It’s been a lucrative week for crowd funding. Last Thursday, the iPhone Elevation Dock, a simple yet elegant iPhone dock machined from a single piece of aircraft-grade aluminum, became the first project on Kickstarter to break the fabled $1,000,000 mark. Then the next day, as if to belabor the point, Tim Schafer and Ron Gilbert went ahead and raised $1,000,000 bucks in less than 24 hours for their new video game project. If i4software — the makers of the popular Flashlight utility app for iOS and Android — have their way, the developers will raise $450,000 in a week, using a little-known marketplace called Appbackr.
Appbackr is the brainchild of a few Silicon Valley veterans, Trevor Cornwell and Sam Zappas. Cornwell, Appbackr’s CEO, previously founded Skyjet, which was the first online reservation system for private jets, and then sold it to Bombardier in 2000. The system is now called Bombardier Flexjet, and according to Bombardier’s website, charges approximately $3,950 per hour (plus fuel) for the use of Bombardier’s private chartered jets.
Zappas was an executive at ARTISTdirect, a once popular online media portal (YouTube before YouTube), which also housed a failed record label. More recently (and controversially), ARTISTdirect has made a name for itself by acquiring MediaDefender and MediaSentry, two companies that together comprise over 90 percent of the market for protecting against online piracy. MediaDefender, in particular, has been known to plant decoy seeds of copywrited material in torrents, a bid to catch copyright violators.
All this is to say nothing about Appbackr’s prospects, other than it’s being run by two gentlemen who are obviously skilled at making lots and lots of money. This August, Appbackr passed $1,000,000 in retail sales, and says it’s seeing 149 percent sales growth from quarter to quarter, according to VentureBeat. They’ve even developed their own algorithm, called SmartApps, which is purportedly able to predict which apps will top the sales charts and which ones will forever wander, lost among the estimated 500,000 apps in Apple’s App Store alone.
Here’s how Appbackr works: Developers come to them with either a concept for an app, or a fully developed, polished and perfected app. Either way, developers are looking for some extra funding, either to make their ideas reality, or to get some advertising muscle behind their finished product. Appbackr then places the app on its own wholesale marketplace, where “backrs” (that’s you and us) are able to purchase the app for a fraction of the eventual retail price. Here’s the rub: backrs aren’t actually buying the app to use (that would be silly). What they are doing is instead speculating that the app will sell well when it finally makes it to market (either in the iOS App Store of Android’s Marketplace) and only then will they realize a percentage of the profit if the app is ultimately a success. Backrs buy into the system in real time — for instance, buy ten apps at 50 cents a piece today, those ten apps sell on the App Store in a month for 99 cents each, and poof — profit!
Of course, there’s always the chance that the app will never sell at all, or in such limited quantities that by the time you get paid back… well, you won’t.
Concepts pay more than finished products, and Appbackr takes a cut from each transaction. App developers get paid upfront, as in any real market, and backrs make their money back only when the actual apps are sold via retail.
Back to Flashlight. The developer of that popular utility, which is said to turn on faster than any other flashlight app on the market, used Appbackr to previously sell 255,000 copies, resulting in profits of 16 to 27 percent for its backrs. This time around, i4software plans to release 1,000,000 copies wholesale to Appbackr, and expects to raise $450,000. Flashlight has already sold over 1,000,000 copies through Apple’s app store, and is currently the number one paid utility in the US market. It is currently priced at 99 cents.
Although Appbackr will undoubtedly lower the barrier of entry for independent developers, we have to ask what will be left for them once everyone takes their cut — Apple with a solid 30 percent right off the top, then Appbackr’s 10 percent on one end and 3 percent on the other, the individual backrs — the list goes on. Another novel idea to guarantee developers are able to profit healthily from their creations and continue to make great apps for all of us to enjoy would be to better police the app marketplaces themselves, by keeping app copycats and others that succeed simply by paying marketers lump sums for rankings out of the app stores. Then there will be more room for great apps to get noticed and ultimately succeed.