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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.

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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.

100k_business_sales

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?

NameRankCategoryPriceCountry
Aggieland VIP Card53BusinessFREEUruguay
San Marcos VIP Card86BusinessFREEEgypt
Rule Of 7255Finance$0.99Qatar
Sit Up Counter (Accelerometer Auto-Counter)61Healthcare & Fitness$0.99Pakistan
Sit Up Counter (Accelerometer Auto-Counter)63Healthcare & Fitness$0.99Russia
Antz66Lifestyle$0.99Argentina
Antz10Lifestyle$0.99Brazil
Antz12Lifestyle$0.99Colombia
Antz60Lifestyle$0.99Costa Rica
Antz41Lifestyle$0.99Czech Republic
Antz97Lifestyle$0.99India
Antz78Lifestyle$0.99Lebanon
Antz53Lifestyle$0.99Mexico
Antz31Lifestyle$0.99New Zealand
Antz80Lifestyle$0.99Panama
Antz11Lifestyle$0.99Qatar
Antz24Lifestyle$0.99Saudi Arabia
Antz99Lifestyle$0.99Singapore
Antz14Lifestyle$0.99South Africa
Antz26Lifestyle$0.99Thailand
Antz69Lifestyle$0.99United Arab Emirates
Antz25Lifestyle$0.99Venezuela
Antz9Lifestyle$0.99Dominican Republic
Antz45Lifestyle$0.99Estonia
Pool / Billiards Rules79Sports$0.99Argentina
Sport Rule Books – Locally Stored83Sports$0.99Austria
Pool / Billiards Rules27Sports$0.99Brazil
Pool / Billiards Rules13Sports$0.99China
iSexyRef2 (Sexy Referee Signals)80Sports$0.99China
iSexyRef2 (Sexy Referee Signals)99Sports$0.99Colombia
Hockey Rules78Sports$0.99Costa Rica
Pool / Billiards Rules79Sports$0.99Costa Rica
Soccer / Football Rules86Sports$0.99Croatia
Poker Rules & Hands54Sports$0.99Denmark
Football Rule Book84Sports$0.99Denmark
Pool / Billiards Rules44Sports$0.99El Salvador
Poker Rules & Hands96Sports$0.99India
Pool / Billiards Rules72Sports$0.99Korea
Tennis Rule Book75Sports$0.99Kuwait
Poker Rules & Hands48Sports$0.99Lebanon
Pool / Billiards Rules85Sports$0.99Lebanon
Poker Rules & Hands76Sports$0.99Luxembourg
Pro Rodeo Fan6Sports$0.99Panama
BIG Red College Sports Fan (Arkansas)61Sports$0.99Panama
iReferee (Referee Signals)76Sports$0.99Panama
iSexyRef2 (Sexy Referee Signals)91Sports$0.99Peru
Pool / Billiards Rules74Sports$0.99Phillipines
Poker Rules & Hands65Sports$0.99Portugal
Pool / Billiards Rules26Sports$0.99Qatar
Basketball Rule Book53Sports$0.99Romania
Pool / Billiards Rules82Sports$0.99Romania
Soccer / Football Rules93Sports$0.99Saudi Arabia
Poker Rules & Hands84Sports$0.99Turkey
Pool / Billiards Rules30Sports$0.99United Arab Emirates
iSexyRef2 (Sexy Referee Signals)72Sports$0.99United Arab Emirates
Pool / Billiards Rules53Sports$0.99Vietnam
iSexyRef (Sexy Referee Signals)62Sports$0.99Vietnam
Poker Rules & Hands32Sports$0.99Dominican Republic
Poker Rules & Hands12Sports$0.99Uruguay
Pool / Billiards Rules3Sports$0.99Moldova
Basketball Rule Book23Sports$0.99Malta
Twenty One (Blackjack, 21)19Sports$1.19Latvia
iSexyRef2 (Sexy Referee Signals)41Sports$0.99Latvia
Pool / Billiards Rules8Sports$0.99Ecuador
Twenty One (Blackjack, 21)57Sports$1.19Egypt
Gas Pedal80Games/Racing$0.99Slovenia

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

10 Comments »

  1. Good analysis.

    I posted a link to your article as a comment on the TUAW story.

  2. Good analysis but…

    Looks to me from his chart, 86% of his sales come from US. So your little analysis seems skewed but the chart could be wrong too, who knows.

    I think I will take a look into it further and ask the guy more probing questions.

  3. By the way…here is the page with the charts http://www.jbrice.com/sell

  4. Joe, the chart is absolutely misleading. It probably includes free apps and for the whole year. My data from Applyzer is a snapshot from yesterday. Don’t see US there anywhere. To me the only obvious interpretation is that there are not enough sales in the USA in the categories mentioned for the apps to be in the top 100 there.

  5. I contacted JBMJBM, LLC and he verified and gave me numbers for these and most all the sales are from the US.

  6. O’Yes and 4 of his apps are free and the chart is just for paid apps, I asked the same thing b/c I thought it could be skewed for free apps but it is not.

  7. The owner contacted me and I sent him a list of deeper probing questions. Maybe he has a better, more positive, answers to what we are all thinking.

    You seem really interested in defending the upside of this business sale. Are you a friend of Brice? If yes, you should disclose this.

    I also disclosed that I used my friendship with the guys from Applyzer to get the publicly available top 100 ranking data compiled into this table I used.

    I invited Brice to respond to my hard questions and offered for a follow-up article to present his view. Maybe even offer financial reports or the MyAppSales apps.db for download so that everybody can do his own projections and calculations.

  8. Well, numbers can be forced to say just about anything if you torture them long enough. Fact is, there are no hit apps, or else you would see at least one amongst the US Top 100.

    Joe, why don’t you buy it for 100k cash then? You obviously already made up your mind that it is a good deal in your view.

    In my article I am giving the reason why _I_ would not buy it. You are free to decided whatever you want. Personally I would only buy something that has an appropriate intrinsic value. Like existing licenses or some great technology that has R&D behind it.

    To just go by the number that Apple transfers to a companies bank account every month does not constitute due diligence.

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