Mobile apps are digital assets that can be monetized. This means that you can do business with them, and purchase or deliver and transfer ownership of the app in part or whole. So that you won’t be confused by various situations, we will consider the acquisition and valuation of apps as a ready-made business.
Because of the future profit. You can purchase the app if you:
- Understand the mobile traffic market and know how to buy leads cheaper than the current app owner;
Monetization of digital assets (especially subscription-based) requires a constant flow of new users. It’s a never-ending job of customizing and optimizing ad campaigns. A talented targeting specialist may turn an unprofitable app into a profitable business.
- Have access to certain marketing channels or traffic sources;
Possessing resources makes it easier to monetize the app. For example, you may own related resources with app reviews, or other apps that are suitable for advertising. It is noteworthy that companies that own traffic networks, CPA networks, and media buying agencies earn their living by app trading.
- Can improve a project and have access to resources;
Often, an app’s potential is difficult to fulfill without significant funds and effort. Unfortunately, such situations often affect those developers who can not afford such an inflow. Finding a good underappreciated product and polishing it with your own experience and investment is classic.
- Can scale the business model and predict growth;
Subscription monetization is the long run, while the app’s applicability and popularity (niche and subject matter-based), alas, might be impermanent. The previous point had everything to do with the content and app design. In this case, we are talking about scaling against the hype background. Independent developers might not be able to invest large sums quickly and at the right moment.
Finally, strategic objectives of acquiring apps are as well relevant.
- You want to strengthen your product or eliminate a competitor;
Imagine you already have a consistently working asset, so why not reach a wider audience by merging smaller apps in the same category? Mobile games are the easiest case: buying a similar game and then relocating the audience into your project will make the game rating solid and protect it from likely competition.
Not only the motivation to buy the app is important, but also the developer’s circumstances of trading. The latter wields major influence on the price and terms of the deal. To mitigate the risks of buying a dead asset, it is important to find out the reason for trading. In this case, there is a variety of causes (as well as domestic situations) like:
- Inflated expectations. “Here, I create an app, enable monetization, and will rest while the money flows in.” But it turns out that subscriptions are being canceled, new users are not attracted by themselves, you have to release app updates from time to time, work with feedback and objections, and constantly fiddle with the traffic. Then, the developer suddenly remembers the carefree days of working as an employee and decides to get rid of the app;
- Lack of resources to develop the project. At some point, the developer realizes that to develop the service he’ll require funds for traffic flow and workforce responsible for the content and support. You could also improve the design and interface, etc. Development requires investment, but no one wants to deal with a no-name developer. It’s often easier to sell an app than worry about an investment;
- Exhaustion and burnout. At some point, the developer grows bored with the app. He/she might want to change the business dimension, be hired, or suddenly come up with an idea for a new app. You have to move on, but you can’t just abandon the product. In this case, selling the app is the best solution for you;
- Non-core asset. It’s a case when an app is being developed as a support app for another business, and it might become useless in no time. Suppose a fitness club chain develops a full-fledged fitness app with instructor’s tips, workout programs, meal plans, pedometers, etc. as an additional service. But then the pandemic, COVID, and lockdown happen. Clubs are losing money and closing. To compensate for losses, the owner has to sell the app;
- Disagreement within the team.It’s a trivial but common cause. App founders may disagree with each other and decide to go their separate ways. But here’s the problem: you can’t divide the lines of code. The only thing that’s left is to sell the app to a third party and divide the money;
- Urgent domestic demand for money and personal reasons. Things happen and nobody is immune to accidents. Various circumstances may force developers to make desperate moves. You might either have a baby, or you need to pay off the debts, or you had an accident, or you go to the hospital, or you have to move out. When it gets to the point where you have no time to spare, or you need money urgently, a quick sale is the only way;
- The app is unprofitable. It’s a rare app that maintains itself. Subscription monetization requires a constant influx of new users. There are times when the sales funnel or unit economics does not work. In cases when the LTV is lower than the installation cost and there are no organic installations, it makes no sense to support the app (but it’s a pity you’ve wasted so many resources and effort). It’s easier to sell it.
- Business speculation. Lastly, our favorite thing. There are plenty of people who search for undervalued or unprofitable apps, purchase them, make them profitable, and then resell them at a significantly higher price. Such entrepreneurs have their processes industrialized with access to resources and traffic. They are always eager to share statistics and reports and answer any questions. That is, to throw dust in your eyes. But the matter is: do you believe the figures speculators give you or not? 🙂
What are the Risks of Purchasing?
