Techneur

Yesterday, Steve Jobs announced the new iPhone - better known as the iPhone 4g. You can read about all of the hot new features all over the web. If you haven’t seen this video, you should watch at least the first few minutes:

In 2007, technology changed the future of mankind. The release of the iPhone was the start of the mobile revolution. The iPhone was the first smartphone that truly worked like how you would think a smart phone should work. It was intuitive, it had the best design, and it did a few things well - instead of doing a bunch of things half-assed. It definitely had its shortcomings. Most geeks and hackers couldn’t see past those short comings. They couldn’t see how the iPhone wasn’t aimed toward them, and it pissed them off.

What is more powerful than being able to communicate with someone on the other side of the planet instantly AKA the internet? The internet in your pocket. Considering the demographic of this blog, I realize that many readers may think that I’m stating the obvious. You see, I believe that the GPS/Internet smartphone will revolutionize EVERYTHING. This is just the beginning.

Three years ago, it wasn’t really feasible to know where all of your friends are. Now, with services like Loopt and BrightKite you can. You can find out where your friends have been using Gowalla and FourSquare.

Three years ago you had to carry your MP3 player and your camera if you wanted to take good pictures and listen to music. You couldn’t buy music online your mobile phone. You couldn’t find directions on your mobile phone. You didn’t have a personal assistant. You couldn’t download books at the touch of your finger. You couldn’t download popular 3D games that you’ve played on your console.

Three years ago you couldn’t video chat on your mobile phone. Look how much has changed in three years.

Apple is the new Ford. At the beginning of the 20th century, cars were expensive and complicated. That’s what so many people forget about the iPhone, people claim that their beloved phone can do everything that the iPhone can do. What they forget is that Steve Jobs is bringing the smart phone to the masses, much like Henry Ford revolutionized the auto industry by bringing the automobile to the masses.

History will see the iPhone at beginning of the 21st century as the spark of innovation for the entire 21st century.

What do you think? Do you think that we are at the beginning of a revolution?

Follow me on Twitter: @jprichardson

-JP Richardson

Five days have gone by since the last installment and we’ve learned what has and hasn’t worked.  Final Madness made it all the way to no. 13 in the Free Sports category.  The March Madness app held tight for three days until dropping back to the twenties.  I’ve crunched the numbers, made some predictions, and our team has restrategized.  Want to know how many downloads it takes to break top 20?  Wondering how many views you need for an ad strategy to pay off?  Reflect7 has gone through the journey and made the mistakes so you don’t have to.  Think of us as the tour guide that always dies in the horror movies, except with smaller man-boobs.  So follow us down this dark cave as we explore the creepy caverns of the app store.

Brief Recap

How downloads correspond to rank:

Last Saturday morning we were sitting in the mid 30s in the Free Sports category. We had high hopes for our conversion strategy: cross promoting to our other 60,000 sports fan customers.  We’re still executing but it has already paid off. 

Stats:

Saturday was big for us, propelling Final Madness to the top 15 spot in the Free Sports category.  Sunday was even bigger, helping us climb all the way to number 13.  We’ve learned that it takes about 1200 downloads to break top 15 in the Free Sports Category.  It takes about 650-750 to place in the top 19th-22nd range. I’m estimating that we need around 1600 to break top 10 on the weekend and about 1300 to break in top 10 on a weekday.

Visibility:

So why do we care about getting to the top of an app category? Visibility. 80% of iPhone users purchase apps from their mobile device.  80% of apps sold are free.  In order to be successful, Final Madness has to have a presence in two very important mobile lists.

1) Top 25 in Free Sports

2) Top 5 when a user searches for the term “March Madness”

Anything ranked lower is beyond the mobile default view and out of the users periphery.

It’s also important to make one app store desktop list:

1) Top 20 in Free Sports

This view is showcased on the sports category main page.  Anyone perusing the sports section on their computer will be exposed to this list.

Guide Lesson: Visibility is key.  If you can push your app to top 15 in it’s primary category, you’re getting great exposure where it counts.

