The Evolution of the App Store and the AppĀ Business

By Denys Zhadanov

The App Store turned 10 a month ago. The app business has changed several times through this past decade, with many product companies shutting down, while some of their disreputable clones continued to prosper.

Through this article, I explain why these changes have happened, how the App Store works today, and how to best promote an app in 2018 if you don’t want it to be the last in the App Store.

Readdle Team

Why can I talk about the App Store so confidently? I have spent the last decade heading Marketing and Strategy operations at Readdle. Readdle is one of the few product companies out there that has had a presence in the App Store from the beginning and has built a successful business around it. If you have an iPhone, you’ve probably used our Documents, Spark, and Scanner Pro apps. We’ve been an independent company throughout this decade, without raising external funding; and over 100M people have downloaded our apps. Our 135 person team has built more than 40 products. 32 of them failed, but we didn’t give up.

From 2010 to 2013, our business growth doubled every year. Yet, in 2013 our revenue growth slowed down significantly. This was what made us rethink Readdle’s App Store strategy and predetermine our course for the next five years.

What we understood and realized was if we want our company to grow 10X, we needed to change the mindset, products, and the business model. We couldn’t continue applying the same old rules to the new apps and the new App Store reality.

What happened? Why did our growth slow down?

The slowdown of our growth in 2013 was a good indicator of the changes in the App Store, customer needs, and the app market in general.

To understand these changes, we must learn how the App Store worked in its first few years.

Do you remember the legendary 2007 iPhone presentation?

We were so excited by the announcement so we decided to build a useful product for this platform. At that time, we weren’t sure this was the future, and we certainly didn’t foresee for the next 11 years, we’ll be building a successful business in the App Store and beyond.

The only thing we knew was it was impossible to read a document or a book on the world’s coolest device (still talking about the 2007 iPhone). This was the problem we wanted to solve. So we created a service allowing anyone to read on an iPhone. That’s how Readdle — the company’s name — was born.

By the way, our service was available on iPhones before the App Store launched in 2008, a year after the original iPhone went on sale.

The first months saw more than sixty thousand people using our product, and Apple placed a small link to our service on their website. While we did try to monetize the service, somehow we weren’t successful in doing so.

Then, the call that changed our lives for good.

It was a call from the Apple HQ in Cupertino. We were sitting in Odessa when a voice over the phone briefed us, “We’re launching the App Store soon. Here’s a deadline, build an app, and maybe we’ll add it to the App Store.

App Store in 2008.

This is how ReaddleDocs was born. Today, this app is called Documents; it remains the most popular iPhone and iPad file manager, attracting more than a million users per month.

The early App Store was very predictable and had clear rules. The formula for success was simple:

  • Build a good app solving one well-defined user problem
  • Make several websites write about your app, and encourage people to discuss it
  • Set the app price from $3 to $15.

These factors almost guaranteed an App Store success. Why it happened:

  • The App Store was new in the market, with almost all iPhone users spending a lot of time there discovering new, useful apps.
  • The battle for consumer attention wasn’t as fierce.
  • There was no competition. Every niche segment had very few players, in contrast to the 3M apps we have today.

Armed with this understanding, over the next five years, we tried to build useful apps which were better than their analogs, charging $3–10 for an app (you pay once and use an app forever). This approach helped us build an excellent business.

As the App Store grew, so did the competition. With more competition, developers chose the simplest way to attract more users. They set low prices for their apps. Unfortunately, in the mad rush to be relevant, developers failed to realize they were digging their own graves for the long-term.

Many apps started being priced at 99 cents or were available Free in the App Store.

Developing an app and maintaining it for its users requires many resources and a professional team. It’s an ongoing and expensive process.

Today, the development of a top-notch app or service may cost millions of dollars.

Only a few developers who lowered the pricing of their apps managed to rank in the top charts of the App Store and get high enough revenues to reinvest in their product.

