

Apple and Facebook application development: A rush for fool's gold? - mjfern
http://fernblog.com/home/2009/8/6/apple-and-facebook-application-development-a-rush-for-fools.html

======
pj
When I think about building software, I think about the long term benefits of
the software to humanity, or if I'm working for a particular company, the
benefit to the organization.

So if I am going to spend my time developing something, I want it to never go
away. Facebook will go away. The iPhone will go away. These are fads.

What people who think like I do often fail to understand, is that most of the
world doesn't think like we do. They want money. They want popularity. Even if
it is fleeting.

My question is: Where is the balance? Think about investing. If you have a 20
year vision and invest in those companies, you have to have 20 years of
patience. Plus, how do you _know_ your vision of 20 years out is the correct
one? How do you know how much vision you have? If you consistently think 5
years ahead of the masses, then buy companies that the masses will think are
awesome in 5 years.

If you are 3 months ahead or one year ahead, then buy those kinds of
companies.

It's the same with building applications. You are building applications ahead
of time for a market that will want them by the time you are finished building
it. For example, if you build a facebook app and that app is going to take 5
years to complete, well... facebook may be gone by then and you are wasting
your time.

So what you are stuck with then, is building applications that don't take very
long or are targetted toward a massive population with lots of investment and
horsepower behind the app that can be built very quickly. Of course companies
that can execute like this can make money building apps for one platform after
another making money off the network effects within that platform. It's not
just facebook, it's salesforce, quickbase, microsoft, java, oracle, php, the
list really is endless...

So, to summarize, how do we determine how much vision we have? How do we
determine how long it will take to build an app? How do we determine when the
platform on which we build our apps will cease to exist -- if ever?

~~~
cellis
That isn't possible. You can't think long term in an industry that changes
every month. You must strike while the iron is hot!

~~~
mechanical_fish
The truth lies in between.

You can think long-term while _also_ delivering software for a fly-by-night
platform. You just have to understand the difference between an app or
business model and various _instantiations_ of that app or business model.

Just because Garmin's software for the Palm OS is obsolete doesn't mean Garmin
is obsolete. The iPhone OS was originally developed for the NeXT cube, before
many HN readers were born. Microsoft Word was originally written for _Xenix_
systems, then ported to DOS, then the Mac, and finally ported to Windows. The
obsolescence of the DEC PDP-7 didn't hurt the Unix platform. The fact that all
of Electronic Arts' software is hopelessly obsolete within a handful of years
hasn't stopped them from staying in business for decades.

There are apps being prototyped on Facebook and the iPhone today that will
have decades of life on one platform or another.

------
mjfern
I am the author of this blog post about Facebook and iPhone application
development. Thank you all for your comments and thoughts. There are some
excellent points raised here. Let me expand on my post in several ways,
drawing on some of your comments.

Several HNers have suggested that my post misses the point that not all
developers for Facebook and the Apple iPhone should be classified as new
ventures. I agree, and I could have been more clear in my post. There are at
least three types of developers: a) hobbyist/part-timers that are developing
applications in their spare time; b) established firms that are porting
existing applications over to Facebook or the iPhone for the purpose of
expanded distribution or marketing; and c) new ventures that have been founded
to develop Facebook and iPhone applications. My post speaks most directly to
this last type, new ventures founded to primarily focus on Facebook or iPhone
application development. These are the firms that are depending on generating
enough revenue from their Facebook or iPhone applications to support and grow
a software business. Given the current economics of the Apple App Store (and
probably the Facebook platform) I think the outlook is bleak for most of these
firms. Of course the outlook would improve if customers’ willingness to pay
for applications increased, if paid application downloads increased, or if
application revenue was augmented through other sources, such as advertising
or in-application purchases.

Several HNers have questioned the scenario analysis. The analysis is
admittedly rough, as noted in my post. I based the analysis on several
assumptions, most of which were informed by publicly available information;
e.g., the July 14 Apple Press release, App Store revenue allocation, the App
Store top selling application lists, etc. Some of the assumptions are rough
educated guesses: the percentage of apps that are free versus paid (I assumed
50%, which is a very generous assumption) and the eventual concentration of
the market (10 firms controlling 25% of the market). I believe the scenario I
presented is plausible in view of current information. Of course there are
many variables to consider and the landscape is evolving quickly, so the
scenario I presented might miss the mark considerably. For instance, as noted
above, application downloads might increase significantly, willingness to pay
might increase, etc. Despite this uncertainty, I believe the analysis is
informative because it shows how the current economics of the App Store can
not possibly support anywhere close to 100,000 developers, or even 10,000,
unless a vast majority of these developers are hobbyists or establish firms
not relying on these applications for revenue generation. Furthermore it
suggests that very few, if any, new ventures dedicated to iPhone application
development will realize the top line revenues that will satisfy a
professional investor. In the scenario I presented just 0.01% (i.e.,
10/100,000, or one hundredth of a percent) of current developers participating
in the iPhone developer program will realize $10-15 million in annual
revenues. This is striking given the number of venture capitalists that are
financing companies dedicated towards iPhone (and Facebook) application
development. Admittedly, venture capitalists will fund the more competent
ventures that have a higher chance of success, but what VC would have guessed
that the top free and paid applications would include iFart, the Moron Test,
and Mirror Free.

