Aikido is performed by blending with the motion of the attacker and redirecting the force of the attack rather than opposing it head-on

This describes precisely the strategy I use for pricing apps, especially when maintaining a successful app through it’s lifecycle.

War!

Today, when reading blogs, Twitter or some online satire, app business feels like a raging war. Consumers complain about paid updates, IAP or ads, even in $0.99 apps, developers draw desperate parallels to the price of other real-life goods like coffee and hope the MIB will pick up all those aliens who are writing whiny iTunes reviews.

I really dislike this scenario and I rather live and breathe the classic “the customer is always right” idea.

But, if the customer is always right, including all the demands for a lower price, that means that you automatically are the loser, doesn’t it?

Not at all!

Fight back

The key to Aikido really is to understand the force that is directed against you. You can not redirect a force you don’t understand. So it is essential to find out what really drives your customer. As Deep Thought would say, sure, they say your app is too expensive, but what does it MEAN?

The next step is to redirect the force. For your customers, that means that you not only acknowledge what they want, but you ultimately give them what they want. In a way that makes them win AND you win. And most preferably in a way that the biggest whiners don’t realize for a while why they suddenly lie on their backs, barely blinking.

Examples

1. “Your app is too expensive!“

Understand: First of all: Congratulations! You are in a great spot. The complaint is not about the quality of your app, it is about the price point. What I read between the lines with this one, many times, is that the app does not provide enough value (read: content) for it’s price.

The typical reaction would be to either lower the price or add content/value*

Aikido moves: Split the app into two apps. And give your customers both a price decrease and more value! Make a Pro or Premium version and lower the price for the current version while adding features to both in a regular life-cycle.

Some die-hard fans will pay twice, more customers will buy the basic version, some will pay for the premium version. I have one kids game that is currently priced at $1.99 and I get the complaint at times that this is too high for the value it provides. Which is correct, if I compare it to other apps in the market place (even I would argue that my app has such solid content that it does justify the price). So at one point I will create a premium version for $2.99 or even $4.99,  including a great feature that 10-20% of my customer will love. And I will add a few features for the $1.99 as well (I don’t like 0.99 for kids games, so that’s not an option). So not only do I answer the complaint, I answer it in a very strong way and use that momentum to introduce the “premium” version. And I’ll place any bet this strategy will pay off for me.

*mind we are discussing how to REACT. Many times, for many reasons, “do nothing” is of course a very valid strategy.

2. “I hate IAP”

This is from an interesting Twitter exchange with @mrfungfung, creator of the epic Mini-Squadron, who got beaten up so badly in the TouchArcade forums on his latest app, that even the moderators tweeted their amazement/disgust.

Understand: When reading carefully, IMHO it is not so much shelling out another $0.99, it is more that IAP feel like an “endless drain of their money”, as one of the TA posters phrased it. I can absolutely find myself in that statement.

Aikido move: Publish a premium version that includes all current and future IAP’s as free Updates. Nothing is wrong with a $4.99 or even $7.99 price point there. The price should be slightly lower than the combined price for all IAP’s.

I really like this idea. You are responding to a valid fear of your customers. You are offering them a way out. You are making it accessible for them with the lower price. You will get the one or the other bad reaction, but if you do it right, you will gain happy customers AND you will make good money from this combo approach.

Waging back and forth

This is not about winning. This is about fighting a graceful fight. This is about looking good, about having answers which help mitigate discussions. Making life easier. This is about making a value statement AND making money.

Every move you do will cause more reactions. And you need to continue reacting to those.

In my first startup, I kept being responsible for portfolio and pricing and I learned to get creative very quickly. In software, no matter what you do with your price, it is always an issue. So we created bundles, company licenses, upgrade contracts, the whole enchilada. Some of those sold really well, some didn’t. But every time we did that, we had a talking point with our customers. And you know what, that was sometimes the most important thing. Having a $5,000 company wide license of a $799 software as a potential option helped us tremendously to justify that $799 price point, even if we never in fact sold the $5,000 license.

Ultimately, no matter how you get there, your customer feeling good about his purchase is very important for ongoing success.

Don’t be deceived about the low price points in this business. It is easy to dismiss any reasonable discussion because the whole price point seems unreasonable. And yet this is what a lot of people make a living with and I strongly suggest to embrace that discussion not despite, but BECAUSE of the $0.99 low-point. Those who work with their customers instead of fighting them will have a competitive edge.

Clearly, each app deserves it’s own pricing strategy. I want to make a point here that pricing and product line is something you can and should use to your advantage and it can be both fun and rewarding to be creative in that area. And to respect your customers, no matter what.

Last week, in this well written piece by Loic Le Meur I found a very interesting quote from an Ars Technica article.

The problem for developers is that a few paid applications do extremely well, and the rest don’t. The top 10 percent of paid applications get about 75,000 downloads. The next 10 percent, just over 9,000. A handful of developers are doing good business on the App Store—established games companies like Electronic Arts and Activision, for example, as well as a range of indie developers—and everyone else is making do with mere scraps.

I know what you think. And what you are supposed to think. What a mess, right?

