0:00:00Welcome to Under the Radar, a show about independent iOS app development. I'm Marco Armet.
0:00:05And I'm David Smith. Under the Radar is never longer than 30 minutes, so let's get started.
0:00:10So today we wanted to start what is largely going to be a kind of a two-part series about,
0:00:16I guess, more of the financial business side of being an independent app maker. And specifically
0:00:25we're going to be talking through viewing your apps in two different lenses. One we're
0:00:34going to talk about today is kind of viewing your apps as though you're creating annuities
0:00:39that pay you back over time. And then next week we're going to be talking a little bit
0:00:44about viewing your apps as sort of assets that you're building up for the purposes of
0:00:49selling down the road. I think this is one of those topics that is very much outside
0:00:57of the typical developer-y kind of topics and the kind of things that we would normally
0:01:03discuss in the sense that we're not talking about Xcode, we're not talking about design.
0:01:07There's going to be a WDC session about how to sell your business.
0:01:11Yeah. This is a topic that is very much, this is like a business topic. We could be making
0:01:17anything. The fact that it's an application is in some ways kind of immaterial. But I
0:01:21know for myself, when I started off doing this, I gave no thought to these types of
0:01:29topics at all. I was focused entirely on the development side of things. I was focused
0:01:33on the design side of things and the marketing to some degree. But thinking of these kind
0:01:38of broader business things wasn't really something that was on my radar at all. And now, whatever,
0:01:44eight and a half years later, it is something that I think about more and I realize the
0:01:48importance of thinking through, mostly just because depending on what you want your business
0:01:55to look like, how you want it to pay you both now and in the future, what your ultimate
0:02:02goals are, will impact the types of apps that make sense for you to build.
0:02:08Different apps have very different revenue curves. If you make a paid up front app, you
0:02:14are far more likely to have a big burst of revenue at once and then it will fall off
0:02:19fairly dramatically. If you have free with ad or free with in-app purchase application,
0:02:26you're more likely to have this slow, hopefully growth of revenue that is fairly stable over
0:02:33time or at least shifts in these kind of more seasonal waves. Depending on what you like
0:02:43there will make a big difference.
0:02:44For the purpose of today, what I'm going to talk about to start off with, and this got
0:02:48started for me by, I've been doing a lot of work updating my app audiobooks, which I think
0:02:53I've mentioned a few times over the last few episodes. As part of this update is the realization
0:03:01that I haven't done any work on this app, Realist, really, for about 18 months, which
0:03:07is not a good idea, isn't great. It is because other opportunities have presented themselves.
0:03:12I've been doing much more work on the health and fitness side of things recently in this
0:03:15app that for a while was like my bread and butter with the thing that was paying my mortgage
0:03:20each month. It kind of had fallen a bit to the side. But as a result, I got this opportunity
0:03:26to have some really interesting data about, of course I did, I made a spreadsheet. I took
0:03:32a look at just one, two or three, it's fine. I don't have a problem, I can stop anytime.
0:03:41I took a look at the revenue of this app over the last 18 months because one of the things
0:03:46that I've always been curious about is what happens to an app when you stop working on
0:03:51it, when you stop maintaining it, when you stop marketing it, when you stop doing anything
0:03:54with it. What does that actually look like? Because in the back of my mind, I've always
0:03:59had this thought of sales won't immediately drop to zero. That's just not the reality
0:04:06because I go for weeks or months between updates typically. You usually don't let them go out
0:04:12to 18 months, but you kind of get the sense that over time, sales will likely fall. If
0:04:18they don't, stop working on it. If doing nothing makes your revenue go up, do nothing, that's
0:04:23awesome, but that's not realistic. What I did for audiobooks is I took a look over the
0:04:28last 18 months and I looked at what the revenue curve looked like for this app with no maintenance,
0:04:35no anything, it's just been sitting on the app store. The app makes its money from advertising
0:04:39and to a very small degree, some in-app purchases for some kind of premium books. What was interesting
0:04:46to me is that the curve that the revenue took matched pretty closely to kind of an exponential
0:04:52decay curve, like I said, around with some best fit lines and things. Essentially, what
0:04:57it meant is the sales went down by half a percent, I think it was, per day, sort of
0:05:07compounding. Say for argument's sake, the app had been selling for $100 a day and then
0:05:16I stopped working on it. The next day, it would lose 50 cents in revenue and the next
0:05:19day 49.8 cents and then 49.5 cents and so on. It loses less each day because there's
0:05:28less from it. That curve of about a half a percent a day seemed to match fairly closely
