Why you can’t make money in consumer applications?


Disclaimer: The article is written based on intuitions and not data driven. It is based on the heuristics and biases at that time and hence It could be wrong. I would love to learn if there are any pitfalls in this article or any variables that I haven’t considered from you people in the comments

I recently came across a beautiful startup who make apps for end users. Their apps seem to be generating a good amount of downloads. As I ventured deep into their customer feedback and revenue model. I figured they give apps to users at free of cost and after the app generates a good amount of users, they try to make certain features premium.

This really pisses off the users. Like reaaaaallyyy. and they vent out their anger in the market place and feedback area. This is something you don't want to happen for any company especially a small startup. This would bring down the team morale, affects the downloads and off all, your app would start to lose all the good users you used to have.

But sure, the people who are behind these situations would have thought about these scenarios, weighed the outcomes and took the decision considering the trade offs. After all they are in for the money, they are not some charity that makes apps so that the general population can replace their ears with cat ears in a photo.

So how can a startup make money by making apps (or any application) for the end users/ consumers.

Its simple. You don't!

I just read the line I wrote above and it feels very pessimistic. But hear out my (could be faulty) intuitions.

Off all the major tech companies that operate right now, How many of the tech companies can u count that makes money using this model. By making “end users” BUY their software. The only companies/services that comes to mind right away are Spotify and Netflix. Consumers have been made to feel privileged to get their software needs for free by companies like Google, Facebook and other companies, who don’t make money by making people BUY their product but instead make money by making people USE their products. The price we pay for using an amazing search engine or a ‘used to be good’ social network is our data.

Take any company for that matter. Whatsapp before being acquired by the EA of social network planned on having a subscription model where the users would have to BUY Whatsapp after a year of free usage. I remember a really really fare price put out by Whatsapp. But my (could be faulty) judgement says if they continued with that model we would have moved to any other free player in the industry since we are just not ready to buy softwares by paying our hard earned money.

Maybe the market is too diluted, Maybe we are pushed into a habit where we feel privileged as consumers to get our tech needs satisfied by not paying for the developer who worked as hard as anybody else to get it running so that you can replace your ears with cat ears !!

I wanted to use a data recovery software recently to recover few MB of not so important data and I felt appalled when I couldn’t find the product I was trying to download didn’t have a free version. I felt so conflicted when I realized I felt anger over something because I wanted it without paying for it (FYI Later, I did find the same product having a free version deep inside their website).

From my very short experience and observation in the tech industry, I could muster only 3 models that have been working well

  • Your customers don’t use your product, You use your customer (i.e) get their data and make profit from it
  • You act as a online store selling your or other companies product (i.e) market places like amazon
  • YOU SELL SOFTWARES TO ENTERPRISE

The last model is what I feel that has panned out well for many tech companies. because that's the only model you can actually deal with your problems in a statistical and logical way. To attain the status what Facebook and Snapchat has attained today you need a lot of virality. And there is no science to virality. As one of the interesting person I had the opportunity to meet in this world says “Apart from doing its job, your app has to give those quick hits of dopamine” to become viral. and alas those dopamine hits can always be tempting to be misused by the companies.

But when you are selling to a enterprise. you make software that gets the job done (maybe with certain feel good features). And this can be done for the most part just by gathering the requirement and fulfilling them. This is advantageous for everyone. You don’t take advantage over your users which is a big win when it comes to the morality of the company. You don’t wander searching for the next viral thing instead you search for good product that will make users more productive.

My ideology on this matter could have been inspired by the amazing place I work at right now called ZOHO where we provide suite of products to run your entire business or maybe because I saw many consumer startups fail. In the end all that matters is making a profit without exploiting the customers.

TL;DR — why it is awesome making products for enterprises rather than end users.