Well, let’s look into this a bit.

What is success?

A friction I see coming up a lot of time is in the definition of “success”. Talking to Indies, I hear “building a self-supporting business so I can keep doing what they enjoy most”. From the “professional” articles analyzing the marketplace I read “only a few millionaires”, “no 10M+ opportunities” and similar arguments that seem to be grounded in the dinosaur age of VC’s and hyperlarge web projects. A bit like 2005 or earlier, if you know what I mean.

So it is important to note that success is defined VERY differently by different groups.

Making Money

Let’s look at it from a more typical Indie perspective.

First of all, I have to say I don’t care too much about how many “make millions” and not even much about “how many fail”. Especially if one wants to weigh the options of going Indie, the “Angry Bird” or “Doodle Jump” success stories are almost distracting and so are the “I wrote 2 me-too games and they are not selling” failures.

The thing that interests me most and imho describes best how sustainable those new ecosystems are, is the SECOND layer underneath the “most successful”, the layer where devs are not getting rich but generate positive returns on their invested time/money.

And as far as I can tell from talking to other devs, from watching the low turnover rate in my developer circles, that layer is actually pretty healthy. Developers releasing consistently good apps or focusing on a niche, creating the best-in-class app there, seem to have a FAIR chance to succeed and come out within that sustainable layer of 20%.

Wait! 20%? Healthy??

The reason why I’m saying that a 20% successful layer is pretty healthy is simply because this is still software product business we are talking about and that naturally comes with a high failure rate. Always did. In Dan Brinkleys classic book about the early Silicon Valley startups, he states that only 1 out of 20 software startups succeeds, while 19 fail. Read that again. That would mean a 5% success rate!

Another piece of the puzzle is the fact that all app stores are plagued by a rather large number of “crap apps”. I’m making no estimate here but it is part of all those calculations you can read and if you feel you can’t compete with those, then that’s a problem on its own. Honestly, I think the chance of being successful in it’s modest Indie definition for someone who has the skillset and a decent longterm plan is quite higher than 20%.

But in any case, even if it turns out that mobile Appstores would “only” offer a 20% moderate success probability for Indie developers, I would dare to say that is the most attractive ecosystem we ever had in the software industry, hands down beating the odds of a classic Windows/Mac try-before-buy shareware distribution or any other approach that Indie developers so far were able to take.

The not so inconvenient truth

So do you really think, now with two years into the game, that this mass migration to the mobile app world of both Indies that already worked as Indies before, or former employees taking the plunge, is because they can’t calculate the odds of success and should be scared to death facing those 20% success rates?

1. I firmly believe that we see a rather healthy strong layer of apps making money below those success stories you read about
2. Even if it is only 20%, this is paradise compared to any alternative
3. Success is defined very differently by different people, so take every discussion with a big grain of salt and make up your own mind what you will call successful

Don’t get me wrong. This is far from a guaranteed success. Far! Lot’s of failures are happening, many undeserved. Many things can go wrong going Indie. What I am saying though, if you COMPARE today’s chances to create your own small success to earlier days, today’s modern app stores make your chances better than ever before in computer software history!

How big that chance is for you and your very personal circumstances is up for your own judgement.

Let me know your thoughts and if you find an article highlighting that second “below the rich” layer I’m talking about, please share, those are the ones we should all look out for.

It exists
Can we agree that at a minimum, the length of a game IS one of many factors for judging whether the value proposition of a game is justifying buying it? And in some games (those with a campaign/story), it is a pretty important factor.

Sometimes more
Wouldn’t you also agree that if Half Life 2 takes an average player 40h to play through and Half Life 2 Ep1 only 20h while selling at the same price, any review (aka buying decision helper) should point this out? And if the industry standard for ego shooters at this point in time is around 40h of tight gameplay, then that criticism can be pretty dominant in the review?

Sometimes less
Enter casual games. Those typically feature “endless play” and for those games, it is very hard to even measure game length. However, in those games “variation” or “content” starts to kick in and again, should be valued. Even the super-simple Flight Control features a set of different levels in the meantime, even Doodle Jump publishes updates that enhance the original gameplay with more and more variety, giving the player an extended time where playing is fun. As a factor, game length is less important than with other types of games, but it still plays some role.

Why game length
Now for reviews, there is always a chance they will put too much weight on one specific factor. I have no idea why we discuss specifically the factor “game length” today. Tomorrow, with exactly the same arguments, we will discuss artwork, then sound, then characters, then menu screens, then help screens, you name it. As in “if game xyz had better graphics it would be a better game”. Heated debate guaranteed.

Your Golden Ticket!
Let me introduce a twist to the topic though, specific for mobile games. As you probably know, I am constantly trying to understand the new marketplace we are selling to and the dynamics of its pricing. What I frequently saw with Indie games was that spicing up even casual games with different varieties or a story-mode was a good way for the developer to double or triple the price. This is due to the fact that we are tied to the price tiers of the marketplace, which makes $0.99, $1.99, $2.99 and above very natural milestones for us. Notice how big those steps really are, percentage wise? It should be a primary goal for every developer to get to the next highest price point with his game and for THAT purpose, I found game length a very credible factor to play around with. If you worked on your core gameplay for three months and you see a chance to add a story mode at the cost of another month while also feeling that this would allow you to hike up your game price credibly, I’d say this is a compelling thought. In the classic video game world, you would NOT be able to double the price that easily.

