Dances with Elephants

More About the App Store Opportunity – Where the Real Money Is

We have all seen the impressive Smartphone app store statistics… hundreds of thousands of app… billions of app downloads.  Last year, Apple’s App Store exceeded 600,000 apps, 20 billion downloads and $9 billion in revenue – absolutely huge numbers.  But when considering what ecosystem to invest in, you need to look a bit deeper. 

Business2Consumer Smartphone App Stores

Doing a little math, and recognizing averages can be both interesting and misleading, the average Apple App Store app had just over 33,000 downloads, cost $.45 and created $15,000 (of which Apple kept $4,500 and the developer received $10,500).  If you do similar math for the Android Marketplace (or “Play”), you’ll see revenue numbers that are less than half of these.  To create a mini pro forma P&L, let’s assume its takes 200 hours of “someone’s” time to develop and publish an app in one of these Smartphone stores -  looks like one is “making” $25-$50/hour for one’s efforts. 

Sure this is a very gross calculation ignoring all kinds of factors such as its easy to support a second platform once you’ve built your app for the first one, cost of ongoing support, revenue the second year when development costs are less, lifespan of your app as customers and competitors engage.  But this quick calculation does get you a feel for the size and nature of the business opportunity.

We all know “some” companies are making good money with Smartphone apps – but there are an awful lot making very little.  And I don’t see this changing any time soon.  The Business2Consumer app store market is very price sensitive and very competitive.  Key is sales are both “mostly low price” and “mostly one time”.

I personally know a few engineers that quit their day job to build their Smartphone app store business – only to recognize several months later how hard it is to build a real ongoing revenue stream in the B2C app store world.  So what did they do?  Change their business to building apps for other companies – where they could predictably make $125-$250 per hour.

Business2Business App Stores

In contrast to the B2C Smartphone app stores, let’s look at salesforce.com’s Business2Business web services based app store – AppExchange.  Again let’s look at some basic store statistics. 1700 apps and $700 million in “cumulative” sales.  Your first thought might be “only 1700 apps” – but remember this is a B2B app store – not B2C.

What is the annual revenue for the sale of partner web services in salesforce.com’s AppExchange? I don’t know but let’s for this simple “back of the envelope” calculation assume an easily divisible revenue number for the 1700 apps of $340 million in 2012.  Sure it might be 50% less than this… but close enough to get a feel for the business opportunity for partner web services based on the salesforce.com platform and I’ll admit I like to keep the math easy.

So the average revenue for a web service sold in the AppExchange is $200,000 (over 10x an average B2C app).  And maybe more importantly, this $200,000 per app is annual revenue for a web service – not like the mostly one-time sales like the B2C Smartphone app stores.  This $200,000 will come in every year as long as one keeps the customers happy – without having to find one new customer.  And every new customer potentially increases the annual revenue stream “in perpetuity”.

Of course there are some apps in salesforce.com’s AppExchange generating several million dollars in revenue per year – that comes in every year without having to sell a single new customer - building a sizable, sustainable, and substantial wealth generating businesses.

So What Does This Mean?

You can build a sizable, sustainable, and profitable business delivering a web services based app by working closely with a web services platform provider with a Business2Business app store. 

So…

Start thinking about what web services your target customers would value – and engage the web service platform provider that your target customers are already working with.

At Autodesk, we are just getting started building out our web services platforms for designers, engineers and entrepreneurial software developers – Autodesk 360, BIM 360 (Glue), Green Building Studio, AutoCAD WS, Fusion 360, Sim 360 and PLM 360, with more to come.   Have a great idea for a new web service for designers and engineers?  This elephant would love to dance with you. 

Related articles

AppExchange Seven Years On

VARs and Apps stores - Mutually Exclusive - NOT!

VARs and Apps stores – Mutually Exclusive – NOT!

 (Part 3 of 3)

Obtaining Trusted Advisor Status

Another experience we have seen with the Autodesk Exchange Apps store is Autodesk Authorized Resellers browsing, vetting and recommending apps to their customers.  These are not apps that the Autodesk VAR is selling – but simple delightful apps that solve real customer problems right now at little to no cost.  A few Autodesk VARs are holding webinars to their current and prospective customers on Exchange Apps store apps that the VAR is confident will delight their customers.

The time a VAR needs to invest is typically quite small to learn and then present a simple delightful app.  What is a more effective way to develop a deep trusting relationship with a customer then showing them a simple and low cost apps that saves them real “production” time – right now with no risk and no fear?

Is there real money in VARs “just” educating their customers on apps they can find in the Exchange Apps store?  You bet. 

Along with the indirect value and trust the VAR develops with their current (and prospective) customers  - that is a foundation for future low cost of sales increased product and services sales – the VAR unearths deep and broad customer needs for expanded and tailored customer specific solutions.  The VAR also has learned who the best app providers are who – important when the VAR has just a small or no software development team – who they can sub-contract services to.  In addition, the VAR is in a great position to evaluate and take on sales of “big apps” from the app suppliers they have developed a relationship with through the Apps store. Like the customer, the VARs are developing no risk no fear relationships based on real experience with the app developers work – after getting first hand confirmation from their existing customers that they “want more” from their apps.

