We need an App for making Apps profitable

Cut through the CrAPP

I must be old, I must be old fashioned. Because I just don’t get this app explosion. I recently spent some time at a digital conference in Cape Town, where I was surrounded by young, bright men and woman, many of whom were developing apps (or saying they were).

“What does your app do?” I would ask each one. Half of them announced The Uber For… (TUF) type apps, the other fifty percent seemed, on the face of it, to be great ideas, solving some problem or another. Sometimes I never knew I actually had the problem, and I certainly never knew how many people in the world were actually awake each night because of this problem. But admittedly, mostly I never understood the solution.

Whether these were genuine issues or not, was not the point for me. When I asked the question “Are you profitable?” the overwhelming (in this particular instance 100%) answer was “Not yet?” The break-even number of downloads required, or the number of in-app purchases required to break even was so high, that I failed to understand how they will even get close to those numbers in the next 5 years.

A Diversion

This reminds me of entrepreneurs who pitch their businesses and say, “If we just get 5% of market share then…” What do they think? That the incumbents will lie back and let them enter the market without a fight? I get (and appreciate) the exuberance to announce a 5% market share in the business pitch, but I don’t think most entrepreneurs who make these predictions truly understand the effort, cost and obstacles they will need to overcome in order to achieve these percentages, especially in highly contested markets.

Ok, I’m back

There is no doubt that some apps will achieve break-even, and fewer will shoot the lights out. But as a percentage of those that raise money and try, the number is minuscule. I believe that there is an unhealthy hype in the market right now. This hype is buoyed by the entrepreneurs and investors alike. It is reminiscent of the late nineties dot com boom (and bust).

The hype is not just in South Africa, I see it in Kenya, Morocco and Nigeria too, where the same poster boys (and girls) are being held up time and time again as examples of success. The stories are like mating calls to the youth. Fame and fortune awaits. Everyone  is building the Killer App, the Unicorn App of Africa. Apps are promoted and perceived by many as the savior, the answer to many economic ills.

There is little thought given to the cost of marketing and promoting the app. Most believe that their app is going to “go viral”. People will tell people who will tell people. “If a million people pay just $1  a month.”. Well I say Bah Humbug.  There is little thought given to the cost of servicing a larger and larger customer base. There is little thought given to the effect of competitive apps. There is little thought given to the infrastructure cost, the marketing costs, the compliance costs.  The mental model is that they will build a virtual vending machine in the cloud that will spew forth cash for years to come. Magazine front covers await.

Let me be clear

Let me be clear, I am not saying that African tech companies should not pursue creating apps. I am saying that there is too much hype at the moment, and that investors and entrepreneurs alike need to be more cynical as to what will get traction, and what the cost is of that traction, before investing time and money. Africa, has, can and should develop apps. Local apps solving local issues. But unless these app developers are social, not-for profit organisations, they need to consider more which apps are commercially worth pursuing and which apps are just cool to talk about at conferences. The business case must be given more priority. Very few have deep enough pockets to pay for a large user-base, only to work out how to monitise this user-base later.

A little diversion

One of the myths that fuels the tech story is the M-PESA story. According to the book, Money Real Quick – The story of M-PESA,  the idea of M-PESA was borne in the UK  and not Kenya as widely believed. The seed funding and most of the coding was done in the UK too.  For those of you who travel the continent, you will know that M-PESA is quoted in nearly every conference as a reference point to what can be done in Africa. The truth is it was not, Kenya just presented with the right conditions for M-PESA to take off and be honed.

So where to?

In my opinion, Africa right now needs less entrepreneurs focused on creating the next big app and more entrepreneurs working on agriculture, agri-processing, infrastructure, and logistics. These young minds should spend their time focused on real issues, that are real opportunities. Food security, local value addition, local innovation, education, skills, and manufacturing, to name but a few, are all massive opportunities for Africa’s young minds to solve. I see the current app hype diverting our young talent from where it should be. Maybe there is an app to solve that.