Achieving Economy of Scale

To follow up on Friday’s article regarding time and economy of scale, there’s one point that’s very important to hit on — “the base price for most apps today is Free.”   In this consideration, I would like to refer again to the Top Ten Mobile App Revenue Models and Determining Mobile Marketing Reach.

If you think trying to monetize your app is difficult today, consider what it will be like in five years.  Nearly 90% of apps are distributed with free downloads.   For additional validation, Forbes just ran an article on this same issue.  It is hard to make money on “free”.  Doh!   Where many developers of these apps are hoping in-app advertising will provide sufficient compensation, consideration of other revenue models is in order because even then most developers are not breaking even.

First and foremost, many developers – large companies, small teams and soloists alike, have a tendency to go it alone – to do everything themselves – fund it, develop it, market it, support it, etc.  Yes, you get to keep 100% of the pie, but in most cases, that’s a very small pie.

To achieve economy of scale, you need a competitive product, a sizable audience and the resources to market and distribute it to that audience.   Preferably, these points are examined prior to beginning any project and equally take into consideration several possible projects.   Most developers engage apps they want vs. what their prospective market wants.   Savvy investors don’t throw their money into the first opportunity that comes their way – they do their research, form a short list and examine which has the greatest potential to generate the best return on their investment.   As a developer, one who wants to be profitable, doing the same is a good idea.

Examine all possible revenue models – not just in app advertising.  Are there specific businesses or industries that might benefit from your running a survey within your app?  You have the option to approach them to sponsor, promote and/or distribute your app.

Instead of selling your advertising inventory to a network, examine if there are products that you can offer through your app with the potential to get a good conversion and sales commission.   Just an example, if you have an app related to automobiles, maybe there is a car dealership willing to offer you a commission on customers you refer to them.  Or automotive accessories.

This is where determining your market reach can be enormously useful — if 10,000 people in a small geographical area have your app – you have 10,000 possible customers for any product line you want to promote.  The three items to address are negotiating commissions, establishing tracking and developing trust.

Can you conveniently expand upon your app to be part of a broader service package?   This can enable subscriptions on a recurring payment model.  Recurring payments tend to be a very lucrative format gauging from the success of telephone companies, mobile service providers, MMORPG’s, etc.

As an alternative, if you have a really good idea – try it out with on a crowdfunding project.   If your crowdfunding campaign does not go well, that serves as an indication that your app may not perform well, either.   If it does perform and people contribute, you’ve dramatically reduced your exposure to possible loss and possibly even become profitable before your app is released.

Free does not generate economy of scale by itself.   Free is used to help generate “economy of scale” for something that does have a price tag – whether or not it is the end user who is the paying customer.    As with web sites, if you are relying solely upon advertising via your app to generate money for you, you aren’t monetizing your app very well.

If you are creative and technically gifted enough to produce a good app, take a step back and examine your app within the broader context of the industry and people it is designed for.  That’s where you will be better able to find your own economy of scale and reap the rewards for doing so.

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Project Manager at the Opera Mobile Store providing Sales-Marketing support. Content development and research.

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