as a and so I love that and

  so what I do now is I think I structure

  my business around that that's why I

  have so many apps that's why I have so

  many of these little streams coming in

  in the hopes that kind of building that

  layer cake that will average out to

  something that is you know somewhat

  dependable and somewhat reliable I love

  the idea that you're like living off of

  background noise like like the the

  asymptotic tales of all these curses

  just like pile out off of them up and

  here I have like a background radiation

  income essentially yeah I mean that that

  is that's kind of wonderful I mean and

  that's the thing that is kind of nice

  about it though is that it is assumed I

  think so often in software development

  we kind of get the thing that you hear

  most often about is the kind of the big

  impressive first month of the sales of

  an app or a new update or anything like

  where you kind of you have it's easy and

  it's not it's not easy but it is more

  easy to focus on the that big exciting

  part of it where like you do a big

  update and everyone loves it and like

  sales go up and everything's exciting

  but what's more interesting from a lot

  more like a lifestyle perspective is the

  what happens six months down the road

  with that and is there a way to make

  that make your living on that noise on

  that kind of that slow easy part down

  and below where you're not putting

  having to put in the effort that you did

  upfront and you know just is obviously

  you need enough enough either enough

  apps or Toofer for them to delay decay

  at a slow enough rate that it's still

  you know haven't like sums up to a

  reasonable living but if you can or at

  the very least if you can get close to

  that and you know be hoping that you

  know you have some big bursts that build

  up your reserves and then you have this

  this noise then in the middle that you

  can live on it it is it is an approach

  that seems to have worked a couple times

  for me and isn't something that I think

  like the math checks out and that's what

  I was kind of really excited to have the

  opportunity to sit down and like really

  dive into that with audiobooks because

  now I can kind of prove to myself the

  that the experience I've been having of

  like this seems to be working you know

  for the last couple years like the math

  checks out and it kind of follows a

  pattern that is somewhat you know

  predictable or at least reasonable to

  you know to base a livelihood on it's

  funny like you know in other areas of

  web-based work you know things like

  blogs the the idea of like building up

  stuff upfront that then has a very long

  tail of revenue over time is not a new

  idea like in the blogging world you know

  you you have straight up blog ads and

  things like affiliate links where you

  can write a blog post and then you know

  it might get a certain number of views

  from like the main subscribers you know

  active audience that that day or that

  week but then over the next ten years it

  could be getting search traffic and then

  you can be slowly building up more and

  more ad money over time from your from

  this big back catalogue that you have

  and for me like on my site I I never I

  never made a ton from the ads but I but

  I actually started in the last few years

  making a pretty good amount of Amazon

  affiliate revenue because I have over

  years I have written a pretty good

  number of product reviews things like

  you know headphones stuff coffee stuff

  the baby stuff guides and those have

  slowly built up search relevance over

  time and you know at first when I was

  when I started out with Amazon links

  forever ago like Amazon affiliate links

  I would make effectively nothing it was

  like in maybe like 20 bucks a month for

  a while and I stopped looking for a long

  time because it was so low I stopped

  paying attention and then eventually it

  became real money like it became you

  know after a few years of doing it and

  slowly building up from like 10 20 bucks

  a month it eventually became a few

  hundred dollars a month and then now

  it's like over a thousand dollars a

  month and that's all from stuff I wrote

  years and years ago for the most part

  not a lot of new stuff that just over

  time I it was it's kind of like where

  each post is one of these little like

  decaying asymptotes like you know like

  over time I have enough of these and it

  does blow up to something substantial

  and it's interesting to think of apps

  this way

  because I don't think we've really I

  don't think most of us think of apps

  that way I think most of us you know the

  idea of doing you know blog posts and

  links that way I think we are accustomed

  to by now

  but the idea of doing apps that way

  almost seems like it like wrong or like

  you're like you're getting away with

  something because yeah I think people

  expect that apps need to be the more

  high profile launched kind of things and

  the you know has to be constantly

  maintained over time and have to

  constantly be getting updates and new

  versions and keeping everything fresh

  and new while it's totally ok to let a

  blog post sit there for 10 years

  unmodified I wonder like is this is this

  kind of a temporary thing it's always

  gonna be the case I mean what what what

  the causes might be of why apps can

  behave this way or why they might not

  behave this way

  like we have this coming fall it's

  looking increasingly likely that Apple

  is cutting off support for old 32-bit

  apps and that's gonna cut off a lot of

  people's long tails and just like an

  update them but I wonder like it seems

  like it seems like this is probably okay

  for the long haul overall as a model

  like it seems like this is probably

  going to keep working because it turns

  out that keeping apps up-to-date for the

  most part really isn't that important

  for whether or not they will have you

  know a long tail of success and I think

  it speaks to I think there is something

  there like it's why the reason why I

  thought it'd be a good topic is because

  I feel like it also is important to

  think through the type of applications

  where some an approach like this would

  actually work because the reason this

  happen you know this approach works for

  me is because the types of apps that I

  am making by and large don't have large

