Building a web app is easy. Building a successful and profitable web app is where most people fail.
In this new series of articles, I will share valuable strategies and tips for building successful web apps. I’ll be covering everything from powerful marketing strategies, how to build a quality team, tips for great customer support and finally, exit strategies.
Building a web app is no different than launching any other product – it needs to be backed by solid business principles. You’ll need funding, a real audience, a solid monetization model, a marketing plan, quality support, and good project management.
The three vital questions
If you want your app to stay out of the Dead Pool, you need to know the answer the following questions:
- Who is it aimed at?
- Why will they use it?
- Will they pay for it?
#1 – Who is it aimed at?
Before you spend any time or resources, it’s vital to know exactly who your app is aimed at. Small business owners? Stay-at-home dads? Spanish speakers? Males under 30? It doesn’t matter, so long as you know who they are.
I believe that some of the best apps come from meeting your own needs. If you ever catch yourself thinking, “Wow, I sure could use …” then it might be a brilliant web app opportunity.
However, if you are not the target user of your web app, proceed with extreme caution. It’s incredibly easy to make faulty assumptions about your audience’s needs or wants. Remember that you’re an early-adopter and way more technically advanced than your average person. In many cases, 90% of your customers will think “The Internet” is the blue “e” icon on their desktop.
#2 – Why will they use it?
You may have an amazing idea. Maybe it’s going to help busy mothers organize their shopping list. Sweet. But do busy moms actually need that? Do they even want it?
Here’s some free market research you can do to determine if people will use your app:
- Ask people that you trust. What’s their first reaction?
- Search for terms that are related to your idea. If there’s a lot of online activity about it, you’ve got a good chance (and you’ll probably have competitors to deal with).
- Make sure it’s practical. Imagine someone actually using the app. If anything seems awkward about the actual use of it, be very careful about proceeding.
- Interact with your potential customers. Talk to them, hang out with them, participate in their online forums – get them to tell you what they need.
Making sure there’s a real need for your app is the most important thing before plowing your hard earned time and money into a project.
#3 – Will they pay for it?
This is where the rubber meets the road. You can be zeroed in on your target customers and know they desperately need the app, but if they won’t pay for the dang thing, you’re in trouble.
This is a useful test: close your eyes and imagine you’re one of your potential customers. Walk yourself through their typical day, from when they wake up, to the point where they come across your web app.
Imagine they make it to your “Pricing & Signup” page. Will they be so convinced they need your service that they’ll actually drag out their wallet and enter in all their details? If so, what will they be willing to pay?
If your app is aimed at business owners, they’ll be able to afford spending $49 to $99 per month. If your app is aimed at 15 year old kids, you’d better find an advertising monetization model.
Going the free route
If you’re building an app that is completely free to use (YouTube and digg are great examples) you typically have two options for monetization:
- Advertising
- Acquisition
You should never plan on being acquired. Remember that getting bought for $1.65B (or even $5M) just isn’t likely for 99.9% of web apps. Profitability should be your #1 goal.
You need to have a viable and serious plan for profitability. If you get acquired, great. Just don’t plan on it.
Now for Option #1 – Advertising. It’s a great monetization strategy, providing that you have a solid plan for selling the inventory.
There are three options for selling advertising:
- Use advertising networks (Federated Media, Right Media, etc)
- Hire an advertising sales team
- Use a product like Google AdSense
Ad networks are brilliant because they take all the hard work out of selling ads. It comes at a steep price though – you’ll usually only get 60% or less of the ad revenue.
The next option, hiring your own ad-sales team, is a proven way to get your ad inventory sold … but it’s going to be damn expensive. You’ll typically be looking at paying a basic salary of $20K plus commission for each salesmen.
If you don’t have the cash for a full ad-sales team, here’s how to do it on a budget: See if you can find any friends who are already doing ad-sales and ask if they can do a bit of work on the side for you. They could be paid on commission, so there’s no financial risk to you.
The last option, using a product like AdSense, is only a possibility if your web app is going to receive a very large amount of traffic and is largely content based (Google needs to be able to parse text to offer relevant ads).