We noticed a cycle: A good app gets featured on the App Store > it has enough visibility to get a lot of installs -> the revenue from installs allows developers to gather a good team > it allows them to make the app better > the app stays at the top of the App Store and gets greater visibility.

App Store cycle that makes top apps remain at the top.

This cycle explains why the app development team is way more financially motivated with the subscription model. It allows a team to build a competitive app or the best one in its niche. But, we’ll discuss the subscription model later.

This race to the bottom has depreciated the perceived value of apps as product class and has left the general impression an app should cost 99 cents or be free for users.

Meanwhile, 2008–2015 witnessed the technology boom, with giants as Uber, Airbnb, and Dropbox taking off. This has opened the door to big capital funding for the most incredible (and often absurd) startup ideas after a mere Powerpoint presentation.

Global VC financing volume and value in technology companies. Source: TechCrunch

The teams who managed to get funded weren’t interested in building a sustainable paid product and profitable business. Here, growth was always the main criteria for success. That’s why companies could make their apps and services free, while spending investors’ money, and aim for growth while ignoring profitability. This helped foster customer expectations regarding apps and their pricing.

People got used to getting everything for free.

Remember, when you don’t pay for a product, you are the product.

Google, Facebook, and other companies employ this asymmetric business model.

They gather as much of your data as they can and either sell it or make money from advertising. Meanwhile, big companies such as Adobe, Evernote, and Dropbox copied our apps but made them free.

The mobile industry and the corresponding app market has evolved substantially in recent years. Now, people download fewer apps, and 80% of all smartphone usage time accounts for only five apps, with Facebook, Instagram, and other services creating dopamine loops. Moreover, Apple recently added the Files app and a built-in scanner to iOS 11 in 2017.

Your app could be “sherlocked” by Apple, Amazon, Google or other giants at any given moment.

Armed with all these insights, research, and understanding, we decided to shift our focus to building a revolutionary email client. By solving this problem and creating useful paid subscription features for email, Readdle can make history and build a larger business.

A few weeks ago, Business Insider wrote about Apple holding a secret meeting with some leading App Store developers. The meeting was aimed at convincing the developers to adopt the subscription model for their apps. What is changing for the customer? Unlike a one-time license, a subscription means a person regularly pays a “fee” to use a service. Developers, in their turn, promise to upgrade the product and provide technical support.

Almost all major services, including Netflix, Apple Music, Dropbox, Google Drive, and Adobe, have switched to the subscription model. This helps developers improve an app on an ongoing basis, while people can use the app and get better service and support in return.

Spark Mail app is our first service with the subscription model. Now, our team is working on ideas on how to switch other products to the subscription model where it makes sense.

Of course, not all users are excited about subscriptions. The App Store has been a witness to many apps that switched to a subscription model, had to face great user resistance and ended up getting a lot of furious and negative reviews. I believe if a service or app delivers great everyday value and the app is powered by a justifiable pricing policy, then users are glad to pay for it.

At Readdle, we rarely spent money on advertising. With the low LTV for our apps, we quite simply couldn’t afford it. So I had to figure out new ways to promote our apps and find free marketing channels wherever possible. Our promotion channels worked differently at different times.

In 2009, when our sales were barely covering the cost of running the business, we learned how mentions and reviews from the press can greatly impact our earnings. When Walt Mossberg, a renowned tech reporter, mentioned ReaddleDocs app in his article for The Wall Street Journal, our sales jumped by 800% in the weeks that followed. Over the next four years, the press was one of the most important sales and exposure channels for us.

Readdle products were reviewed by all major tech press.

It’s interesting to note that today media impact has drastically changed, and now it barely affects sales. Nowadays, the press plays an important role in building a company’s brand and image, and this helps businesses attract talent and investors.

When we realized that press mentions are not as effective as they used to be, we decided to build our own marketing channels. Email has always been a great communication channel. It allows you to share news or sell something to a person in a quick, convenient, and effective way. Everything depends on how relevant your news or offer is.

An example of a welcome letter to PDF Expert user.