Monetization: Ads or In-App Upgrade

Pleasure & Pain:

Our monetization strategy was simple.  Offer a free, ad-supported app with the ability to upgrade to no-ads within the app.  Motivational experts argue that there are two primal motivators for human action: Avoiding Pain and Seeking Pleasure.

Our strategy was to utilize these emotions in a way to maximize revenue.  Here’s what we did:

Avoiding Pain: We placed ads in an area at the top of the app that would annoy the customer just enough to purchase the no-ads version.  Honestly, I think they are only semi-annoying, if even that.  JP wanted to play a Jonas Brothers song each time a team scored but I said, “JP, we want users to upgrade, not commit suicide.”  So we left it out… for now.

Seeking Pleasure: If a customer upgrades, they will receive push notifications when a game ends.  They will also get all of the brackets and stats from 2003 until present.

Right now our conversion rate is low (around 1.7%), and it might stay pretty low given that a lot of competition has entered the “Free” zone.  I suspect we will see a higher conversion rate once March Madness actually starts.

Guide Lesson: If you have an upgrade mechanism, make sure to not only motivate your users with new features, but also with minor annoyances if they haven’t upgraded. 

Adding it up:

We’re expecting ads to be our main source of revenue.  As of midnight on Wednesday we’re sitting at a whopping $24.05.  That’s enough for JP to buy 24 McDoubles, or in Corey’s case, 10 Happy Meals. 

Stats:

At the moment, we’re assuming that users are spending little time within the app because March Madness games don’t begin until next week.  If you can afford the overhead and the programming time, I urge you to embed analytics code within your apps.  Knowing how long each session is and what parts of your app customers are using is invaluable.  Our ad server, Mobclix, has this code available and an analytics page that looks pretty snazzy. 

I won’t go into the math, but we can guesstimate that the average time per Final Madness user is around 2.6 minutes.  That’s enough time to see 6 ads (30 second ad rotation).  The chart above shows that we have a .69% click-through-ratio (CTR) which has earned us an average of $.53 eCPM (effective Cost Per Mille - for advertisers to display a thousand ad impressions in our app).  Here’s the revenue table for Ad Impressions vs. eCPMs:

A very optimistic projection is that we will have 18,000 active users by March 18th (I’m thinking 16000, but with 18k, it’s easier to display the math).  I also predict that users will double their daily time in our application to 5 mins 12 secs.  We’ve lowered our ad rotation to 23 seconds so those users will see a daily average of 14 ads.  If these numbers are close, then we should show around 252,000 ad impression each day (18,000 users x 14 ads per user).  With Final Madness having a $.53 eCPM, we will probably be making around $125 per day.

As the chart shows, you have to have about 250,000 ads impression/day and attain a $.57 eCPM to pull in about $50k per year with your app.  If you can increase your users session time, than you can dramatically increase the amount of ads you display.

Dead Ads: Part of attaining a high eCPM is getting rid of Dead Ads. Ads that your customers continually see and never click because they’re not interested in that product, or they already have it.  The best way to do this is to serve up the greatest variety of ads possible.  To accomplish this, you need to utilize as many ad networks as possible.  Mobclix serves up ads from several different ad servers.  They also allow open allocation for Admob and Google ads.  If all goes well, we’ll be allocating 30-40% of our ads to Admob before March Madness begins.  Hopefully, this strategy will raise our eCPM and put us in the .7-.8% category on the chart above.

Guide Lesson: So when thinking about monetizing with ads, always use analytics to see how long users are in your app.  We didn’t and now we’re left with very loose projections.  In addition, try to minimize the number of dead ads you show by maximizing ad servers.  This can raise your eCPM substantially with little work.

-Brian

Update at the bottom.

Recently, my business partner Brian wrote an article about us promoting an app on Apple’s App Store. One of our strategies was to leverage our existing customers of our NBA apps to promote Final Madness. We had done this with our NCAA basketball apps, and it worked great - in two days, the app made it to #13 in the sports section of the US iTunes store. We had submitted our revised NBA apps to Apple for approval over this weekend. Our thought was that they would be approved by Monday or Tuesday. We thought this would provide enough momentum for the Final Madness to stay in the top #25 until Selection Sunday.

