Xsf iPhone App Feasibility Study


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Xsf iPhone App Feasibility Study

  1. 1. XSF iPhone App Feasibility Study 3.10.2010 Richard Smith Edwin Aiken Zack Gregory
  2. 2. XSF iPhone App Feasibility Study 1 Executive Summary Our purpose in conducting this study is to explore the possibility of the Xtraordinary Sports Facility project (―XSF‖) designing and deploying an iPhone Application, which we believe could boost users’ enjoyment of the facility and its services, and give XSF sponsors an important and precisely targeted new way to advertise to their customers. Mobile phone applications (or ―Apps‖) are rapidly becoming a big business, with sales expected to reach $30 billion within the next three years. Though apps are featured on a wide variety of smartphones, they are by far most closely identified with Apple’s iPhone, which pioneered the concept and has dispensed more than 2 billion of them to customers through its App Store. And this big business has become a big part of the business of life for one very important group of XSF’s future customers: moms. A recent study shows that a booming group of ―iPhone Moms‖ is increasingly using their phones to manage schedules and shopping while on the go. With this development comes a new opportunity for advertisers, who have previous had difficulty reaching moms (the chief purchasing decision-maker in most households) through new media because of their tendency to be late adopters of technology. This is where the XSF App comes in. Our proposed app will allow parents to view and manage their kids’ game and practice schedules at XSF, book reservations for dentist appointments, birthday parties and other services at the facility and much more, all in one centralized, user-friendly package. Such an app would increase XSF’s revenue directly by boosting awareness and usage of the shops and merchants located at the facility, and would also give XSF the opportunity to sell significant volumes of advertising within the app to local XSF sponsors. Our financial analysis of the project indicates that XSF could expect to achieve a 19.4% internal rate of return with this project over a five-year period. Revenues (primarily from advertising package sales) are expected to average $25,000 annually over the five- year period. Start-up cost is estimated at $75,000 to design and implement the app and server system (although that is a worst-case figure), and costs to maintain the project should be minimal thereafter. The following pages will explore in greater detail the demographic target market for this app, features our proposed app should include, start-up costs required, revenue streams likely to be realized, and much more. It is our belief that an XSF App can provide significant value to parents by streamlining an important chunk of their lives, can provide significant value to advertisers by allowing them to reach a key purchasing decision maker in a new and relevant way, and can prove highly profitable (in terms of both dollars and customer goodwill) for XSF. 1
  3. 3. XSF iPhone App Feasibility Study 2 I. Demographics: “The Rise of the iPhone Mom” Smartphones are among the fastest-growing segments of consumer electronics in the United States, expanding at a rate of approximately 15% annuallyi. Of these, the fastest-growing product is Apple’s iPhone, the ranks of whose owners nearly doubled in 2009 and currently number nearly 70 million people, according to industry analysts. ii One of the distinguishing features of the iPhone and its brethren is their rapidly- expanding usage of applications (or ―apps,‖ as we will mostly refer to them in this paper). Apps come in a gigantic variety of shapes and sizes and can help you do practically anything—manage your finances, make restaurant reservations, remember where you parked your car—the possibilities are limited only by the imaginations of the developers writing the programs. Apps are rapidly becoming big business, with the sales expected to reach a level of close to $30 billion annually by 2013, according to media research firm Gartner.iii And as apps become more and more a part of consumers’ daily lives, advertising are finding advertising through apps to be an increasing effective means to reach busy consumers. iv The iPhone has quickly established itself as the leader in mobile advertising effectiveness, garnering 36.22% of all mobile ad impressions, most of any device manufacturer. v Apps, advertising and XSF all intersect with the case of the so-called ―iPhone Mom.‖ Moms have been identified as one of the fastest-growing subcategories within the swelling ranks of iPhone users, growing to encompass 29.5% of iPhone users (over 20 million moms).vi According a study by Greystripe Media, 64% of iPhone moms use their phone as the central point to manage their calendar and schedule (9% higher than iPhone users in general), while 60 percent also use their phone to find merchants near them and manage shopping lists.vii The study says moms historically have been a difficult group for advertisers to reach because of their tendency to be late adopters of new media technologies, but these new iPhone-centric behaviors are providing advertisers with a new way to connect to them through in-application mobile advertising. We believe the ―iPhone Mom‖ (and overbooked parents in general) represent a sizable target demographic that is ideal for the XSF app. Both scientific studies and anecdotal evidence show that shuttling kids from one activity to another is one of the major sources of stress for parents.viii We believe we can reduce parents’ stress levels by providing an easy-to-use, on-the-go interface that lets them manage schedules, book birthday parties and doctor’s appointments, and even arrange dinner for the family all from the palm of their hand. If properly executed, we believe such an app will significantly increase users’ usage of XSF services and overall enjoyment of the facility, while offering XSF sponsors with a carefully targeted, relevant way to engage the most important potential customer in any household: the mom. 2
