Under the Radar 18: Choosing a Pricing Model
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welcome to under the radar a show about
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independent iOS app development I'm
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Marco Arment and I'm David Smith under
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the radar is never longer than 30
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minutes so let's get started so I am in
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the process of wrapping up development
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on my next app you I'm yes yes another
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one it's it's truly shocking and you
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know a revelation that I'd be working on
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a new app but I am and I'm at the point
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now where the app is mostly finished
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it's like functionally complete I'm
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getting ready to start sort of more
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broad testing and that kind of thing and
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it's an app that's geared in sort of in
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the health and fitness area that I've
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been doing recently to sort of join the
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ranks of pedometer plus plus and C++
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this one's about displaying the activity
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and fitness data collected by Apple
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watches you know hopefully a more useful
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way so I've come through like the part
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that I have a lot of comfort with in
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terms of sitting down and just building
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an app like the actual opening Xcode and
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coding that part I always feel good
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about but now I'm hitting an interesting
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a more challenging part of it at least
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for me that I thought it would be
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interesting to talk about and that's the
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process of working out the business
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model that I'm going to ultimately
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launch the app with and maybe some
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people would think that it would be a
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better idea to have the business model
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in mind before I make the app but that's
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just not the way I work I have an idea I
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start building it a few weeks later I
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have the app that's just how my process
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works so now I hit the point that I have
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to decide what am I going to do with
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this and you'd think at this point like
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I've been doing this for long enough and
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I've launched enough apps that I would
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just like immediately know what it isn't
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going to do but I kind of awkward
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reality as I looked at it and I'm like I
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don't really know what I want to do for
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this app like I could make it do do so
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many different things like the number of
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options available to app developers
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these days is kind of wild in terms of
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it's not just like an older sort of like
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the old days where it's like you could
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have a paid app or a free app or like
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push it free with ads and then like the
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introduced you know purchase and
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originally in a purchases were only in
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paid apps and so you could have like
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extra what they call like pay mia maps
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then they added in a purchase for free
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apps we can do that now and this
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recently been a whole big wave of
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fitness apps being purchased by big
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companies and so that's even like this
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other kind of vague not like a business
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plan but they sort of like a concept of
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people are making fitness apps and
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eventually being purchased by bigger
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companies and making their money that
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way and so that leaves me in kind of a
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crazy thing and so I what I wanted to do
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this week is to sort of think out loud
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and get your your your thoughts Marco
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about how to proceed and kind of the
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considerations and the thoughts that go
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into this because I imagine anybody who
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is making an app a product something
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like that you have to go through this
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to think you know what's ultimately
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going to be best for you and the answer
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is probably different for everybody
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so thinking you know rather than just
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giving an answer explaining how I'm
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going to hopefully end up with an answer
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is probably more helpful so for me I
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think that one of the ways to look at
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this first off is if you have any any
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previous apps that you've made
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especially anything you've made in
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recent years you know since the economy
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always changes in the App Store any
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parallels you could draw from other apps
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of like what might be the best pricing
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model for like you know a similar app
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that you've made and how that's done
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sure and probably the closest have to
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this is it's really it's out of all my
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apps it's certainly going to be
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pedometer plus plus or sleep plus plus
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which are fitness apps and probably in
