I don’t usually write long posts and especially not editorial ones but I will make an exception this time. I want to share my experience from publishing through the AppStore after three months of selling iTC Calc there.

The Perfect Ecosystem

        At first glance, the AppStore seems like the perfect ecosystem for small developers to sell their software. It offers you an easy way to reach a large audience, a solid infrastructure and an easy way to charge your customers. So if you are in the mainstream market, it’s the perfect deal. However things can get ugly if you plan to release software for niche markets. More about that later on but let’s start with our own case.

The iTC Calc Case

        We have been in the professional video market for years. We provide video editing services for broadcasters in Israel and aboard. We got iPhones and we loved them from the very beginning. After the release of the SDK, we wanted to have iPhone utilities for our day-to-day work. We couldn’t find any satisfying solution and the next logical step was to develop what we needed on our own. While we got close to finishing our first utility (known as iTC Calc), we thought that others might have use for it and we decided to give the AppStore a try. We polished the app to the point it stood to our standards for selling. We bought the Developer license, filled all the paperwork and we encountered one bothering clause in our contract: Apple will pay our royalties for every $250 per country and/or currency.  What does that mean? We were not sure how we should interpret it but after our first monthly report, it became clearer. Let’s say you sell a copy of your app in Japan, in order to get the royalties for that copy, you’ll have to wait until you sell a total of $250 worth in Japan alone. The same goes for Canada, USA,  Europe and even UK (although it’s a part of Europe, it uses £ instead of €).

        So, you could ask me what’s the problem with that. Well, the professional video market is a small market. We didn’t expected to sell high volumes of our software. Actually, we hoped to sell around 100-200 copies of iTC Calc on the first year and we are actually on track for this goal. But since our market is so small, we wanted to broaden it to the biggest audience possible and chose to sell iTC Calc worldwide. But, and here’s the real problem, we will get royalties from Apple only for every 36 copies sold in each one of their 8 country zones! And that is a lot more than our 100-200 planned copies worldwide. And if most of our sales come from one or two countries, we can say goodbye to the small sales in the other zones.

Solutions?

        What can we do against this situation? How can we get the money for our sales? From what I explained, it’s obvious that we have to sell more in order to get any. Not an easy thing to do when you are in a niche market with a small audience. We need better visibility and shine with better products than our concurrents.  Meaning we need good web reviews and advertisement. We got the good reviews but advertisement is a problem. We need to invest even more without receiving any money from Apple yet. For small developers like us, it might lead to a cash flow crisis. Anyway, we are giving Google’s AdWords a try for two months because we cannot afford anything else right now and we will see its influence on our sales.

        The other solution to increase sales volume is to develop more apps. More apps means more copies sold. More copies sold means more revenues. More revenues means that the royalties will finally arrive to us. We’re taking this path too. Along with iTC Calc, we released a cheaper version of our software with less features. In addition, we have in development three new apps.

New Directions

        But the big question is: what kind of app do we need to produce? Should we continue to develop high quality apps for niche market or should we produce another fart app? That’s the big dilemma we are confronted with after 3 months in the AppStore and 9 months of development…

        But wait, there’s more… Apple now gives the possibility for customers to ask for a refund for any app up to 45 days from purchase. That’s a great thing for customers. But the big problem is the way the refund is made. Apple keeps its 30% and it’s the developer that has to refund 100% of the app price. That’s it. We are getting 70% royalties but we have to give back 100%! That’s insane, especially considering that the developer will get the royalties on that refunded app only 90 days after the sale. And if this sale comes from a low sale-volume country, the royalty won’t go to him at all and this money will just have to go out of his pocket!

Fight The Future

        Apple created a perfect ecosystem that gives it an always-win situation no matter what developers choose to do in the short term. And if we put apart the minority of hit app that enter the Top List, I’m not sure developers get a lot of money from the AppStore, if any at all. Apple’s cash flow grows at our expense and the AppStore gets more and more apps from desperate developers, increasing Apple’s revenues and cash flow. Though it looks like a perfect situation for Apple, I wonder if it is a viable long-term strategy. I think that with time, developers will understand how hard it is to create successful non-mainstream high quality apps and will have to turn to “ringtone-apps” instead or just pull the plug on iPhoneOS development and move on to other platforms. With less choice, the AppStore will loose its appeal, the iPhone users will get frustrated and bored and Apple will loose everything from this.

        For us, this $250 minimum per country adding to the 100% refund is a real deal breaker and we already put on hold iTC Pro to work on a more mainstream app. But we might just pull the plug on everything and leave to Apple 100% of our sales…

Do other small developers like us feel the same? Am I not looking at the whole picture correctly?

I’m looking forward your comments and reactions.

Steve

UPDATE: Please see my follow up post here: “AppStore: Good or Evil?” a follow-up