Economics of Failure: Lessons Gleaned From Shutting Down

Tech loves a good Cinderella story, but more often than not, the clock strikes midnight before a startup has their chance to go public. Failure is the worst, and two recent examples show the economics of running an app-based business aren’t easy.

In July, iOS developer Dave Nott published a retrospective on his own business folding up. “Being a solo iOS developer can be a lonely and isolating place, especially when things aren’t going well, which is why I think it’s important that I share my story,” he wrote.

The reason for his failure was simple: economics. Nott said his apps had been “getting killed” in the App Store search rankings “for some time,” which caused the number of downloads to slip. In turn, his monthly revenue from iOS apps was eventually too low to sustain.

As Nott pointed out, running a business has costs, which compounded the problem. He was paying £85 monthly for things like an accountant and email hosting, even before factoring in annual Apple developer program costs or domain name renewals.

Email client Newton announced recently it was shuttering. Easily one of the best (maybe the best) third-party email clients around, Newton’s pivot likely sealed its fate. Once called CloudMagic, Newton’s name change also ushered in a subscription model. For $9.99 per month, users were granted access to one of the smoothest, most powerful cross-platform email clients ever.

Newton’s issues were the same as Nott’s: economics. Newton took no venture capital; in a new blog post discussing the decision to shut down, it notes that times are tough for developers:

It was a tough business decision. We explored various business models but couldn’t successfully figure out profitability & growth over the long term. It was hard; the market for premium consumer mail apps is not big enough, and it faces stiff competition from high quality free apps from Google, Microsoft, and Apple. We put up a hard and honest fight, but it was not enough to overcome the bundling & platform default advantages enjoyed by the large tech companies.

Apps App
Apps come and go, and users snap them up in droves.

Failure & the Economics of Starting Over

Nott and Newton are two reflections on the same problem. App economics are hard, and these two entities tried to solve them in traditional ways – and failed.

Though he never relied on his app business to pay his bills, Nott’s experience was fairly normal: create apps, publish them to the store, and (largely) hope for the best. Many independent developers follow this path.

Newton tried to scale. Its 2016 morph from CloudMagic to Newton, and introduction of subscription fees, were not met with widespread favor. It was hammered in App Store and Google Play reviews for charging for email, which we’ve grown to accept as a free utility rather than a paid feature. Even the annual subscription, which offered a huge reduction in the monthly fee, was poo-pooed by longtime CloudMagic users.

There are two lessons from these examples. First is to know when to give up. Nott admits he held onto his app business too long because admitting failure was daunting. Newton/CloudMagic should have approached monetization via different methods; seeking to be wholly funded by users backfired.

The second takeaway is: don’t give up entirely. Both Nott and Newton are working on their next projects. Nott’s is a note-taking and time-management app codenamed Synapse, which is in its early stages (but looks great). CloudMagic, Inc. isn’t saying what’s next, but founder and CEO Rohit Nadhani says: “The incredible team will be focusing on new and innovative projects.”

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