0:05:35to it, which meant that obviously as it falls down, you start losing less and less per day
0:05:42and it almost starts to stabilize and level out. Obviously, it's still losing as it
0:05:48goes but it gets slower. That was really interesting to me because that number and that multiplier
0:05:55is I'm sure very variable based on a lot of things, but it's instructive to think
0:05:58about how an app's revenue will almost certainly have that kind of a decay curve. The slope
0:06:08of it and the steepness of it will change, but that's a really helpful tool for me
0:06:12as I think about apps because now I have some data to back up this notion that I've always
0:06:19had that in many ways, the way business that I like to build is I want to have a steady,
0:06:26even income from my applications that in an ideal world requires a relatively small amount
0:06:33of constant maintenance and input. I'm coming from a background where I used to do consulting
0:06:37where all of my income was prepaid in the sense that I have a contract with someone
0:06:44that says I'm going to work for them for 80 hours and they're going to pay me $100
0:06:51an hour, so they're going to pay me $8,000 and that's the contract and that's the
0:06:55most I'll ever make from that project and it's all prepaid. And shifting to a world
0:07:00where everything's postpaid, where I do all this work for nothing essentially, I release
0:07:07the app and then hopefully it pays me back over time. And in many ways, that's the
0:07:11same kind of thing that in the financial world which you'd call something like an annuity,
0:07:16which is where you take a large sum of money and you give it to a bank or an investment
0:07:21institution and they pay you an amount of money back each month that you're shifting
0:07:29the risk for them generating that money onto them and you're getting a steady stream
0:07:33of income. And that model for what an application is, I find is really kind of nice because
0:07:39you get the sense of my goal is to build up a broad diversified pool of these little income
0:07:45streams that each individual one is kind of slowly decaying over time and my job is to
0:07:52I can increase or reduce the degree to which they're decaying or in some case hopefully
0:07:59grow them by putting in work, but if I don't, if I want to go on vacation or if I get distracted
0:08:05or things happen, my income will very slowly decay over time, but in general we'll keep
0:08:11going and we'll have a pretty long runway. And I think this was actually before Under
0:08:18the Radar, but back when I remember talking about it on my old show, Developing Perspective,
0:08:22where there was a period of time a couple years ago where I had to take for a variety
0:08:27of personal reasons, I had to take about six or so weeks off of work basically, and it
0:08:34was lovely that during the course of that my income didn't fall off dramatically.
0:08:39It wasn't like all of a sudden if I'd been a consultant that would have been a really
0:08:42big problem to suddenly just not have any income. And so instead my income fell and
0:08:47it kind of slowly decayed, but I still had this kind of annuity that was paying me back.
0:08:54And so I love that, and so what I do now is I think I structure my business around that.
0:08:58That's why I have so many apps, that's why I have so many of these little streams
0:09:01coming in in the hopes that kind of building that layer cake that will average out to something
0:09:07that is somewhat dependable and somewhat reliable.
0:09:09I love the idea that you're living off of background noise, like the asymptotic tails
0:09:17of all these curves and you just pile enough of them up and here I have a background radiation
0:09:23income.
0:09:24That's kind of wonderful.
0:09:28And that's the thing that is kind of nice about it though, is that it is so often in
0:09:34software development we kind of get the thing that you hear most often about is the big
0:09:40impressive first month of the sales of an app or a new update or anything. It's not
0:09:51easy, but it is more easy to focus on that big exciting part of it, where you do a big
0:09:58update and everyone loves it and the sales go up and everything's exciting.
0:10:03But what's more interesting from a lifestyle perspective is what happens six months down
0:10:10the road with that and is there a way to make your living on that noise, on that slow easy
0:10:18part down below where you're not having to put in the effort that you did up front.
0:10:27You need either enough apps for them to decay at a slow enough rate that it still sums up
0:10:36to a reasonable living, but if you can, or at the very least if you can get close to
0:10:42that and be hoping that you have some big bursts that build up your reserves and then
0:10:48you have this noise in the middle that you can live on. It is an approach that seems
0:10:53to have worked a couple times for me and is something that I think the math checks out.
0:11:00And that's why I was kind of really excited to have the opportunity to sit down and really
0:11:03dive into it with audiobooks because now I can kind of prove to myself that the experience
0:11:09I've been having of this seems to be working for the last couple of years, the math checks
0:11:14out and it kind of follows a pattern that is somewhat predictable or at least reasonable
0:11:21to base a livelihood on.