Since 2014, we’ve offered our users the opportunity to leave their emails and subscribe to our newsletter with new features and discounts. Nearly 20% of people who launch our apps are glad to leave their emails. This enabled us to gather a multi-million audience to send them useful and relevant emails.

I should add that more advanced filters and email categorization decrease the effectiveness of email campaigns recently. For this reason, you should focus on relevant and unique content for every category of your users. That’s how we’re rebuilding our email strategy.

The App Store search accounts for more than 60% of all app downloads. That’s why, two things are crucial in your strategy — how easy it is to find your app via the App Store search, and whether it is featured by Apple.

Every Readdle product was featued by Apple.

We work a lot on our App Store Optimization (ASO). Apple doesn’t reveal how exactly its app ranking algorithm works and what criteria impact searches. To make our products more relevant and clear, we add simple tutorials, explainer videos, and short descriptions. Of course, the app ratings and reviews eventually have a direct influence on the purchase conversion rate.

We’ve also run a lot of A/B tests to optimize our apps in the App Store. It’s helped us hit the top search results.

By the way, there is a lot lower chance of getting featured by Apple today, and the new App Store design introduced with iOS 11 has made it far less effective.

We invest a lot in making our apps more user-friendly. If a user is satisfied with the product, he/she is likely to recommend it to his/her friends. Unfortunately, it’s hard to get exact numbers, but I strongly believe personal recommendations from our users have resulted in millions of app downloads.

Readdle’s amazing support team consists of 16 people helping our users day and night. This enables us to create loyal ambassadors all over the world. Annually, we answer over 130K emails from our users.

One good tip for email support: log all feature requests from users, and tell them once the feature they asked for hits the App Store. You will win ambassadors who will love your product.

Can you get more than 100K organic users overnight? Yes. I’m talking about well-timed marketing campaigns allowing you to attract audiences in times of big news and hype.

Mailbox is shutting down. Spark gets 100K users overnight.

For example, one of our campaigns for Spark a few years ago attracted over 100K new users. This was when Mailbox, the popular email client was bought by Dropbox for $100M and was on its way to be shut down. When this news broke, millions of people started to look for an alternative. As I knew about this in advance, I swiftly prepared a media campaign and told several media outlets how cool Spark was for hosting Mailbox refugees. In the following days, dozens of articles appeared on some of the world’s largest technology websites as people were looking for an alternative. And rightly so, they ended up choosing Spark for its impressive feature-set.

Now, we don’t have any Android apps. I agree with many experts in our industry who say it’s easier to monetize apps on Google Play through subscriptions and advertising rather than sell them.

We’ve been working on Spark for Android over the last years, and it will go live sometime this year (I hope so)! This will be our first app for the Android platform, and we’re very excited about catering to the millions of users out there.

In 2018, with a competition for user attention is at its peak, with people being suspicious about privacy and new apps, and with gadget usage time decreasing, there is still a place for useful apps and services people are ready to pay for.

At Readdle, we always focus on a product’s usefulness, and set ambitious goals for ourselves: Spark should be the best business email client for people and teams; Calendars should be the best day planner, and PDF Expert should be the world’s best service for working with PDFs.

Our goals for every product are big and ambitious, but it’s what enables us to compete with the market’s giants. People vote for apps with their attention and money, and they use what is comfortable for them or what they find first (remember how important search rankings and reviews in the press are).

The apps with subscription models allow developers to spend money on attracting users on Facebook and Instagram and build a team which works constantly on improving the service.

There are common traits for all successful apps and services:

  1. Solves one problem
  2. Great product market fit
  3. The audience is big enough
  4. Great positioning and branding
  5. The best in class tool for the particular industry/ problem
  6. High LTV
  7. Low churn
  8. Perfect discoverability on the App Store
  9. Effective Paid User acquisition on scale
  10. A strong community of loyal users
  11. It’s not just about apps anymore, it’s about creating businesses

I’ll follow up with another article soon how some developers game the new subscription system and trick users into buying $3.99 a week package, making millions of dollars a month.