Part 2: The unknown market for low-to-mid-tier app deals
Very few mobile apps can cash-in like Instagram ($1 billion) or even MyFitnessPal ($475 million), but a separate M&A market is providing a viable exit strategy for app owners in the low-to-mid-tier.
In this thriving market, deal values are of a different magnitude and sellers are more like you and me.
Sellers of low-to-mid tier apps are typically individuals or very small companies. Many mobile app developers are building apps ‘on the side’. According to Vision Mobile, 43% of mobile developers are either hobbyists doing it for fun, or independent developers who are doing mobile as a side-project.
For most developers, the app world is a harsh place to do business. With more than 3 million apps each, the Apple App store and Google Play are extremely crowded, resulting in fierce competition. The number of apps available has been growing exponentially in recent years, while the number of apps consumers regularly use has stayed static. According to Nielsen, users typically only use 27 apps monthly – and that figure hasn’t changed since 2012, when Google Play had only 600,000 apps.
This makes it very difficult for mobile developers to generate revenues. More than half of them are operating under a ‘poverty threshold’ of $500 in monthly revenues, according to Vision Mobile.
Those looking to sell their apps have often worked on building and maintaining their app for some time. If their revenues remain limited, they might sell simply because they want to get on with other things or because they need to release capital.
At Appsbuyout, we hear stories behind decisions to sell that are as individual as the developers themselves. Some change in their lives might mean they are done with developing, or they have decided to focus on another app in their stable. One developer was selling his app in order to help fund his honeymoon.
The deals for these apps tend to involve only software assets and IP, rather than companies with staff. This can be apps with users, completely new apps or simply source code. The latter can be either licensed or bought.
The apps that are being traded are stand-alone, rather than a channel to market in the way that, for example, a taxi app would be. Typically, no substantial back-end infrastructure is required to run the app being sold.
Apps at these lower price levels are bought in order to continue to be run. Rather than close them down, buyers often invest in the apps to boost growth and monetization potential. Like any other buyers of a business asset, their aim is to make a return on investment. If they can run an app with commercial success after paying a developer a fair price, everybody wins.
Click on the infographic to see the market for low-to-mid-tier app deals.