When a colleague shared an article today that Appster filed for liquidation, I was a bit taken aback. My relationship with Josiah Humphrey goes around 5 years back…when he was someone looking for devs on Upwork (then Elance) for one of his clients and I was among the ones looking for work for myself. Things have grown from there. Both I and Josiah do not visit Upwork anymore. While I dedicated my time to build an Upwork alternative — RemotePanda, Josiah has become an industry stalwart with Appster consistently being ranked among the top agencies.
Our connection has been limited to Skype and Linkedin now but yes I do often check his profile for inspiration and getting to know whats going on in the app world.
Today as I saw Appster news, I thought of reasons what could have gone wrong for the guys. Here is my take.
1) App development demand is drying up
App development saw its peak between 2010–2015, that’s when the industry was new and you could ask for whatever price you wanted and the client would pay for it, but now in 2018/19 that is not the case. The market has become saturated with App Development companies, so any company whose revenue is completely dependent on developing apps is in a tricky situation right now.
“Paul Vartelas of BK Taylor & Co has been appointed administrator. He has said the main reason for the collapse was a “sharp drop” in available work over the last six months”
The demand is down because there is no more incentive for new players to come in and build apps. Almost all of the top 30 apps on any Appstore have remained the same year on year, with the only exception of Flappybird. Nobody is beating Skype or Google duo in the video chatting vertical anymore, they might be getting a fight from WhatsApp but WhatsApp is a leader in another vertical. So its like they are all just fighting amongst themselves to be leaders in most categories. Thus, the economics does not work for people to build new apps because most verticals are now saturated and the chances of coming in the top 100 apps are like slim to none.
2) Deal size does not justify the lifetime value of the client
Contrary to typical IT sales, size of an app deal is usually 3–4 months long (50–100K in revenue). This means that the sales engine should be running fast enough to keep bringing new demand. If demand diminishes you can still get a new sale every 3 months…isn’t it?
Well, thats where having a bigger size could be a problem.
With an average deal size of around a 100K means, they need around 100 new clients every year. Now, this is possible when the tide is high but not in the markets like I mention in point a - where the market has lost the incentive to build new.
“Surprisingly we were in one of the best cash positions the business had been in, just four months ago, but things spiraled out of control very quickly. We missed forecasted sales targets by about 50 percent four months in a row … with expenses of roughly $1 million per month, our cash reserves were depleted very rapidly despite attempting cost reductions,” they said further.
In addition to this, having ambitions to be the premier company requires a lot to be spent on overheads and on experiments that may not convert to profits instantly.
This brings me to my next and most important lesson
3) Do not mix products and services growth plans
In 2014, Forbes quoted Appster to “expect to hit $100 Million in annual revenue within the next four years. To fuel that revenue growth, the company is currently opening offices in Canada, the U.K., and Germany and ultimately aims to scale to forty-two countries”
They even had people like Former Founding PayPal CFO And Virgin Australia Executive as part of their board.
Sounds like the recipe to success. No its a recipe to disaster because the ingredients that you are buying are for building a product growth strategy and not service growth strategy.
A services business is linear in scale and so are its costs and profits. No amount of funding or add-ons can change the linear growth model to a nonlinear model of a product.
A quick glance on Appster website shows their commitments towards building IP, trademarks and so on but were they really required?
In the end, I would add that though I pointed out things that could have been done right and what not, I the guys would have seen that already and must have taken decisions that were best at the time. I have actually adored Josiah and Mark for their zeal and contagious enthusiasm in building Appster to what it is today. It started at $3000 and still remains a multi-million dollar company.
A salute to the guys who dreamt and built it on…