A New Investor’s Guide, Part 2: How To Evaluate The Market Outlook Of An App

A New Investor’s Guide, Part 2: How To Evaluate The Market Outlook Of An App

Let’s say you find an app that has potential — what now?

At this point, you are only half way through. What about the market? Is there enough demand? What if the market is already saturated? How does this app perform among the competitors? These are all critical questions to consider when evaluating market conditions, prior to deciding whether to invest or not.

    1. Understanding The DemandApp Store and Google Play Store are two of the biggest app stores with more than 3 million apps. While some categories (games, photo/video, social networks, etc.) are already saturated and thus very competitive, others still offer many opportunities. This does not necessarily mean that investing in apps in the photo & video niché would be futile; however, make sure that it is not a clone of the hundreds of photo-filter apps. It is always worth considering an app that has a unique selling point or competitive advantage regardless of its category.Alternatively, if a non-competitive category app has captured your interest (for example a medical industry app) there are a number of methods to predict its success rate. Take note of descriptive keywords relating to the app, check their search volume and how many similar apps rank via Mobile Action Keyword analysis tool. Comparing and contrasting these findings will benefit you greatly along with checking the demand for similar apps on Apple Store and Google Play.Keywords, Search Score, Chance, Total Apps, Current Rank

      It is also a good idea to search these keywords and look for Apple or Google Play Search suggestions. If they don’t show up in search suggestions after inputting some part of the keyword, we can be sure that there is not really demand specific to this topic.

      Searching Keywords in Apple or Google Play Search Suggestions

      In our example, the app that focuses on “medical cases” may be not worth investing in since there is not really a demand in App Store.

    2. Understanding The CompetitionDetermining the demand for the app in question is very important, however, more often than not, the market is over-competitive.In this case, it is better to focus on competitors and their performance in the market to understand how much potential our app has to grow.Determining The Demand For The App

      While we are checking our potential competitors we should also seek the answers to the following questions.

      What is the apps’s daily download count and/or app ranking?

      This is the first question that helps us to understand how big our competitors are. This tells us how big the market is as well as how many downloads are needed in order to be able to compete with your competitors.

      Apps Revenue and Download Estimation

      How much revenue are your competitors making?

      If you know how much revenue they are making, then you can smartly plan your marketing budget and have a better idea about an expected return on an investment. It is, however, very hard to guess the revenue of apps that only have ad revenue.

      What keywords are ranking best?

      If you don’t have a marketing budget for advertising, you need to focus on organic user acquisition channels. 63% of users find and download new apps through search which makes ASO (App Store Optimization) the most critical organic user acquisition channel to focus on. To determine if there is any opportunity to grow organically, you need to find out what your competitor’s top five ranked keywords are, and how popular they are. Then you can have a better understanding of the keywords that you need to focus on, how to use these keywords strategically to gain more visibility at search results and how to get more organic downloads.

      ASO - Keyword Ranking Trends

      What do your competitor’s reviews look like? If their ratings are low, what do their users complain about?

      Reviews and ratings are probably
      one of the most critical data points from which you can learn about your competitor’s app since most users reflect their true experience. If they have any problems with your competitor’s app, they will write down every single detail about it which is a great opportunity for others to execute a faster solution than them.

      Mobile Actions: Review/Rating Trends

      What is your competitor’s user breakdown by country and which countries are most important to them?

      If you know the countries where your competitors are strong, then it is easier for you to determine the budget you will need to allocate for each country. A good strategy to grow your app faster can also be focusing on the countries in which your competitors are not dominant.

      For this manner, I suggest using Mobile Action’s all-in-one competitor intelligence tool that provides a competitor’s app visibility, downloads, revenue, rankings, keywords, reviews/ratings and audience geography for each country for both iOS and Android apps.

