
Ask HN: What makes an app valuable? - mikemajzoub
Hi, HN!<p>I have some vague ideas about what makes an app valuable, but nothing too concrete. (Users? Returning Users? Paying Users? Paying Returning Users? IP? Talent of Employees? Threat to Incumbent Companies? % of Market Claimed?)<p>Could anyone provide me with either resources to scour, or just their own thoughts?<p>Thanks,
Mike
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teapot01
I'm also interested in this. From reading Zero to One and watching the
industry it seems that for a unicorn, the app needs to enter the market
quickly grow and essentially gain a monopoly over the market prior to
competitors. This makes it difficult for a competitor to gain market share.

For smaller sass apps, the standard business metrics apply: Customers,
Customer Churn, Customer growth, Costs. Protection of IP is important but
rarely the differentiating factor in this market, take a look at all the email
marketing apps for instance. There is no IP there and nothing particularly
new, they just provide excellent service at reasonable cost and are still
valuable businesses.

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mikemajzoub
Thanks - you've given me some good things to google!

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xyzzy4
Number of active users is the most important, and realistic growth
expectations.

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mikemajzoub
Thanks!

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xyzzy4
Just look at Twitter. They were worth $24 billion or so at the IPO, while
_losing_ money. If you hypothetically had every person on Earth using your
app, it would be worth tens of billions at least regardless of any other
factors.

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miguelrochefort
Why do you care? Just build something useful...

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muzani
First, let's define value vs price. Price is how much the "valuation" is, exit
price, maybe even cash flow.

Value is how much wealth it creates.

PG wrote a lot on this:
[http://paulgraham.com/wealth.html](http://paulgraham.com/wealth.html)

Basically build something really valuable, then figure out how to make money
from it. Different things have different value.

For example, Google is something extremely valuable, but they charge a tiny
amount compared to the value they provide. Twitter and Facebook create a lot
of wealth too. Even though they seem like toys, they're powerful and
influential media sources.

What about Wikipedia?

Peter Thiel brought up this idea of X% of Y wealth. Something can create 5
billion dollars of wealth, but doesn't monetize well. Examples are Wikipedia
and a lot of scientific research jobs.

Something very valuable can be bought for cheap. Something can be overpriced
and become a "unicorn" without creating that much wealth too.

How much money people have also defines its price. If two $50B companies want
to buy out a company, it can be sold very expensive. But if the only acquirers
are $10M companies, it's going to sell at a few millions max, even if it's the
same thing.

Acquiring is often used as a way to hire. If something like Facebook dumps $1B
on building a messenger, they may not succeed. And then something like
WhatsApp comes up and threatens their billion dollar baby. So it makes sense
to acquire early to cut out the threat, even at a premium.

There's also localization to deal with. Let's say you want an e-commerce
company in Indonesia, a huge and lucrative market. Logistics is very crude,
laws are complicated, and there's a lot of corruption and bribery to be paid
where an American wouldn't even know where to expect. Starting one is
extremely risky and difficult. Nobody wants to hire 300 people in a month.

This is where it makes sense to acquire at a premium.

The reverse goes for talent. Generally companies in Indonesia could not find
the same level of talent, because the brilliant people have moved to Sydney,
Silicon Valley, and so on. If tech was a key component in their dominance,
it's easier to just buy an Australian company than deal with recruiting locals
or starting a company in a tech hub.

Ego of the acquirer also plays a big factor. Some people just have a lot of
money and are in a saturated market where they can't reinvest it in
themselves. Usually telcos. They want to dump it into something that makes
money, like logistics or e-commerce or SaaS. They usually overestimate their
ability and underestimate the difficulty of the task, so they won't pay very
much to acquire.

Finally, the price of a company goes way up if it can monopolize an industry.
This is why Facebook and Twitter is worth do damn much. Nobody will go to
another microblogging site if they don't have to. Interestingly, the Chinese
have their own versions, which are just as rich.

In general, 1\. Do important things 2\. Do difficult things 3\. Do things rich
people can't do 4\. Network effects

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mikemajzoub
Thanks - this was very helpful, and I'm reading the PG essay now!

