Yes, you can build business around selling paid iOS applications

For the last couple of days iOS developer community discussed very important question: is it possible to develop paid iOS software and have a sustainable revenue stream?

It all started with the news of the Sparrow acquisition and follow-up post by David Bernard. Marco Arment’s comment to the case was:

There’s also some evidence that suggests that Sparrow was making $70,000–90,000 per month. Those are great numbers, but with a staff of five people in the cut-throat market for engineering talent, it goes quickly — a good developer may cost $15,000 per month to employ after all of the benefits and overhead.

Those income numbers were probably also for the good months. As any App Store developer knows, its income is like a roller coaster: you never know what you’re going to make next month. It could be 25% or 400% of last month. So when you have the high fixed monthly costs of a full-time staff, you need very high profits in the good months to keep you in business through the bad months. It sounds like Sparrow just didn’t have enough breathing room.

The current output of the discussion is that developing paid software for the iPhone or iPad is a bad choice for anyone starting new company or wanting to quit their full time job.

These comments left me wonder why almost everyone thinks this way while there is some evidence of the opposite situation. Then I realized that there were no information to support another point of view and I have decided to add my 5 cents to the discussion.

First of all, it is possible to bootstrap a company that develops paid iOS products, employs people and makes profit. We’ve done it at Readdle .

Other companies like Good.i.Ware, QuickOffice, Penultimate, Branchfire (iAnnotate), Viet Tran (Notes Plus) has built sustainable businesses around this model too.

Let’s have a look at the main criticisms of the paid app approach:

1. It is impossible to sell paid productivity app for $70 000 per month. Just have a look at the paid charts, they all populated by games and entertainment.
2. Even if you make point 1, you cannot do this for 12+ month straight.

The following thoughts are from my own experience at Readdle and years of the App Store observation. Please note they apply mainly to iPad market since productivity apps have more usage there.

1. It is possible to make $70 000 a month selling paid iOS app that will sell well for 12+ month.

Lets have a look at how many paid productivity apps made by companies other than Apple made themselves into the top 200 grossing apps for the iPad in the US App Store:

6 – Quick Office
66 – GoodReader
68 – PDF Expert
74 – Documents To Go
110 – iAnnotate
140 – Documents To Go
145 – Splashtop
153 – Air Display
166 – Office2 HD
180 – OmniFocus
187 – Jump Desktop
189 – Notes Plus
190 – Notability
194 – Noteshelf

Every single app in the list makes more than $75 000 a month, because from our experience bottom line of the 200 top grossing apps list is around $2500 per day.

Equally important is that almost all of these apps stay in Top Grossing list for at least 12 months. Many, like QuickOffice, GoodReader, PDF Expert, Air Display for more than 2 years. Not bad, right?

Even more interesting thing is a number of applications that generate revenue of around $30 000 per month and didn’t make to that list. I would say these are Top 30 grossing apps in Productivity section and top 15 in Business.

2. Product line works better than single app.

Lets roll to the the main topic of building a business around selling paid iOS applications. Another point, that is usually missed in the discussion, is that you can have two apps making $35 000 each to get $70 000 in revenues (per month). Or it could be three apps.

It’s much easier to create and promote several apps to achieve medium revenue stream than to make one top grossing product. Also, it’s a great way to protect yourself from the App Store fluctuations because they rarely affect two apps at a time. If they do, it’s not a fluctuation anymore but rather a trend. For example at our company no single app makes more than 30% of the whole revenue.

3. Developers outside the US have better chances to build a business around paid apps

Many iOS developers are located outside the US, where salaries are two times less than in the US. If you can develop app overseas, then you need around two times less money to keep your company afloat. Once you build up a good revenue stream you can expand to the US (if it makes sense).

4.  Set your price not less than $4.99 in the long run.

It’s really hard to sell thousands copies of your application a day. Insanely hard. It means that $0.99 price point makes it almost impossible for you to reach $30 000 per month, that you need to sustain even the smallest team.

However, it’s possible to sell several hundred copies for $9.99 or even $19.99 if your product is worthy. Just have a look at the top grossing productivity app list – there are only two apps that cost less than $4.99 there.

In general, I think that any iOS developer who can build good productivity applications have a chance to succeed. If you are outside the US it doubles your chances.

Alex Tyagulsky, Readdle co-founder