    3. Understanding App’s Position In The Market

 

After understanding app demand and checking a competitor’s position in the market, we have to ask the same questions about our own app. In addition, since we have access to Apple’s iTunes/ Google Play developers’ accounts, we should also focus more on the following details:

Carefully read user reviews to fully understand what they think about an app. This is a great way to find out if there are any technical problems with the app and/or what the reasons are for the user’s dissatisfaction with the app, beyond crash reports.

App Reviews: Beyond Crash Reports

Carefully read user reviews to fully understand what they think about an app. This is a great way to find out if there are any technical problems with the app and/or what the reasons are for the user’s dissatisfaction with the app, beyond crash reports.

Lastly, you should check App Store views to download conversion rates for the last couple of months. The conversion rate is critical because it tells you how the app actually performs in the App Store search results. If none of the app’s keywords rank in the top five, a low conversion rate could be one of the major reasons. After November 2015, Apple started to determine the keyword rankings in search results for apps based on the ratio of ap store views to download conversion rate. (To learn more about Apple keyword ranking algorithm changes, click here)

If app views to download conversion rate is 20%, it means that 80% of visitors, who somehow found and viewed the app page, didn’t download it. This is a big loss that neither the app nor it’s owner can afford.

App Category and Conversion Percentage

Mobile Action’s Apple App Store average conversion rate report says that shopping apps have the lowest average conversion rate with 31%, while ebook readers have a 44% rate. Find out what your app’s conversion rate is and keep it in mind when evaluating the app.

After Buying An App

Buying an app is only the first step of an investment. You need to take the right action and invest additional time and money to become more successful than the previous owner. You may need to hire a developer to regularly fix bugs, add a new revenue channel or improve product features. You may also need a designer for app design renewal, screenshots or an app icon. Keep all these additional costs in mind when calculating how much the total investment for an app may be.

Evaluating the product and market of an app by asking the right questions before investing helps investors minimize their risks and makes for better investment decisions leading to greater success upon acquisition.

This is a guest blog post written by Osman F. Kucukerdem. To read more about App Marketing, ASO and App Store, you can find him on Twitter and Medium. He can also be reached at [email protected].

A New Investor’s Guide, Part I: How To Evaluate An App’s Product Potential

A New Investor’s Guide, Part I: How To Evaluate An App’s Product Potential

This year it’s hard to ignore that web investors are pouring increasing amounts of time and money into apps as opposed to websites and domains.

Buying and selling apps is still a relatively new concept (Apple only started allowing the resale of apps in 2013), so naturally, investors will face something of a learning curve in getting started.

App Buying Guide for New Investors

Web investors cannot help but notice how much time and money users are funneling into apps, compared to other online assets like websites and domains.

Internet Usage (Engagement) Growth Solid

The most common mistake web investors seem to be making is approaching mobile in the same manner they approach web. Even though mobile and web have some similarities, both platforms have their own unique characteristics in terms of user experience, mainly user behaviors, key product parameters, development styles, and marketing strategies. Even today’s most popular app stores, Google Play and Apple App Store, show different characteristics in many areas.

Therefore, when you are evaluating an app and wanting to maximize your investment, asking the correct questions is vital.

This is one of a two part series highlighting two of the most important aspects of evaluating an app investment opportunity: Product and Market Evaluation.

Product Evaluation

When deciding whether an app is worth investing in, the focus should be on the product itself and its key parameters. If a product has major problems initially (it doesn’t matter how big the market or the opportunities are) you will spend most of your time trying to fix the problem. In the worst case scenario you may not even be able to find the problem or its source. Researching your key parameters and understanding the product is key to preventing possible problems down the line.

Try to avoid focusing solely on revenue or the total number of users when deciding on an app investment. We should always look for a clear and concise verification of daily/weekly/monthly numbers and trends to understand how much potential the app actually has. The total number of any parameter does not provide enough insight for an app evaluation alone.

Key Product Parameters

Before conducting an app evaluation be aware of platform differences. In general, Google Play apps tend to get more downloads; however, iOS apps make more money per user because of the app stores’ user profile and dynamics.