You may run into an unscrupulous developer, a fraudster, or an amateur who is not aware of the subject matter. According to reasons for the purchase and sale, you may simulate the likeliest risk considerations (which MUST be checked WITHOUT EXCEPTION before the deal). Needless to say, it’s all but impossible to consider everything, but let’s try to avoid the don’ts at least. The steps are as follows:
- Check out the founders and research the reputation of the product/brand/app.
It’s an obvious but commonly overlooked step. Although mobile apps are a mass product, they are limited by market niche and category. If a developer or team has a questionable background (even with their other apps), this will indirectly affect the app even when it’s transferred to other developer’s accounts. So be sure to ask around the community, google names, and reviews.
Secondly, consider the reputation of the developer in the marketplace. The abundance of fraudulent schemes and all kinds of scams with mobile apps is shocking. Therefore, strict moderation rules (either Apple’s or Google’s) are aimed at protection from untrusted developers. There is a complex “shadow” rating system of developer accounts by their trust. Fraudsters, in turn, have established a market where they can sell “trusted” developer accounts. If your vendor has been publishing twin webview apps with doubtful weight-loss products or nutritional supplements (or even sports_bet or slots_casino) for a long time, then after transferring the app from such developer’s account you may have issues with updates moderation, unexpected blocking, appeals and so on (as if there aren’t enough problems already).
- Make sure that the recent version of the app complies with the store’s rules and guidelines.
It happens that the app can’t pass moderation because of changes in rules and policies. It is available in the store, but you can’t update it. As a rule, if an app for sale hasn’t been updated for a long time, that’s a red banner. Check with the seller on that, otherwise, you will get a completely illiquid product.
Passing reviews or moderation always depends on the moderator’s personality. One moderator might let the content through to be released no problem, while the other might reject it. It may occur that the purchased app will not comply with present store policies.
- Check the legal clearance of the company and all its owners.
Make sure that the asset belongs to the person who is selling it. Regardless of the means of the purchase: via a marketplace, indirectly or directly, – there is always a chance that a stranger might acquire the app. Disputes, refunds, or lawsuits are complicated.
Google the publisher by name or company name, try to find the owner of the domain of the app’s website, try googling emails and social media of developers.
- Check out the right holders.
Either way, the app for sale may be patented as an invention or commercial prototype, or the app title may be registered as a trademark (or a trademark in the process of registration). When you buy an app, you also acquire the rights to all the titles and patents associated with it. Although the transfer of rights and patents is a pain in the ass, you might want to take care of it, if you don’t want any troubles in the future.
- Study business economics.
A frequent and obvious risk is the hidden ground truth about the app. When you purchase a ready-made app that is monetized even a bit, the seller will DEFINITELY (or close) try to oversell the figures and present the statistics to his best advantage.
The major risk in purchasing mobile apps is the risk of buying a money-eater. There is a hidden agenda in the app economy, and if you don’t see it, you’re not looking close enough.
More often than not, mobile apps are sold as scaffolds/work materials for concrete product development. But we see the app as a working business with its economy. Otherwise, if the app is not monetized in any way (or has no monetization potential), why buy it?
Subscription is considered the most stable model of monetization, although they often sell apps with AdMob monetization. However, in-app traffic doesn’t allow content apps to earn more than subscription-based apps. It’s not a bad plan to buy a content app with ads and convert it into a subscription app (do I need to explain extra risks?).
The subscription app is sold as an operating business, which means that a relative market-based approach is used in its valuation. The short formula looks like this: monthly receipt*index, where the index is the period from a year (12) to three years (36).
Case study: if 1,000 subscribers use your app and pay $10 a month, and you also participate in the Apple Small Business Program, then you earn 0.85 * 1,000 * 10 = $8,500 per month. Suppose you spend 30% on traffic and another 20% on other things, then your net profit is 0.5 * 8,500 = $4,250. Thus, you can sell the app for $51,000-$153,000. Sounds pretty good.
In terms of digital assets (websites, web services, apps, etc.) the period depends on the asset’s viability. Thus, “long-tailed” subscriptions potentially push up the cost of the app, while a large number of unsubscribed users potentially drive it down. It’s not all that simple, so let’s enlarge it.
