UsableMarkets

I love hearing about new online markets and trying to understand them better. So when a friend told me about appbackr I was excited. It’s a seemingly simple idea: match people who want to invest in cool new apps for iOS with developers of those apps. But at appbackr this seemingly simple idea gets muddied quickly.

One might imagine that this operates a bit like the stock market: you give some money to the developer and therefore earn the right to capture a certain percent of all future profits that app earns. But this is not how it works. Rather, the model is based on the book publishing business. It works like this:

App developers are like writers. They have ideas and talent, and want to focus on creating works of art (if that’s what you can call an app). Investors sit in the role of publishers (like Simon & Schuster). They determine who has talent (or rather, what consumers will enjoy), and then help bring those apps to market by giving money to the developers (so that he/she can eat, presumably). Finally there is ever-present Apple playing the role of store front, just like Barnes & Noble.

Investors — called backrs in the nomenclature of the site — invest by pre-buying a certain number of sales of an app. So, just as a publisher prints a certain number of copies of a book to sell based on what they believe they can sell, a backr pre-buys a certain number of sales of an app, based on how popular they think the app will be. The investor then makes their return when the app finally gets sold on the market. (Or eats the cost if they don’t.)

In all this appbackr plays the role of clearing the market (or matching buyers and sellers), and managing the flow of money from investor to developer, and from Apple back to the developer and investor.

There is some weirdness about all of this, and a few things that would make me (as a potential investor, or backr) pause.

1. There is the flaw in the analogy. Pre-ordering a certain number of books makes sense in book publishing since there is a cost associated with printing and storing each book. No such cost exists in app development, so limiting the number of sales an investor can purchase really only serves to put a cap on their returns.

2. If a book publisher only prints one hundred copies of a book, that doesn’t mean that the right to publish the next hundred goes to someone else. One has to imagine there are issues of copyright involved. In appbackr pre-buying a certain number of sales appears to give you no claim or ownership of the original idea. This remains with the developer and they can do what they want with the app regardless of how many copies of the app an investor has pre-bought.

3. The pricing structure is suspect. The backr invests at the retail price (i.e. the investor pre-buys x number of apps at 35 or 45% of the retail price), but gets paid out at a percent of what’s left after Apple takes their cut.

4. What if the developer decides they need to reduce the price of their app in order to improve sales? This is a direct hit on your investment.

5. When you get paid depends on how many backrs are in front of you. I.e. you may have pre-purchased x number of sales of an app, but did you purchase the first 100 sales, the second 100 sales, or what?

6. Because of the nature of an open market place, I’d be concerned that someone can see the good idea I’ve invested in, in the marketplace, and then go and develop that idea outside of the marketplace.

I also wonder about how well appbackr appeals to mobile app developers. While all developers have different motivations and goals, I’d be concerned that the best developers, who know they have hits on their hands, would be less likely to use the marketplace.

Not only would they not want others to see their ideas, but they would also want to capture all the benefits of their hard work. Apple already takes 30%, a huge chunk. Why willingly give away more of that?

Also, the need for money is not quite as urgent for developers as it is for artists. After all, it doesn’t take years to make a good mobile app, while great books can easily take that long to write. On top of that, most developers will presumably have a day job, if they’re any good.

While I love the basic concept behind appbackr, I am curious to see how well it appeals to mobile app developers and small time investors. My guess: not much.

~alex