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many ways sleep plus plus is the actual
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a pedometer plus plus or in the early
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days have the same thing where like
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because it's an app that's tied to a
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particular platform like in when
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pedometer plus plus launched it was tied
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to the iPhone 5s and if you didn't have
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a 5s it was worthless to you and in you
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asleep plus plus if you don't give an
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Apple watch it's useless to you and we
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had this new app if you don't have an
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Apple watch it's not really gonna be
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able to show you anything useful so
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those are probably like the closest to
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the way I do now and those are both free
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with ads and an in-app purchase to
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remove the ads and in the case of
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pedometer plus plus the in-app purchase
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is structured as a consumable tip jar
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type of thing and in sleep us+ it's just
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like any net purchase to remove ads with
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a nice little message saying thank you
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so much and pedometer plus plus does not
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have ads at all right it does okay I
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didn't it didn't initially launch with
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them initially it just launched with the
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tip jar but that I introduced ads a
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while after a while because the tip jar
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while conceptually I liked from a
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performance perspective didn't do that
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as well at least until I added advert
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ads to it and once I added ads like once
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there was both the carrot like hey
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support me this is great and the stick
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of I'm going to show ads in the app
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unless you pay like the combination of
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those two it led to a much more robust
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adoption of the tip jar and so I had it
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ads and it's been working much better
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since then because otherwise I'd find
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sort of the I launched it or I launched
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a big update and I'll get this kind of
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like this little wave of goodwill and
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then it drops to almost nothing and so
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that didn't really work in the long run
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that makes sense so now it seems like
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the the most logical conclusion then if
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you say that the new app is most similar
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to pedometer plus plus and apps like
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this and the pedometer plus plus and
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sleep plus plus both have this kind of
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you know ads with paid options to remove
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them models and they both work pretty
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well it seems on the surface that would
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be the best choice but with I ad
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shutting down this summer then obviously
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that there's a wrench into everything
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right exactly yeah and like I look at
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this and it's it's more complicated both
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because of that and also because in a
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weird way I also want like I kind of
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want diversity in my in my income stream
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and so like having everything be the
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same model sometimes it makes me wonder
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if that's problematic like if all of my
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money is coming from ads I mean it's
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sort of in the same way that like fair
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enough I can move to another advertising
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platform but you know if a there was
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some App Store policy change for example
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that changed the types of advertising
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that was that were allowed and it led to
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you know essentially meant that
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advertising rates collapsed like if all
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my income is coming from advertising
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then it's probably problematic or if the
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types of ads that are available you know
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become more and more skeezy and crumby
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then I can like and if my entire like
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business is based on that like that's
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not a great position either and so I end
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up with this weird thing if it's like
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there's a lot of things that I could do
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and when I was taking a step back and
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thinking in preparing for this episode I
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kept finally coming back to is it's like
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ultimately I have to decide and this is
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like really I think that like you can
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build and a business models to do what
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like one of four things you can either
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like maximize the money that you get now
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you can maximize the reliability of
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income you'll get later you can maximize
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the overall money the app will ever
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receive in its lifetime or you can try
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and maximize your user base which one of
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those things will vary dramatically
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dependent like will then decide which
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business model makes most sense for you
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because okay if I want the most money
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now well I should probably do like a
