Are Apps too Big to Fail?

Posted by on June 22nd, 2012

Can apps, like cockroaches, survive the tech bubble explosion?  I am fortunate to work alongside companies such as appsbar.com, theIRapp and ClickSoftware that hedged a bet that apps will continue to be a driving force of innovation – and the economy –despite the threat of a tech bubble burst.

With more of us using our app laden mobile devices to do more, apps may now be too big to fail. Since 2007, apps have created 466,000 jobs in the U.S. and have grown from 58 million to 845 million users (TechNet). And it’s not just developers sitting in their moms’ basements cranking out apps. The app economy is made up of non-technical jobs such as sales, marketing, human resources and even some of us publicity types.

But you always have to be wary of a potential tech bubble. Mark Gongloff’s, writer of the Huffington Post Tech Bubble Death Watch series, only called off the post-Facebook IPO Grim Reaper when AutoTrader.com filed papers to raise $300 million in a public offering. But he warned reader’s that “Until we see the IPO market for Internet stocks come fully back to life, we’re keeping our Tech Bubble Death Watch meter pegged at 1. Your money is safe for now.”

Facebook’s IPO of course increased the chatter about the tech bubble bursting, which really heated up around Facebook’s purchase of Instagram and continued through the IPO process.  The ultimate drop in valuation shined a bright light on what can happen to overvalued companies. It looked a lot like the dot com tech bubble, when companies subscribed to the “get large or get lost” theory – the only way to survive was to spend obscene amounts of money to get customers quick- even if it meant large losses. Companies spent big on marketing campaigns – Super Bowl XXXIV in January 2000 featured 17 dot-com companies that each paid over $2 million for a 30-second spot – and it was “Growth Gone Wild.” A poster child of that era, Boo.com, spent $188 million to build a global online fashion store before going broke in May 2000.

Modern app companies are fortunate to have grown up in a different generation than the dot coms. You won’t see many app companies trying to grow big or die trying to reach the mass market through TV and arena sponsorships. Social networks have created a new approach to reaching customers. There is an unprecedented ability to identify and reach pockets of people now through differentiation and segmentation.

It’s what Seth Godin, America’s audience Guru, outlined in his blog:

“Differentiation means thinking very hard about the market and your competitors and somehow making yourself different. Any rational person spending a fair amount of time with perfect information will have no trouble figuring out why you’re different. Segmentation is a variation of that, but it involves breaking the audience into pieces you invent, and then differentiating yourself for that segment. Both are selfish. Both assume that people care about you. Both don’t work the way they used to. Used to be that you could buy enough ads and interrupt enough people to make this strategy work. No longer. The filters are too strong. People are too resistant.”

The takeaway I get from that, and what I tell the app companies I work with, is that while the WSJ article on your app company is nice (and I certainly welcome it), it’s more necessary to understand and engage users where they are: online reading blogs, checking Tweets, and liking pages. If app companies take a little lesson in strategically building out of their business, the app economy should survive and thrive.