My favorite example these days is Chopper 2. Selling at a $2.99 price as release promotion, then targeting $4.99. There is much less heavy fire against this price compared to say Canabalt or Solipskier and I’d say that the biggest reason for that is the very solid value proposition that comes with a 36 level campaign and three difficulty levels.

Greed is good
Don’t get me wrong, I fully agree with the statement that “awesomeness” is a more important factor than “game length”. What I want to add, as a developer, give your awesome game what it deserves. No fillers please, but smart extensions can extend the lifespan and justify a higher price (for casual games, Tilt to Live is doing a great job there)! And as a player, just to counter Noel’s post a bit, if I get my hands on something awesome, I’m all hedonistic and want plenty of it

Other Indie Voices On Game Length

• Noel Llopis of Snappytouch
• Alex Amsel of Tuna
• Chris DeLeon of HobbyGameDev
• Chris Hecker of Spy Party
• Cliff Harris of Positech Games
• Dave Gilbert of Wadjet Eye Games
• Eitan Glinert of Fire Hose Games
• Greg Wohlwend of Intution Games
• Jeffrey Rosen of Wolfire
• Jonathan Blow of Number None
• Martin Pichlmair of Broken Rules
• Matt Gilgenbach of 24 Caret Games
• Peter Jones of Retro Affect
• Ron Carmel of 2DBoy
• Scott Macmillan of Macguffin Games

When talking to entrepreneurs, lawsuits, patents and trademarks often seem to be seen as the dark, scary side of the new venture. A lurking danger on the horizon, an unpredictable source of pain, doom and gloom. For myself, I found that over time I have developed a more distant, less emotional view of anything legal.

It was mainly the experience of my first startup that got me there and I thought some folks might find it useful to see some real examples of what you might encounter on your journey.

Background

I felt somewhat uneasy about legal stuff when I started my first business, which was an as classically naive garage startup as it can be. Phrase that different, we had no clue about legal stuff. Me and my friend (who is a programming Uber-god) were still finishing up our computer science university degrees (the german system gives you a lot of leeway/time at the end, way different to US colleges). I had an idea that there should be a software counterpart to a machine introduced by Kodak back then, a unix based closed photo printing station sold for $40k. Our version should cost $400 and run on any computer. And so it started, we continued that for nine years and with the help of extremely talented people joining us, grew the whole thing into quite a substantial business with 74 employees.

That just to give you a background and as you can imagine, over that time frame and with that growth we did run into legal cases. And here they are.

1. Winning

We had an NDA. Just because it was cool and we thought we would look more serious with it. Through that NDA we gave access to an API description to our printing format. Following a rule I once heard “never give away more than you need” the NDA limited the usage of the API to one project at a time. Well, another startup was signing the NDA so they were able to code against our API for an internal b2b software they wrote. And then they promptly brought out another software which used that API code, selling it to consumers through retail shops. I found a lawyer who was “familiar with software” online (back then not a lot of lawyers even had a website), he filed a lawsuit, declared damages, we had a court appointment and were granted $8,000 in damages!!! All based on a half-page NDA that I copied from a webpage? I was shocked, all I wanted was for those other guys to respect what we created and stop violating it, suddenly they had to stop, remove all CD’s from trade and pay us a large amount of money. I remember feeling as evil for the money part as victorious.

2. Losing

We made a special version of our software to get integrated into super-light terminals. Which the distributor we worked with for five years wanted to build and sell. I think the license price was $100 per seat, which for a vertical software is not a lot of money. They sold 160 units (after, of course, predicting several thousand) and I think they went into some financial difficulties, long story short they did not pay us. We did not have a contract, as we worked with them for such a long time (if you run a startup you have heard THAT before). We had an email exchange and sent them the executables via email. And they owed us $16k. Clear case, especially because all those machines were standing in public places, with our software on them! Well, except that the judge did not understand how agreeing to anything via email should be legit. And sending anything per email that can be replicated 160 times he found strange. I’m not kidding you, he repeatedly asked why we didn’t have to send 160 units per regular mail. I was sitting in there, speechless. I’m still thankful for my lawyer to prevent me from a more violent outbreak in that court room . Case lost and we never saw any money.

3. The H-Bomb

Three months after we started our US subsidiary to “replicate our success in Germany” (did I use the word “naive” already in this post?), we got hit by an H-Bomb. A what is commonly known as a patent troll sued us for an old patent dated 1982 regarding the jpeg standard, because as a company in the photo industry we were of course using jpeg. The way this works is that those trolls shoot at small companies with big guns, just to attack the big corps later with a bunch of settlements in the pocket “proving their claim”. As it was a lawsuit hitting another 200 companies, every day we got around 100 pages of updates on the lawsuit in the fax machine! Our US lawyer told us it would cost him about 1,000$ per week just to read through the updates and it will take approximately two years to go to trial. So we settled as fast as possible, admitting we might have violated that patent, paying roughly $2k for settlement and $8k for legal costs. Mind back then we still were 100% self financed with less than 15 employees. That hurt and was crazy.