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paid app just like charge money up front
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hope for a little bit of press when the
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app launches you know kind of get a big
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big push have a couple of days with nice
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big sales and then it'll likely fall off
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pretty dramatically least that's my
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experience is that you end up with this
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very steep drop-off afterwards but you
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know in that first couple in that first
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cut in the first week or so you can
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actually make quite a lot more than you
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would probably be able to make from any
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of the other models and so you can make
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it now and like if I want reliable
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income something like advertising is
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great because it's there's no not there
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isn't kind of like this one time
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purchase nature to it where people just
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keep every time they open the app I make
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you know a fraction of a penny and so
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the more if people keep using the app
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there continues to be money coming in
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like overall revenue is probably going
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to be some combination of them like
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where it's like I'm gonna do everything
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I'm gonna have ads I'm gonna have in-app
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purchases to remove ads I may have NF
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purchases to do features like do
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everything you could possibly do to try
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and maximize things and then if I wanted
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to like Matt just maximize the user base
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well then kind of take the VC model and
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just make it free like in hope that
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you'll work something out down the road
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like if once you have you know hundreds
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of thousands of customers using the app
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all the time then hey that's got to be
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worth something to someone right yeah I
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mean so I think so you know with
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overcast I obviously chose the pretty
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much the latter option but you know
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pretty much make it free at first I had
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like you know free with unlock to get
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all features now it's pretty much
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everything's free and and you you know
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you you pay if you feel like it which is
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almost like everything's free and the
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reason I did that was because I've
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wanted to maximize the user base really
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you know I have I have like political
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goals with with how I feel about how
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podcasting apps should and shouldn't be
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designed and I you know I want to like
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keep podcasting open and and you know
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reduce the influence of proprietary
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gatekeepers and everything and so for me
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it was important to maximize the user
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base first and then figure out money
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with that in mind like you know not
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necessarily later because I didn't delay
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making money but just like figure out a
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way to make money while also giving away
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as much as possible for free and so you
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know that that's the model I chose that
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though you know that was in the context
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of this entire ecosystem that had these
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other factors that I was playing to in
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in your situation here with this app you
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know with every app certain models will
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work better than others you know and and
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it depends so much on what the app is
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what the competition is how your market
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timing is you know what you know what
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the market is itself so something like
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pedometer plus plus that was that
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initially a paid app or was it always
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free upfront it's always free cuz it's
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because of in especially it was free
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because it required an iPhone 5s and
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there was no way that I could require
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you to have one before you purchased it
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and so I made it free because I was
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afraid that there would be lots of
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people who would pay for it and then
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immediately discover that it's worthless
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and go and get a refund or leave a
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one-star review and so it just never
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seemed like paid would be a viable
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option right and so therefore the same
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thing applies to this then because this
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requires an Apple watch so you know it's
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or what does it officially require it
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isn't you know basically it basically
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requires it right it basically record
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everybody it would be fairly useless
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that one right exactly so it seems like
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paid is right out the window which is
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unfortunate because actually something
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like this where you're saying like you
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know it's taking advantage of something
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new it's something that is a that is a