Pricing – hitting the sweet spot
If you do decide to charge for your app, determining your prices will be tough.
Every web app builder agonizes over pricing. Should you have a monthly or one time fee? Should you offer a free plan? Should you monetize with ads?
As an example, CrazyEgg and Flickr have two very different pricing strategies.
Here are some practical tips for determining your pricing model:
- Ask folks who know your target market. They’ll help you determine how much disposable income they have to spend on your idea.
- Use a spreadsheet to experiment with your figures and determine where you achieve profibility. I’ve created a straightforward Excel spreadsheet that will allow you to play with different pricing plan numbers and observe the effect on your profit. It’s simple, but it should give you a general guideline.
- If you’re going to monetize with ads, make sure you have a way to sell these ads. You will probably need a fulltime ad-sales person. Don’t expect to just slap on some Google Ads and become profitable.
- Use promotion codes to get users to upgrade from free to paying plans. Whenever we offer DropSend users 50% off their first month, we see a huge amount of upgrades.
The best advice I ever got on pricing was from Jason Fried of 37signals. I ran our pricing structure by him and he had a quick think. After a moment or two he said “Make sure your free plan doesn’t give away too much. Because if no one upgrades, you’re in trouble.”
If you decide to offer a free plan, only give your users a taste to get them hungry.
I’ve decided to share the percentage breakdown of paying users for DropSend so that you can see a real-world example:
- $5/mo plan: 13% of total revenue
- $9/mo plan: 17% of total revenue
- $19/mo plan: 20% of total revenue
- $99/mo plan: 50% of total revenue
So are you financially viable?
If you were able to able to answer the three vital questions and you’ve chosen a monetization model that puts your cash flow spreadsheet in the black, then you’ve got a damn good chance of surviving and becoming profitable.
Please feel free to share any lessons you’ve learned while building your web app or challenge some of the points I’ve made.
Next time …
In the next installment of Web Apps 101, I’ll share valuable tips on funding your app, building a successful team and project management.
This post was written by Ryan Carson, the Director of Carson Systems, a web application and event company based in England.
“You should never plan on being acquired. ”
Why? Just because you are having a hard time unloading DropSend doesn’t mean you should shell out this drivel.
oh boy.
Interesting article – this will get a truckload of comments and incite some debates.
Great Article, I hope you blog more often here ’cause Arrington is not up to the mark any more. (No offence Michael)
totally on point with your post.
“I believe that some of the best apps come from meeting your own needs.”
Nothing like eating your own food, indeed. Just be sure that your taste is shared by someone other than yourself
The 1st post was a bit weird but really…who is ryan carson to even write this? You need a successful app to talk about what it takes to have a successful app….This probably would have been better written by Jason Fried or anyone that has made ’socially acceptable’ level of success not your own moral succcess..
I just dont get this wisdom from someone that hasn’t had much luck building succcesful apps…maybe stick to articles about successful events..that seems to be what he is known for….sure there are some valid no brainer points in this article…please stop the tips…no one wants their app to end up like amigo or dropsend…
Who are you? A web expert? Stop kidding yourself
“Building a web app is easy. Building a successful and profitable web app is where most people fail.”
- great principle and a cautionary advice as well. maybe ryan has numbers on this? like 80% of wep app companies fail in their first 2 years?
Thanks Ryan! Now I know “almost” exactly what I need to know to be successful.
Seriously, whats with this spew of every valley cliche’ muttered in the past 10 years?
If it was that simple, wouldn’t everyone have a hit on their hands? Puhlease…
And Mike, why’d you delete your confession?
http://flickr.c...ault/431162403/
Very nice post. I eagerly await future posts by Ryan.
I must say I don’t really like them mixed in with my standard TC though.
So, when does Ryan get his own TC-affiliate blog?
Thanks for the insights.
Gee, Ryan makes it so simple! Ryan, have you replicated this model a few times?
Overall, the article is useful. The advertising part is pretty lame thought — needs a lot more work.
Mike, is this blog a new Techcrunch experiment?