4. Arrgh!!

In 2004 or so we were sued by a company who did hold a patent on “street names in maps that are not printed straight but follow the direction of the street”, because one of our employees tried to spice up the company webpage with a static map graphic that he copied from a site that used, well you probably guessed it, non-linear street names. Now that was of course not a smart thing for our guy to do, but that doesn’t help the case at all. Cost: 4,000 Euro, legal costs and the horrible damages they suffered from our b2b site with 200 visitors a month! It was quite trendy to sue companies for their webpages back then and we certainly got our share.

5. Battles

We were selling a new online technology to a client. Exclusively. Not my favorite thing to do, but they paid for the exclusivity and wanted to act as our reseller. Suddenly, that technology went superhot. Calls from other existing customers that if we don’t provide that stuff for them they would stop doing any business with us. Unfortunately, that first client then wanted to go public and was just happy about the exclusivity (and of course all reselling plans were iced). So, we wanted to end the exclusivity earlier than negotiated. And as that client didn’t pay us our fees on time, our lawyer used this in a masterfully constructed plan to end the contract early. That plan included grace periods, official reminders and similar things, just to make the case solid. How badly we needed that preparation we saw the day after we officially sent the cancellation notice, when an immediate lawsuit came in threatening us that they considered the contract to be still in place and any violation will get me, the owner, into jail (and they will make sure that happens). Well, it didn’t hold up, the contract was cancelled, I didn’t go to jail but it was probably the biggest threat I got as a business owner. But a big and necessary win for our company’s survival.

So for those who read that far, this is obviously a very individual, subjective list. However, I’m hoping this explains why I’m less emotional with lawsuits and patents and trademarks these days. Look at it like this:

• these are pretty much the biggest things that happened over the course of nine years. Some smaller fires occurred that we put out quickly with our competent lawyer
• I essentially faced a real legal problem every half a year to a year. Including those we had to initiate. That’s not a lot.
• in the end, none of them did cost us more than $10k, not even the H-bomb case
• overall, I feel the legal system generally protected us as much as it threatened us

The latter is really important. When you have a somewhat successful app on the iOS platform and someone puts out a 1:1 clone on Android, you will be just happy about copyright law. If someone sends you a c&d letter because you violate something on their side, well, you have something you need to react professionally to, but it typically is not the end of the world.

Summary

Here is some advice I would give to a fresh entrepreneur:

• pick your battles. Push when you feel you have the grounds to push and retreat otherwise.
• you need a good lawyer. What might seem obvious to you might not be so obvious in legal terms. And many times you will find you have better cards than you’d expect. A good lawyer will help you pick your battles and a good lawyer will advise you to engage or pull out
• I had great experience with a lawyer for general lawsuits/contract law and another lawyer for patent/trademark law. I can’t remember of any situation where there was an overlap and I really liked the specialized skills (disclaimer: here in the US I have one small firm that covers both with two different lawyers inhouse, works well so far)
• put it into perspective. We are all brainwashed by modern media and the hysteria around anything tech lawsuit or patent trolling. If you are playing full risk, putting everything on one single product then yes, you are in a certain danger. If you release a suite of apps or even do contract work, there are a myriad of reasons that could put you out of business and it is very very unlikely it will happen because of a lawsuit. In your first years you will be pretty much under the radar and if you manage to get successful you have to set aside a certain amount of money for legal expenses. For myself, that was never more than 2% – 5%, most of which was spent on pro-active waterproofing of our contracts, etc.

In the end, dealing with legal matters is not THAT of a big deal and should not stop you going entrepreneurial. It needs some attention similar to accounting, it can happen with unfortunate timing, but nothing to lose sleep about if you approach it as a regular part of doing business.

Thanks for reading a long post. I really hope this provides value for some readers and takes the edge of this subject. Let me know if you generally agree and if there is advise you want to add!

If done correctly, surveys can be great tools. However, in my career, I have witnessed so many surveys going wrong, I could write a full blog about those absurdities. I have seen large corporations creating strategies to meet objectives derived from completely meaningless survey results. It is simple. If a question is not clear, the results are misleading.

Example for such a survey question:

How do you like Apple’s strategy on a scale from 1-5?

Well. Sounds that answer from a bunch of people could give insightful results.

However, try to answer it yourself and chances are you will ask: From an investors perspective? From a customers perspective? From a developers perspective?

You could assume that if you ask that question to a specific group, like employees, it might be clearer, but what I frequently found when working with individuals through survey results is that too many folks have a great capability to put different hats on. So when you ask that innocent question to say Apple employees, a significant portion will put their investors hats on and answer the question from that perspective. Which instantly renders your results worthless.

Another example I stumbled upon in an internal survey once:

How do you rate the performance of Senior Management?