Another factor to keep in mind are the vast differences between game apps and non-game apps. Even though the lifespan of a game app is shorter, the potential to earn more money at a faster pace is greater than that of a non-gaming app.

1. Engagement

It is critical to know how often someone is using the app. Did the user download but not use it more than once? If they visited the app subsequently, how frequent were their visits?DAU (Daily Active Users) /MAU (Monthly Active Users) ratio tells us how sticky an app is. 20% for a game app and 10% for a non-game app are considered to be a good DAU/MAU ratios. Additionally, for Google Play, an Uninstall Rate is also a very good indicator in understanding an app quality. 40% uninstall rate is considered to be normal. Basically, by examining these two parameters an investor can easily determine how popular an app is with its users.

2. Retention

In order to assess the quality of an app, the most important data to look at is 1-day, 7-day and 28- day retention rates. Retention rates allow us to see how many users return in the given days after having downloaded the app. No matter how many users download the app everyday, if they do not come back, there will be no sustainable growth and revenue. That is why retention is one of the most critical product parameters.Retention rate can easily change depending on an app’s category and its platform. Appsflyer’s recent report shows what the average retention rates are based on the app’s category and platform.Retention Rate on iOS AppsRetention Rate On Android Apps

Since the retention rate is directly related to an app’s core value and design, trying to increase it takes time — in most cases, even longer than creating the app from scratch. That is why many successful game companies prefer to kill their game after a soft-launch if the game’s retention rate is below the industry average.

3. Financials

Revenue will always play a dominant role when evaluating an app. The most basic approach to valuate is to multiply a monthly revenue by 10-15 times. However, to gain a better understanding of the financial situation, app investors should also consider ARPMAU (Average Revenue Per Monthly Active User).Let’s compare two apps: the first one earned $1000 last month and on average has 5000 MAU. The second one earned $1000 last month with 2000 average MAU. Even though they make the same monthly revenue, the second app is more valuable than the first. Considering the ARPMAU of the first one is only $0.2, while the other one is $0.5.

LTV (lifetime value) is considered another strong parameter that big game/app developers look at to understand how healthy their financial growth is. However, I prefer to check ARPMAU on a smaller scale since measuring LTV is more complicated for many developers.If an app does not make any money, we can still evaluate by examining its engagement and retention numbers. If these parameters are strong, then there is opportunity to make revenue in the future. For example, apps that have not been monetized yet but have a promising engagement and retention rates can still be considered as good investment opportunities.

4. Performance

App Crash Rates are another important parameter to consider, as low retention and engagement could be a result of a high crash rate. Although crashes can be fixed (if you are a developer or have a developer on hand) they will cost the investor time and money. Therefore, a high crash rate affects the value negatively.Crash Rates Of Mobile Apps By eCommerce, Social, Business, Sports, Media, GamingAccording to Crittercism’s report, while the average crash rate for an eCommerce app is 0.4%, game apps have the highest average crash rate with 4.4%. In general, an average crash rate should be under 1% for an app to be considered healthy.

5. App’s Story

Apps that have already established a story are far more successful when the right investor steps in. Being featured by Apple or Google, having PR coverage, a website and/or an active social media presence are all advantages. For example, if an app has been featured on the App Store/Google Play a first time, it is likely to be featured again once a couple of updates are applied.On the other hand, apps that are younger than 6 months are generally riskier since there is not enough data to evaluate the above parameters. Apps that are reskinned and younger than 3 months are especially the riskiest.Lastly, take note of how many times the app in question has been sold before. If it has been re-listed by a previous owner or a new one, make sure you are aware as to why. Conduct your research, ask questions and think twice before considering it as an investment.

This is a guest blog post written by Osman F. Kucukerdem. To read more about App Marketing, ASO and App Store, you can find him on Twitter and Medium. He can also be reached at [email protected].