Here and now, the app may bring no money, or just a little (but it might have a large user base and the potential to monetize). At the same time, the app may demonstrate good dynamics because during presales the developer invested in traffic, but after a few months, the profit will fade away.
There are only two kinds of apps in essence. First: the app is monetized and generates income (including minus yield) here and now; second: the app is not monetized in any way, or it is monetized only for a short time. You have to be extremely careful with the second one.
All the hardships of app development, wasted resources, time, and energy should not concern you. You are at the point where the app does not generate profit. You should consider the app’s lifespan and the amount of content only in terms of organic traffic and the “activity retention” metric. Users won’t lie. A good app with a lot of quality content will be relevant for a long time.
Another key aspect is the terms of monetization. You must predict the dynamics of the app’s profitability for a year at least. An app released a year ago or more may have excellent statistics of use and user behavior, but it’s only being monetized for a month. Needless to say that monetization of a free product always changes consumer loyalty for the worse. The longer the monetization terms, the better. Thus you might not want to consider apps that are being monetized less than three months or consider them with great caution.
You have to forecast revenue and expenses. There are two types of expenses: marketing and operating expenses. Operating expenses are simple to determine: maintaining the app’s functionality requires spending. Fixed costs are mostly unchanged. Even if you make a mistake, the costs are unlikely to be high.
Apart from operating costs, there are variable expenses, which depend heavily on the app category and the type of content. For example:
Fitness App A contains original videos made by a professional athlete/instructor. A paid subscription tariff allows you to watch these videos and repeat moves after the coach. The subscription is $9.00. Fitness App B contains exercises that are borrowed from an old and dusty illustrated study guide called something like “A sound mind in a sound body” published by “Samizdat”, Moscow, in 1980. The developer simply scans the book and publishes it inside the app. The subscription is $9.00. Which app do you think bears higher content production costs?
It makes no sense to go into details, because there may be numerous causes. Someone packs ready-made content available on the Internet into an app, while others create their own. This is where a mistake might be very costly. It is important to clarify all the nuances with the developer to avoid a situation when you’ll buy an app with monetization, but with no chances of user retention.
In the ideal case, you might want to agree on post-purchase terms of support by the developer (state it in the contract) for at least a month or two. But if you need help with app management after purchase, you better consider a purchase altogether.
Marketing costs. They depend on channels of traffic attraction/installs. To promote the app, it is essential to use the entire marketing campaigns toolkit. It is often unclear which sales pipeline will work best. Pop traffic works for some apps, while others perform better with push traffic, or Facebook Ads/Google UAC. Or you might want to focus on increasing search ratings. Various app categories require different approaches.
It is important to properly estimate the actual customer acquisition cost. In this case, the seller has many opportunities to color the truth and create the buyer’s confusion.
Carefully sift through the app’s unit economics. Be sure to compare the app’s statistics with reports from commercial channels. For example, if the seller claims that the main traffic comes from installations in Facebook Ads, ask him for statistics from his ad cabinet (or request guest access to the ad cabinet, since screenshots are easy to fake). For keyword ads, request statistics from the relevant cabinets, and so on. A rare project has accurate statistics, which is leeway for an unscrupulous developer.
Important: if you are not confident in your skills to estimate marketing costs based on the statistics provided by the seller, you might want to reach out for professional buyer’s/seller’s help. For example, the AppCapital company assesses apps and can help you with risk assessment.
Keep in mind that the developer/vendor may have access to traffic channels that you don’t. For example, they might acquire installations by promoting the app in their other projects. Removing an app from this environment will affect traffic.
The app’s revenue consists of three sectors: new subscriptions, rebills, and organic subscriptions. It’s quite easy to calculate the income of the app. But it’s hard to make a forecast of subscriptions in six months, a year, or a few years. And it’s even harder to figure out what efforts should be made to be sure that subscriptions will continue to bring in income.
Ideally, the seller should use Adapty or a similar subscription analytics service. Then you’ll have no difficulty forecasting income receivables and identifying points of growth for monetization. Monetary dynamics are more important than the number of zeros after a comma. Why is it so?
The MRR graph illustrates the MoM revenue growth. It seems like a good sign. But the revenue growth is due to an increase in the number of subscriptions. If subscriptions are not renewed automatically or the cancellation and unsubscription rates increase along with new subscriptions, the growth of MRR cannot be perceived as a positive indicator.