Straightforward, at least I thought so. Talking to individuals afterwards to try to put their ratings (which were spread all over the board) into perspective, I found that the one half interpreted the term “Senior Management” different than the other half! One thought it means their direct reporting line boss, the other half thought it means the highest management level, like the CEO and the Board of Directors. And of course that triggered very different answers. And rendered that survey section useless.

To solve this dilemma, you either make the question more detailed or you work with sub-questions.

However, there is another unwritten law of making surveys successful: Make them as short as possible. People are not willing to sift through pages and pages of questions. Especially if you do a web based survey, the attention span you can count on is very short.

The problem is, those two philosophies are very contradicting. And the results are often poor, just look at any random survey that you find in your inbox these days.

So for my upcoming exercise of creating a survey for game beta testers, here are my Top Five rules to avoid that conflict and hopefully create a meaningful survey:

1. Stay clear from general questions

“Do you like this game?” is pointless. Instead, try to break it down into digestible components and also approach it from different, tangible angles. “Would you recommend it to a friend?” and “Will you play it again?” will give you small pointers which in their sum will give you the answer you are looking for.

2. Don’t seek answers to Life, Universe and Everything

True, you captured an innocent victim who will answer your questions. False, you can not exploit them, they will not finish or give you overall low quality

Instead, focus on one or two areas that are really important to you. Ten questions maximum!

3. Stay clear of free-form text answers

Those are a huge turn-off for anybody doing a survey. You run a high-risk of many people not completing it. Plus you lose comparability of answers.

Instead, try to either work with multiple-choice answers or scale answers (“on a scale from 1 to 5″). Make sure you make clear which number stands for “best”. And then add one question with an open text field, inviting thoughts and comments.

4. Don’t be nice

You don’t want your survey participants to be nice. You want them to be honest.

Honesty is something that needs to be encouraged. Simply asking for it can be enough and dramatically increase the benefit you get from the answers. Leading by example, using frank language in small doses is a more daring approach that I saw working: “Would you recommend this game to a friend (1-5, 5 means “hell yes”, 1 means “nope, it sucks”)?”

Caveat: You can find bad things in any game, so if you challenge your participants, they will be more than brutally honest.

5. Don’t focus solely on the survey subject

While it is a great practice to focus the questions around certain aspects of the game, you need to leave some room for general questions. It is as important as the answers to your questions to understand more about the person who gave you those very answer.

I recommend asking a few general questions regarding the person (sex, age, video game playing habits, etc) but also the environment that he/she took the survey.

Summary

When you manage to create a survey that is meaningful but small, then you can do something really great: You can get the same person to answer the survey for different games! For my own approach I definitely try to get there, I want them to rate another game, either a famous game like Doodle Jump or Angry Birds or a randomly selected Indie Game with the same set of questions. I’d expect this to give me some good insights on my target group.

And even if you make the survey anonymous, try to talk to some friends who took it. Try to find out where the weak spots are and eliminate them. Creating a meaningful survey is a lot of work.

Let me know what you found working for your own projects, if you plan to use surveys for pre- or post-release evaluation of your apps and also which survey websites you prefer.

This is a really good discussion to have. I found that in the iPhone Indie Business it is no different than with any other business: You rarely talk about money, although it is the big underlying topic and ultimately defines each Indie’s ability to live this life. Let me share a few things I learnt.

1. Money is not a bad thing
So stop treating it like that. Don’t be shy. Talk about it. We all have the same challenge here. Accept that it is a substantial component of what makes an Indie exactly that: independent.
The (democratic) societies most of us live in give us ultimate freedom to go Indie. Run a small business from wherever we want and how we want. The biggest thing that stands between you and this ultimate freedom are indeed your finances. There. I said it. I know it is unromantic and cold, materialistic, but let’s face the truth. We are out to make enough money to support our independence, we do aspire financial freedom and that’s not a bad thing. But that acceptance has consequences.

2. Learn
So you spent years to teach yourself how to write code. You spent a long time creating your app(s). You start to make some money with those and mastered your budgeting, so something is left over at the end of the month and you put it… drumroll… into your savings account!? Because there it is, hmm, “save”, right? And you have better things to do.
Doesn’t this sound strange to you? Shouldn’t this hard-earned money deserve a bit more than that?

One of the biggest lessons in my life was that my financial education practically was non-existent. That came closely together with realizing how much pressure many advisors out there really have from their firms/banks and how much that can cost over time.
You are on your own! I learnt this, slowly, painfully, after years of thinking I didn’t have enough to “invest” anyway, so why bother.
And you know what, that was WAY too late. I learnt a lot about that stuff but I wish I had started way earlier, it would have made a big difference in my life. My strong recommendation is to make financial education the number two priority when going independent, right after mastering your business.