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small market there's probably going to
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be very little competition out there at
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least at first so that kind of condition
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usually is a really good fit for paid
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where you have people who are going to
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be motivated to get it and very little
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competition really and and especially it
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being new well that combination usually
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means go paid upfront because you kind
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of have to be free up front because we
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don't have real trials this would be a
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man this would be a great case for a
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trial but but those don't exist so
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instead you have to be free somewhat so
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the only question now is whether you
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lock some features whether you use ads
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or whether you just don't think about
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money with this app and use it for other
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purposes like promoting your other stuff
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or giving back to the world or whatever
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so going through those one by one I
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guess free with unlock is tricky certain
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apps there just really isn't a good
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place to put that locking barrier so
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like one of the examples I know I think
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James Thompson talked about this a while
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ago with P calc is you know where do you
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if you have a calculator that you want
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to be free upfront with a paid app
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purchase to unlock something what do you
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unlock like the nine button like it's
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it's hard it's like certain apps are
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just hard to figure out where to place
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that barrier in a way that the app isn't
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totally useless without it but that
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enough people will hit that barrier and
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be motivated to pay and certain apps the
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answer is just this doesn't fit well and
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there isn't a good place for it and
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certain apps you know there are plenty
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of places for it and the question is
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where do you put it and so in this case
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do you think there's a good spot to have
◼
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a paid unlock like there's a good
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feature or set of features or limit that
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can be removed where enough people will
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hit that and want to pay but they won't
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hate you because it's so annoying every
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time they hit it the only one that comes
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to mind for an app like this is to do
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with some type of kind of artificial
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the amount of data that it will display
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so you'd have something you know it's
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sort of like being the same with like
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pedometer plus balls like it shows you
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historical data it would be like you can
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only see the current week unlock to see
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is the only thing that I could sort of
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see because partitioning the feature set
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or the functionality in other ways like
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it feels so contrived like feels much
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more like the yeah like you don't use
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like you can do multiplication but you
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can't do division like that right
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it completely kind of removes the point
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of the app if you start partitioning the
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features and so the only way I could
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ever really I could have a kind of
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imagine is to say like hey I'm only
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going to show you this amount of data
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you know if you scroll beyond that
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there'll be a little box that says hey
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would you like to see the rest of your
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data you know I'm holding it hostage for
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yeah and that's that's so tricky to do
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while also balancing like the users will
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to pay you because it's so easy to just
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appear really stingy or annoying or
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cheap with what you give them for free
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and what you don't and if they don't
◼
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feel good about your app they usually
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won't pay to get past that barrier some
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people still will and they will hate you
◼
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for it I've done that before with some
◼
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apps like sometimes for like I really
◼
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needed it to get my job done and they
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offered a free trial and I kept hitting
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walls and I just eventually I did pay in
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a lot of these cases and I but I just
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felt terrible I felt like I hated them
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for it and that kind of soured me on the
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whole company and on you know like their
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future products or my experience with
◼
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the app or my willingness to recommend
◼
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it to others so it's always a hard
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balance when you whenever you have these
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barriers but that being said if you have
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an app where a barrier like this makes
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sense and where you where you can find a
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good place for it and you implement that
◼