0:11:22Yeah, it's funny. In other areas of web-based work, things like blogs, the idea of building
0:11:31up stuff up front that then has a very long tail of revenue over time is not a new idea.
0:11:38In the blogging world, you have straight up blog ads and things like affiliate links where
0:11:44you can write a blog post and then it might get a certain number of views from the main
0:11:50subscribers and active audience that day or that week, but then over the next 10 years
0:11:56it could be getting search traffic and then you can be slowly building up more and more
0:12:01ad money over time from this big back catalog that you have. And for me, on my side, I never
0:12:08made a ton from the ads, but I actually started in the last few years making a pretty good
0:12:13amount of Amazon affiliate revenue because I have, over years, I have written a pretty
0:12:19good number of product reviews, things like headphone stuff, coffee stuff, the baby stuff
0:12:24guides and those have slowly built up search relevance over time.
0:12:31And at first when I started out with Amazon links forever ago, like Amazon affiliate links,
0:12:37I would make effectively nothing. It was like maybe like 20 bucks a month for a while and
0:12:42I stopped looking for a long time because it was so low I kind of stopped paying attention
0:12:47and then eventually it became real money. Like it became, after a few years of doing
0:12:52it and slowly building up from like 10, 20 bucks a month, it eventually became a few
0:12:57hundred dollars a month and then now it's like over a thousand dollars a month and that's
0:13:02all from stuff I wrote years and years ago for the most part, not a lot of new stuff
0:13:07yet. Just over time, it's kind of like where each post is one of these little like decaying
0:13:12asymptotes like over time I have enough of these and it does build up to something substantial.
0:13:18And it's interesting to think of apps this way because I don't think most of us think
0:13:23of apps that way. I think most of us, the idea of doing blog posts and links that way
0:13:28I think we are accustomed to by now, but the idea of doing apps that way almost seems like
0:13:34wrong or like you're getting away with something because I think people expect that apps need
0:13:39to be the more high profile launch kind of things and the, you know, have to be constantly
0:13:44maintained over time and have to constantly be getting updates and new versions and keeping
0:13:49everything fresh and new while it's totally okay to let a blog post sit there for 10 years
0:13:52unmodified. I wonder like is this kind of a temporary thing? Is this always going to
0:13:59be the case? I mean what the causes might be of why apps can behave this way or why
0:14:04they might not behave this way. Like we have this coming fall it's looking increasingly
0:14:09likely that Apple's cutting off support for old 32-bit apps and that's going to cut off
0:14:15a lot of people's long tails and let's take a look at them. But I wonder like it seems
0:14:20like it seems like this is probably okay for the long haul overall as a model. Like it
0:14:25seems like this is probably going to keep working because it turns out that keeping
0:14:30apps up to date for the most part really isn't that important for whether or not they will
0:14:36have, you know, a long tail of success.
0:14:39Yeah and I feel, I think it speaks to, I think there is something there like it's why the
0:14:47reason why I thought it would be a good topic is because I feel like it also is important
0:14:50to think through the type of applications where an approach like this would actually
0:14:55work because the reason this approach works for me is because the types of apps that I
0:15:03am making by and large don't have large ongoing costs and expenses and infrastructures that
0:15:12I have to have in the background to support them. You know like the, I think all the sum
0:15:19total of the infrastructure I have for audiobooks is I think it's about a hundred dollars a
0:15:27year at Linode. Like I have a little server that serves thumbnails and a few other things
0:15:33but it's essentially nothing in the scope of the app. And so that allows the fact that
0:15:40the app isn't, as its revenue decreases slowly over time, its income, the expenses that I
0:15:50am having to put out for it, they become a higher proportion perhaps of its income but
0:15:54they are still so small to start with that it doesn't really matter. Whereas if you had
0:15:58an app like, so for example for me, Feed Wrangler and I imagine for you with Overcast to some
0:16:03degree, like if you have an app that has a bigger server infrastructure that is going
0:16:07to be a thousand or two thousand dollars a month in server costs, it starts to become
0:16:13trickier to do this type of thing where that slow, that sort of slow decay will very quickly
0:16:21cross over and then be losing money rather than gaining money which is essentially what
0:16:25happened for me with Check the Weather. Where I had a weather app which I hadn't done updates
0:16:31for in a while too but I had to eventually kill it off because I was losing money on
0:16:35it because there was this ongoing cost for weather data providers that wasn't being
0:16:41offset by it. And so I think with software, the key for this to work is the more that
0:16:47you can make the applications that you're building kind of built in such a way that
0:16:52they are more like blog posts or they are more like YouTube videos. There's lots of
0:16:56things that you, like you said, this isn't a new concept at all. This is the business
