So you’ve built the mobile app, and you’ve got a bunch of people using it, but it’s no Instagram. Now what? It’s not as easy to raise Series A funding as it used to be, and mobile apps are a tough, hits-driven business.
An emerging option is to try to sell the application. Not for $0.99 on the App Store to all comers — the whole app, to another company or developer who will take over managing it and its users. It’s the opposite of a talent acquisition: the buyer gets the product, but not the people who made it.
One marketplace for apps, called Apptopia, has sold more than 100 apps for a total of $388,000 in its first year, it told me this week.
The Boston-based company, which is backed with more than $1 million from investors including Mark Cuban, is a sort of specialized eBay that now attracts repeat buyers and facilitates all the tricky parts of the transfer process. It takes a 15 percent fee and has experimented with different strategies, including time-based auctions and a sort of standing catalog of apps.
What it really comes down to is this: People want to buy apps that have lots of users, according to Apptopia founder Jonathan Kay. He did the math and established that the average price per user on Apptopia transactions is $0.55. Kay pitched it as a steal, considering developers often pay much more on services like Tapjoy. Because once you have users, at the very least you can make money from showing them ads.
But the notion of buying an app just to get to its users can be kind of gross, especially if the buyer tries to transfer the users to another project, or mines all their email addresses. In an interview, Kay was quick to downplay that risk. “People only do sketchy things to the extent that it works, and it just doesn’t work. There will always be sketchy assholes, but what they’ll see is it won’t even convert a little bit.”
Sellers and buyers on Apptopia described the service as a way to trade assets in a way that’s much less emotional than the standard tech start-up. You build an app, you sell it, you move on. You buy the app, you try to turn a profit.
Of course, not all listed apps are sold. One app, Flashlight, attracted attention when it put itself for sale for $1 million in August. The buy-it-now price has yet to be met.
Gabor Cselle is in some ways a totally typical Apptopia seller and in other ways not at all. He and his potential co-founder Jeremy Orlow worked on Google’s Android, Chrome and infrastructure products until recently. They got together earlier this year with the idea of doing a start-up.
“After we worked on really complex projects, we wanted to do the simplest, funnest idea,” Cselle said this week. So along with a designer, they built a free iOS app that allows users to draw pictures and send them to friends. That’s it.
DrawChat launched in September and has been downloaded about 10,000 times. “I think it would be hard to say that my dream in life was to create a drawing and chatting app, but it was really fun,” Cselle said.
Two weeks ago, Cselle posted DrawChat on Apptopia so he and Orlow could move onto bigger ideas. The minimum bid was $10,000, and Cselle said he personally hoped to get $25,000, which is approximately how much he valued the time and resources taken to build it.
Cselle got Kay to put a week-long limit on the sale, and used his personal brand to attract press for it. Kay’s advice was to leave the listing up longer to elicit a higher price, but Cselle wanted to be done with the whole thing fast.
The app ended up getting multiple offers and selling for $15,010 to OneLouder, part of Kansas City-based mobile app company Handmark. OneLouder wants to incorporate DrawChat into its existing Powow messaging app. The transaction is nearly complete and includes Cselle and Orlow flying out to give OneLouder two days of work in person.
Cselle said Apptopia was a one-time thing for him, and said he expected to try to raise venture capital when he does his big-idea start-up. “Maybe I spent more than I got out of it, but for me it’s not just the money; I learned a bunch of stuff,” he said.
OneLouder had never bought an app on Apptopia before, but the site is also home to speculators who build portfolios of mobile apps. I spoke with one, Jean-Marie Truelle, a hedge fund analyst who has built a personal portfolio over the past two years of about 15 education, game and entertainment apps, eight of them bought on Apptopia. He’s not a developer himself, but he’s hired a small team to improve the apps he buys, tie them together and monetize them.
Truelle’s largest buy to date was $25,000 for an independent Android app for 9GAG, the popular crude humor site. Traffic-wise, this was a biggie. The app (both a free and a $0.99 version) was listed in September with 375,000 daily actives and more than 12 million daily impressions by an independent developer in Germany.
But there’s a small problem. 9GAG has said it wants to build its own Android app, so the fate of the outsider app is in question. Still, it is clearly serving many people’s needs while they wait for the official version — and putting money into Truelle’s pocket via banner advertising.
Truelle said he has never talked to 9GAG, though he was told by the selling developer that they had discussed working together.
But 9GAG co-founder Ray Chan said via email that his company was working to challenge outside developers’ usage of the 9GAG trademark. Chan did not sound the least bit friendly to the idea of these outside apps. “They maliciously claim to be the official 9GAG app and it puts our users’ personal information at risk,” he said.
When told of Chan’s comments, Truelle said he realized that he needed to expand the 9GAG app so it wasn’t so dependent on one site.
Apptopia founder Kay said this strategy of buying apps and fixing them up has already worked. For instance, a puzzle app called graBLOX sold for $10,000 in April with less than 10,000 downloads. Under new ownership and with improvements, the app has now been downloaded more than one million times.
But putting your app up for sale isn’t for every developer. Dan Zheng’s start-up EggCartel made a mobile marketplace app EggDrop that shut down for various reasons in October, including failing to raise follow-on funding and receiving a cease-and-desist from Craigslist.
Zheng said he would rather shut down his app than try to sell it and recoup some of his seed investors’ money. “I strongly believe in doing right by your users,” he says — and an acquisition in which the most valuable asset is the user base is probably the least likely to actually benefit the users, he said.
(Image courtesy of Shutterstock/Murat Yilmaz)