Why I won't purchase an iPhone Business for $100000 today

We’ve been reading about it on Twitter for the past 2 days, now even TUAW picked up the story of an iPhone Developer who wishes to sell his entire business for $100000. Leaving out of our consideration that probably nobody has this much money around anyway it’s still an interesting impulse to start thinking of how much your own iPhone business would actually sell at…. should you ever WANT TO sell it.

With the seemingly limited journalistic means of TUAW all the author came up with was some general quotes and rants. I dug a bit deeper and think it’s interesting to write down what I found in neutrally evaluating this offer. TUAW repeats the seller’s offer on how he will support you, hand over everything, yadi yadi yadi.

But we all are children of numbers and algorithms. So I think we deserve a little bit deeper analysis. This I will attempt in this article.

Usually the value of a business is estimated by taking the estimated future income for 5-6 years. The owner of this business claims $100-$150 of daily royalties. This is the amount that the owner quoted to me when I asked him. So this puts the value of this business into the theoretical range of $219 – $328k.

By asking for less than half this amount he’s basically telling the prospective buyer that he “needs out”. And offers an amortization of less than 3 years. Assuming of course that the sales stay more or less constant for this time. If we consider a decreasing long tail of the sales it might take up to 5 years so $100k is a realistic asking price.

As per my suggestion he also put sales data onto his site so that people might form a more founded opinion about his offer. This shows that his business shows a healthy growth until two months ago, with a steep decline in the last month. Total royalties earned so far are 28,156.57 Dollars shown on the chart. So 3-4 years worth of annual sales might amortize your $100000.

There’s a downside as well. If 87 apps ONLY make $100 a day, then this means that most of his apps can be only generating around $1 a day, which equates to 1-2 sales a day. This is the typical pattern of apps that very few customers are interested in but still – on a market of millions of iphones – there’s always SOMEBODY who is willing to spend a buck.

In case of business that don’t have any real income (like Facebook or Twitter) often investors judge the value by the number of customers. The theory goes that if you have millions of eyes on the product(s) then the company must be worth something. My friends over at Applyzer where so kind to provide me with a list of sales ranks for JBMJBM. Notice anything special?

Hm, these apps are absent from the biggest (read “toughest”) markets USA and Germany. This again serves to prove the point that the resulting income is luck rather than high quality produce. Since there is no focus to any market that could easily be upsold to new or improved products it is even more of a tough sell.

I am not saying that this guys’s apps are crap. I did only glance over the list and have a look at the rankings in Applyzer. But all the indicators tell me that this business comes with a maintenance hell. On his eBay page he gives “time consuming” as one of the reasons for his wish to find a buyer. I believe this to be a serious understatement. The first thing a buyer would have to do is to seriously simplify the portfolio. Most likely also folding several similar apps into one and selling the different content via in-app-purchase.

To also say something positive: This guy has to be commended for having the tenacity that is necessary to create that many apps and the stubbornness required to get all those apps past the critical eyes of the Apple Review Team. And finally for stirring some emotions in all small-time iPhone developers thinking to themselves “Hm, I could take a shortcut into a working business. Then I would not have to come up with so many app ideas”.

I came to the conclusion that I will have to pass on this opportunity because I don’t think this business is working or at least workable in the long term.

Categories: Business