If you are an Autodesk software partner – a member of the Autodesk Developer Network – the Exchange Apps store is increasingly a powerful tool to help you develop your own VAR channel – a subset of Autodesk’s VAR channel that deliver near 70% of Autodesk’s over $2 billion annual revenue.

As an aside…

Why have I been using the term “Exchange Apps store” instead of “App Store”?  Apple is pursuing a trademark on the term “App Store”. So to avoid a legal letter from Apple on the use of the term App Store, I avoid using is to describe the Autodesk Exchange Apps store.  Amazon is fighting back on this trademark effort by Apple – claiming “app store” is a generic term that cannot be trademarked.  Google and Microsoft are already waiting on the sidelines to see if Amazon can clear the way for their using the term “app store” to describe their - and hopefully all - on-line software stores.  In the meantime, the “rest of us” sit on the sideline awaiting a conclusion of this legal tussle between technology giants.    

VARs and Apps stores – Mutually Exclusive – NOT!

(Part 2 of 3)

Consulting and Software Development Services – High Margin Services

I know one Autodesk VAR with a free Revit app that started a new customer relationship through the Exchange Apps store that quickly led to a $78,000 custom software development contract as the customer said “love your app, can you do a bit more for me?”.  Through their experience with the VARs free app, the customer knew exactly what more they wanted – reducing the “expectations risk” all too common in delivering software development services.  The VAR had over half the software development already done as part of their free app and just needed to extend what they already had – reducing the software development risk always present when developing a new new piece of software for a customer.

Is this just an anecdotal experience?  No.  After running the Exchange Apps store for near two years, we now have numerous examples of Autodesk VARs turning free and low cost downloads from the Apps store into lucrative ongoing custom software development engagements.

Engaging a new customer with a simple delightful app also dramatically reduces the cost of sales of software development services.  For a customer, finding a software development partner they can trust is a scary high risk experience.  They can ask see demos, check customer references, use Trial versions and more – but reality is when it comes to judging ease of use, quality, reliability and support responsiveness, you really don’t know what a new supplier is going to be like until you have made a significant time commitment and financial investment.  Every customer has a horror story they can tell you about a custom software development engagement that went bad.  Except now customers can get real no risk no fear experience with a new supplier through their app on the Exchange Apps store.  They get to experience quality and reliability. They get to try out support.  They see the apps ease of learning and use – so what they can reasonably expect from the VAR with their custom app.  This dramatically reduces customer risk and fear.  And much of the “persuading, convincing and selling” is done by the customer on their own through their experience with the VARs Apps store app.

So the customer experience with the VARs simple useful delightful app dramatically reduces the cost of sale of their “serious revenue and profits” software development services – reducing hours their sales reps need to invest “selling” the customer and reducing the time from first engagement to deal close.  And that reduction in cost of sales drops straight to the bottom line – in increased profitability.

Next (and last) post on VARs and Apps stores, obtaining “Trusted Advisor” status

VARs and Apps stores – Mutually Exclusive – NOT!

(Part 1 of 3)

I am off to Autodesk’s annual sales conference this morning in Las Vegas – “One Team Conference” – where 1500 Autodesk sales people and near 1500 Autodesk Authorized Reseller’s come together to share, learn and develop their sales strategy for the year, get motivated – and most importantly develop and deepen trusting relationships.

I will be giving a presentation this year to Autodesk Resellers on how to use the Autodesk Exchange Apps stores to grow their revenue and profits.  This includes interviewing three great Autodesk Authorized Resellers on stage talking in front of 340 attendees – mostly Reseller principles – about how they can and should use the Apps store to grow their revenue and profits.

If you are not an VAR (Value Added Reseller), I still encourage you to listen closely – as this is very much about how you can partner with VARs to both find more customers and create deep long lasting face to face relationships with customers around the world with the VAR as your proxy.  Leveraging the elephant’s sales partnerships for you and your future customer’s benefit.

Many folks reflexively view a VAR channel and an Apps store as mutually exclusive – the Apps store being about dis-intermediating middlemen - like VARs.  As happens so often in business, deductions from facts often don’t match the reality of the market.  So Autodesk VARs are very successfully using the Autodesk Exchange Apps store to grow both their top and bottom line.  Here’s how.

Marketing – Engaging New Customers

Over 30 Autodesk VARs have near 100 apps in the Autodesk Exchange Apps store.  A few of these VARs apps are seeing over 1000 downloads per month of their free apps (in 11 months the Apps store has already seen over 200,000 app downloads – with 1,000,000 downloads per year “in sight”).  Now these are mostly apps that were developed with a man week or two of effort – a small investment made when they had a software developer between projects with a little spare time.  They are in most part simple useful apps that engage and delight new customers.  From a marketing perspective, what is the cost per customer lead from these apps?  With several thousand downloads over a few month period, just pennies per lead.  What is the quality of these leads – the level of customer engagement compared to leads from other marketing tools – advertising, mass email, cold calling, Facebook, Twitter, blogs and so on?  Customer engagement is huge.  The potential new customer gets to experience what the VAR can deliver in a simple delightful useful app – showing off the VARs understanding of the customer’s needs, showing off their software development skills, and how they deliver quality work.  With none of the typical new customer risk and fear. 

Next post will be about how VARs can develop their high margin services business with the Autodesk Exchange Apps store.