Let me be clear that I think there are opportunities in these markets.
However, I believe that given the very low barriers to entry combined with the
economics suggest that the fluid phase may persist for an extended period of
time and the shakeout might be particularly harsh to new ventures. PJ
suggested that it’s a mistake to build an application for a potentially
ephemeral platform such as the iPhone or Facebook. I agree. It seems that the
new ventures most likely to succeed over the long-term are those that develop
excellent software that are platform agnostic. Does iFart and Mirror Free fit
this model? I don’t think so.

------
ShabbyDoo
Several posters have taken it as a given that software ought to live for a
long, long time. That's a philosophy worth considering, but many people just
want to make money.

If you lived in Atlanta during the '96 Olympics, you might have rented out
your house for $10K for the month. That's a great "business" even though you
know it will fail a month from now. However, you would not be rational to note
that rents are now $10K/month and buy up a bunch of houses using that rent as
a long-term factor in your business plan.

There's nothing necessarily wrong with building iFart, etc. But, it's absurd
to pretend that revenues for fads like these will continue. I am reminded of
an article I read about the business of opening up trendy nightclubs. The
experienced owners think that it's impossible for a club to remain trendy for
more than two or three years. So, they open them but build a business plan
that doesn't anticipate long-term revenue with the expectation that they'll
build their next one while the current one is still doing well.

Note that I believe Facebook/iPhone apps can be a great extension or component
of a long-term business model, but that model can't be predicated on the
continued popularity of those platforms alone.

~~~
rythie
I agree.

I think mostly people on HN are interested in making apps that provide real
value to users and business for the long term.

Some people just want to get 2 months pay for 1 month's work and make they an
iFart app or whatever to achieve that. It's not a long term bet but it makes
more than being employed - for some people that is all the care about.

Also, the OP talks about companies being founded but I would guess in most
cases Facebook and iPhone apps are people side projects made in their bedrooms
or instead of doing consulting work. Those people are realistic and don't
expect it to last, it's just a way to make money in the short term, they'd
leave if there was more money to be made elsewhere and will probably leave
anyway as the race to the bottom plays out.

------
mattmaroon
This is meaningless and misses a golden opportunity to compare and contrast
the two platforms. Instead it just throws out a bunch of gibberish numbers and
compares apples to oranges, states that it's comparing apples to oranges, then
continues on with the comparison.

Most "internet" businesses fail. Most restaurants fail. That doesn't mean
anyone who starts a pizza place is in a rush for fool's gold.

The problem is that most people do things half-assed and cluelessly. Even most
entrepreneurs. It's simply meaningless to count everyone who worked full time
on a Facebook app as an attempt at anything.

~~~
dasil003
Well given that the blub paradox extends to business-savvy as well, I think
it's reasonable to throw some rough numbers out there for prospective entrants
into the market to have some idea what they're getting into.

However I agree with you that it's ridiculous to dismiss the market based
purely on these numbers. First you would have to compare to other markets you
could develop software in. You have to factor the entrenchment of market
leaders in those segments, and also how each of the relative markets are
growing or shrinking. Finally--and this is the thing that is keeping me out of
iPhone development--you have to factor in the risks of developing on a closed
platform with strict and arbitrary entrance requirements and how those things
may change in the future.

Both Apple and Facebook have the ability to rip the floor right out from under
your profitable app. Personally I think they are both great platforms, but I
would not limit myself to them unless I was just trying to do a quick flip. In
terms of long term value I would want those apps to be tied to some valuable
backend service or open web technology that would not completely kill the
business if Apple decides to kill my app.

------
ektimo
_"The 1-2% that succeed can expect an upside of around $10-20 million in
annual revenues. This isn’t quite a lottery, but it’s depressingly close."_

A lottery ticket costs $1 and isn't worth it. A 1% chance to "win" $10 million
would arguably be worth $100,000. I wouldn't say it's close. (And that's not
even counting that this is annual revenue.)

~~~
ektimo
"Winning" iPhone/Facebook: 1 in 100. $10M _per_ year.

Winning Mega Millions Jackpot: 1 in 175,711,536. $12M _paid over_ 26 years
(<http://en.wikipedia.org/wiki/Mega_Millions>)

------
treyp
I've commented before on the false number of developers that Facebook recites:
<http://news.ycombinator.com/item?id=687796>

Considering he's using their numbers for his calculations, the entire premise
might fall apart.

"Another intellectually dishonest number I hear Facebook recite is the number
of developers. They get this number from the number of people who have
installed the developer application. In the first year of the platform, that
was 400,000. I know numerous friends who know nothing about programming that
installed the developer application in that first week because they didn't
know what they were doing. They recite this figure as if hundreds of thousands
of people have devoted their lives to making Facebook applications. Sorry to
burst someone's bubble, but it just ain't so."

~~~
spolsky
Yeah. 900,000 developers isn't even remotely credible.

