Planning your Software Distribution Options

According to CBI Insights, “running out of money” is the second of the top 20 reasons why businesses fail. It’s not the only money-related issue. Pricing and cost issues, lack of a business model, and poor marketing intersect with monetization, too. Though monetization potential is very important, distribution is even more important!

A quick note, that the #1 reason, “no market need” is largely addressed by sticking to a Minimum Viable Product (MVP) development process. The MVP process focuses on asking the tough questions first. Do customers love your product? Will they buy it? How much will they pay for it? These focus on finding a great product-market fit which also means creating a competitive product.

Distribution methods play a very important part in your software’s monetization potential.
As Smaato points out, “iPhone users spend on average over $30 per online transaction, compared to an average of $10 that Android users spend.” So, in all cases, you want to do your marketing research. Some of us on the marketing side have heard from tech companies that “They don’t need marketing.” With few exceptions – companies taking that stance either don’t last long or get bought out.

Say, you’re in the breakfast cereal business. If you get your product in Walmart and Kroger, you’ve done well. Do you stop there? No. There’s still Albertsons, Safeway, HEB, 7-11s, corner stores, restaurants, and hotel chains. But, you have to prove to each that your product is worthy of their shelf space. If your product has a $10 price tag, distributors and retailers will take at least half as their share. You have to cover the warehousing, cost of promotions, and damages.

Many mobile app developers place their apps on Google Play and the App Store and call their distribution efforts “done.” For a very lucky minority, this can work. Even so, it’s by no means optimal and it’s one reason (of many) why so many mobile apps never made money. For one thing, it’s super freakin’ lazy – to be polite about it.

• If your app meets store guidelines – you’re basically guaranteed “shelf-space.”
• It takes, at most, two hours to set up a new app on independent app stores.
• No warehousing, no shipping costs for downloads, no damages.
• No expensive promotional displays.
• Most online stores take just 30% of sales.

Granted no independent app stores have nearly the traffic as the Big Two. However, that fact alone also makes it easier to get exposure on them and be a big fish in a small pond.

Your team has spent months developing a software project. It’s worth the effort to have one person spend a few days expanding its distribution channels. Each is a “point of presence” – and helps to develop branding a la McDonald’s or Starbucks. Overall, it costs the same to develop a software product whether it is ultimately delivered to one or one million people. The goal, as with any product, is to get it into the hands of as many customers as inexpensively as possible.

Most everyone’s acquainted with packaged and downloadable premium software, freemium apps, and subscription models. Each has its own nuances to consider, but there are also a few options not so widely known – like pre-installed software distribution and white label options. We aren’t aiming to say any one is better than another – as it all depends upon your project, your target audience, and your budget.

With the Internet, packaged software is the oddball as it incurs the extra cost and effort of developing brick-n-mortar retail distribution channels. But, it is possible to forego the packaged distribution effort and simply make the hard copy materials a purchase option. Desktop titles typically include a DVD for installation and a user manual. Gaming companies often have collector editions adding maps, art books, and assorted game paraphernalia. Basic options typically incur a $10-20 surcharge on the price of the electronic version. Premium options can add $20 to $80, or more, to the cost.

Companies like Microsoft, Apple, Sony, and Electronic Arts, among others, have the economy of scale and distribution channels to get good mileage from packaged software. Other companies should validate every packaged software aspect with their user-base before jumping into it. Startups are likely better off avoiding packaged software unless there’s active end-user demand.

Demand can be evaluated via crowdfunding campaigns starting off with a small, first-run packaged edition. Additional options can be opened if funding benchmarks are reached. Alternatively, if sales of electronic versions go well, you can always expand your packaged options later. Nevertheless, any effort in selling or developing distribution channels for packaged software involves a very significant physical effort. Print On-Demand services can help streamline portions of the effort.

Exponentially easier to develop and manage if only because you don’t have to worry about inventory or physical distribution efforts. If you have a software product, a website, and a Paypal account, you could be in business today! Retail shelf space isn’t an issue either. As long as your software meets store policies you should have no problems getting on most online (non-brand specific) software or app stores.

Another advantage is that most online stores only take a 30% commission. Both the App Store and Google Play reduce their commissions on subscription-based apps to 15% after one year. If you are selling internationally, for best effect you should pro-rate your cover price to accommodate purchasing power parity with different countries.

Generally speaking, top-shelf software and brand names do best with premium sales. Their core advantage applies via the marketing and advertising dollars they can throw at promoting their products. Their advantage is magnified by promoting new releases across the user-base of all of their other products. With different product strategies, premium software can employ most other monetization options except in-app advertising.

This gives your software, or a version of it, away for free. By itself, there’s no revenue. The revenue comes through all of your other monetization options. Many companies offer their software for free on a trial or limited functionality basis. End-users who like the product can then pay for upgrades.

