Everyone loves a good bargain, isn’t that right? When you have pre-owned cars, phones, console games etc, then have you ever thought of owning a ‘pre-owned’ mobile game or app? This may sound weird and an unfeasible business model to a lot of people, but give it some thought (and read this article completely!) and such a business might actually make sense. I am surprised that no one in the industry has fully explored such a model.
First of all, what are the reasons people buy or sell pre-owned goods? Let’s run down a quick list. Let’s call this List A:
1) To save money.
2) To get rid of a product that they don’t use that much.
3) If they are not satisfied with the purchase and the return period has expired.
4) They just got bored of using the product after a while.
5) They found a better product.
6) In the case of a console game, they basically completed all the levels and finished the game.
Now what if you took the same principles and business models around the pre-owned goods business and applied it to mobile apps/games? Such a business has the potential to become a huge industry if it’s done the right way. By the way, I am using the terms ‘Apps’ and ‘Games’ interchangeably in this article. They both mean the same thing here.
First of all, how would such a system work? I did some research over the weekend (yup, my weekends are pretty lame) and came up with a plan that could potentially work. So here it is:
1) A user (let’s call her Norah) buys a mobile game named Rockstar for let’s say 99 cents. The game is built by a company called Bringit Studios.
2) She plays Rockstar for a while and then for reasons explained in List A (or some other reason), decides to sell the app.
3) She then puts Rockstar up for sale for half the price (49 cents).
4) She either sells it directly to someone she knows, or puts Rockstar up for sale through a third party pre-owned apps seller (like an Ebay or Craigslist mobile apps equivalent).
5) The sale goes through in a way that she gets to keep 50% of the sale, 40% goes to Bringit studios and 10% goes to the third party seller. Or if she sells it directly to someone she knows personally, then she gets to split the revenue 50:50 between herself and Bringit studios.
Now if Bringit Studios sold a 100,000 of their iPhone game apps for a dollar. The revenue is $100,000 The 70:30 revenue split with Apple gives Bringit $70,000. This is the studios initial revenue. Now if let’s say 30% of the buyers decided to resell it for half the price. After doing the math, the studio would make another $7,000 to $10,000. And I am not even considering the revenues from in-app purchasing and advertising. That in itself would bring about a decent amount of revenue to the studio.
Sounds simple, doesn’t it? But obviously it’s not as simple as that. So what are some of the issues here?
1) The first one is the app store policies itself. Apple or Google will obviously not allow such a system to work because it can potentially cannibalize new app sales. One reason they might consider such a model is if they were getting a share of the sale too. So if Norah sells the app and a portion of it goes to Bringit Studios as well as Apple/Google, then it’s a win-win situation for all of them. But the mobile gaming industry in general is still in its infancy. So I feel it will probably be a long time before Apple or Google (or Microsoft) even consider implementing such a system.
2) The bigger and more successful studios would not want to do this for their popular games because they are anyways making a killing from new sales. Such a system will work best (atleast initially) for the less popular games and studios.
3) The biggest criticism of this concept would be that studios in essence or not selling the app itself to the consumer, but they are selling a license to purchase the app. So Norah only gets a license that gives her an instance of the app on her phone. Well, a license is always transferable to another user as long as the eco-system allows it (case in point: Serial Key Numbers). Thats the primary reason why bigger platforms like the Apple app store or Android won’t be interested in this now but smaller gaming platforms like OpenFeint, W3i or Playphone can make such a system work because they build their own policies and all their apps are downloaded from their own app store. I have built games for the Playphone App store and they have the resources to implement such systems. But the main catch here would be that app developers will have to work through these platforms to resell an app.
The best example is products itself like MS Office. A user can download a trial copy for free, and then all he has to do is purchase a serial number in order to validate this application. Millions of users use MS Office and then sell these serial numbers to other buyers. And since only 1 instance of such a serial number is legal, the new buyer gets complete ownership of the license. This is exactly the premise that I am basing my idea on. An app can be serialized, and then only 1 instance can be allowed. This gives a chance to a license holder to resell the app. My whole concept deals with a business model that helps studios generate extra revenue. And I am discussing a model that in real life has worked for every single industry known to mankind. If the pre-owned business works elsewhere, then why can’t it work here?
