The BIG-Dollar Business of Mobile App Acquisitions

If you've followed the high-tech news recently, you've no doubt read about some pretty impressive mobile application acquisition deals that have taken place. Take Nick D'Alosio, a 17-year-old student in England who developed a news-reading application called Summly at the ripe old age of 15. Even before graduating high school, D'Alosio sold Summly to Yahoo for what industry insiders are estimating could be as much as $30 million. Then there's Instagram co-founder Kevin Systrom, who sold his photo-manipulation app to Facebook for a staggering $1 billion. Yup; that's billion with a “B.”

Admittedly, those are extreme cases, but mobile apps are bought by larger companies all the time. Though the numbers aren't publicly released, it's estimated that Apple, Google, Facebook, Yahoo and other tech giants spend tens to hundreds of millions of dollars annually on app acquisitions. It's a big money business, and independent app developers practically salivate at the prospect of being the next D'Alosio or Systrom.

So, did these guys just get lucky, or is there a strategy for building apps solely with the possibility of acquisition in mind? In all honesty, the answer lies somewhere in between. We'd like to take a moment to discuss what preparations there are to be made if you're considering building an app with its acquisition as your ultimate goal.

Make Something New. Okay, this seems obvious, but it's true. We're not necessarily saying you need to create something from the ground up, however. Author John Steinbeck—who was himself a tinkerer and amateur inventor—once noted that most successful products weren't so much brand new as they were twists and adaptations of an existing product. So, study the apps that are out there with an eye toward what they're missing; infusing these elements into your own app can give it a competitive edge—and make it look good to companies who might be in the market to buy.

Quality Counts. Instagram and Summly both did very well on their own before they were purchased for truckloads of money. They were carefully coded and tested, and adjustments were made even after they hit the marketplace. Both of these apps gained a reputation for doing what they did better than any other competing app on the market. Even if you're not angling for an acquisition, you should make quality control a high priority, of course.

Build Momentum. Before your app's gonna look good to someone like Google or Apple, you're gonna need to work on a certain level of success beforehand. That means aggressive marketing, word-of-mouth—and more than a little luck. The big guys aren't gonna take a big-money interest in an unknown app; they're gonna want one that already has a pretty strong track record, one that's more likely to perform well for them.

Monetize It. Blunt and to the point: build an app that can easily generate revenue; an app that can, over time, pay for itself will look much more attractive to a potential buyer. This doesn't necessarily mean an app with a high purchase price; “freemium” apps that are initially free but have paid premiums inside—such as special levels, characters and items in game apps—can become attractive moneymakers. Another thought: to quote Mel Brooks in Spaceballs, “Merchandising!” Linking your apps to subscriptions or physical goods means more potential for revenue.

Know Someone on the Inside. This might not seem very fair, but little about the business world is. If you can network and connect with folks in one of the big tech companies—preferably someone who is in the decision-making process when it comes to acquisitions—well, it's not hard to see how that would be a huge advantage. Take a peek at our next point to see another way this networking and industry pulse-taking can pay off.

Leverage Competitors. Forbes Magazine wrote an article about the Facebook-Instagram acquisition, and one of the reasons they gave for the purchase was simple: Facebook didn't want a competitor—such as Google, who was interested in it for a while—to buy the app before they could. Beware, though; even if you have very high business and tech skills, this kind of maneuver can easily backfire on you. If you've got more than one interested buyer for your app, don't pressure any of them too strongly, or all interested parties could walk away from the table. And you'll sit there without a buyer.

Patience. Even if you have the most awesome and best-performing app the world has ever seen, no one's gonna walk up to you with a great big check right away. It'll take time for your app to gain a strong reputation—and a lot of legwork for you to market it, network, and move yourself into prime acquisition position. And don't be frustrated if it doesn't happen at all; get back up, dust yourself off, and keep at it.

One final note, as observed by Mobile Marketer:

...[A]pp developers face significant challenges in building their businesses, including rising above the noise in an increasingly crowded space and building user downloads as well as repeat engagements.

That isn't to say mobile application acquisitions won't continue; they likely will. But the competition is already fierce, and the market will only expand from here for the foreseeable future. The healthy way to look at it would be not necessarily to build apps solely for acquisition reasons, but to keep your eyes open and ears to the ground if the opportunity presents itself.