Pleco: Building a Business, not an App

This past week has not been the first outbreak of independent developer angst over the app store, but it feels like it has been one of the more intense. The pump was primed by the news that Kim Kardashian: Hollywood is on pace to make $200 million this year, news that was in stark contrast to Brent Simmons’ observation that there didn’t seem to be many indie iOS developers (I think his is the post that kicked the discussion off; Simmons’ blog contains a good roundup of all the posts that ensued).

The high point though – or low point, I suppose – was when Jared Sinclair revealed the sales numbers for his excellent iOS RSS reader Unread:

Unread for iPhone has earned a total of $32K in App Store sales. Unread for iPad has earned $10K. After subtracting 40 percent in self-employment taxes and $350/month for health care premiums (times 12 months), the actual take-home pay from the combined sales of both apps is $21,000, or $1,750/month.

Considering the enormous amount of effort I have put into these apps over the past year, that’s a depressing figure. I try not to think about the salary I could earn if I worked for another company, with my skills and qualifications. It’s also a solid piece of evidence that shows that paid-up-front app sales are not a sustainable way to make money on the App Store.

First off, Unread is a great app that I myself use, and Sinclair is a very interesting and provocative blogger who has written some really strong pieces about design and iOS 7 in particular. I’ve also had the pleasure of meeting him in person and consider him a friend, and admire his willingness to share his financials even if they aren’t as great as he might have hoped.

That said.

Sinclair’s results are not a “solid piece of evidence” of anything. They are an anecdote. And as long as we’re drawing grand conclusions from single data points, I thought it might be useful to look at someone on the other side of the spectrum. So I called up another friend of mine, Mike Love.

pleco-phone

Love makes Pleco, the preeminent Chinese dictionary on the app store (iOS, Android). Pleco is not by any means a new app; in fact, it was first developed for the Palm (I actually bought a Palm in 2003 for the express purpose of using Pleco). Here’s Love on its genesis:

I was an exchange student in China and launched the app on Palm in 2001. The signature feature was handwriting recognition (licensed from Motorola) which nobody else had at that point. The problem [for other Chinese dictionaries] was that Palm didn’t have a Chinese font built-in, it did not in fact have Unicode support [or other Chinese text encodings]…you could only get Chinese working on it all through a hack. So having it all in one place, no extra setup needed, no buying licenses to three different $30 apps to get it working, that was kind of the key part of it.

The one other thing we had besides the handwriting and Chinese support was that we exclusively licensed the Pocket Oxford Chinese dictionary…[everyone else used] CEDICT which had been less exhaustively edited and had no parts of speech or example sentence.

What stands out to me about Love’s approach was that from day one his differentiation was not based on design, ease-of-use, or some other attribute we usually glorify in developers. Rather, he focused on decidedly less sexy things like licensing. Sure, licensing is particularly pertinent to a dictionary app, but the broader point is that Love’s sustainable differentiation was not about his own code. Sustainable differentiation never is.

I decided to do the iOS app pretty much as soon as Apple announced the app store…but I was in the middle of a pretty ambitious update for Palm and Windows Mobile, so we were pretty late and there were a bunch of other dictionaries on iOS [by December 2009, when Pleco for iOS launched].

Love noted that although Pleco was quite late – there were multiple Chinese dictionary apps in the store – they were fortunate that Apple had just started allowing free apps to offer in-app purchases. So, even though Pleco had always been a paid download on Palm, Love immediately took advantage of the new business model:

Our initial plan in iOS had been to have some sort of free lite app, some sort of slightly nicer paid app with a minimum set of features, and then you could buy other stuff as add-ons. Then in October 2009 Apple announced they were lifting the ban on free apps having in-app purchase so immediately we retooled the whole thing to be free with in-app purchases.