On Monday morning, Apple sent an email. The email notified us that the application review state has changed. Typically, this is done to indicate that the reviewer is unsure about something and needs someone with higher authority to make a decision. In the past, Apple has called us when this would happen. Not this time. After I read the email I was feeling a bit bitter towards Apple. Internally, I was blaming them for this problem. I thought, Why can’t they just accept it as they usually do? Why do they have to go through this annoying review process? I just so happened to stumble upon an article entitled: Note to Entrpreneur’s: It’s Your Fault. The premise of the article is that everything that happens to your business is your fault in one way or another.

Most importantly, the article writes:

“The real trick is not to give the “it’s my fault” attitude lip service, but to actually believe it and live it. Never let your guard down. No whispering to friends/ family that “if only so and so did this” or “if only that hadn’t happened….” Always blame yourself. Its the only way your problems get solved.”

The article is right. We knew about Apple’s developer agreement. Yet, we decided to look the other way.

Later that afternoon, I had finally received the following email from Apple:

Dear Reflect7,

Thank you for submitting your family of fan applications to the App Store.  We’ve reviewed your applications and determined that we cannot post them because they appear to contain features, namely,content and feeds, that bear resemblance to well-known third-parties including The New York Times, LA Times and CBS Sports.

Additionally, we determined that we cannot post these versions of your iPhone application to the App Store at this time because of inappropriate ‘Keywords’ used to identify your application.  Applications that contain terms, product names, brand names, or entities in their search criteria that are registered trademarks not licensed or owned by the submitter cannot be posted to the App Store.  It would be appropriate to remove nba, nba team and NBA.

Please remember that pursuant to your agreement with Apple, you represent and warrant that your application does not infringe the rights of another party, and that you are responsible for any liability to Apple because of a claim that your application infringes another party’s rights.  Moreover, we may reject or remove your application for any reason, in our sole discretion.

Please provide documentary evidence that you have the rights to use this content to ensure compliance with the iPhone Developer Program License Agreement. Once Legal has reviewed your documentation and confirms its validity, we will proceed with your application review. Be aware that while your iTunes Connect Application State is displayed as Rejected, it is not necessary to upload a new binary in this particular case.  However, if your application is not in compliance, and you are able to make the necessary changes, we encourage you to do so and resubmit your binary for review.

Regards,

iPhone Developer Program

The bomb dropped. The applications that the email is referring to have been in the App Store for over two months now. Why weren’t these problems flagged earlier? From the text of this email, it would indicate that Apple has problems with applications using RSS feeds to link to well known news sources. That pretty much describes all of our Sports Fan applications. Our bootstrapping strategy was over - and it’s all our fault. As I said earlier, I knew that Apple held the keys to their kingdom. I understand that they are well within their rights to control what is on their store and what isn’t. I agree with all of it. The inconsistency of the review process bothers me, but yet again, it’s done by humans. Humans are inconsistent creatures. One app reviewer may interpret a policy different than another. However, it is still our fault.

Why You Shouldn’t Build Your Business on the App Store

I’m not saying that you should stop developing your iPhone apps. What I am saying, is that if you are attempting to build your business off of the App Store you are putting a major liability on your company. Recently, the EFF requested the Apple Developer Agreement from NASA on the FOIA. Read it, and then read it again.

Mark Suster, entrepreneur turned VC, wrote an article: App is Crap. One of his finest points in the essay is that Apple is a channel and not a business model. Mark writes:

“I see too many companies that are building iPhone App companies.  iPhone is not a business model unless you’re Apple.  It’s a channel.  It’s a way to reach your customers.  And single channel businesses are vulnerable to the vagrancies of the market place.  If you’re a “pure mobile” company that’s fine.  There is a strategy for that.  But you need to think in terms of broader distribution.”

I think he is spot on. It’s too bad we didn’t focus on this earlier. But, yet we are young, nimble, and hungry entrepreneurs and so we didn’t. Now we know.

A wise man once said: “Stay hungry, stay foolish.” Perhaps he meant that literally?