0:17:01model of most kind of media companies where a media company makes a show, like they make
0:17:09Seinfeld and they put it in syndication in, or they put it out on broadcast TV and they
0:17:15put it in syndication and they sell DVDs and it's exactly the same thing that they're
0:17:19just kind of reselling over time. And the degree to which an app can be that I think
0:17:24is it's something that is fairly self-contained, that is built in this way that doesn't require
0:17:29a lot of constant updates and maintenance. And fair enough, eventually you'll have
0:17:35to either update it or it will stop working. I think software has a higher barrier for
0:17:42that versus just a plain text file that you're putting on the web, essentially. But it doesn't
0:17:52have this intrinsic need that it has to be updated every few months. And in some ways
0:17:56that's counterproductive, that we've talked about many times, the trap of over-featuring
0:18:01an application and having the sense that there's this urgency that it always has to be new
0:18:05and better when in fact maybe it isn't. And you can just kind of let it go. And as long
0:18:10as you have a customer base that likes the app that you shipped whenever you shipped
0:18:15it, people still use audiobooks that I shipped 18 months ago and they use it on a regular
0:18:21basis and it still works. And the updates that I'm doing now are in some ways unnecessary.
0:18:28To it, I think it's a good thing in terms of trying to bump up that rate a little bit
0:18:36and sort of start decaying from a higher point again. But if I didn't do anything, my guess
0:18:41is they would just keep going slowly until at some point it breaks. And who knows, maybe
0:18:47iOS 11 would introduce something that would force it to be updated, which, fair enough,
0:18:51that's the reason why it was updated 18 months ago was because that was what, iOS 9 broke
0:18:58something in it and so I had to update it and I did and I fixed it and then I haven't
0:19:02done anything since. And those kinds of maintenance updates are so much easier and so much lighter
0:19:07weight than the big broad things that you'd have to do if you have a perspective of you're
0:19:12trying to grow, grow, grow and that's your goal.
0:19:15- Yeah, and it really does kind of impact how you develop everything. If you're thinking
0:19:21about, how can I design this app and build this app in such a way that it will require
0:19:27the least maintenance over time and be the least likely to unexpectedly break in future
0:19:33OS updates or with future changes to the landscape, that affects things. Like for instance, running
0:19:39off of a Linode server, which actually they were sponsored this week, which I'll get to
0:19:42in a minute, running off of a Linode server, that is to me more future proof than running
0:19:49off of a service like Parse or some kind of like managed high end or higher abstraction
0:19:54layer service because that landscape of those services changes all the time and if you write
0:19:59an app today on like a higher level abstracted service, in three years you might have moved
0:20:06on and you're just leaving this app in maintenance mode and hoping it just collects money over
0:20:10time but then that service might shut down or do some kind of forced change that will
0:20:15break your app and then you're stuck having to decide either well do I just shut this
0:20:19app down completely, is it just done now because it's not worth the investment to move it to
0:20:23something else or do I now lose a big chunk of this investment to move it over. Like do
0:20:31I invest a bunch of time in it and lose money on it for a little while to do this move and
0:20:34like that's, if you build from the start to try to build on like boring stable stuff,
0:20:41both on the server side like just doing Linux servers and also even in the app like if you
0:20:45just use mostly like vanilla UI kit and you don't do a lot of like fancy hacks and things
0:20:51that might break in future OS updates, that also will help you just make sure that you
0:20:56can keep that going for a long time. Anyway we are sponsored this week as mentioned by
0:21:01Linode. Linode gives you fast powerful web hosting for your projects. You can set up
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0:22:55Thank you so much to Linode for supporting this show and for keeping our apps running
0:22:58for years into the future without much effort from us.
0:23:01Yup, years and years and years. So the last thing that I think I would, it seemed like
0:23:07I would be good to bookend this discussion with would also just be to say that this approach
0:23:13of thinking about an application as an annuity that you kind of build and then can kind of
0:23:17leave on its own for the most part or do lightly maintained potentially is probably not for
0:23:23everybody. And I was thinking about it a little bit. There's two groups that I feel like this
0:23:27approach really wouldn't work for. And that is people who are perfectionists and people
0:23:34who kind of have the like a growth mindset in the sense of you kind of have that vision
0:23:41of the venture started kind of company that's trying to be worth a billion dollars and has
0:23:49that kind of runaway hockey stick magic fanciness. I don't know. Like those two groups of people
0:23:55I feel like would not do well with this kind of approach because by its nature it is optimizing
0:24:01for minimizing input and rather than trying to maximize output which works well for me.