Love thinks the fact he started from day one with the new business model in mind gave him a competitive advantage to the dictionaries already in the store, but I think he sells himself short; after all, it’s been five years and only now are most independent developers starting to realize that free with in-app purchase is the only viable monetization model. To put it another way, Love differentiated himself again by being a student not just of APIs and frameworks, but of business models as well. More from Love:

Unlike others, our free app had not only CC-CEDICT (the evolution of the aforementioned CEDICT), we actually licensed another Chinese-English dictionary which we called the PLC dictionary and offered that in our free app and we thought it would be a nice differentiator compared to all of the CC-CEDICT apps because it had sample sentences and other nice things that they didn’t have.

This point blew me away. Love invested real money into differentiating his free app (Love still had the great handwriting engine, but iOS’s built-in handwriting – while hugely inferior – had lessened that advantage). Love was confident that after he won in free, he could make up the difference with his plethora of paid add-ons, which at this point included not only additional dictionaries – several of them exclusives – but also modules like stroke order diagrams, different fonts, a document reader, and a year later, optical character recognition (OCR).

At this point I asked him about price. One thing to note about developing on Palm was that significantly higher prices were the norm. Pleco on Palm was available in three different bundles, depending on your choice of dictionary, for prices ranging from $60 to $120. Surely that wasn’t possible on iOS, or was it?

We launched with a basic bundle for $50, a professional bundle for $100, and a complete bundle for $150. So pretty close to the Palm prices actually.

But surely prices have fallen, right?

We actually charge mainly the same prices. Our lowest bundle is $40, but it doesn’t include an additional dictionary now, just features. Some people didn’t like the dictionary we were offering in the basic bundle so we felt it would be more flexible to have a cheaper bundle that didn’t have any dictionaries with the assumption that people could buy whatever dictionary they wanted to go with it. The pricing change helped though – we’re actually netting more off of the basic bundle now than we were when it was $50. The cost reduction actually did us some good.

Pleco's bundles. Individual features and dictionaries are also sold separately.
Pleco’s bundles. Individual features and dictionaries are also sold separately.

Love’s high prices have not hurt sales:

  • Pleco has about 100 times the number of customers as Pleco on Palm/Windows Mobile (thanks to being free)
  • Those free customers convert at about a 5% clip, meaning Love has about 5x more paying customers than he did previously (Palm/Windows Mobile did not have a free edition)
  • Net revenue per customer has been cut by a third, primarily due to significantly higher royalty rates charged by publishers who realized Pleco was cutting into their book sales

Pleco also has an Android version that makes about a third as much revenue as the iOS version, although Love noted it takes up a lot more than a third of his time. I asked him if it was worth it:

As a brand expansion, yes. The number of sales we get from the fact that when a typical student starts their Chinese class or exchange program and you get a little sheet, and the sheet says “Here’s some useful Chinese things you should get” and Pleco is one of them, that’s very valuable, and making sure that Pleco is the only app on there and you don’t need to recommend some other app for Android, that’s valuable.

I think this is a crucial point: Love owns his niche, and he is willing to do whatever is necessary to ensure that remains the case.


In a follow-up post to the one quoted above Sinclair wrote:

Arguments that I naively built and marketed an RSS reader in 2014 aren’t relevant to the heart of my article. Any polished app — in any category, with any amount of marketing or promotion — is a lottery. Increasing the marketing budget is just as likely to increase the potential losses as it is to increase potential sales. Each niche is an apple or an orange. It’s all a gamble.1

Love is testament this is absolutely not true. He has identified a niche – Chinese language learning – and over many years he has worked diligently to be the app for that category. Much of that time has not been spent on development or design. Rather, it’s been spent understanding and listening to customers (which led to the aforementioned bundle change), making business deals with slow-moving publishers, careful consideration around pricing and app store presentation, investments in both free and paid differentiators, and a whole bunch of time spent on an Android app that doesn’t make that much direct money but that marks him as a leader in his space.