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well it usually is a really good way to
◼
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make a reasonable living like it you can
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usually get decent income that way
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without a lot of the problems of things
◼
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like ads or paid upfront so usually that
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that is great when it works but it is
◼
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really hard to make it work yeah and I
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think one thing that I always struggle
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with and I'm trying to think of this
◼
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it's what am i communicating to my
◼
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customer because like the hardest part I
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think like that you have to get over and
◼
►
a little bit I think you're alluding to
◼
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it for like it makes you feel bad is
◼
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when you say like this part of the app
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is free like the the initial part like
◼
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in typically it's like the core part
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like the main purpose of the app is free
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and then there's these extra things that
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are are like cost more like the weird
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thing that you have to keep in mind is
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in some ways what you're communicating
◼
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to your customer is like the core part
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of the app is free or in some ways you
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could like it's not a great word but
◼
►
it's more helpful for this analogy it's
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like this part of the app is worthless
◼
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and this other part somehow I'm saying
◼
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is worth full but if you look at those
◼
►
they may look functionally identical
◼
►
right it's you're saying like if you
◼
►
know the ability to do this XY and Z
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►
shouldn't cost you anything and I'm
◼
►
telling you that it shouldn't cost you
◼
►
anything to do these things because I
◼
►
just gave you an app that you downloaded
◼
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for free that does those things so I've
◼
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communicated to you this is worthless
◼
►
but you know but this other thing
◼
►
that is essentially probably very
◼
►
similar to the other thing and is in
◼
►
many ways a contrived barrier like
◼
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somehow it should be valuable and like
◼
►
there's a dissonance there that I feel
◼
►
like is is where it gets really hard
◼
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like you can only really make the case
◼
►
for unlocking something when the thing
◼
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that you're paying is like paying for
◼
►
feels different and like completely
◼
►
orthogonal to the thing that you the
◼
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core part of the thing that you gave
◼
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away for free you know so often you'll
◼
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have something where there's a physical
◼
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cost associated with it like you're
◼
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paying for storage or for a sink you
◼
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know to access sink or something where
◼
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it's not the thing that I gave you for
◼
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free just you know like I it's something
◼
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totally different in a team's of a
◼
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tangible way because when you do that I
◼
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think maybe that's where you can get
◼
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around that feeling of like I feel bad
◼
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about this because I feel like they're
◼
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just kind of you know like being cheap
◼
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by you know creating this artificial
◼
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it's tough too because when you put up a
◼
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limit like that people who will hit it
◼
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and they will they will try to
◼
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rationalize not going past it so though
◼
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if you put up a limit and you say well
◼
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you can only see the last week of data
◼
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or whatever you know whatever limit you
◼
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put up yeah people are gonna hit that
◼
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and they're first going to think well I
◼
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guess I don't need that right like
◼
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they're gonna try to convince themselves
◼
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they don't need that because they don't
◼
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really want to pay so we're gonna try to
◼
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say well you know what I can get along
◼
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fine without that and even if they would
◼
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enjoy the app more with that even if
◼
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they would get their $2.00 or whatever
◼
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worth of enjoyment or value out of
◼
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having gone past that barrier they will
◼
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try very hard to convince themselves
◼
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even if it's subconscious not to go past
◼
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that barrier and so you'll have so many
◼
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people who really could use the app who
◼
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really could enjoy it a lot more if they
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would pay the two bucks but who have
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convinced themselves they don't need to
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because they would rather not and and
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like that's the issue I favor the
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so there's also ad supported apps to me
◼
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like it sounds like it'd be a decent
◼
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idea because it sounds like you get
◼
►
money for when the app is being used and
◼
►
no one has to decide whether to pay you
◼
►
or not because the ad is paying you
◼
►
automatically effectively if they use
◼
►
the app and they can maybe pay to remove
◼
►
it or something that's you know that's a
◼
►
separate discussion which I'm sure we'll
◼
►
have but at the heart of it you kind of
◼
►
automatically just get money slowly with
◼
►
usage of course there's downsides in
◼
►
practice things like you know privacy
◼
►
concerns annoyance concerns image
◼
►
concerns what do you think about after
◼
►
that yeah it's a it's an uncomfortable
◼
►
it's like it's like if you may have
◼
►
noticed that was an uncomfortable intake
◼
►
of breath yeah because I don't read I
◼
►
don't like using apps that have ads in
◼
►
them but I make a substantial amount of
◼
►
my revenue from ads and like there's a
◼
►
little bit of cognitive dissidence about
◼
►
that like it's like the ultimately the
◼
►
pragmatic part of like this is the
◼
►
practical way to make revenue but the
◼
►
reality is I never really like I don't
◼
►
my app is never made better by having an
◼
►
ad in it like it's not like oh wow well
◼
►
it's like people will love it when they