You can follow me on Twitter @jprichardson

-JP

Update 2010-03-12 10:40 CST:

1. Many people have asked if we are ‘giving up.’ We are not. We are just changing strategies. My main point still stands, it’s foolish to build a business on the Apple App store.
2. To my knowledge, there is no trademark infringement against the NBA. The trademarked word “NBA” is not used anywhere in the application in content that we own. Nor is it used to promote the app. In fact, our description clearly claims that we are not associated with the NBA. 
3. I’m not sure what happened to all of the comments. They show up in my Disqus profile, but they are not visible here. I’m looking into this.

This segment is the first of a multi-part post cataloging our adventure as we push our March Madness iPhone app to the top of the store.  We’ll show you our revenue, stats, and share our experiences while they’re happening.  We’ve even set up a counter website where you can view the app’s free downloads, $1 upgrades, and conversion rate.  So instead of getting important work done, you can stalk the app 24/7 like I do.  We’re basically blogging our entire strategy and analyzing it for your entertainment.

Brief History: Reflect7 & our app Final Madness:

We’re a small software company (3 part-time dudes) located in Lincoln, NE.  That’s right, Nebraska now has software and the electricity to run it (watch out Google!).  Our Final Madness app has been released for about a week and it’s been steadily gaining ground since we started our marketing campaign.  The guys and I took a bet on how much revenue we thought the app would accumulate.  Corey said $15k, JP said $1.5k, and I said $54k.  Initially, I was going to do $15k but it would have been a jerk move to go right above Corey’s estimate, price-is-right-style.  Instead, I went balls out to $54k to make it seem like I had some inside mojo.  But honestly, if Final Madness can just break into the top ten list for free sports, we’d all be happy.  Not because we’re making money, but because we’re finally starting to make sense of the app store.

The Campaign:

1) Our first order of business was to release a simple and elegant app that would never crash.  We adopted the 37signals mantra, “Underdo your competitors.“  I’ve been doing that my whole life, just ask my previous girlfriends. Our mobile developer must have been doing it too, because that is where Corey shined.  He built a simple bracket slide interface with live scoring, push notifications, linked stats for every game, and previous years brackets.  Everything a basketball fan needs to follow March Madness.

2) Next was cross-promoting Final Madness in our other apps.  For the last six months, we’ve had nearly 200 team-specific applications on the market.  Here’s the customer breakdown:

The sport with the $ next to it represents apps that people paid for.  The ones without a $ represent free apps (about 75% of our total). You can see in column O33 that we have about 60,000 customers.

Reflect7 is operating off the assumption that making a top 10 list in any category is a self-feeding process where new views bring in more downloads, which raises your app rank for more views.  Our goal was to leverage our 60k customer base in a condensed time period leading up to March Madness.  If we could convert 33% of our base to Final Madness in a period of 7 days, we’d be looking at 20000 downloads.  That’s almost 3000 a day and enough to get us to the top five of the Free Sports list.  After that, we’d hopefully sustain a top presence from the list view and March Madness hype.

So far we’ve inserted icons in all of our 91 NCAA basketball apps and a handful of our NBA apps.  Final Madness had the largest jump in sales after those updates were approved.  The conversion strategy seems to be working, but we’ll have more on that next week when I crunch the early numbers.

3) Our next move was to build a Final Madness website with a Twitter/Facebook promotion. That promotion began today.  We’re giving fans a chance to win a 40” Flatscreen when they retweet or update their facebook status with our message.  So far, we only have about 5 entries so if you’re reading this, the odds are pretty good. I’ve never done anything like this before so it’s really up in the air.  We’re tracking all the links so it will be interesting to see the numbers next week.

To supplement the promo, we’ve set up a facebook fan page and decked out our twitter page Final Madness style.

Well that’s all for now.  If you’re just tuning in we’re sitting at 2033 downloads with 44 $1 upgrades and it’s Saturday, March 6th at 6am.  We still have a few marketing tricks up our sleeve but you’ll have to wait until next week to read about them.  With this being a big College Hoops Day, I’m anticipating 1000 downloads. Hopefully, that will push us into the top 10 free sports apps (fingers crossed).

Check back next week for an update on our struggle, including details on: stats, Mobclix ad campaign, promo stats, strategy…

-Brian