  4. 4. XSF iPhone App Feasibility Study II. App Functions and Features 3 Studies have found that the most-used mobile phone apps include those in the lifestyle and utilities categories, while the longest-retained apps include those involving navigation, productivity and health and fitness. ix Our proposed XSF app will feature all of these elements, designed to maximize its use, retention, and the number of advertising impressions (and revenue) generated by it. At its core, the App we are proposing here has two basic aims: to act as an aid to busy parents trying to juggle their children’s’ sports schedules, and to increase awareness (and usage) of the other merchants and services located within and around the XSF facility. It will have schedule management features that fall into the productivity and utilities categories, coupon and reservation-making interfaces that will satisfy lifestyle requirements, and an XSF-specific Maps function that will act as a navigation aid. The app we have designed will have two different modes: Parent mode (for parents/grandparents/family friends of young athletes in leagues at the facility), and Administrator mode (for coaches and administrators at the facility). All users will download the same app from the iPhone App Store, but coaches and administrators will be Fig. 1 – The Home Screen given a code by XSF that will allow them to unlock the additional capabilities of the Administrator mode. Some capabilities will be common among both modes, while others will be unique to a specific mode. We will detail both modes and their features separately. 1. Parent Mode The home screen of the application’s Parent Mode (Fig. 1) will have four main function buttons: A) Schedules – This button will take the user to practice and game schedules for any teams their child or children are signed up for. Users can view the events for their team—List mode (Fig. 2), a chronological top-to- bottom of events for one specific team, Day mode, a daily- by-day, chronological list of all events for all their teams, and calendar mode, which will be a grid-style listing of all events for all teams. In the two list modes, information will include the team name, game time, opponent name (for games), and location (i.e. ―Field 3‖). Sport-specific icons will be associated with each practice or game as well, to eliminate Fig. 2 – Schedule Page 3
  5. 5. XSF iPhone App Feasibility Study any possible confusion from duplicate team names. All schedule modes will also allow for parents to make notes 4 (i.e. bring orange wedges for the team) connected to the entry for any game or event. This is also the page that will display any update messages (rain outs, practice time changes, etc.) sent out by the team’s coaches or by XSF facility administrators. Time or location updates will automatically appear in the schedule, marked by an alert icon. The app also will be set up to allow for push notification of such schedule updates—if the app is not activated, new updates will be delivered to the user via text message so that they can be aware of developments without having to keep the app open at all times. B) Games – This button is fairly straightforward—it will take the user to a page that allows them to access scores and stats (if stats are kept by the facility) for all the games played in the leagues that their children participate in. The primary page will give scores for played games in Fig. 3 – Games Page chronological order, and smaller buttons beneath the score icons will enable users to access statistics, or videos and other media. (Fig. 3) In connection with the video tab mentioned above, it is our recommendation that XSF consider employing a full time photography and video crew which would take pictures and video of every game, which parents could later buy. This tab would potentially allow parents to view photos and video in which their children have been ―tagged,‖ and purchase the videos or photos directly from the application (Fig. 4). However, for purposes of this analysis we will proceed on the assumption that XSF will not employ its own photo staff, and thus will not include any projected revenue from this in our financial analysis of this project. C) Account – This button will allow users to access any changes to their online app account, such as adding or deleting teams associated with their child, enabling or disabling push notifications from facility administrators, push notifications of coupons and offers from XSF merchants, etc. There will also be an option to password-protect all sections of the app that involve purchases or payments (such as the hypothetical picture and video purchase option above) to Fig. 4 – Photos Page prevent children using the phone from making unauthorized purchases. This section will also allow users to view and pay their financial account for any outstanding league fees or other services at XSF, using a bank account or payment method already on file with the XSF offices. 4