3. Mastering financials = budgeting + investing
3.1 Budgeting
Alex talked about budgeting already. It is really very simple. More needs to come in than go out. And yet, isn’t it amazing how few people really understand that? However real budgeting has some tricky aspects, like how to treat your house, which is a real biggie. For example, I generally believe that a house you live in is NOT an asset but a liability, and while everybody is entitled to his own opinion, what I really want to say: If you buy a house, you should be able to HAVE that discussion in an educated way. See 2.
Alex was not happy with the electronic budgeting solutions he tried and I have to say: I don’t use those either. What I do is to create a rough spending plan and then track my (families) exact spending using Quicken (or Mint) at the end of every month and see where we are off. Do that over a few months and you develop a pretty good idea where you stand. The hardest thing: Don’t lie to yourself. Capture everything. You will be surprised how much money you spend!
And while I strongly support tightening the belt in certain life phases, for me this has more a signal effect than a real effect (and yes, this is a very important signal and I am NOT saying to not do that). What I learnt (and what statistics support) is that skipping Starbucks is a nice idea, but don’t lose sight of the big things that really affect your financial situation. The house you think you deserve, the unexpected car repair, the “I really deserve that new Mac” spontaneous splurge, the college saving fund contribution, the once-a-year payments, those are the most dangerous things to threaten your financial plan and you have to get a handle on those.

3.2 Investing
“Haha, you are funny. If I had something to invest, I would not do <insert strange argument here>.”
If you don’t have anything to invest, go back to 3.1. Seriously. And if you temporarily decide to live from your savings and exceed your monthly budget to support a career change, fine. That only means that you have savings to manage. NOTHING unties you from the responsibility to learn about investing at any time. If your app suddenly breaks through or your budgeting efforts are good enough to show a positive month-end, it is too late.
I strongly believe that learning how to invest money is a lifetime task and it is mainly about building up experience. It is about understanding the concept of diversification and the different investment strategies. It is about being able to filter and qualify a huge flow of opinionated advise. Trusting advisors? Why not. I’m working with advisors and every day I feel I need to learn more myself to judge and to qualify their work.
If you are an independent app developer, one thing you know is that our income is never steady. You have to learn how to deal with that. And if there is a big upside, that’s where it starts to get interesting. Because one investment strategy that you have but nobody else in this world is to invest back into your own business. Hire another programmer? Or an assistant? If you have a strong handle on your financials, that will only help you to make a good decision.

4. Sounds good. But how does that look like?

• I do a detailed expense analysis every 1-2 months and compare it against the budget I created
• this total monthly number goes into a lifetime planning sheet that I do with Excel, where I track everything, on a high level. It basically says: If our expenses develop like this and our income/my app business develops like that, then at age xyz our financial situation looks like that. Right now, as long as my business doesn’t over-perform, I adjust this lifetime plan almost every two weeks with updated numbers. It tells me exactly when I will need to start taking on project based jobs and when I have to give up the Indie Dream and become employee again*
• I have a “play” brokerage account, where I have a small amount of money set aside to invest directly into the stock market. Trying to beat the market as a personal challenge I found this to be highly educational. Right now it is iced as my focus is 100% on my new business, but I will get back to that as soon as I see some relief on the business side. This is a good example of where I draw the line, the other stuff I do even in the hottest startup phase
• I spend 2-4h every week on education, reading Money magazine, tracking the stock market and trying to understand some more of the things that are going on there.
• every two months I talk with my bank advisor about his strategy with my savings, although I track almost daily online what they are doing

* with my first startup, I had a loosely maintained “if we don’t get any new income, in how many months will we run out of money” sheet. Whenever I talk to other entrepreneurs I found they had something similar, I call it the “when will we be dead” plan. Now that I went Indie with family/house (aka liabilities) I prefer a more detailed plan that includes my personal situation.

5. Books
There are two great books I would like to point to, both really helped me on my way.
“Rich Dad, Poor Dad” is a loud, at times sensational book. But if you read it closely though, it really talks about essential things: You HAVE to track your spending so you KNOW what you spend. Take your destiny in your own hand, you might be the best investment that is out there (this is what every Indie dev already does right now). And you have to learn financial stuff, all your life. It was eye-opening and really helpful to me that someone finally said that loud and clear. Most of what I wrote above is echoing this book.
The other book that really substantiated the whole thing for me was “The Millionaire next Door”. This really is a statistics book that explains the in/out rule in great detail. From the title I thought it is just another “get rich” book (and I hate those) but it is a really good read about the difference of unsuccessfully vs. successfully managing your financial situation (which means exactly the deliberate, informed frugal lifestyle that Alex described).

Let me know if you think a passage in this long post is not clear, if you disagree or if you have questions.

Pretty much every developer I know is an avid book reader. Most are also into cooking, but that’s another story (idevrecipeaday anybody? .

So I want to introduce you to a new book. And the way I am doing this is to list five random books I like. Similar to an Amazon list. I am very convinced that you know at least one of them, if not more. And that’s the point, if you know some of these books and like them and you can relate to my description of the others, I might have been able to point you to a book you will enjoy reading and you might even find influential in one way or the other.

1. The Hitchhiker’s Guide to the Galaxy

That’s a safe start. Personally, I think there is a perfect age to read the Hitchhiker. When you had your first dose of classic SF, a first dose of why technology might also have flaws instead of just being supercool and when you had a first idea that life generally is kind of crazy, that is a great age to read the Hitchhiker. However, even if you missed it back then, this is a must-know for any developer. The nice thing is you just have to read the first three intro pages to see if you like the style. It needs to be in this list, so it is.