Comment # 1 – This is called truth in its purest form. He is a self-proclaimed clever ass. Who the hell speaks as an expert in his own organized event?well…carson does… he let michael speak as an expert at fooa so michael let him speak as an expert. In both cases, the losers are attendees of fooa concert and reader of techcrunch(and not them) that they paid for the concert & got nothing and they typed for the url http://www.techcrunch.com and got this crappy article.
Comment # 4 : Mike, You know you suck and you know your bad days are near. That’s why you brought Carson here
We come for other writers as well. It’s just that we have to wait till they get out from techcrunch.com and start their own crunchyweb.com 
Why is everyone hell bent on humiliating the TechCrunchers today!?
Well written article and the stuff over at his Blog is an interesting read too, although like this article it’s mostly lacking in much actual substance beyond stating the patently obvious.
There was one post there when they were trying to sell DropSend where they divulged it’s revenue. Basically it’s revenue is peanuts, so the article, although of value is not specifically written from the viewpoint of actually having a successful web application.
But, assuming a well created useful app – the key factor is marketing it. RC is getting his name about & his blog on here won’t hurt – so Bravo to him on that.
This post sounds oh so logical. Unfortunately this type of analysis only leads to me-too businesses! This is the typical over “mba’ing” of a bizz plan that arrington resents.
Do you really think that ebay, yahoo and google would have stood your cold logic in their early days? I don’t think so.
Especially this: “Search for terms that are related to your idea. If there’s a lot of online activity about it, you’ve got a good chance” is directly opposed to the reality imo.
Btw, if it is only a three-point plan, then every Tom, D*ck and Harry will be an Internet entrepreneur today…
whatever a bore…
My first thought also was – who is this guy?
I’d like to read a post like this written by Reid Hoffman (SocialNet, LinkedIn), Joel Spolsky (FogBugz, Copilot), or, basically, anyone listed here:
http://www.vent...om/library.html
(I highly recommend VentureVoice – Go Greg Galant!)
TechCrunch, Inc. should hire him yesterday.
Wow, to half the comments so far: don’t you people have anything better to do than to spread hate (without even having the guts to use your real name)?
Try spending your time putting a positive message into the world and it just might come back to you.
Damn – lighten up, people.
speed up the rate of achievement
Geez Louise thanks for all the helpful comments. He asked you guys to challenge his points, not take pot shots at his life.
People can learn by making mistakes, too, you don’t have to have the best company in the world necessarily to give advice.
I liked the article, half the comments are worthless, but I’ve read much, much worse, and I will look forward to next time.
‘In this new series of articles, I will share valuable strategies and tips for building successful web apps. I’ll be covering everything from powerful marketing strategies, how to build a quality team, tips for great customer support and finally, exit strategies.’
Sorry Ryan, this was my exit point. I put your article through the humbug detector in the top half of my head and it came out like this
In this old series of adverts, I will share useless strategies and tips for building unsuccessful web apps. I’ll be covering nothing from weak marketing strategies, how to build a rubbish team, tips for bad customers support and finally, stategies for getting nowhere.’
I read Michael Arrington.
What a lot of negativity for a clearly sensible article. Surprising as its simple and sensible advice and most web2 companies won’t follow it, but instead produce marginal products we don’t need
Not sure why people post such negative comments, if you don’t like the articles don’t read them or better still post something better. All advice from someone with Ryans experience is worth listening to, and by the way I’m sure he’s capable of fleshing this article out, but how much depth do you want in a blog article? Keep up the good work Ryan.
The article was obviously ironic; having a laugh at those who do think setting up a fortune making web site is as easy as…. well, as easy as writing a lame article on how to make a fortune from your web site.
The comments are much more interesting and informative than the article. Is there really so much bitterness and petty jealousy out there that someone can’t even publish a few thoughts without being hailed as a charlatan?
Grow up and get a life.
wow tough crowd here today.
Great read Ryan
I don’t think this post is appropriate for the TC audience, who are mostly entrepreneurs and VC’s, not hobby-kit website business builders
Great article.