  6. 6. XSF iPhone App Feasibility Study D) Marketplace – Many of the key revenue streams involved in the XSF app will be accessed through this button, 5 which will make it as easy and financially attractive as possible for users to take advantage of all the other merchants and services at the XSF. The XSF Marketplace (Fig. 5) will aid users in purchasing services and goods from merchants within the XSF complex, or from XSF partners outside the complex who pay a monthly fee to have their ads included in this section of the app. As this section is currently envisioned, there will be four main subsections of the XSF Marketplace: Services, Deals, Reservations and Maps. Services will include a tab for every merchant in the XSF complex allowing the user to browse hours, services offered, prices and more. This section will also advertise any general gymnasium or adult fitness services that will be available at XSF, so that parents (or others) can look up a yoga or spin class to take while their kids are at practice, etc. Deals will be a section where the user will be able to view and use coupons and special offers (which will change Fig. 5 – Marketplace Page on a regular basis) from XSF-affiliated merchants both within the walls of the complex and outside. It may also be possible to marry the push notification feature with the team practice and game schedules that will be kept in the central server, such that users will be sent (for example) a coupon for 10% off dinner at a nearby restaurant just at the time their child’s practice is scheduled to end (and they will likely be wondering what to do about dinner tonight). Reservations (Fig. 6) will work as a sort of mini- OpenTable app for merchants inside the XSF complex only. When users touch this button they will see a list of only the XSF merchants who accept online reservations and what type of reservation they accept. This section will allow parents to book an appointment for a pedicure at the salon, a dental appointment for their kids, or book a party room for their child’s birthday at one of the XSF restaurants. Functionality could also be included that would allow users to place a carry-out order for food to be picked up at one of the facility’s restaurants after their workout and/or practice is done. The Maps section (Fig. 7, next page) is designed primarily to appeal to out-of-town parents who will be bringing their children to Colorado Springs to participate in tournaments at XSF—information encouraging them to download and use the app can be included in sign-up materials for every tournament. The Maps section will Fig. 6 – Reservation Screen provide directions to the XSF facility (using the iPhone’s GPS capabilities). The map users will view will also allow them to touch a button to view hotels, restaurants, sporting goods stores, and family fun spots (Chuck E. Cheese, Mini- 5
  7. 7. XSF iPhone App Feasibility Study golf centers, tourist destinations, etc.) near XSF. The merchants displayed through this function will only be 6 clients who have paid to have their location pop up in these searches, or who have purchased a larger advertising package with XSF. 2. Coach/Administrator Mode Coach/Administrator Mode will not offer any discrete revenue streams for the XSF app, aside from boosting the viewership figures for the banner ads that will appear on each page. The primary aim of coach mode is to make it as easy as possible for coaches to keep content updated and send out updates to parents… and hopefully the constant stream of updates and useful content will encourage more parents to download and continue using the app. Like Parent Mode, Coach Mode will offer four main buttons on its home screen: A) Schedules – The Schedules button in Fig. 7 – Maps Screen Coach/Administrator mode will enable coaches to view practice and game schedules by list or calendar view just as it does for regular users. The key difference is that coaches will also have the ability to change the scheduled times and locations of practices as needed, with push updates regarding any changes automatically going to any parents or other users who have downloaded the app. B) Games – Again, the functionality of this app will be similar for coaches as it is for regular users. Coaches will be able to view scores, stats and photos or videos for any of the games their team(s) are involved in. The principle difference is that coaches will also be able to enter final scores and stats for games just completed using the interface in this app. C) Account – Again, basically the same functionality that regular users will have for this section. D) CoachCenter – In place of the XSF Marketplace button that regular users will see, coaches will have access to the XSF CoachCenter button. This will be a hub where coaches can also access all the coach-specific functionality mentioned above (updating practice times, entering stats), along with further coach specific content. It is through this section of the app that coaches can access a roster of contact information for the parents of all players on their team(s), send customized updates (i.e. ―Don’t forget to bring checks to pay for the new jerseys‖) to all parents associated with their team(s), and view a list of practice fields and what time they are or are not in use, and reserve a field through the app. The CoachCenter section will also have a notepad and a touchscreen ―doodle‖ pad, for coaches to jot down notes or even diagram new plays if needed. 6
