Facebook application acquisitions are a lot like domain name sales: out of every 10 that happen in any given week, only 1 gets publicly announced. While only a few Facebook application sales have been publicly reported (Inside Facebook has broken the news on the following sales: Pieces of Flair and Speed Racing to RockYou for a rumored seven figures each, Free Gifts, Esgut, and Nicknames to SGN, Favorite Peeps to Slide, and Extended Info to Sidestep), there’s actually a fairly active market for applications going on behind the scenes.
The biggest challenge developers face in selling their applications is the supply glut: there are simply many more applications (over 25,000 are listed in the directory) than interested buyers. So, how can developers sell off their applications? Here are 8 tips for beating the market and successfully completing a sale:
1. Build a Sustainable Viral Loop/Game Mechanic. Because they’re so rare, developers who invent apps which naturally sustain their growth through compelling viral loops or game mechanics are very valuable in the eyes of acquirers or investors. If your app achieves large scale daily active use, you should be able to get a good valuation in current market conditions. For example, Pieces of Flair and Speed Racing were recently acquired by RockYou, and the developers of the game Friends For Sale successfully raised $4 million for a chunk of their company.
2. Prove a Revenue Model, No Matter How Small. If your application makes money, even a couple dollars a day, you’ve got a valuable asset on your hands. First, consider ways of templating your application so you can make more money. If you’re ready to sell it off, the Developers Forum or eBay are good places to list. Acquirers should pay a reasonable multiple of your annualized revenue – somewhere between 5-7x.
3. Clone Existing Applications. If you’re short on ideas, look at what other people are doing that’s working and do your best to emulate them. Chances are that where there is one buyer, there are others. Requests for clone apps are common in the Developers Forum (see examples here or here). Try to pick one that’s not yet a commodity.
4. Build To Order. Speaking of the Developers Forum, many buyers will post requests for applications they’re looking to acquire. Watch requests closely, and jump on opportunities when they come up. If you’re quick, you might be able to build a nice little arbitrage business.
5. Build Using Standard Technologies. Before an interested buyer will sign on the dotted line, they’re going to want to do due diligence and take a look at your code. If your app is written in PASCAL, you’re going to have a hard time convincing the buyer that they’re going to be able to use what you’ve created. Stick to PHP and MySQL and you’ll be fine.
6. Be a Rockstar Developer. If you’re running 200,000 DAU off a memcached 486 in your closet, chances are top Facebook app companies want to talk to you. Let me know if you need an introduction 🙂
7. Get a Large Number of Users. Let’s face it: at the end of the day, it’s a lot more expensive to get 1 million users to add your app today than it was a year ago. If your app has achieved wide distribution, there are buyers lurking in the Developers Forum waiting to talk to you (see example here).
8. Offer Maintenance for a Limited Time. For potential buyers of your app, one of the scariest scenarios they can think of is your server crashing the day after they write the check. Promise to stay on board and ensure a smooth transition for your app to its new home for 30, 60, or 90 days, and you’ll make your potential buyers much more comfortable spilling the ink.
BONUS TIP: Don’t Listen to “Agents.” If somebody approaches you and offers to help you sell your app for a “portion of the sale price,” run for the hills. ESPECIALLY if this is the first time you’re doing a sale. There are a lot of sharks out there that talk a smooth game but ultimately don’t have your best interests in mind. They probably don’t know any more than you do, and at worst, they may try to totally screw you over. Unfortunately, it happens more often than you think.