It’s worth noting that many gaming companies previously operating on premium sales and/or subscriptions moved to the free-to-play model – and became more profitable in the process. This plays on understanding how the Pareto Principle works, the nature of whales, and sales of vanity products. The idea is that 80% of your sales will come from 20% of your users. Structured properly, over 50% of sales will come from just 1 to 5% of customers.

Ostensibly, freemium software completely removes any hard cap on how much a customer can spend while optimizing the variety of ways that they can spend. Many gaming companies relying upon a premium subscription model offer ways (usually with in-game currency) to make it possible for dedicated players to play for free.

Choosing a freemium distribution model can have a significant impact on how you want your software to work and how you prioritize customer support, sales, and marketing. Some companies don’t offer personal customer support unless they’re a paying customer. Well, for that matter, some companies don’t offer any customer support to anyone… but that’s a different story.

Freemium can be a mandatory option for software that depends upon heavy social engagement or appearances that lots of people are using it at any given time. Freemium is likely to work a lot better for Android apps due to global distribution and purchasing patterns.

Freemium’s a complex distribution model, particularly owing to the cost of advertising, downloads, registrations, and long-term retention rates. It warrants examining cost per install alongside user demographics to determine how large of an advertising budget you will need.

A second freemium model is available that can bypass the uncertainty of advertising. In this distribution model, you pay the Original Equipment Manufacturer to pre-install your software on their device before it ever gets sent to customers. Though associated with bloatware and worse, it can be the most direct and efficient way to get your software in front of users who may want it.

Now, a lot of companies go this route because their software really is crap (i.e. crapware). The cost of a pre-install can vary widely – from $.10 per device in India, $.50 in China, $2 or more in the United States. But, if the Original Equipment Manufacturer (OEM) believes your software offers real value to customers, is already popular (AngryBirds), it may discount or possibly pre-install it for free.

But where the cost per install is quite reasonable, there’s usually a minimum number of systems involved, often 100k or 250k or more. The flip side of the equation is that you don’t know when the devices will reach the customer and may be limited in the metrics about whether their use of their device ever brings them to see your program.

WinZip is a good example of software that can be found pre-installed on some systems, or bundled as a free trial version with other software programs. After the trial version expires, users get reminders (and discounts) every so often to register their copy. Of course, there are other ways to unzip files for free.

Subscriptions used to be the gold-standard of all monetization models for all of the benefits associated with recurring revenue – like the ability to predict future revenue. The subscription model offers end-users flexibility in being able to subscribe by the month, quarter, or year and receive payment discounts. As with any paid software, in-app advertising gets turned off, but most other monetization options remain viable.

The subscription model has also evolved by letting companies define different tiers of service (silver, gold, platinum) each with extra features to entice end-users to spend more. Some companies also use a premium plus subscription model for ongoing use, made famous by Blizzard and its World of Warcraft MMORPG. Blizzard uses nearly all monetization methods and is worth a study. The goal when using subscriptions is to offer plenty of options to go with it.

The subscription model is employed for all manner of Software as a Service (SaaS), Platform as a Service (PaaS), and Anything as a Service (XaaS) variants. In these cases, end-users can use, but not download your software product. In most cases, SaaS focuses on B2B allowing for different service tiers and number of users. The more it’s oriented to SMB/Enterprise-level customers, the more of an investment you will need to make in your marketing and sales efforts instead of distribution channels.

The one a lot of people forget about. When your startup or business invests in software development, you own the software product. You have the option to license your software product to other businesses. In the process, you expand the scope of your business and become a software developer in your own right. This holds true even if you outsourced your software development and its management. You hold the option to license it out as is, with design/branding customization for the licensee, or adapt it to a Software as a Service model.

Opera Mobile Store was itself a White Label product that was licensed out to Yandex and other companies seeking to support their mobile-first customers. Rick Rome developed Wash CLub, an On-Demand laundry and dry cleaning service to boost his business in New York City. He ended up licensing it to over twenty operators across 16 states, each paying him 5% in royalties on every transaction. What works for your business can work for other businesses – dramatically expanding your revenue potential.

Most companies aren’t out to be the next Uber. Nevertheless your software may still have value to other businesses. While protecting your own region, you can make the software available to “competitors” outside of it – in effect, developing partners with them.

The only best software distribution option is what fits your product, your target market, and your budget. On this basis, it’s easier to address software distribution before jumping into all of the suitable monetization options. We believe it is important to consider both your distribution and monetization plans before you begin development. Initially, you likely have a budget and so will want to focus on the best combination of distribution and monetization options. You can always expand later – but you will also save a lot of money and development time by planning for them.