  8. 8. XSF iPhone App Feasibility Study 7 III. User Adoption and Revenue Streams Given XSF’s forecasted base of approximately 25,000 families who will be regular users of the facility, our calculations indicate that there will be between 7,500 and 10,000 iPhone users among them1. The average between the two is 8,750, but given that iPhone use skews higher among higher-income and more technologically-savvy demographics (both of which describe the XSF user base), we will adjust our assumption slightly upward from the midpoint and use 9,000 as our projection for the number of iPhone owners within the XSF customer community in year one of this project. Given the app’s minimal price and the number of useful features it will make available to XSF users, we will assume that 90% of the XSF iPhone owners will download the app in year 1—this yields a first-year user base of 8,100. Thereafter, we have assumed the number of iPhone users will grow at 30% annually (a conservative estimate, given that national user growth was over 80% in 2009). We assume throughout that 90% of those new iPhone users each year will download and use the XSF app. We believe the XSF iPhone application, if designed with the functions and features set forth above, will give XSF access to five new revenue streams, and will significantly enhance the revenue earned from streams (restaurants, shops, salons, etc.) already existing in the XSF facility. Those five new revenue streams stem from app downloads, banner ads shown within the app, a potential title sponsor on the start-up screen of the app, companies paying to have their businesses listed in the maps section, and package deals with in-arena advertising. 1. App downloads – This is the first, and most obvious, of the revenue streams. Our recommendation is that the app be priced at 99 cents—numerous studies have indicated that the 99 cent price is not high enough to deter anyone interested from downloading the appx. And given that our primary revenue streams (as we shall see in the following paragraphs) will depend on high numbers of downloads and regular usage, this price makes sense for XSF’s goals. After Apple’s 30% cut, XSF would receive approximately 69 cents of each download, resulting in first-year revenue of approximately $5,613. 2. Title Sponsor of App – XSF should sell the title sponsorship for the application to one business partner. This sponsorship would guarantee the business that its logo or other chosen banner ad will appear on the home screen of the app every time it is activated. As part of this sponsorship package, the title sponsor would also receive a second banner ad that would display elsewhere in the app as part of the banner ad rotation with other advertisers (see below), and would have their business displayed in the Maps and Deals sections of the app as well. 1 Approximately 11.7% of US population owns an iPhone x 25,000 families x 2.5 adults (parents/grandparents, etc.) associated with each family = 7,312 users. Rounded up to the fact that the iPhone’s rapid sales growth will have significantly increased this number by the time this project would actually be put into action. 7
  9. 9. XSF iPhone App Feasibility Study Based upon the rates for other similar advertising, it is our recommendation that XSF offer this sponsorship package at a starting rate of $1,000 if contracted for a full year, 8 or $90 per month if contracted on a month-by-month basis. This rate amounts to a discount over what the advertiser would pay by buying the other ad options individually, which should aid significantly in selling this sponsorship. For our financial projections, we have assumed that the title sponsorship will initially be sold on a full-year basis, resulting in $1,000 in first-year revenue. 3. Banner Ads within App – Every page the user clicks through in the App will feature a banner ad, similar to the type found on most conventional websites. These are already a common feature in many other iPhone apps, and like conventional website apps they give the user the opportunity to go to the advertisers website by clicking on (or in this case, touching) the banner. iPhone App banner ads are generally sold on a CPM (cost per 1,000 impressions) basis—every time a user views a banner ad, it counts as an impression for ad rate purposes. The most recent data available shows the going ad rates for iPhone banner ads at $10-$14 per 1,000 impressionsxi. To project revenue for banner ads, we used conservative assumptions of a $10 CPM, and 0.2 impressions per user per day. Combining those assumptions with our projection of 8,100 first-year app users, we arrive at $5,913 in first- year revenue. It bears noting that the level of revenue from this stream relies on user behavior (number of total ads viewed) not a minimum number of advertisers. Theoretically XSF could have several advertisers buy smaller banner packages, or sell all of the banner ad inventory to an advertiser in one enormous package and achieve the same $5,913 revenue result. It is our recommendation that XSF aim to maintain a roster of 10 banner advertisers (plus the title sponsor) at any given time, which would result in almost 5,000 impressions per month per advertiser at a cost of $49.28 per advertiser, figures we believe will be easier to sell to the smaller local businesses that will be the primary ad customers for this App. 4. Maps and Deals pages listings – This is the revenue stream that we believe delivers the most compelling value proposition for advertisers, and thus we expect this to generate