Steal This Idea – Betting On The App Store

Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.” – George Soros


And so begins the next installment into my absolute favorite series of blog posts where I hope you steal all my ideas. If you haven’t read the other posts of app arbitrage or the silent disco app, please do so. My goal is to deliver good ideas that are highly tactical in hopes that some tenacious and hungry entrepreneur scoops it up and makes millions.
Let me preface this by saying this is actually an idea that I’ve thought about doing myself. It could potentially be a billion dollar company and is EXTREMELY sexy. Everyone I’ve told about this has usually listened, processed the information, and then muttered a quiet “holy shit.”
Naturally, I’m giving it away.
Let me say again – this could be huge. Like, Titanic size huge. But there are a lot of unknowns. My goal is to get a lot of comments and have you send this to financial and entrepreneur people you know so that we can hopefully uncover all the reasons this would fail, then remedy that.
I hope you get fired up about this and maybe someone even goes as far as to do something about it.

Market Freakonomics – Four Years In the Making

Let me begin with a short and simple explanation of the assumptions necessary to make a perfect/free market:
1. Complete information – this is transparency and total communication
2. Interchangeable goods and services – substitution
3. Lack of market power – there are no forces messing with the flow
….but most importantly:
Size.
A market needs to be a certain size to be statistically significant but also to allow for the above conditions to be true. Before a market is perfect (none can ever really be), there needs to be a pretty sizable number of players in the space so that everyone can compete. Every market is different, including the app market.
Up until 2012, the app store market has been in the 400-500K range, with a few thousand apps being loaded each day. 30-40 Million downloads a day, etc. As any appreneur will tell you – it was very different back in 2008 when the app store was much smaller. The biggest reason? Fewer apps…
….and less predictable.
As an avid iPhone app marketer myself, I know that it’s very hard to “game” the system now – if you want to win, you have to execute strategies very well and use creativity to beat the system. You can’t just pop an app into the world of iTunes and hope it blows up. The market has gotten big enough to crush the crappy apps and reward the good apps.
This is exactly what I want to focus on – predictability. Four years ago, an app launch was really unpredictable. Now, it’s a lot more predictable. It’s kind of like businesses going public now – if the numbers make sense and the business is sound, chances are the launch is going to do well.
The obvious next question is:
How can I make money on this market change?
Answer:
By trying to predict it’s impact on the market players.

Bet Your Life On An Angry Bird

Here’s a quick anecdote – I was having lunch with a team of developers a few months back and they were telling me all about their launch strategy for this awesome new game. They were talking so much shop about their advertising strategy, burst methods, cross promotions, PR companies, etc, that I couldn’t even a word in. They showed me almost everything they were doing.
Then I played their game on my iPad.
I knew right then and there that it wasn’t going to blow up the way they thought. Beyond all the knowledge I have about app marketing, something just wasn’t adding up and I had a bad gut feeling.
These guys were SO amped about it. I KNEW it wasn’t going to do as well as they thought. So what did I say?
“I’ll bet $100 that you won’t hit top 50 in your category by week 2 of your launch.”
At first they were offended (obviously), and then they actually entertained the idea. We didn’t end up doing the bet, and the game ended up failing, but my point is that there was something there.
If had the ability to wager that bet with someone else who believed in that game’s succes, I would have made $100.
At the same time, I could have lost the $100.
I walked home and started thinking about how this was exactly how my friends used to talk about NFL sports betting…and how the companies that broker those deals made more money than anyone else.
I also realized that almost 25% of the top grossing games involve gambling.
Betting on the unknown – predicting the future – wagering on markets.
That’s where the BIG money is.

Pioneering The Wild West of Financial Success

OK cool. Let’s bet on the app market. Let’s see if we can create a system where analysts can come in and actually put down wagers on an app’s success (or failures). How would that work?
1. The preliminary business would have to match bets to go live. There couldn’t be a house with odds at first because of the nature of the business and liability someone could do. If someone places a $5K bet on an app with 20:1 odds, that person could just spend another $10K on advertising to drive the app to the top. With a matched betting system, however, you negotiate the deal with someone else, so the accountability is there and there are no multiplied odds.
2. You would have to use public information at first. This is mostly rankings since they are the most objective. You can split that off into countries and different buckets, but you couldn’t bet on success based on revenue (until phase 2, which I will discuss).
3. There would have to be a timeframe on each bet. It couldn’t be just “this app will hit #32 in Lifestyle,” it would have to happen in a designated time period.
4. Collusion would have to be enforced as well as possible. This is where things get really tricky – unlike the NFL where there is no incentive to lose (ahem, Pete Rose), if someone offers a garbage app a $15k payday if the launch sucks, it’s probably better for the app to suck. I think the solution for this would be that the app developers need to sign off on the bet before it can be live which would enter them into a legal agreement but also pay them a commission on the bet.
With this framework in place, there could begin to be some semblance of a betting market in place.

Phase 2

Let’s say this all goes pretty well and people are happy making the bets, developers are happy taking the bets and getting paid + exposure, and more people get interested. What’s next?
1. Create the “House.” Move away from betting 1 to 1 and collecting some small fee and towards becoming the bookie. Then you can start collecting all the bets that you win, along with establishing what’s available to bet on (creating the lines).
2. Engage developers for more data. You will need to move beyond rankings and towards figures that are much more incentivized like revenue and downloads by offering a percentage to developers for sharing their information. Being able to place a bet on an app’s revenue in Month 1 is a lot more exciting than their rankings.
3. Bring in a fleet of analysts and lawyers. This will probably account for 50-60% of your budget as you create the lines and deal with legal backlash from the community.
4. Partner with iOS marketing companies and Ad networks. Unlike sports betting, there’s actually something that a bettor can control after they place the bet. Clearly the betting structure will have to be pretty low price points to start, but this service should make it very easy to go out and promote the apps they are betting on. Everyone makes WAY more money if this happens.
And so on.

Feasible? Maybe. Sexy? Definitely.

There are going to be an enormous amount of hurdles to overcome to make something like this work, but I have to think it’s possible in some capacity. If you look at companies like www.appbackr.com there is already something kind of like this, except this is fast and scalable.
More importantly, this idea will get you on the map. Conversations around this will be extremely scintillating for everyone involved and you may even find a way to make this work.
The potential to bring the financial world over into the app world will be the next major money pool. When investment bankers start to look at the app market the same way they look at the NASDAQ and when ESPN analysts start breaking down app launches, you’ll see what I mean.
Probably the biggest piece of this is that you would get an ENORMOUS amount of PR. Everyone would want to write about you and this idea. It’s completely revolutionary for the app market and could fundamentally change the game if it worked. The market is finally big enough to be able to cut out a lot of the BS that was available before and bringing in the financial analysts to gauge probabilities and all that – it could get interesting.
Like I said – PLEASE comment and share this with your commentary, especially with financial or sports betting types. I would love to see everyone contribute and tell me why you think this could work or why it’s doomed to fail.
So, what do you say? Wanna be a billionaire?
I bet you do.
– Carter
 
 

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