appbackr, which is set for its full commercial launch imminently (September 2010) following a closed beta period, intends to address one of the key problems associated with mobile application development: the long period between product creation and recognising revenue from sales. As with many businesses, the majority of the cost associated with mobile application development comes up-front, with a long period of money flowing out before any starts to come in.
Essentially, appbackr links developers with investors, who buy a number of units of an application in return for a cash payment. The backers receive a share of the revenue from the sales of these units, potentially enabling them to generate a profit on their investment, after which all of the proceeds for sales revert to the developer. Unsurprisingly, appbackr is currently focused on funding for products destined for Apple’s App Store.
Trevor Cornwell (pictured), founder and CEO of appbackr, points out that in other industries, “manufacturers typically sell their inventory wholesale, to move payment timing closer to manufacture and to enable new distribution channels.” The appbackr model has also been compared with authors and musicians receiving an advance to enable them to complete their work, which is then repaid from sales.
During August 2010, appbackr released the names of the first two developers it had signed which were looking to find funding partners. Mobile games developer Clout Mobile Games said that the funds generated would enable it to fund new products, stating that “mobile app development doesn’t yield the kind of profits to attract venture funding.” HearPlanet, which produces audio guides, said that it was seeking funding to enable the creation of additional features for its paid users, and to allow it to implement strategic deals to expand its market share.
While it is still early days for appbackr, the company said that initial interest has been high: by mid-August 2010, it had more than 1,000 requests for invitations from sellers and buyers, ranging from individuals to companies producing multiple products. With a minimum purchase commitment from buyers of just US$100, there is the potential for small investors to become involved in the mobile app marketplace via appbackr, as well as for investors looking to participate on a larger scale.
Cornwell says that, so far, the company “hasn’t yet reached out to larger developers, but they all suffer from the same challenges: distribution and payment timing. We can help with both.”
When it comes to products, the mobile app sector is already crowded, with Apple stating that the App Store has more than 250,000 titles available, and numerous reports asserting that while a small number of titles are generating significant revenue, this is not the case for the vast majority. For those looking to invest, it is very much a case of caveat emptor.
Cornwell believes backers of applications can undertake actions that will directly affect the performance of products, such as running marketing campaigns to guarantee a return on their investment. Because they can take actions that affect sales, the level of risk involved is “in the control of the buyer.” Of course, “good apps will always sell better than bad ones, so it is a good idea to look for promising apps.”
Certainly the key to success could be where developers are able to work with backers who can offer more than just funding; for example, an investor with a presence in the travel sector working with a provider of travel applications, where there is the potential for cross-promotion. And of course the developers with the most appealing applications will always find it easiest to attract support.
Shares of the pie
appbackr has two different revenue share models for investors and developers, depending on whether products are “concepts” or finished applications. While the former has a greater risk, it also offers greater rewards, whereas the latter removes much of the uncertainty associated with investing in unproven projects for a smaller potential payback.
appbackr itself takes two bites of the cherry: it keeps a cut of the cash provided by backers to fund developers, and it takes a share of the proceeds from iTunes when the product is sold. With Apple also taking its percentage off the top, this means that the revenue cake is being sliced more thinly still. Cornwell’s argument is that “compared to every other alternative, including a net present value analysis on many apps, appbackr is a bargain. When you consider that wholesale sales represent incremental retail purchases, wholesaling can be tantamount to found money.”
In addition to linking buyers and sellers, appbackr also provides fulfillment services as part of the deal: proceeds from transactions are deposited in an appbackr account linked to the seller’s App Store developer account, which are then reconciled with appbackr’s records so that the proceeds can be distributed to the appropriate parties via PayPal.
Onward and upward
While it is still early days for appbackr, the company is already “considering” expansion beyond its current US base. It is also “actively looking at Android,” as well as “some verticals outside of apps,” according to CEO Cornwell.
|Headquarters:||Palo Alto, California|
|Key Execs:||Trevor Cornwell (Founder, CEO); Sam Zappas (Co-Founder); Robert Clegg (Product Development)|
|Awards:||PayPal X Developer Challenge (2010)|