◼
►
can see ads for other you know for for a
◼
►
game of war or clash of clans or
◼
►
whatever like the like the latest
◼
►
creative play game is like which is
◼
►
essentially what most online ads seem or
◼
►
mobile ads seems to be these days
◼
►
therefore like I don't know those games
◼
►
or they're for a big brand like audible
◼
►
or Google or something like that
◼
►
and so putting those into my apps like
◼
►
always feels a little bit's not great
◼
►
but the reality is like like you said
◼
►
like it works well and I like
◼
►
conceptually the fact that I'm getting
◼
►
paid for use in a way that like it's a
◼
►
really nice virtuous cycle like I want
◼
►
to make an app that's really engaging
◼
►
and you wanna you know you want to keep
◼
►
opening up and looking at you know from
◼
►
showing you you know health and fitness
◼
►
data like hopefully it's motivating
◼
►
hopefully it's something that you want
◼
►
to go and check on a regular basis and
◼
►
so aligning a business model with that
◼
►
where it is something that the more you
◼
►
use it the more money I make like is
◼
►
great and in some ways it reminds me
◼
►
think of the way that like I almost kind
◼
►
of wish that there were was a mechanism
◼
►
kind of like quote musicians have with
◼
►
streaming services oh you don't want
◼
►
that conceptually I do I don't
◼
►
necessarily like it breaks down in
◼
►
certain ways obviously like all these
◼
►
things do but like conceptually you just
◼
►
add a bunch of zeros to the number
◼
►
basically then we want that version of
◼
►
it that version that version B so is so
◼
►
great right for the conceptually like
◼
►
every time someone listens to the song
◼
►
they get a bit of money and like if
◼
►
every time someone opens my app I got a
◼
►
bit of money that would be great
◼
►
like if the if such a thing sort of
◼
►
existed like if there was like a breath
◼
►
and Apple music there was like Apple app
◼
►
and people paid a certain amount of
◼
►
money and it was distributed around
◼
►
people based on what they used or
◼
►
something right like you could imagine a
◼
►
system that would sort of work in that
◼
►
way like it's hugely problematic and I'm
◼
►
not really advocating for that but like
◼
►
conceptually a version it would be like
◼
►
the business model that adds create but
◼
►
without the potential for kind of like
◼
►
not desirable aesthetics in my apps so
◼
►
like that would be great that doesn't
◼
►
exist and so you end up with ads and you
◼
►
ultimately I like I end up like most
◼
►
likely than not that's ultimately what
◼
►
I'll probably have to do is I look at
◼
►
and it's like you know if I have ads in
◼
►
this app I will if it's successful if
◼
►
it's just downloaded wildly then I will
◼
►
likely you know make a reasonable amount
◼
►
of semi reliable income from it
◼
►
and if P if it's sticky and people
◼
►
really like it and keep coming back to
◼
►
it like my revenue will continue to if
◼
►
not grow at least to stay stable in long
◼
►
term which is great like see our episode
◼
►
about work-life balance that we just did
◼
►
where I talked about like the more you
◼
►
can make your income kind of like
◼
►
passive and not related to what you're
◼
►
doing like the better and so ads are
◼
►
great for that because it's all based on
◼
►
work you've done in the past like
◼
►
continuing to pay you in the future I
◼
►
just wish it didn't make me feel so kind
◼
►
of like mmm whenever I do it yeah and it
◼
►
seemed like with ads like you could do
◼
►
something crazy like direct sales of ads
◼
►
but that's a lot of work it's the best
◼
►
for like privacy maximization really and
◼
►
it might be the classiest but that's a
◼
►
ton of work and as you go like kind of
◼
►
down the rabbit hole I'm like well I
◼
►
could join a network and then you know a
◼
►
small app network if that existed which
◼
►
I don't even know if it does but you
◼
►
know assuming that existed up then then
◼
►
we pool resources selling ads is a
◼
►
little bit easier I've maybe I don't
◼
►
have to do it anymore or I can I can you
◼
►
know share a salesperson with somebody
◼
►
else and as you get further down it's
◼
►
like well all these things are a lot of
◼
►
work until you get down to the well I
◼
►
can just plug in a module from a big ad
◼
►
provider where I might not have even
◼
►
beat I might not have even dealt with a
◼
►
human at all to be part of this thing
◼
►
you're getting who knows what ads from
◼
►
who knows where and they're doing who
◼
►
knows what with your customers private
◼
►
privacy and data but that's also the
◼
►
easiest for you I like that and so like
◼
►
with ads you like the the incentives are
◼
►
all towards getting creepier and
◼
►
creepier because the the easiest ways to
◼
►
get into ads and the most accessible
◼
►
ways against ads happen to also be the
◼
►
worst about privacy and customer data in
◼
►
most cases whereas you know anything
◼
►
better than that tends to take more work
◼
►
than most people can really devote to it
◼
►
exactly and that guy in my first ever
◼
►
foray into ads I did actually sell them
◼
►
direct like this was like way back early
◼
►
days of the app store because like ad
◼
►
networks didn't exist and like I would
◼
►
sell ads to you typically was to other
◼
►
app developers at very small very small
◼
►
amounts of money but it's like that was
◼
►
the best you could do back then but now
◼
►
yeah like you would just you install
◼
►
I add for the next couple of months or
◼
►
you know AdMob from Google or any of the
◼
►
million things like see our previous
◼
►
episode about ads where there's like so
◼
►
many networks and all kinds of things
◼
►
and you just kind of put it in and like
◼
►
in theory like and then money will start
◼
►
flowing and like that's great it's like
◼
►
in some ways this is an area though with
◼
►
like some you know the last version of
◼
►
like business model that I probably
◼
►
doesn't really fit from what I do but is
◼
►
interesting nevertheless is I am kind of
◼
►
envious of venture funded companies in
◼
►
this regard because they don't have a
◼
►
business model like they don't need well
◼
►
they have a different business model
◼
►
therapist this model is get really huge
◼
►
and worry about it later even though
◼
►
that usually means probably get bought
◼
►
before we have to worry about it exactly
◼
►
which is a business model it's just
◼
►
different for what we do yeah and like I
◼
►
look at that and I'm like in some ways
◼
►
that's actually kind of cool like to be
◼
►
able to just say like you know what I'm
◼
►
just gonna focus on making something
◼
►
cool and getting as many people as I can
◼
►
to use it and I don't need to worry
◼
►
about the financial part of that and in
◼
►
some ways like that's kind of
◼
►
interesting like I've definitely had the
◼
►
thought for some something like this of
◼
►
saying like you know what if I just went
◼
►
to like took that tack and like hope you
◼
►
know it's like MyFitnessPal got bought
◼
►
by Under Armour RunKeeper got bought by
◼
►
a6 like at some point is good COO you
◼
►
know if I was able to make some make a
◼
►
like a wildly successful health and
◼
►
fitness app that could it be picked up
◼
►
by some other company for you know it's
◼
►
probably in some ways more money than I
◼
►
could ever make from you know running
◼
►
AdMob ads in an application like that
◼
►
sounds kind of interesting it's like the
◼
►
risk dynamic on that just like goes
◼
►
through the roof where it's like or I
◼
►
could end up with having made this cool
◼
►
thing that ends up making me no money
◼
►
ever and that's kind of terrifying as
◼
►
well yeah all right well what do you
◼
►
think you're gonna do I have um have you
◼
►
come to any conclusions or you still
◼
►
gotta think about it I'm still gonna
◼
►
think about it I'm probably gonna do at
◼
►
like I think my default is gonna be ads
◼
►
like I don't think paid works
◼
►
I don't think unlocking features really
◼
►
works like I don't like the thought of
◼
►
right and to clarify it really works for
◼
►
this app on both exactly the whole point
◼
►
of this discussion is like whether it
◼
►
works in this particular case and like
◼
►
the reason we're going through it step
◼
►
that every app is different this is why
◼
►
this may or may not make sense for this
◼
►
app ads are like the easy thing I don't
◼
►
feel great about them but I think they
◼
►
are sort of like the obvious and
◼
►
straightforward choice I'll most
◼
►
certainly have an option to remove the
◼
►
ads I'm just in terms of that's often
◼
►
just it makes me feel better maybe it's
◼
►
like it's just like cleansing my
◼
►
conscience a little bit about not having
◼
►
ads to say like so you know like if you
◼
►
don't like them that's fine then it's
◼
►
just a paid app and you can give me
◼
►
money and we'll go away and if I'm
◼
►
feeling particularly daring or a little
◼
►
bit reckless in wild then maybe I just
◼
►
make it free but being a one-person shop
◼
►
who pays my mortgage with the revenue
◼
►
from my apps not having any revenue does
◼
►
not seem particularly wise yeah all
◼
►
right well that's all the time we have
◼
►
for today thanks a lot to our sponsor
◼
►
hover and we will talk to everybody next