2. Daemon

This is the book I am surprised about how many folks have NOT read it. The author, an engineer himself, builds on existing technology. And stretches it, using detailed technical explanations and connecting many of the dots that are out there, today. For the average reader, this still is SciFi with technical explanations, so some Amazon reviews are like “hmm, ja”. They completely miss the point!

For the informed technical reader who has seen the first AR apps already, who knows what server scripts can do and what bot-nets are, it is very hard to tell where he crosses the line between technology today and SciFi.* And this is what I really enjoyed, that constant juggle on every page between “nah, not possible yet” and “well, maybe it is”. It makes this book so special and I would instantly vote it the best book I have read the last four years.

* don’t get me wrong, in the end it IS SciFi and it comes with a fair share of violence, sex & drugs, so come on!

3. Dream Park

One of those books I bought from a bargain table and found myself rereading several times before finding out it was actually written by Larry Niven. It might not be his strongest book and it really explains why the characters are a bit strange sometimes (seems to be a Niven weak spot, I hated the Ringworld characters), but the topic and the setup really worked for me. If you like video games, this is a great read.

4. The Neverending Story

You might have seen the movie, you might have heard controversial things, you can tag it as a children’s book and you should forget all of this right now. If you have not read this book, you have missed one of the best fantasy books out there. Very accessible, compelling strong story and choke full of imagination. Go buy it and read it. Now!

5. The Swarm

Amazon reviews bash it because it spends so much time on explaining ecological science besides being completely breathtaking? Well, this blog is mostly read by technical minds, so you might find this as interesting (and thrilling) as I did. Warning, it has a somewhat strange ending and it seems the translation to english is at times questionable, but if you want to read something that goes far beyond “The Day after Tomorrow” or “2012″ and has a breathtaking build-up, I can highly recommend this one.

As I said, this is a random selection (allows me to post more later) and those are not the best five books I know, but five books I would recommend any time to anybody who likes reading good, technology/fantasy/gaming inspired literature. Let me know how you like them! And please blog about your recommendations.

“Ok….enough feeding fish and rubbing lines in the sand. Japanese Gardens have always been a tranquil place to take a break.”

This is the beginning of the iTunes description of one of my least successful apps, Japanese Garden. After a small “test the waters” app, Baby’s Animal Show, which turned out to be surprisingly well performing, this was my first serious attempt to make a difference. The idea was to create a fun real-graphics version of a pocket god like game, minimal gameplay but loaded with rich animations and pop culture references. I wanted a Koi Pond and I wanted a shark swimming in it. And a dinosaur. Well, you get the picture. So a lot of money, time and resources went into it, and to take the tension out right here: it was wildly unsuccessful*

While I still love the idea, I hated the execution. It turned out that there is no really great way to create a lot of animations, keep them in memory and play them smoothly as needed with the iOS devices. Or maybe there is and the dev team I worked with just didn’t find it. I don’t want to go into many details here, but after releasing a “meh” first version thinking that the next will follow soon, a lukewarm (deservedly) reaction and Apple suddenly killing the idea of episode-like games getting up in the charts through constant updates, I decided to shelf the project, although a much more enhanced version got to “almost shippable” state.

Mind that while I am not particularly proud of that first version, it is not necessarily a really bad app, especially for $0.99 and I consider the “nice idea but needs more” tone of most reviews a good thing. So I didn’t take it off the market and want to look at the whole “animation” mess from a technical side again when I have some time. I certainly do have loads of crazy idea what such an app could include.

This as an explanation of where that app comes from and why it is in the market for over a year now. Not updated. At the bottom of the Sea of Apps. In no charts. At the end of the tail.

The only reason anybody would find that app would be a direct search hit and the description that I think is pretty good. That accounted for 0-1 copies sold/day on average in 2010.

Here is an interesting experiment. While I am typically not aggressively juggling the prices of my apps, I always wanted to try the “make it free” effect on a deeply forgotten app. Like this one. So on June 12th 2010 I set the price from $0.99 to Free for the weekend for two apps. And while that other app barely showed any notable impact, Japanese Garden did.

Please look at the charts and see for yourself. First with an all-time view, you can clearly see at the right where it started to pick up again after the free weekend.

Here a more detailed view of May/June/July, the impact of the free weekend is very visible.

Learnings?

• well, I am clearly making more money with that app than before. I take that anytime (at that pace it will still take 12 years to recoup the investment)
• this also shows me that the app idea has potential and might be worth pursuing. quite different to that second app I set free at the same time, which clearly lost this shoot-out
• it also shows me what a strong automated ecosystem exists out there reacting to price decreases and that’s a good thing to understand

* When I said “wildly unsuccessful”, as you can see with the sales numbers I left openly in the charts I really meant it. However I did not want to talk too much about the app and the sales numbers as such, but merely focus on the effect of setting it to free. Let me know in the comments or ping me on Twitter if you want to know more about the Making of Japanese Garden, what the cost was, where did it sell, etc.

So is Apple the new Google and the future advertisement top dog?

Is Steve about to make “his” developers rich?