  ongoing costs and expenses and

  infrastructures that I have to have in

  the background to support them you know

  like the I think all the sum total of

  the infrastructure I have for audiobooks

  is I think it's about a hundred dollars

  a year at Linode like I have a little

  server that serves thumbnails and a few

  other things

  but it's essentially nothing in the

  scope of the app and so that allows the

  you know the the fact that the app isn't

  you know it's as its as its revenue

  decreases slowly over time you know its

  income the expenses that I'm having to

  put out for it you know they they become

  a higher proportion perhaps of its

  income but it they're still so small to

  start with that it doesn't really matter

  whereas if you had an app like I mean

  for so for example for me feed Wrangler

  and I imagine for you with overcast to

  some degree like if you have an app that

  has a bigger server infrastructure you

  know that is going to be thousand a

  thousand or two thousand dollars a month

  in in server costs it starts to become

  trickier to do this type of thing or

  that slow that that's sort of a slow

  decay will very quickly you know cross

  over and then you know be losing money

  rather than gaining money which is

  essentially what happened for me with I

  check the weather word you know I had a

  weather app which I hadn't done updates

  for in a while too but I had to

  eventually kill it off because I was

  losing money on it because you know

  there was this ongoing cost for weather

  data providers that wasn't being offset

  by it and so I think with software the

  key for this to work is the do more that

  you can make your the applications that

  you're building kind of built in such a

  way that they are more like blog posts

  or they are more like YouTube videos you

  know kind of there's lots of things that

  you like you said this isn't a new

  concept at all like this is the business

  model of most kind of media companies

  where you know a media company makes a

  show like the you know the they they

  make Seinfeld and they put it in

  syndication in or they've they put it

  they put it out on broadcast TV and they

  put it into syndication and they sell

  DVDs and it's exactly the same thing

  that there's kind of reselling over time

  and the degree to which an app can be

  that I think is it's something that is

  fairly self-contained that is built in

  this way that doesn't require a lot of

  constant updates and maintenance and you

  know a fair enough eventually it'll you

  know you'll have to do either update it

  or it will stop working like that is I

  think software has a higher you know a

  higher barrier for that versus you know

  just like

  you know a point plain text file that

  you're putting on the web essentially

  but it doesn't have this intrinsic knee

  that it has to be updated every few

  months and in some ways that's

  counterproductive that you know we've

  talked about many times that the trap of

  over featuring an application and having

  the sense that there's this urgency that

  it always has to be new and better when

  in fact maybe it isn't and you can just

  kind of let it go and as long as the you

  have a customer base that likes the app

  that you shipped whenever you shipped it

  you know like people still use

  audiobooks that I shipped eighteen

  months ago and they use it on a regular

  basis and it still works and you know

  the updates that I'm doing now are in

  some ways unnecessary to it there that I

  think it's a good thing in in terms of

  trying to put on you know bump up that

  that rate a little bit and so it'll you

  know sort of start decaying from a

  higher point again but if I didn't do

  anything my guess is they would just

  keep going slowly on you know until at

  some point it breaks and who knows maybe

  iOS 11 would introduce something that

  would force it to be updated which you

  know fair enough that's that's read the

  reason why it was updated 18 months ago

  was because that was what iOS 9 broke

  something in it and so I had to update

  it and I did and I fixed it and then I

  haven't done anything since and those

  kinds of maintenance updates are so much

  easier and so much lighter weight

  they're kind of like the big broad

  things that you'd have to do if you kind

  of have a perspective of you're trying

  to grow grow grow and that's your goal I

  mean it really does kind of impact like

  how you develop everything I mean if

  you're thinking about like how can i how

  can I design this app and build this app

  in such a way that it will require the

  least maintenance over time and be the

  least likely to to unexpectedly break in

  future OS updates or with future changes

  to the landscape you know that that that

  affects things like for instance like

  running off of a Linode server which

  actually they're a sponsor this week

  which I'll get to in a minute burning

  off of a Linode server that is to me

  more future-proof than running off of a

  service like parse or some kind of like

  managed high-end or higher abstraction

  layer or service because that landscape

  of those services changes all the time

  and if you write an app today on like a

  higher-level abstracted service in three

  years you might have moved on and you're

  just leaving this half in maintenance

  mode just and hoping it just collects

  money over time but then that service

  might shut down or do some kind of force

  to change that will break your app and

  then you're stuck having to decide it

  either will do I just shut this app down

  completely is it just done now because

  it's not worth the investment to move it

  to something else or do I you know now

  lose a big chunk of this investment to

  in to to move it overlay to it do I

  invest a bunch of time in it and lose

  money on it for a little while to do

  this move and like that's if you build

  from the start to to try to build on

  like boring stable stuff both on the

  server side like just doing Linux

  servers and also even in the Affleck if

  you just use mostly like vanilla UIKit

  and you don't do a lot of like fancy

  hacks and and you know things that might

  break in future iOS updates that also

  will help you just you know make sure

  that you can keep that going for a long

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  yep years and years and years so the