------
pxlpshr
No it's not fool's gold, startups are generating millions in revenue from
both. They are simply a reflection of a globalized market place, you're
competing with developers in under developed countries. What's fool's gold to
you, is riches to them.

Don't mistaken AppStore or Fb for anything more than a distribution platform.
Hopefully Apple and Facebook will address the growing problem of app-overload
so quality can bubble to the top, but it's not their fault you're facing more
competition. And for all the faults — they've both solved a lot of really big
problems and continue to drive innovation.

Yes it's hard and frustrating at times. But, building a value-driven business
takes years of dedication. 37signals, amazon, apple, ms, gary v, digg, flickr,
fb, are not over-night successes. Put down Fast Company and pickup Forbes once
in a while.

------
allenp
I really think this article is missing the point of many iPhone and FB apps -
expanding the interface into existing applications (hoping to increase
customer usage/stickiness/retention) and customer acquisition through free and
nearly free experiences.

The real question is, "Are there times when a platform specific application is
the best move for your business?"

------
Estragon
So I gather that in a gold rush, all the money's in selling the shovels. Are
there any common technical problems associated with these applications?

(I tried asking this question in its own thread, but it didn't get any
traction: <http://news.ycombinator.com/item?id=747882>)

~~~
psawaya
The shovel:gold rush analogy usually works well for most types of businesses,
but it seems that most software (particularly on the web) is sold as a
platform of some kind. The Unity engine, for example, seems like a really cool
shovel that no one has bothered digging with.

~~~
cellis
Off topic, I am an indie game dev who's checked out Unity,played with it, and
-- after the initial euphoria wore off -- don't see much difference between it
(with ~3% market share) and Shockwave (with ~30% market share). What are your
thoughts?

~~~
psawaya
Now that most home computers have are powerful enough, I definitely think that
3D in the web browser will get more popular, and that a standard will emerge.
Director/Shockwave has been around for a while, and naturally has been adopted
by more users.

Unity is a lot more powerful, and includes a physics engine and shader
support. I don't know how much Shockwave supports those things, if it does at
all, but I'd imagine Unity is a lot more focused on advanced features. It's
not the Source engine, but it's advanced enough to build stand alone and
console games, with the web as one option for deployment. I think it boils
down to how much users really want realistic physics and other high-end game
features in a web game, and that's hard for me to say.

There's also Google's O3D, which is also very powerful. Right now, though, it
seems to be just an experimental Google Labs project, and not a real product.

------
devin
I think a lot of people are missing the big picture. I am very interested to
know how many of the developers on the Facebook and iPhone platform are _new_
developers. Just look at all of the courses being offered at community
colleges on iPhone development. I really believe that the iPhone might be
producing a bunch of crap software in the short-run, but in the long run it's
producing developers for the mac platform, which is way more important.

------
jsz0
It may be fool's gold but you gotta give the people what they want. If you
don't try to compete you have a 0% chance of success. If you want to be a
successful software developer/publisher you need to offer a product in the
markets people are interested in. What chance is there of an app of comparable
quality & depth to a $5 iPhone app being more successful on the DS/PSP?
Windows shareware?

------
jimboyoungblood
Breaking news: There are a lot of iphone developers. A few will find financial
success. Most will not. Follow me on Twitter to get more amazing insights.

~~~
wmeredith
This pithy bullshit comment is a disservice to the OP. He backs up his
analysis with some interesting projected numbers and market research in other
areas that experienced similar growth.

The post is worth reading.

~~~
jimboyoungblood
Let's look at some of his "projected numbers" and "market research"

 _Assume 1,000 application developers are competing in this market, 1.5
billion applications are downloaded annually, consumers pay a price of 99
cents per application_

Only 1000 developers worldwide? How in the world do you arrive at that number?

1.5B apps/year? _All_ of them are paid? The vast majority of downloads today
are free apps. Without even giving a nod to the free vs. paid split, I am left
to wonder if the author has ever used the app store himself.

$0.99/app? Is that just because most apps today are $0.99?

Also, what about in-app purchases and other ways to monetize apps
(advertising, perhaps?)

Sorry, the projected numbers are pulled out of thin air, and I see no
"research" to speak of.

The only interesting part imo, was the attempt to compare the app market to
the automobile industry, but then he says: "The barriers to entry for
developing an iPhone or Facebook application are much lower than producing an
automobile, both in terms of capital investment and technological uncertainty.
It takes just a few hours or days to develop a new iPhone or Facebook
application...", which basically renders the analogy hopeless (and shows an
incredible lack of respect for the complexity of many apps.)

I'm left with the distinct impression the OP doesn't have a clue about this
market.

~~~
credo
>>1.5B apps/year? All of them are paid?

No, but the blog never said that.

The blog explictly says "Furthermore, assume that half of applications are
given away for free,.... "

~~~
jimboyoungblood
You're right. I stand corrected. (But on the other hand, the assumption that
the free/paid split is 50/50 is ridiculous as well.)

It seems like he built an Excel spreadsheet, plugged in some different numbers
for various assumptions, and then blogged about how the different inputs
affected the outputs. I fail to see how this produces any meaningful new
insight. It's basically just a first year MBA's homework assignment.