As of Day 2, the results where pretty mixed. And they stayed that way. eCPM, the averaged payout for every 1,000 ads served, turned out to be very high and dropped since then into a still high, yet more regular dimension. A successful app typically serves a lot of ads every day and whichever ad network fills it with the MOST VALUABLE ads creates the highest eCPM. When I started in this space it took me a while to understand that this number really is a (pretty broad) variable and that there are some ads out there who pay out nice money vs. huge bulk (junk) ads that pay only a few cent per click, because as a developer you have no influence into this selection (and only limited visibility). iAds are certainly at the top of the premium range here.

With the first two iAds out there, Dove and Nissan, another effect is very visible already when looking at the second big parameter that defines success and revenue: The fill rate. It started at around 10-15% on the first solid days of serving ads. That means that you had a very high chance to open any of the apps showing iAds and see… nothing!

To make matters worse, the fill rate dropped since then, I heard all numbers between 5% – 7% on the following days.

And this is crux: Premium is great. However that’s not how this space right now works. The money that advertisers want to pay is very seasonal (big bucks before Christmas) and tied to the demographic. In January, the situation was so bad that even the biggest ad networks at times did not have enough inventory to fill all the adspace out there and the ads that were served came with a very low price tag. If you are new to the ad business, brace yourself, the classic difference between December and January is very steep.

One more time, how is eCPM and fill rate tied together: If your app is opened 10,000 times a day (and for a successful app that is a low number), you have a chance to serve 10,000 ads at a minimum (more, if your app has more screens or is used a long time). Your ideal case is that these 10,000 spots are filled with very high-value ads with high eCPM and that you get all 10,000 spots filled (100% fill rate).

So one way to look at it:

Developers who had an exclusive iAd integration in their app made some money. They served much less ads than they could have, but when they served iAds, they made good money from those few times, however less than if they had gone with several ad networks. Nobody is raving at this point.

Another way to look at it:

If Apple manages to provide a 90%-100% fill rate with those deluxe iAds, apps will generate more money than before through advertisement. If Apple manages to provide like a 50% fill rate, they probably still are at the top of the payout curve, but more average. Note that Google provides a steady fill-rate of 97-100% with their mixed ad approach (low eCPM and premium mix).

So right now I am really curious where this will lead to. At this point it is clear that developers need to mix in ads from other networks to fill those huge gaps. Which sheds an interesting light on the “Apple does not allow Admob/Google ads anymore” discussion. Right now, any developer with a successful ad business model would make heavy losses going with iAds only.

I really wonder though how Apple plans to mitigate that. All I read at this point is that Apple wants to approach this as a real premium market, with handmade iAds done by Apple. Yes, more ads will come, but also the number of apps which will show iAds will quickly increase. So do we have to prepare for a future with very low fill rates?

For myself, I don’t see a straightforward path out. Going premium will lead to low fill rates which very likely will make nobody rich. Adding mainstream ads into the mix will destroy that premium idea of iAds.

Feel free to share your thoughts in the comments, the crazier the better. For the curious, here is a link to what Apple could do with targeting the iAds to the right users.

For myself, I am off blogging now with this idevblogaday entry, I need to look into adwhirl again and think about a free app that targets the 30-40yr male audience, married with kids!

So how did it go?

I would say: Mixed. After pulling the trigger rather late in the day, around 3pm, developers who have apps in the appstore with iAds reported a steady stream of impressions served by Apple. Two ads were spotted, Nissan and Dove. It seems the Apple dashboard, which only developers can access, started to report statistics later that day and they looked good, seems the iAds got pretty good clickthrough rates. This certainly comes partially from the novelty factor the iAds have, but it’s a good start.

One irritating fact that developers report, the dashboard shows all kinds of stats but zero revenue so far. So folks have no idea how successful the iAd integration really turns out for them in terms of revenue.

After the initial push, it seems as if the fill rate of ads quickly went down. I got some numbers through Twitter, they all indicate that the fill rate is very low at this point, <15%!

Means: A large number of apps with high usage frequency try to show more iAds than there is inventory. A lot more. So don’t be surprised if you can’t find an iAd out there. As a developer, if you are used to the well stocked inventory’s of the established ad providers, esp. Google, who provide an endless supply of ads even to apps with super-high usage, this is certainly something to get used to. But as always, the battle will be won by fill rates AND pay-out per ad/click, so it is too early to tell.

Here is an interesting detail from pocketgamer.biz on how a potentially low fill rate will be mitigated: Forcefully. But that is something that anybody who integrates an ad-network already does. You either hide the add-space similar to what “Mirror Free for iPhone 4″ does, or you request ads from several networks until you can serve one, as you can see in “Removem Free”. As a user in the latter case, you will see ads coming in from different providers.

For the curious, looking at free apps that have an exclusive iAd only integration like “Mirror Free for iPhone 4″ or “Air Hockey Gold” serving ads (or not!) will give you a good anecdotal evidence of Apple’s fill rate, aka inventory aka capability to perform substantially in this business. Caveat again, Apple has clearly announced that the full force of the iAd program will hit this fall, so early conclusions are to be handled with care.

More iAd experience on your side? Please share in comments.