the most revenue of the advertising types listed here. A maps and a deals package would allow an advertiser to have their business show up when on the maps page, and place a downloadable coupon for their business on the deals page (the coupon could also be accessed by touching the dollar sign icon that appears next to the merchant’s name on the maps page). Studies on the behavior of the ―iPhone Mom‖ show that 79% of iPhone moms use their iPhone for precisely such shopping-related activities—60% for locating the nearest store, 19% for downloading couponsxii. Giving advertisers the chance to put their name in front of moms (and other users) at the moment they are preparing to make such shopping choices will represent a compelling proposition for XSF’s potential advertising customers, especially given the amount of bonus business advertisers could potentially attract from out of town XSF visitors using the app during tournament weekends. We believe that this advertising option should be offered as a standalone package for the flat rate of $50 per month, and that banner ad package customers should be allowed to add a maps and coupons listing to their package for an additional $20 per month flat 8
  10. 10. XSF iPhone App Feasibility Study rate. For our revenue projections, we’ve assumed five of our 10 banner ad subscribers will take advantage of that add-on option, and we’re also projecting 15 more advertisers who 9 will sign up for the standalone maps and deals package. These projections yield first-year revenue of $10,200. 5. Package deals with in-facility advertising – Our vision is that the banner ads and Maps and Deals packages could also be incorporated as add-ons into existing ad packages involving sponsorship, signage or other advertising options being offered within the physical XSF facility. We believe the potential of add-ons could boost the number of traditional advertising packages sold, and/or boost revenue per package sold. However, we do not know enough about XSF’s pricing structure or in-facility advertising options to project the financial impact of such add-on options; therefore we have not included projections for this incremental revenue stream in our overall financial projections for the App project. We are also assuming that XSF will reserve a certain number of banner ads for the merchants operating within the facility, and will offer coupons from them on the Deals page as it deems appropriate. We anticipate that the App will therefore boost overall facility revenue by increasing the frequency of use of many merchant services (through the Reservations interface) and increasing total sales (by luring more customers in through the Deals interface and related advertising). However, in our financial analysis we have only taken into account revenue that will arise directly from the app (i.e., the first four revenue streams mentioned above); we did not attempt to quantify these indirect revenue boosts in the projections we have given here. IV. Development Process and Costs Development – The XSF iPhone app project will require a significant initial outlay of capital, but one which our projections show will provide an attractive rate of return for XSF. In developing this proposal, we solicited two quotes (not full proposals, however) from experienced iPhone application developers and also analyzed industry information on iPhone app development costs. Generally speaking, iPhone app development costs have been reported to run anywhere from a few thousand dollars xiii to well above $100,000xiv, depending on the complexity of the app. The first developer we spoke to was California-based Art & Logic. Their rough quote indicated that they had a somewhat similar, basic schedules-and-updates app that they could modify to XSF’s purposes for $1,295, plus a $15 per month fee for the ability to continue to update and modify the software as needed. To build an original app including the bulk of the features we’ve set forth in this document, rates would run $4,995, plus the same $15 per month update fee. The second developer we spoke with was Sourcebits Technologies, which has offices in India and Decatur, GA and has produced approximately four dozen existing iPhone Apps. Their quote also involved building out the central server system that would store all of the data needed for the app (game and practice schedules, ads, etc.), and came 9
  11. 11. XSF iPhone App Feasibility Study to approximately $75,000 combined for the app and server system. They indicated that the work would take approximately five months to complete, once contracted. 10 Based on other sources of information about app development, we believe these quotes substantially capture the range of development costs XSF could expect, depending on the developer chosen and the precise features to be incorporated into the app. As we do not have details of XSF’s existing or planned scheduling system and server architecture, we will proceed as though a full server system will be necessary to service the app, and use the worst-case $75,000 scenario as our assumption for development costs throughout this document. Once developed, the ad would have to pass through Apple’s approval process before actually being made available for sale in the iTunes App Store. To be approved, an app must meet Apple guidelines for both technical performance (i.e. being bug-free) and excluding objectionable content (―materials that may be considered obscene, pornographic or defamatory‖). According to Apple, 95% of applications are