0:24:10I love that I can sort of, once you get a business to this, you put in years, it takes
0:24:18years to get there, but if you put in years of work with this kind of mentality you can
0:24:22get to a point where your core business requires relatively little input and gives you a steady,
0:24:30reliable, slightly decaying over time but can be bolstered periodically by putting inputs
0:24:37into the system rather than something that is growing month after month, year after year.
0:24:43It's like, "Oh, we just need to be doubling every six months," or whatever. This is not
0:24:47an approach or a mindset for an application that will lead to that kind of a result. And
0:24:54I think in our next episode, like I said at the beginning of this one, if you're looking
0:24:57to sell an application or have a big exit or something, you might structure your application
0:25:02and your approach differently than this. But it can work for some people or it wouldn't
0:25:07work for others. And I think also if you're a perfectionist, if you're someone who just
0:25:09wants to keep tinkering and polishing over and over and over again and keep working on
0:25:15something until it's almost like the asymptote that you're approaching is perfection rather
0:25:22than looking at it the other way around of hitting good enough and then just letting
0:25:27it slide into the future, that's probably not for you either.
0:25:32- Yeah, I mean, in many ways it's kind of like the culmination of everything we've been
0:25:39trying to teach the audience for this entire podcast, this entire run of this show so far,
0:25:45is like when you're an indie, if you want to optimize your limited resources, you have
0:25:52no other staff or you have very little other staff, you don't have a huge amount of cash
0:25:57with VC money to build up stuff at a large scale very quickly up front. And so in order
0:26:04to optimize your limited resources and especially mostly your limited time, it does help to
0:26:10have these qualities to really not be a perfectionist and to be willing to ship something that is
0:26:17good enough and then to decide afterwards, you know what, now that's kind of done or
0:26:24at least seems to be done for a while and now I can move on and do something else or
0:26:29I can move on to feature expansion to expand into new markets instead of doing things like
0:26:36perfectly sending down every single individual feature to be totally perfect. In a lot of
0:26:42ways the whole point of the show is to tell people if you want to run a business the way
0:26:48we do and especially the way you do, then this is how you do it. It is possible to make
0:26:55a living in the app store but if you do it in these other ways that might be more high
0:27:01profile it's harder and it's less likely to succeed. Whereas if you do it this way
0:27:06where you're really just building up a whole bunch of asymptotes of gradual income from
0:27:13a larger quantity of apps that are not necessarily all perfect but you can get them all to be
0:27:19good enough and to be long term businesses, that is actually a way more likely approach
0:27:24to succeed in the app store than hoping that you are going to be the new tank game that
0:27:31makes a million dollars in a day.
0:27:34Yeah, and I think the biggest adjective that comes to mind in this approach is tolerance
0:27:41and it's being okay with letting things go and being like this is fine, I think this
0:27:49is good enough and being honest with yourself about that and having that as your goal. I
0:27:55know that's not the approach that everyone feels comfortable with or will take and I
0:28:00think especially the Apple developer community, at least early on and probably to some degree,
0:28:07has that bit of the mentality that they took from Apple and the way that they build things,
0:28:16which is not this at all. This is in no way the approach that Apple builds most of their
0:28:21products that they take the other extreme of the highly engineered, highly polished
0:28:28approach to something that's a premium product and that works and that model, the premium
0:28:34product market works clearly. It works for Apple, it works for Tiffany's, you can think
0:28:38of any number of car manufacturers that take that approach and that works but I think it
0:28:45struggles when you're a small company, when you're one person, to be viable. If your goal
0:28:53is to win the lottery or to have that premium approach, so many things have to go right
0:29:00for you that are outside of your control but if your goal is more modest and your goal
0:29:05is to say, it's much less scary to say my goal is to make an app that makes $50 a day.
0:29:17That is much less scary than trying to make an app that makes tens of thousands of dollars
0:29:23a day and could potentially be purchased for millions of dollars. Those are big scary things.
0:29:29Making it much smaller, much more modest, I think is a much more approachable and reasonable
0:29:33thing for small developers to take and I can speak from experience that over time, it works.
0:29:40Thanks for listening everybody. Tune in next week when we talk about selling your apps
0:29:44instead of keeping them forever. Thanks and we'll talk to you next week. Bye.
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