TECHNOLOGY

Note to Tech Start-ups: Cool Products Aren’t Enough

A hot mobile app that gets attention does not a company make. A better way: Build what people want and find a way to make it pay.
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Ever get just close enough to success to taste it, only to have it evaporate like a cruel mirage? That's been happening in spades in high tech lately. Some companies with such high-profile apps as Hipster and Oink, which made a viable splash, have just sold themselves off to bigger businesses that wanted the engineering talent, or otherwise admitted that what they've been doing wasn't quite enough to survive. There are lessons here for any business, high tech or not.

Mobile app success has, in practice, boiled down a number of steps that have become rote—steps the companies that recently acquiesced to reality were well along:

  1. Work the PR angle hard.
  2. Get lots of review love from the major tech sites.
  3. Become the darling of the digerati.
  4. Move mainstream and make big bucks.

Only, sometimes things stall out early. That happened with Hipster and Oink, electronic postcard and "recommendations for everything" apps, respectively. The companies responsible for them were acquired for their technical talent: Hipster by AOL and Milk Inc, the company co-founded by Digg's Kevin Rose that was behind Oink, by Google.

That's hardly disaster, and presumably the investors recouped at least some their money. Hipster had $1 million in funding and Milk, $1.7 million. But what the businesses got for an acquisition of talent would be far less than had they seen wide commercial success.

They aren't the only ones. Skype bought group chat company GroupMe. Foursquare, which boasts 15 million members, is still largely the plaything of early adopters. Color Labs, with $41 million in funding, has largely gone nowhere with its social photo app called Color.

So why don't well-funded and connected ventures succeed? As CBS Interactive CTO Peter Yared explains, that's just not enough anymore:

The reality is that even if you’re a proven entrepreneur, any consumer-facing product is hard—be it Web sites, movies, books, music, or toys. Consumers are fickle and have a ton of entertainment options; predicting what they want is incredibly challenging.

Having a storied pedigree doesn't matter to consumers. Neither does the amount of money you have. If it did, Disney's recent $200 million flop, John Carter, which reportedly had a $100 million marketing budget, might have fared better. (Think it's easy to make Waterworld look like a smart investment by comparison?)

So what did the app companies miss? Some basics in creating products and services for consumers:

  • Learn what people want. Maybe you have an idea that is popular among your immediate set of friends and family. That doesn't matter, because you aren't representative of the population as a whole.
  • Be sure there's a big enough crowd. There have to be enough people who want what you have to make a business. With as many people in the country as there are, that might seem an easy step. But you have to get their attention and market to them. Having a website and hoping that prospects stumble across you isn't enough.
  • If people won't pay, you've got a challenge. One of the problems with the app industry is that people have become accustomed to free or cheap. That means having to sell and resell a line of products successfully. The less tie-in you have for repeat purchases, the more you have to charge to create a viable revenue stream.
  • Know the half-life of your product. As Yared mentioned, according to analytics firm Flurry, user retention on an app is only 28 percent after one month. By six months, it's down to 16 percent. If people don't want to keep using your product or service for an extended period, you've either got something that is naturally short-lived in nature (unplugging a clogged drain, for example) or you're doing something wrong.

Cover the basics, and your company has a much better chance of succeeding in the long run.

IMAGE: Flickr/Joi
Last updated: Mar 27, 2012

ERIK SHERMAN | Columnist

Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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