approved within 14 days of submission. xv However, some more protracted approval processes have been reported to last more than three months. xviWe don’t anticipate that our proposed app would have any significant issues winning approval. Therefore, we will assume a six-month timeframe for development—five to create the app, and one month for submission and approval by Apple. Support Staff – Once developed, there is the issue of actually selling advertising packages for the App. We have proceeded on the assumption that XSF will have existing marketing and sales personnel charged with selling sponsorship for the facility, as well as IT personnel or contractors who will handle the computer technology at the facility. It is our assumption that sales and technical support (post-setup) for the app could be folded into their duties, and as a result we have not budgeted for any additional staff to support this project. However, if this is not the case, we believe the project’s profitability (see next section) would be sufficient to support the hiring of additional part-time staff to oversee this project. Conversion to Other Formats – Though we have proposed and analyzed an iPhone App in this document, it is likely that XSF may wish to offer the App in other formats (Blackberry, Android, etc.) at some point if it proves successful. We did not solicit quotes for such work, but our research leads us to believe that converting an already-built app to a new format would be possible for relatively low cost—likely in the low thousands of dollars. However, it is likely that a developer would need to be contacted to flesh out price and timing details for such a project, as rough estimates are difficult to find on the internet. Our proposed App will be able to run on the forthcoming iPad without any modifications.xvii V. Financial Analysis Based upon the revenue streams and development costs assumed above, we have conducted a financial analysis of the XSF iPhone App project. Without knowledge of XSF’s specific capital funding structure, we have assumed a (relatively high) required rate 10
  12. 12. XSF iPhone App Feasibility Study return of 15%. If XSF’s actual required rate of return is lower than that, the financial case for this project would become even more compelling. 11 As it stands, we believe this project represents a distinctly positive financial proposition for XSF. Given the previously-stated projections for revenues and costs, we show that over a five-year period the XSF App project would yield an internal rate of return of 19.4%, with a net present value of $8,591. A detailed breakdown of projected revenues and costs is given in the table below: Revenue Stream 0 1 2 3 4 5 Totals Number of Users 0 8,100 10,287 13,064 16,592 21,072 21,072 Initial Design/Development Costs $ (75,000) App Downloads $ 5,613 $ 1,516 $ 1,925 $ 2,444 $ 3,105 $ 14,603 Title Sponsor Ad $ 1,000 $ 1,030 $ 1,061 $ 1,093 $ 1,126 $ 5,309 Banner Ads $ 5,913 $ 7,735 $ 10,118 $ 13,235 $ 17,313 $ 54,314 Map/Coupon Subscriptions $ 10,200 $ 10,506 $ 10,821 $ 11,146 $ 11,480 $ 54,153 Per-Year Totals $ (75,000) $ 22,726 $ 20,786 $ 23,925 $ 27,918 $ 33,023 $128,379 Discounted Cash Flows (@ 15%) $ (75,000) $ 19,762 $ 15,717 $ 15,731 $ 15,962 $ 16,418 Net Present Value $ 8,591 Internal Rate of Return 19.4% In all assumptions, we have attempted to choose figures that we believe represent the conservative end of the range of reasonable expectations. In almost all of the metrics used in this assumption, we believe that there is a significant chance that the XSF App’s actual performance would exceed the figures we have used. Nevertheless, to estimate the safety of our assumptions, we have also conducted a sensitivity analysis on all significant assumptions to determine how much room for error is available in each of our assumptions before the project would become financially negative. A full list of our key assumptions, and maximum acceptable levels of variation for each of them, can be found in Appendix A of this document. It should be noted that these levels of allowable variation are tied to XSF’s required rate of return on the project as a whole—if XSF’s actual rate of return is lower than the 15% we’ve assumed, it would have significantly more ―wiggle room‖ in each of these areas than what is indicated there. VI. Risk Factors Low user adoption – One of the few areas where we have been relatively optimistic in our assumptions in this document is in terms of our user adoption rate projections. Generally speaking, even the most popular of iPhone apps are only downloaded by, at most, around 3% of total iPhone owners. However, the vast majority of iPhone apps are ―fishing in the dark‖ – grabbing blindly for users among an undifferentiated national audience, with no specific target market or marketing approach beyond simply appearing in the App Store. The XSF App, by contrast, will be designed and aimed at a very specific demographic (XSF parents) in a very specific geographic region, and is designed specifically to include features that will be viewed as particularly valuable by that demographic. Given those factors and the low (99 cent) cost of adoption, we believe it is 11
