Selling Out Gracefully

When in the course of human events a large company drives up to your house with a dump truck full of money, nobel ideals such as independence lose out to more visceral notions like greed, entitlement, and living the American dream. As an independent iPhone developer, how could I not accept the cash, build a mansion, and fill a swimming pool with Cristal?

I’ve always been transparent with how the sausage is made here at App Cubby, so I thought I’d take the time to explain an exciting new partnership between App Cubby and Honeywell and preempt some of the obvious speculation about the deal. I’m a bit long winded, so grab a cup of coffee and find a comfortable chair.

I’ve been thinking quite a bit about value lately. There are some things in life whose value is completely without measure; my wife and 10 month old son have been teaching me new lessons every day about those sorts of things. But what about the less important, but similarly abstract things in life: ideas, art, and other intellectual property? And even the tangible: food, water, shelter, and other physical goods? With so much social and political manipulation, money doesn’t seem to be a particularly good measure of value. I mean, a factory worker in China surely brings more real value into this world than someone manipulating stocks on Wall Street. Does a man who can swing a bat or throw a ball particularly well really create 1000x times the value of the janitor cleaning the toilets in our modern day colosseums? Certainly not, but I suppose this hinges on the value system with which we are measuring.

Selling digital goods in our complex global economy makes it difficult to measure the value of what I create each day when I go to work. The effort that goes into creating a digital asset is the same whether it sells 1 copy or 1 million copies. So, pricing my iPhone apps has been challenging on two unique fronts.

First (and this may be surprising to some), there are marginal costs associated with selling most iPhone apps. Building complex, data-centric apps means I get more tech support requests than most iPhone developers. And, since I host a free online backup/sync service for my apps, I spend money maintaining server infrastructure. The current cost to maintain the infrastructure is minimal, but the cost to scale or re-architect for improved scalability is high.

Second, pricing - even if that price is $0 - is a factor in the complex equation of estimating the value of what I create. As I said above, money isn’t always the best measure of value; however, selling something for money then exchanging that money for other goods and services does approximate some measure of value. Are my iPhone apps worth enough money to enough people to provide a decent life for me and my family?

Now the other side of the equation: the value created for others by using my apps. Price should be the best way to measure the value of my work; the more value I create for someone, the more they should be willing to pay. Unfortunately, the ambiguity of money and the unique psychology of digital goods obscure that seemingly obvious correlation. Most people don’t value an iPhone app for what it provides in terms of time or money saved or entertainment experienced, but in what they perceive to be a fair value for the work done by the developer in creating the app. Many App Store shoppers seem to believe all iPhone apps are easy to create, don’t have marginal costs, and sell in enough quantity that charging more than a few dollars would be greedy. That’s a bit of an overgeneralization, but the logic and psychology behind it impacts the App Store and most other forms of digital distribution.

Creating more value than I take has always been important to me; I don’t know whether I would classify it as morality, a personal goal, or just plain work ethic. Even at the exorbitant (for the App Store) price of $6.99, I feel quite strongly that my apps have generated more value than the money I received in exchange. In the 21 months since I quit my day job and 17 months since my first app hit the App Store, App Cubby has now made over $250k (after Apple’s 30%)! Those of you with 6th grade math skills have already calculated that I’m making over $125k per year. But, what you might not know is that I don’t actually code the apps, or create the artwork, or handle tech support. I just sit here in my PJs and let the money roll in. Well, not exactly. I do all those abstract things that make it even more difficult to measure the value of my work.

My particular creativity is in managing creativity. I come up with app ideas and work with very talented contractors to bring those apps to life in a way that delights and brings value to users. Most of the $250k has been spent paying the contractors and other business expenses (see Financial Realities of the App Store). Building great apps makes marketing much easier, but it’s still hard work and something I’m always striving to do better. I also do all the boring stuff like managing finances, talking to lawyers, working with accountants, and other administrative tasks.

So, how much value am I creating and how much money should I receive for my efforts? I don’t have an answer except to say “more, please!” I’d like to create more value in the lives of others and make more money for doing so. I absolutely love making iPhone apps and would be quite happy spending my time creating new apps and continually improving my existing apps. I’d also like to start a college fund for my son and save up for a down payment on a home (my wife and I own a small condo, but don’t have much equity in it).

Trying to grow App Cubby has been incredibly challenging. The $250k revenue hasn’t come at a steady pace. After Gas Cubby was selected by Apple as the “App Store Pick of the Week,” App Cubby made over $30k in a single month. In the months prior, income was spiraling down under $10k/month. Wildly fluctuating income makes it tough to hire employees and manage cash flow with growth in mind. Plus, prior success in the App Store does not guarantee future success. The $60k I have invested in a new app (which should launch early next year) may or may not pay off. At some point, a new competitor could enter the market and quickly wipe out my existing income stream. That’s business: cut-throat and unstable.

How do I grow App Cubby in a way that increases value AND income? That’s a question I’ve been asking myself since the day the company was founded. These past few months, I’ve been working on a solution I think makes a lot of sense. I’ve signed an exclusive sponsorship deal with Honeywell to advertise its consumer auto brands - FRAM, Prestone, and Autolite - in a rebranded version of Gas Cubby called Gas Cubby by FRAM.

For existing customers who may be getting worried at this point, don’t. Existing users of Gas Cubby can upgrade to 2.1 and continue to use the app without ads. And the paid version of Gas Cubby will continue to be available in the App Store for those who would prefer to use the app without ads.

I never knew much about Honeywell as a company and I certainly didn’t know they owned several consumer auto brands, but I’ve been quite impressed with the folks I’ve been working with inside the company. At the end of the day, their goal is to sell products and make money for their stock holders, but most of our conversations were about bringing value to users. We started with a simple advertising deal to get the ball rolling but have some great ideas to grow the app over time.

I’m also excited about the number of users who will get to use Gas Cubby. That alone will exponentially increase the value created by Gas Cubby. Had I given the app away for free without a partner like Honeywell, there’s no way I could have managed the marginal costs. The advertising will help pay for the excellent tech support App Cubby is known for, and we’ve temporarily removed the online backup/sync feature in Gas Cubby by FRAM to keep other costs under control. Once we get a sense for how many people start using the app now that it’s free, we’ll be working toward scaling and redesigning our current sync architecture to accommodate the load.

Since the advertising revenue is based on how many people use the app and how often they use it, it’s unclear what exactly this means for App Cubby’s bottom line. Still, I’m excited that thousands of new users will have the opportunity to use Gas Cubby.

david