  last thing that I think I'll seem like I

  would be good to bookend this discussion

  with it would also just be to say that

  this approach of thinking about an

  application as an annuity that you kind

  of build and then can kind of leave on

  its own for the most part to do lightly

  maintain potentially he's probably not

  for everybody and I was thinking about

  it a little bit this that there's two

  groups that I feel like this approach

  really wouldn't work for and that is

  people who are perfectionists and people

  who kind of have the like the growth

  mindset in the sense of you kind of have

  that vision of the the venture started

  kind of company that's trying to be you

  know worth a billion dollars and has

  that kind of runaway hockey stick magic

  fanciness I don't know like those two

  groups of people I feel like would not

  do well with this kind of approach

  because by its nature it is optimizing

  for minimizing input and rather than met

  trying to maximize output which works

  well for me I love like I love that I

  can you know sort of once you get a

  business to this you know you put in

  yours and it takes years to get there

  but if you put in years of work with

  this kind of mentality you can get to a

  point where you're a core business

  requires relatively little input and

  gives you a steady

  you know reliable slightly slightly

  decaying overtime but can be bolstered

  periodically you know by putting inputs

  into the system rather than something

  that is growing in a month after month

  year after year it's a call we should

  need to be doubling every six months or

  whatever like this is not a been

  approach or a mindset a foreign

  application that will lead to that kind

  of a result and I think in our next

  episode like I said at the beginning of

  this one if you're looking to see you

  know to sell an application or have to

  have a big exit or something like you

  might do structure your application in

  your approach differently than this but

  you know you can work for some people

  work for others and I think also if

  you're a perfectionist if you're someone

  who just wants to keep tinkering and

  polishing over and over and over again

  and keep working on something until it's

  you know it's almost like the the

  asymptote that you're approaching is

  perfection rather than looking at it the

  other way around of kind of like hitting

  good enough and then just letting it

  slide on to night you know into the

  future that's probably not for you

  either yeah I mean it's in many ways

  this it's kind of like the the

  culmination of everything we've been

  trying to teach the audience for this

  entire podcast of the show so far is

  like when you're an indie if you want to

  optimize your limited resources you have

  not you have no other staff where you

  have very little other staff you don't

  have a huge amount of cash with VC money

  to like build up stuff at a large scale

  very quickly you know upfront and so in

  order to optimize your limited resources

  and especially mostly your limited time

  it does help to have these qualities to

  to really not be a perfectionist and to

  be willing to ship something that is

  that is good enough and then to decide

  afterwards you know what now I that's

  kind of done or at least seems to be

  done for a while and now I could move on

  and do something else or I can I can

  move on to you know feature expansion to

  expand into new markets instead of doing

  things like perfectly sending down every

  every single individual feature to be

  totally perfect in a lot of ways the

  whole point of the show is to tell

  people like if you want to run a

  business the way we do and especially

  the way you do then this is how you do

  it this is like it is possible to make a

  living in the App Store but if you do it

  in these other ways that might be more

  high-profile it's harder and it's less

  likely to succeed

  where's if you do it this way where

  you're really just building up a whole

  bunch of you know asymptotes of of

  gradual income from from a larger

  quantity of apps that that are not

  necessarily all perfect but you can get

  them all to be good enough and to be

  long-term businesses that is actually a

  way more likely approach to succeed in

  the App Store

  then then you know hoping that you are

  gonna be the the new you know tank game

  that makes a million dollars in a day

  yeah okay and I think it's the biggest

  like adjective that comes to mind is in

  this approach is tolerance and it's like

  it's being okay with like living with

  letting things go and being like this is

  fine I think this is good enough and

  being and you know being honest with

  yourself about that and having that as

  your goal and you know I know that

  that's that's not the approach that

  everyone feels comfortable with or will

  take and I think especially the Apple to

  Apple Developer community at least early

  on and from imagiknit certainly to some

  degree this has a bit of the the

  mentality that they kind of in from

  Apple and the way they build things

  which is not this at all like this is in

  no way I think the approach that Apple

  builds most of their products that they

  take the other extreme of like the IV

  highly highly engineered highly polished

  approach to something that's a premium

  product and like that works and that

  model like the premium product market

  works clearly you know it works for

  Apple it works for Tiffany's you can

  think of any number of car car

  manufacturers that take that approach

  and like that works but I think it

  struggles when you're a small company

  when you're one person to be viable to

  be you know it's like when you're

  your goal is to kind of win the lottery

  or to have that premium approach so many

  things have to go right for you that are

  outside of your control but if your goal

  is more modest and your goal is to say

  you know it's like it's it's much less

  it much less scary to say my goal is for

  an app you know to make an app that

  makes 50 dollars a day like that is much

  less scary than trying to make an app

  that I could you know that makes tens of

  thousands of dollars a day and could

  potentially be purchased for millions of

  dollars like those are big scary things

  making it's much smaller much more

  modest I think it's a much more

  approachable and reasonable thing for

  you know some small developers to take

  and you know I can speak from experience

  that over time it works thanks listening

  everybody tune in next week when we talk

  about selling your apps instead of

  keeping them forever thanks and we will

  talk to you next week

  bye