“I believe that some of the best apps come from meeting your own needs. If you ever catch yourself thinking, “Wow, I sure could use …” then it might be a brilliant web app opportunity”
Or you could just Google and find a solution, which is what most people do. I guess that explains DropSend.
Hey Ryan, when was the last time you “caught yourself thinking”
Yo Ryan.
They gettin at you man. Decent article. Altough you make good points, he truth is that they are common sense. Now why do I still think your article is ok? Because sometimes we need a third party to remind us of what we know but take for granted. You are reminding wentrepreneur2.0 the basics of building a successful venture.
Call me krazy but I still believe that PASSION, HUNGR and LUCK are equally as important as those technic&l and admin fundamentals.
A lot of people seem frustrated by the content of the article as it perhaps doesn’t meet their needs. You poor people. I mean, you’ve spent sod all for this information and it’s not what you wanted or you’ve heard it all before. It’s just not fair is it?
Ryan’s posted along similar lines before elsewhere so why is he repeating himself here? Obviously it’s not all due to altruism – he’s running a business and, well, part of his motivation for this post has to do with that dirty, filthy word – marketing. But I’m also sure he’s aware that a number of people will be reading this for the first time and will find it useful. If that’s not you – move along. You could even turn the computer off, go for a walk and get some fresh air. It’ll do you good.
A lot of strong opinions here. I enjoyed the article and thought it confirmed some of my own assumpttions about apps. Looking forward to the next one. All the people giving abuse – you need a hug or something.
How about having fun ?
It may sound trite, but to me this is THE single most important factor in all projects.
It it’s fun to work on, it’s not work – it’s play, and you’ll do it gladly…for long hours…without thinking about it.
If it’s fun for you, it’ll also likely be fun for other people. They’ll like it and it’ll take off.
I think all the readers here have enough to eat, so it’s not really ALL about the money, is it?
Time is short. Have fun or it can become as gruelling as a dead-end job at an insurance agency.
And as for monetization: if your expenses are real low, it’s not a problem – don’t get hung up on it. Just work on making your project great, which will bring Traffic. Traffic + advertising = monetization, and this takes care of itself.
How many companies are out there versus how many actually succeed in striking it rich through a buy-out? Very very few. Conversely there are many companies (37signals, Smugmug) making a killing doing exactly what Ryan has suggested.
Dreaming that your new disruptive Web2.0 AJAX social web app is actually going to make you super-rich is like a 14yo thinking he’s going to become the next David Beckham. Not going to happen.
Google, Yahoo and eBay’s apparent lack of a business plan in the early stages is smoke and mirrors: the companies are now all run by experienced execs with huge teams. They were not bedroom billionaires, and furthermore they were started by lucky and exceptionally talented people. You, dear reader, are probably neither and you should realise it sooner rather than later.
Here’s the big secret no one dares utter these days: the odds are against you. If this weren’t the case, VC’s would only ever have one company in their portfolio at a time… Think about it!
Well, I certainly learned something: that a lot of Techcrunch commenters are asses and jerks.
The lack of friendliness; the obsession with selling to big media companies against all common sense; the aggression towards good, but differing advice; the arrogance… It smacks of stressed mico-CEOs frustrated they’re going to miss the wave… and it’s all a bit too reminiscent of the end of the first bubble IMO.
I don’t know whether Ryan’s doing this for a marketing exercise, but so what if he is? Isn’t he entitled to? At least he’s saying positive things rather than slagging people off.
For that, here’s hoping that Ryan’s enjoying himself and still making a healthy income in 2010 when most of these miserable TC commentators are looking for IT admin jobs at Walmart!
[38] you got the point. where are the time when comments were at least worth to read…
Ryan’s article may be simple common sense but having sat through quite a few web 2.0 stories surrounded by hundreds of IT brilliant hopefuls there are alot of people out there believing the model is IDEA, WEBSITE, BIG AUDIENCE, ADSENSE and a call from Google in month 19.
Thats it! Thank you for helping me to get my ideas organized!
is that a fooa ad on the right? shouldnt there be a disclosure that he is either an advertiser or bartering?
nice article btw – seems in depth
Comments in blogs can be over the top, but the ones here are negative for good reason:
1. Ryan is NOT a successful web app entrepreneur. Dropsend has struggled against better competition managed by people who focus 100% on their business. It just riles people when someone pontificates a “success plan” without the personal credibility to back it up.
