The app gold rush may be over, but there may still be plenty of life in the golden age

Like many other software developers, we were enthralled by the prospect of riches when Apple launched the App Store for iPhone in 2008. That an entrepreneur with a mere idea could instantly reach millions of potential customers with little or no cost had us seeing dollar signs. (Everyone recalls that infamous developer who struck gold with his simple but crudely funny “fart” app.)

In mid-2009, we came up with the brilliant idea of building a location-based liquor store finder dubbed BoozeHound. The premise was simple: everyone likes booze and convenience, and we had the technology to combine the two. Working each Friday plus the occasional evening or weekend for a few months, we created a nicely-packed application (and flashy web site) ready to launch for the affordable price of two bucks. Thinking grandly we forecast hundreds of sales per day at minimum. “Our Kraft Dinner days are over!” we thought. “Pizza and beer everyday!”

A few days after our app went live, and seeing figures in the range of 15 to 25 sales per day, we faced the cold reality that if you build it, they won’t necessarily come.

We stepped up efforts to spread the word by approaching bloggers and tech review sites, but saw little interest and received coverage only from a few hyper-local blogs to minimal effect. Deciding to spend a few bucks on Facebook advertising, we soon realized that our average revenue per user was too little to justify such expenditures. We saw ourselves going backwards.

For a month we tried giving the app away for free to spur word-of-mouth marketing, but even that had negligible results. We continued to experiment with pricing, selling for anywhere between $1 and $10. We saw very few sales above $5, little difference between $1 and $2, and finally settled on $2. Sales evened out to between two and 12 units per day on average, and two years later the rate remains similar — we’re netting about $125 per month from Apple — with about 7500 users.

In hindsight, we might have been willing to blissfully downplay some angles when making our optimistic forecasts. Our app serves a somewhat limited target market (legal drinkers) and is only available in a relatively small market (Canada), factors which may partly explain the weak performance.

Nonetheless, after this reality check, and reading about other developers with similar experiences, we concluded that the App Store is not unlike any other business proposition: you still need a good product, a viable market, a sustainable price, and a marketing strategy. The handful of overnight successes popularized by social media were fringe cases of people being in the right place at the right time. Between the exploding user base and limited selection of apps, a few savvy one-man shops were able to capitalize on a time-limited opportunity.

With about a half a million apps now in the App Store (more than two thirds of which are pay-for), developers can expect some serious competition — not just within their market segment, but for users’ eyes and wallets in general. For small development shops trying to make a buck, the App Store is a poor proposition without a proper and traditional business strategy executed in tandem.

We believe that success will be much higher if an app is designed as to complement a core product or service. For example, game producers such as EA and Activision often release free or low-priced App Store games that offer a similar but limited experience to that of the full-priced console game. To the bigger guys, these apps are loss-leaders factored into their marketing budgets as another means of promoting their primary products.

One of our main sources of revenue these days is selling online quoting software, and we plan developing an app to let users view and create quotes while on the go. We will likely give it away for free. Not only will it better serve our customers, but also allow us to gain additional exposure for our core product — the real money maker — via the App Store.

The app gold rush may be over, but there may still be plenty of life in the golden age.