Let’s look at the chart of all in-app payment events. You can see that only 6,000 out of 35,000 events are accounted for rebills, and the vast majority of the revenue comes from new subscriptions. This is no good: once the developer stops driving new traffic to the app, revenue will drop dramatically. It’s a whole different story when the main payment base of the app consists of loyal users with rebills. The cohort degradation dynamics shows users’ interest in the app and how long they are willing to pay for it:
The developer may use different tricks, but the monetization statistics won’t lie. Therefore, when you buy an app, you might want to opt for projects with a broad picture of monetization.
With statistics on your hand, you can simulate current subscription terms, calculate LTV and CAC metrics and compare the traffic statistics with the ones that the seller has provided.
There are three categories of revenue received from apps with subscriptions: rebills, organics, and subscriptions from paid traffic. As to rebills, it’s clear that the longer the tail, the better. You should be more careful with organic traffic though. The app’s organics are mostly fake or generated by motivated traffic (both motivation traffic and bots are often involved). Over time, the rating will inevitably drop. The “over time” depends on the level of fake subscriptions driven by the developer.
TIP: beware apps that come in HF or MF queries top. The second or third-place queries are more stable in terms of risk. Potentially, an app that holds second or third place in top for a year is better than an app that jumped to first place a week ago.
As to paid traffic, in my experience, few developers will be able to properly report on in-app paid traffic. Analytics solutions are still unsound, to begin with. Secondly, few developers think of what they will sell in the app in the future. Accounts get lost or blocked. Request whatever the developer has to offer and try your best to verify it.
The purchase/sale of an app must be accompanied by a contract. The right thing to do here is to hire a lawyer who will draw up a contract for both parties and make sure that the buyer obtains all the patents, rights, etc, along with the app itself. Because of the increased popularity of cryptocurrency, there are a lot of expert lawyers in IT products and digital assets in the market.
Transaction services cost is anybody’s guess since legal specialists consider each situation individually and may charge a different price for seemingly identical situations. If the app is purchased via an online marketplace or intermediary, the intermediary takes care of all the paperwork. They usually charge 10% of the transaction as a success fee (the fee might be higher). You can try to negotiate the transaction with the developer and bypass the intermediary, but it’s risky.
After reaching an agreement, both parties sign a contract. The app is either transferred from one developer’s account to another, or the entire account is transferred to the buyer.
In the case of an app transfer, it must fully comply with the requirements for the transfer. In AppStore and Google.Play, the transfer procedure, and the criteria are described in full. Both the seller’s app and the buyer’s account must comply with the requirements. Paid subscriptions, ratings, and reviews are transferred with the app anyway. It is a good idea to also acquire the domain, the app’s website, and access to the administrator’s email (with access to all the accounts related to the app). You don’t have to worry about income: before the transfer, all transactions refer to the seller, but all post-purchase transactions refer to the buyer.
NOTE: keep in mind that if you participate in an Apple Small Business Program and transfer the app to either party, both accounts (buyer’s and seller’s) will permanently be out of 15%.
In case the developer’s account is transferred, the seller must ensure that only those assets relevant to the transaction remain on the account. He/she also must change the billing information in the profile.
Along with the app, the developer must provide you access to the source code repository. Make sure you are provided with the exact source code of the app you’ve purchased. If you’re not sure, ask a trusted developer for help. Once you have transferred money to the developer’s account and he has transferred the app and accounts to you, the deal is considered closed. You are both in a nihil debet from now on.
Where to Buy?
You can purchase apps on online marketplaces, via brokers, or through direct contact with the developer. Some teams buy undervalued apps (to monetize and resell them). Various funds do the same thing but on a large scale.
The top app marketplaces are Flippa and AppBusinessBrokers (the latter also resells apps from Flippa, but at a higher price). You may as well find profitable apps there. You can look for scaffolds and unfinished apps at SellMyApp, CodeCanyon, and Codester.
Mobile apps are sold as a business, so you can find sellers on any marketplaces with the “online business/ready-made business” category (even on Avito).
In our turn, Adapty can instruct you on a proper assessment of the figures, metrics that affect an app, and economic forecast. We will also disclose key mistakes in the monetization of the project, help you with A/B tests and sales funnel optimization.
We also expand an iOS development pool monetized by subscriptions. You may join us and ask any questions about subscriptions, Apple’s guidelines, analytics, and the app market as a whole. If you’re interested in news related to app development, you’re welcome to subscribe to the Apple Developer News Telegram channel.