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Print Edition StoriesWednesday, April 28, 2010
How I See It
Entrepreneurs have to plan for shifts in app distribution
By Andrew Updegrove, partner, Gesmer Updegrove LLP
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Every business founder knows they need a product or service that has real value. The smart ones realize the easiest route to success is to offer people something they already know they want to buy. And the rare visionary with self-discipline knows when a great idea’s time has not yet arrived.
There’s one important question that entrepreneurs time and again forget to consider though. Simply put, it’s this: How will I sell my product or service (aka, what’s my channel strategy)? Can I direct-sell it and still make a profit? If not, is there someone else that can sell it, and how will I persuade them to do it? And so on.
If I had a dollar for every client that put off considering this topic until their product was ready to sell, I could buy an iPad (and figure out what to do with it later).
When it comes to software, this may seem like a problem of the past. Aren’t open platforms and on-line storefronts such as application stores banishing concerns such as these for good?
Well, no, they aren’t. While these on-line sales channels provide back-end support at no up-front cost, they enable an infinite number of emerging businesses to use the same tools. Even if only a few of these are direct competitors to your business, they still represent overwhelming competition for customer attention. So, while companies like Apple, Amazon and Google generate huge profits through their “long tail” business models, only a tiny fraction of the software startups that flock to their on-line stores will ever prosper.
That’s inevitable, in part because all that competition drives the prices of hosted products and services down toward zero, and in part because few vendors can afford the marketing costs needed to rise above the crowd other than by luck.
There’s another dynamic at play today, though that should give entrepreneurs even greater pause. These online sales models are highly unstable and will not last. Over time (and likely not much time), traditional market forces will surely reassert themselves. At some point, for example, the eyes of most consumers will simply glaze over in the face of so many choices.
The traditional solution is for more active distributors to enter the field to evaluate, enlist and sell best-of-breed applications (consider the ubiquitous SkyMall catalog). As mobile platforms become more powerful, consolidators will also buy up and bundle applications, selling single apps that replace hundreds of others. And mobile devices will come pre-loaded with more features, and at no cost, than just about anyone could ever want to use.
At the other end of the wireless signal, restaurants, bars, movie theaters and other points of for-profit interaction will likely sign up with cloud service providers that closely track the app market, automatically providing access to constantly updated suites of the most popular location-aware services, social-media interfaces and push-advertising opportunities.
There are two morals to this story.
The first is that while the Internet can change many things, it’s unlikely to change human behavior very much. The great majority of consumers probably won’t want to use more than a small number of products at a time, no matter how easy they are to download.
The second moral is that the most successful software startups are likely to be those that incorporate the re-establishment of traditional market forces into their business plans.
My prediction is that when the dust settles, the most successful entrepreneurs will be those that set out to become the distributors, consolidators and one-stop cloud services providers of tomorrow, long after today’s thousands of app vendors have, of necessity, moved on to other things.
Andrew Updegrove is a regular contributor to Mass High tech. He can be reached at andrew.updegrove@gesmer.com.
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