2. The content of the blog was at best naive. There are better resources out there for this type of advice. Try http://www.burn...m/askthewizard/ or http://blog.marketo.com/blog/ or http://www.startupping.com/.
3. The tone of the blog just pissed people off. Jeez Ryan you make it sound so easy. Should only take 3 months to become a gazillionaire. Time to quit my job.
Ryan, here’s one piece of advice you missed – FOCUS 100% ON YOUR CORE BUSINESS.
Hehe – this is the problem with letting every tom, dick (who seems to comment a lot) and harry write comments.
I consider myself an entrepreneur, and I highly value what Ryan has to say – he’s only human but this guy is on the right track – he’s more successful than me (at the moment
so I am going to glean whatever information I can from what he has to say.
If you dig a little deeper and look into Carson systems (the webapps (whether they are worth $500 mil or not) ), the FOxx events, the blogs etc. you can see that he (and the Carson team!) is doing something right, or he would’nt be here…
Little things like “working the 4 day week” really inspire me and it’s hard not to admire what the Caeson team are doing – who ever said that you had to either make $Billions or fail in this business?
The Carson team are on the way up and for whatever reason Ryan chooses to spread some knowledge around (sorry if you know it all already – I guess you must be a successful webapp owner billionaire – perhaps this is the wrong blog for you).
ps – Mike – I LOVE the way you have this love/hate relationship with your readers – I watch your Feedburner figures jump 10k a day or so so you also seem to be on the right track
needs to be fleshed out
Normally, I don’t comment but for this one, I will do it. I read Ryan Carson for quite a long time but I never found anything valuable in his writings.
He seems to be a nice guy but not very bright. If you have a look at his business, it’s not really successful and the adventure of Dropsend (selling Dropsend) is a bit dramatic. Concerning its events, like FOWA, the big announcements he promised were quite small. He talks a lot about efficiency but his results are rather average.
The main thing about Ryan is that he talks louder than other people so people listen to him. It’s like traders. The most brilliants don’t give their recipes. They give results. The average ones do it and build their business on the fact that average Joe will listen to them and buy their speech. And they will make money from them.
# 29 – Mike wishes!
this is the kind of post dreams are made of.
great article.
A good reminder of key business principles that are all too often forgotten online. Given Ryan’s background, the article is focused on a more traditional business model: build a product and sell it. But most successful web businesses are free for consumers but have a huge audience and make money on ads. The key behind success is user growth: viral marketing, etc, whatever it takes to achieve mainstream audience (those who “think “The Internet” is the blue “e” icon on their desktop”). Given the low cost of running a web app today, profitability is not really an issue. The key question should be: what ingredients should my web app have to achieve such user growth?
Sorry for the late reply – I live in the UK and we just woke up over here.
Wow! A lot of love and hate going on in the comments. I welcome the good with the bad – no worries
It seems that a lot of the negative comments fall into these categories:
Who’s this Ryan guy and why’s he qualified to write this article?
These tips are common sense, therefore worthless
So, here we go:
Point 1
I’m a 29 year old small business owner. I don’t have any formal business training, but I’ve managed to build a profitable web app (DropSend) and run a cash rich small business. Everything I’ve learned is from actually getting out there and doing it.
I offered to write the article for TC because I felt that some of the simple tips I’ve learned might be valuable for TC readers. I know they won’t be applicable to everyone, but with 300K+ readers, you can’t make everyone happy.
Point 2
I’ve spoken to a ton of folks who are building web apps. It’s shocking how many of them aren’t applying common sense business principles to what they’re doing. I know the article is fairly basic, but you’d be suprised how many people are ignoring these simple important points.
If you’re a hardened web business man, of course this article will be old news for you. The article isn’t aimed at you. I was hoping to shed some light on things for people who are new to the web app arena. Take it or leave it, it’s a free article
To everyone who supported me in the comments – thanks. Much appreciated