So You Want to Sell Your App: An exploration of low-to-mid tier app buying & selling
We’ve all read the headlines generated by billion-dollar Instagram-esque app acquisitions, but what does selling an app realistically look like for smaller developers and projects? Let’s take a look…
Introduction
The app market’s major players list is dominated by a few innovative and wildly popular apps. These not only garner a ton of attention from consumers, but can command eye-watering price tags when and if they change hands. Think WhatsApp and Instagram type prices.
App acquisitions driven by technology giants like Google, Facebook, and Microsoft usually include staff in addition to the intellectual property of the app itself, driving up pricetags further still.
As a result, the numbers involved in app buying-and-selling transactions for smaller devs and studios are often overestimated by the public. A closer look paints a more humble picture of the app market for those who haven’t made it to Instagram-league just yet.
The Industry
Low-to-mid tier apps tend to be created by part-time developers. According to Vision Mobile, 43 percent of app developers are either hobbyists developing ‘for fun,’ or are independent professional developers working a side gig. What’s more, in the low-to-mid tier app market, acquisitions are mainly about software assets, meaning they do not include the acquisition of a fully formed company and its staff.
Apps bought and sold can be either already established and with active users, freshly made/launched, or even simply source code.
This class of apps makes up the vast majority of the six million apps that populate the Apple App Store and Google Play (at roughly three million each).
Over half of active developers are operating at under $500/month in revenue, according to Vision Mobile. And with the app marketplace continuing to grow and crowd, the challenge of standing out and generating income is increasingly difficult for many devs.
If generating ongoing revenue from an app proves too difficult, the notion of selling creeps into the picture for many developers.
Of course, this is far from the only reason a developer might look to sell: It may be because they want to tackle other pursuits in life or decide that they don’t have the skillset(s) needed to make sure their app is successful in the long run. For example, a developer who recently sold his app through our company (AppsBuyOut) did so to pay for his honeymoon! So, as I say: varied.
Of course, this leads to a number of more complex questions: ‘Do I really need to sell my app?’; ‘How do I find out how much my app is worth?’; ‘What due diligence do I need to do to make sure I achieve a successful exit?
Valuation
Different factors will be taken into account for the valuation including installed base and daily active users (DAUs). Revenue and profit can be important, but depending on potential buyer desires, other factors may weigh more heavily.
For developers, it’s often personal. They’ve invested a significant amount of time and money in their app and expect, or at least hope, to be compensated accordingly.
It’s common practice for a seller to get bids from three or more potential buyers before settling on a final valuation.
In the end, the value of an app is purely equal to the utility and opportunity buyers perceive it to offer.
Selling options
Brokers
Brokers will have access to buyers and conduct the deal on your behalf in a process that is largely ‘hands-off’ for you as the seller. As broker commissions can be quite high, this option generally only makes sense for sellers with mid or high tier app projects for sale.
Marketplaces
Marketplaces for app selling function much like eBay — they provide a full framework for app owners to use in listing and selling their projects, but will take a (generally small) percentage of any final sales as their business model.
Another subdivision of marketplaces functions more like the classified ads sections of a newspaper: App sellers make listings either for free or for a small fee, but must then negotiate directly with buyers and handling the logistics of payments/transactions themselves.
Other marketplaces still deal exclusively with source code, rather than launched app projects. SellMyApp, for example, will give sellers 70 percent of generated revenue when app source code is licensed to a buyer.
It’s also worth noting that these types of marketplaces might have internal teams that offer additional services to buyers, such as re-skinning and design work; the original app seller usually will not share in revenue generated from these secondary services.
The bottom line
At the end of the day, app developers looking to cash in on their projects have a range of options for making the selling of their apps a smooth, secure process, but need to think critically about which options make the most sense for their particular circumstances (and need to be realistic in their expectations).
If nothing else, developers should be diligent about vetting potential buyers for legitimacy, means, and reputation. Alternatively, these vital activities can be left up to a third-party marketplace or broker, if the added security and convenience is worth parting way with a fraction of profits.
Claudia Dreier-Poepperl is the founder of AppsBuyOut, authors of the recent ‘Selling Your App’ report which explores the state of the low-to-mid tier app market and considerations for app owners before selling. The report serves as an A-Z guide for helping app sellers understand their industry and orchestrate a successful exit.
