“It was a lot of luck mixed with Providence and good UI choices,” he blushes. It helped that his was one of the first to market when the iPhone 4 debuted in 2010. And with over 22,000 five-star ratings, it’s clear that he made some pretty damn good UI choices.
Though Zaletel enjoys the $1400 that streams in daily from sales of Flashlight, he’d actually prefer a lump sum to help fund his company’s new projects, including a video camera app that won Best of Show at Macworld this year. He’s looking to sell Flashlight – source code, IP, customer list, data, revenue and all – to the highest bidder, starting at $1 million.
So how exactly does one auction off an app for $1 million?
In truth, it’s never been done, but the good people at Apptopia are going to try. Launched in April, the website provides a marketplace for buying and selling mobile apps. Until now, the largest transaction the company has seen was $11,000 for a slot machine app, but for independent mobile developers looking for some liquidity in exchange for an underperforming piece of software, such sums offer an easy way to respectably cash out.
Apptopia has seen 65 apps cross its platform since debut, putting $175,000 right back into the pockets of developers. On the other side of the deal are buyers scouring for fixer-uppers to flip into revenue streams or first-timers looking for a turnkey toehold into the mobile space. Increasingly though, says Apptopia COO Jonathan Kay, large companies are clamoring to get in on the action.
For Kay and Zaletel, the allure of Flashlight for a large consumer brand is obvious. With 1.4 million premium users (at least “premium” enough to pay 99 cents) the user acquisition math is compelling, but an Energizer or a Maglite may not be much concerned with such Valley lingo. Instead, Zaletel likens it an interesting hypothetical: What if GM bought Cars.com in the early days of the Internet? Or Kodak, Cameras.com? Snatching up one of these premium generic Internet properties in the 90s would have been a seriously prescient investment for an iconic American company. The opportunity in mobile, he says, is the same, staring companies right in the face.
“Advertisers are paying a lot of money for mobile ads,” he argues, “but they don’t actually own anything. With something like Flashlight you make your money back in spades.” And instead of intruding on the bottom of a screen, any brand that owns the app gets organic, positive interaction on a daily basis. Everybody whines about the lack of a native mobile advertising channel - this is about as native as it gets.
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“I saw a company with 1000 people devoted to the website and literally one mobile developer,” Kay says. “Smaller, quicker companies are crushing them in mobile and they’re finally starting to come around.”
Kay’s company, started with CEO Eliran Sapir, takes a 15% cut of each transaction, including Zaletel’s potential $1 million deal. The reason for such a high fee, he explains, is risk. Many transactions don’t go through and each requires commitment from one of the company’s 12 employees who walk parties through a time-intensive matchmaking and due diligence process. For apps over $5000, he says, the process is less like eBay and more like investment banking.
“I think this is a company of unique value in the mobile applications space,” says Mark Cuban, who invested $500,000 in Apptopia. “It gives companies who develop apps a definable way to acquire a user base. Rather than listening to someone plan and pray about how they can grow a user base for an app to be developed, Apptopia creates a more plannable option for acquiring users.”
In addition to Cuban’s investment, the company has raised $510,000 from Expansion VC and another $400,000 from angel investors.
Along with the 15% transaction fee, Apptopia plans to charge sellers for premium listings on the site’s homepage and buyers for extra due diligence from third-party code reviewers. These two new revenue streams pale in comparison to Kay’s next project: bundling in developer hours along with app purchases. Out of the last 65 apps sold through the platform, he estimates that 40 included arrangements for the original developer to commit consulting time. One buyer even asked Kay to keep $5000 in escrow in his desk drawer. The arrangement means that Apptopia will take a 15% cut of a much fatter bill.
Though projections come with a boulder of salt, Kay isn't modest about the company's ambitions. One slide on Apptopia's investor pitch deck shows the company pumping in $250,000 a month by March 2013 off of $1 million in app sales. That's $3 million a year, right out of the gate.
I asked Zaletel what he was looking to get out of selling Flashlight through Apptopia. “One million dollars!” he laughed. “They tell me the first million’s the hardest. I’m hoping Jonathan here can make the second a little easier.”
