The Profitability Test

Last week at Mobile World Congress Nokia unveiled the Nokia X, their first foray into the wild world of Android devices. On the consumer side, the sales pitch has been an affordable phone with all the great Android apps you love, just with Nokia and Microsoft services rather than Google’s. On the developer side, which was the obvious target of announcing this devices at MWC, the pitch was that it should take less than a day to port an Android app from using Google’s services for things like push and in-app purchase to Nokia’s.

On the surface, expanding your product into a new market with minimal effort seems like a great idea. Once you dig a bit deeper, it may not be so easy to justify.

Let’s say you have a product like Glassboard. Its core functionality is wrapped in a server-side component that you manage. The API is the key to everything else. It handles accounts, billing, data access, and all the notifications you need to send out.

The other parts of the Glassboard platform are the client apps. In my case, there are currently three: iOS, Android, and the web. I ran Glassboard’s Android app through the Nokia X Analyzer and had a pretty clean sheet. My biggest issues was replacing Google’s Cloud Messaging with Nokia’s offering.

Here’s where we run into issues. Building a version of Glassboard that uses Nokia’s jars instead of Google Play Services likely isn’t that big of a hassle. The much bigger hassle is then adding support on the server-side to handle the Nokia services.

Now, the “just a day” pitch becomes much harder to justify. Not only do I need to update the Android app, I also now have a slew of C# tests and code to write so that I can pass notifications from Glassboard to Nokia’s servers in additions to Google, Apple, and Sendgrid (our email provider).

Who Is The Market?

Any time I have to add another code path to the API and server components of Glassboard I have to really justify the work that’s involved. There’s usually four things I consider:

  1. Who is the target market?
  2. What’s the current install base?
  3. What’s the potential installed base?
  4. Would you use this thing?

The target market of the Nokia X is what the industry considers “developing nations”. The politically correct term is emerging nations because there’s plenty of room to grow, but the main point is that the Nokia X isn’t going to be on the store shelves in the US, UK, or Germany.

With a brand new platform, the current install base is zero. That’s not necessarily a bad thing as every platform starts from nothing at one point. In many cases, there’s a first movers advantage you can take advantage of.

That first movers advantage depends of course, on the potential installed base. This one was a toss-up for me. On one hand, Nokia is poised to put this in dozens of markets with millions of potential customers at an affordable price. On the other hand, Nokia is about to get sucked up by Microsoft who could snap their fingers and kill this project pretty easily. That’s a big risk.

The final question is more personal than business. I have always built software for myself, so asking if I would use a Nokia X is an important question. I’m curious about the device and would like to give it a shot. Would it be my main Android device? I’m not sure. I marked this one as a “maybe” rather than a hard yes or no.

Can You Make Money?

Once you’ve answered those four questions, you should be able to answer the most important question pretty easily: can you make money on the platform? More importantly, can you make enough money to justify the extra investment of time and resources in supporting it.

With Glassboard, my current belief is that no, I can’t.

Glassboard lives and dies by the amount of people that pay for some sort of premium subscription through the service. Since we have zero outside funding, the amount of users we gain isn’t an important metric. I’m confident that I could add several thousand free customers to Glassboard’s active user base by porting to the Nokia X. I’m much less confident that I can convert a decent percentage of those into folks that would be willing to pay for the service on a monthly or yearly basis.

That’s one of the key differences in running your company as a traditional business. Being on every platform is great if you’re a venture funded startup. If you’re bootstrapping, however, growth isn’t necessarily a good thing unless the financials are there to back it up. You have to analyze each different platform as a liability and justify whether its worth pursuing.

Simplifying Towards Profitability

This isn’t the first time I’ve had to do this sort of liability analysis with Glassboard. When I acquired the service, it was available on two additional platforms: the Kindle Fire and Windows Phone. I made the decision to kill both of these products for many similar reasons that I’ve opted not to tackle a Nokia X version at this time.

In the case of the Kindle Fire, the active user base wasn’t nearly enough to justify the continued investment. None of our premium customers were using the Fire version and that version also wasn’t equipped with any existing in-app purchase functionality, which meant I’d need to write more code myself.

That decision turned out to be the right one. I believe we’ve gotten maybe two total complaints about pulling the Fire version in the three months since it occurred.

The Windows Phone version of Glassboard was similar to the Fire in some aspects. The active user base wasn’t anywhere near the iOS or Android apps, but a decent chunk of the server components were already there. I’d have just need to add support for in-app purchasing to start upselling users to premium, which wouldn’t have been that much effort.

Ultimately the decision to kill the Windows Phone version came down to quality. It was not a good app. Given the small user base and the amount of time I felt it would take to make it an app I would be proud to showcase, pulling it from the shelves was the right move.

We get a few requests for a Windows Phone version a week still, so I believe there is some sort of market there. Whether they’re willing to convert to paid customers remains up in the air.

Focus on the Financials

As enthusiasts, it’s hard to avoid to allure of the new shiny. Updating an years old app to look and feel like an iOS 7 app makes sense as someone who loves to play with the latest stuff. Spending those days or weeks doing that conversion may not make financial sense if the product isn’t making enough money to justify the development time.

The same can be said for services such as Glassboard, and perhaps at an even higher level. With a freemium model, you have to think about every move in terms of its ability to convert free customers to paying ones. Free users are loss-leaders. If you have too many of those loss-leaders, you may have a popular product, but you don’t have a successful business.

By Justin Williams

This is a two sentence bio. There are many like it, but this one is mine.