4) As always, there will be resistance to such a system, because the pre-owned goods business has always been looked down upon by product creators. In the end, the customer always wins so sooner or later, someone will start doing this (if someone hasn’t done it already).
Alright now let’s talk a little about its advantages:
1) This method can actually benefit Bringit Studios. Most mobile games/apps have a very small shelf life. By giving Norah a chance to sell this app, they are making sure that the game is still being circulated within the gaming demographic. And every new user brings with him/her a new revenue making opportunity.
2) Most mobile games don’t have a lot to offer in terms of in-app purchasing. There is only so much that Norah could potentially buy within the game after which she would either get bored or would not want to buy anything else in the game. And at some point, she will probably move beyond this game and play other games too. By giving her a chance to sell the app, Bringit gets to make some money, and when the new buyer starts playing the game, Bringit has another chance to make more money through in-app purchasing, advertising and as well as from the actual sale of the app itself.
3) Let’s just put it this way, how many apps do you currently have on your smartphone that you haven’t used in a while? And how likely is it that you will actually ever use them again? So how about selling them off the same way you sell your other used stuff on Craigslist or Ebay? Sounds compelling? I am sure it does!
4) With this method, Studios will actually encourage higher spending habits among its demographic. Because if Norah has the opportunity to sell an app after she has used it for a while, then there is a higher likelihood that she will actually buy it in the first place.
5) And of course, this is software we are talking about here. So the buyer is getting a product that’s basically as good as new.
So what's the best way to actually implement such a system? There are definitely some nuts and bolts here that need to be tightened in order to make sure this model can succeed. Based on my limited intelligence and experience, this is how the system can work:
1) The best way to build such a business is through 3rd party gaming platforms like Playphone, W3i, OpenFeint etc. These companies can build an online pre-owned apps store within their platform and encourage studios to work with them and make their apps available for sale in such a store. So all the transcations will happen within the realm of this store itself. It can function pretty much like eBay where users can buy/sell their apps. The ideal scenario would be if Apple or Google themselves allowed it, but they won’t do it unless this becomes a really lucrative industry. It’s best for smaller gaming platforms to indulge in such an initiative and become leaders in this space before the big boys start encroaching in.
2) Paying actual cash to a user is always a legal headache for companies. So instead of money, Norah can get paid in ‘digital currency’. So the approximately 25 cents that she made on one sale can be equivalent to 25 digital coins. And she can use this currency to buy other games/apps in the store itself. This way, the money will get circulated back into the app store, which would be awesome for the gaming industry itself because the money never leaves its ecosystem.
3) To make sure that these apps are not being constantly sold off multiple times at increasingly lower prices and also to avoid unhealthy competition between sellers, Studios can put limits on how many times their apps can be re-sold. So Norah could only sell it once and then the new buyer is not allowed to sell it again (because he/she already got it for a discount).
4) Once Norah sells this app, the app is automatically disabled or deleted from her phone. Only one instance of this app can be available for use at any time.
5) Now if the game itself is free and depends completely on in-app purchasing. Then Norah can find out the exact value of the app based on all the purchases she made, and then sell it.
6) Norah could potentially ‘loan’ this app to her friends too. This is a whole different story but the same business models that I have explained in this article can work for this too. I would be happy to explain this system in a future article.
If pre-owned goods can do well as a business in other industries, then what's stopping companies from incorporating the same mechanics into the apps industry?
I try my best to keep these articles short but that doesn’t seem to happen. I am happy to explain this concept further and clarify any questions you have. And of course, I would love to hear your comments/criticism about this idea. You can mail me at aabidsiddique81@yahoo.com or Follow me on Twitter @aabidsiddique. My personal site is at www.aabid.me.
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