Make no mistake, Love has had his breaks, particularly his having started with favorable licensing terms, but I would ask every indie developer who is bemoaning his or her fate in the app store:

  • Are you serving a niche that has a clear need, an audience that is willing to pay, and that is large enough to sustain your app?
  • Have you developed sustainable differentiation that is more tangible than just look-and-feel?
  • Do you have a fully thought-out monetization model that lets you make a meaningful amount from every customer you serve? If your app is truly differentiated then you need to charge customers accordingly
  • Have you invested just as much if not more effort in non-development functions like making partnerships, licensing, promotion, etc.?
  • Have you made an Android app?

All of this is table stakes for any developer, indie or not, and as much as I like Sinclair personally, the lessons I draw from his experience is not that the app store is broken, but rather that he built a bad business (particularly in his choice of market). If doing everything I listed doesn’t sound attractive, or realistic, if all you want to do is develop and make something beautiful, then you need to get a job that will pay you to do that. To be an indie is to first and foremost be a businessperson, and what I admire about Love is that he is exactly that. His development skills are a mean, not an end.

To be clear, Apple could do much more to make things easier for developers of all sizes. Two in particularly would make a big difference:

  • Trials: One of the big advantages Love has in his space is that it is possible for him to offer a highly useful (and differentiated) free app along with a whole slew of paid add-ons. There are other categories, though, where to remove features would render the app useless. These sorts of apps need app-store supported time-limited trials along the lines of the Windows Store:

    The Windows Store lets developers set up time-limited trials of up to 30 days with the click of a button.
    The Windows Store lets developers set up time-limited trials of up to 30 days with the click of a button.

    This would quickly make clear which apps in a given niche were the best, because customers could try them all, and that developer could charge accordingly. Over the long run, different niches would end up with different apps at different prices, with price as a signifier of quality (which, of course, the customer could verify through a trial)

  • Paid Upgrades: The key to any sustainable business, whether it be a restaurant, airline, or app developer, is to make money off of your best customers over time. Apps with a service component, like Evernote, or ones with an ever-increasing array of in-app purchases, like Pleco, do this successfully. Again, though, there are other types of apps that are complete experiences unto themselves. Right now there is little motivation for a developer to invest time in improving their app, because the people who are mostly likely to appreciate those improvements – the current customers – can’t pay. It is true you can release a separate app entirely, but then you lose access to the original app’s data, plus you have no means of communicating with your current customers to let them know why they should update.

Apple really should care: the iOS ecosystem is one of the iPhone’s biggest differentiators, and absolutely one of the reasons Apple maintains its impressive margins. But independent developers also need to appreciate that the iOS app store, with its minimal barriers to entry and massive consumer audience, requires that they first and foremost be businesspeople.

Love reminisces:

I do miss the Palm days. The thing about that is it was much more about writing apps for people like me. I think a lot of people complaining about the state of the app store now are realizing it doesn’t work that way anymore – but in the early days of the iOS app store it did. People on Palm just wanted you to add cool stuff. They wanted more features, they were excited by the same things I was excited by.

This is the critical point: developers all want to write an app for themselves, which means everyone has. That’s why there is no money to be made in something like an RSS reader. But there are whole swathes of people out there who have really interesting and specific needs – like Chinese language learning – just waiting for someone who can not only develop, but can also do market research, build a business model, and do all the messy stuff upon which true differentiation – and sustainable businesses – are built.2

  1. In a follow-up conversation, Sinclair expounded on this, saying, “The scale of the App Store might lead a newcomer to believe that even a small niche is capable of generating satisfying revenues for a solo developer.” To me this seems to be saying the same thing, but judge for yourself []
  2. Note: For this article I also interviewed Elia Freedman, another former Palm developer who has built the best financial calculator on the app store (no, really – look at the reviews). My thanks to him for this time, and definitely check out both his apps (he has a whole suite of calculators), as well as his very thoughtful blog (where he disagrees with me about trials) []