A Level Playfield
Apps are a great example of reducing the required resources to take a software idea to revenue. The critical question is what is the Return On Investment for the App market. This question has two aspects. The first relates to any investment decision in apps. The second is more general and holds lessons for any idea market.
App stores publish general statistics on downloads, and overall income, but refrain from publishing detailed statistics. Running through the published numbers reveals that apps in general do not provide a return on investment. The simple calculation is dividing the announced income from apps by the number of apps in the App Store resulting in an income of less than $10,000 per app. Since the required development cost of an app is estimated at around $50,000, it’s clear the ROI is difficult to justify. This also explains the absence of detailed statistics and a focus on success stories. After all success stories, as the lottery industry well knows, are a strong sales driver for app developers.
So the problem with lowering the barrier to revenue is that it promotes a gambling approach, where the thrill of participation offsets the low potential of winning. Another advantage of apps is the fact revenue is often not the primary success driver and downloads often count as the critical parameter. This works well for app developers as it provides short term measures of success.
Between Apps and Ideas
While apps create a thrill, and provide short term measures for success, many other idea markets lack these characteristics. Patents for example, have an ROI of several years, and there is little measure of intermediate success. One way to resolve these problems is creating idea competitions. Most of the crowd sourcing and open innovation sites use competitions to create the required thrill and induce idea submission. The problem with this approach is the ROI for the inventor. If there are hundreds of participants and only one or two winning solutions it’s clear the ROI doesn’t justify investment of time or resources. This also highlights the scalability challenge of open innovation sites.
A possible solution is to create an inventor network. After all in inventing, like in anything else, it’s all about the people. The network through peer review and mentorship creates a community spirit which addresses the time to ROI. The network should include an active buyer community which helps direct the invention process, provides feedback and even some short term monetary motivation. Intellectual Ventures is a great example of an early innovator in this space. It is actively building a worldwide inventor network. Inventors in the network are exposed to request for inventions as well as other inventors and collaboration opportunities. The inventors can submit their ideas to IV, and IV partners with inventors on bringing the best of these ideas to market. Future inventor networks may be fashioned as a social network where ideas are developed between network members and directed by other members towards buyers. But this already is the start of the pitch of my next startup.
To sum, I am a strong believer in idea markets and open innovation and their potential to accelerate innovation and create a better world. Drawing on lessons from the current activities in this field, I think the key elements to enable a sustainable idea market are
A Level Playfield