  13. 13. XSF iPhone App Feasibility Study reasonable to project an adoption rate significantly higher than the national average. Still, we must concede that variation in our user adoption figures is a significant possibility. 12 We have conducted a sensitivity analysis on this risk factor and found that— holding all other assumptions constant—this project would remain positive financially even if actual user adoption were to fall as much as 19.4% below than our assumptions (as low as 6,525 first-year users, compared to our assumption of 8,100). It should be noted that this minimum user figure is tied to XSF’s required rate of return. If XSF’s required rate of return is lower than our assumptions (say, 12% instead of our assumed 15%), user adoption could fall as low as 5,495 (a decline of 32% from our initial 8,100 user assumption) before the project would become negative financially. iPhone obsolescence – Right now, the iPhone is one of the hottest consumer devices on the market, but all technologies eventually fade, some more quickly than others. However, the fact that sales grew by nearly 82% (almost double the next-closest smartphone manufacturer) in 2009xviii indicates to us that the iPhone’s popularity and growth haven’t come close to peaking yet, and that the device will remain a significant player in the smartphone market for at least the next 3-5 years. Even when the ―next big thing‖ in mobile communications does arrive, the App can be relatively easily and cheaply translated to Android, Blackberry, iPad, or whatever the new dominant platform may be. Poor advertiser response – Mobile advertising is still in its infancy, and may be a tough sell to some local advertisers, particularly ones who haven’t attempted anything of this nature before. How XSF’s potential advertising customers will respond to this proposition, particularly before XSF has generated significant data to show them on user numbers and patterns, seems an open question. However, we believe offering advertisers the chance to put their brand in front of local consumers at times when they are using their iPhone specifically to make purchase decisions (and to further ―reel them in‖ with targeted coupons and specials) represents a compelling value proposition. Further, we believe the monthly ad rates we have proposed (ranging from $90 to $48 per month, depending on package type) are inexpensive enough that most advertisers would not be scared off from at least dipping a toe in the proverbial pool. Additionally, this risk is mitigated by the fact that our model allows for numerous possible advertiser combinations. While our base case calls for 26 advertisers, the project remains financially feasible with as few as 19 (one title sponsor, 7 banner advertisers, 11 Maps and Deals advertisers). The project can also remain financially positive without a title sponsor, without any banner advertisers adding the Maps and Deals package, or both. So, although the uncertainty of advertiser enthusiasm is a significant risk factor in this project, we believe there are numerous ways XSF could adapt to the market’s response without the project becoming unprofitable. Development cost overruns/App underperformance – In our discussions with app developers, we have been led to believe that an iPhone app could be designed that could do substantially everything listed in this document, for the prices listed above. However, these were fairly rough, preliminary discussions—it is possible that when designers actually begin to design the Application that not all of the features we have set 12
  14. 14. XSF iPhone App Feasibility Study forth here will be possible or practical to include, primarily because of memory or computing power restrictions. 13 In the event that this becomes the case, there are features we have proposed here that can be dropped from the finished design without sacrificing any major revenue streams or significantly diminishing the usefulness of the App. The first and most obvious candidate would be to eliminate the CoachCenter functionality, or to eliminate Coach/Administrator mode altogether. The photo/video functionality (under the Games section) could also easily be sacrificed, as it is uncertain whether XSF will have the staff in place to provide the content required for that portion of the app. VI. Conclusion More and more, mobile devices are becoming the preferred method for busy consumers to stay connected to their environment. While an iPhone App is not strictly necessary for the success of the XSF development as a whole, it could make a significant difference in how fully and richly engaged XSF users become in their experiences there. We believe this proposal offers XSF and its sponsors a way to connect to their audience in a more timely, useful and profitable way than is possible with traditional advertising techniques. We believe the downside risk of this proposal is limited (particularly if development costs prove lower than our $75,000 worst case scenario), and the upside is substantial—the App gives XSF the opportunity to become a more useful partner to its users, and open up potentially useful new revenue streams in doing so. Therefore, it is our recommendation that XSF give serious study and consideration to moving forward on the XSF App project. 13
  15. 15. XSF iPhone App Feasibility Study 14 Appendix A: Financial Analysis Assumptions Overall Assumptions: Min Acceptable (% Chg.)* Analysis horizon: 5 years XSF Required Rate of Return: 15% First-year App users: 8,100 6,525 (-19.4%) XSF App adoption rate: 90% 54% (-40%) Annual iPhone user increase: 30% 18% (-40%) Number of Ad Impressions Generated (Per User, Per Day): 0.2 0.15 (-25%) Cost Assumption: Development Costs: $75,000 $83,591 (+11.5%) Revenue Assumptions: Number of Title Sponsors: 1 Initial Annual Revenue from Title Sponsor: $1,000 $0 (-100%) Number of Banner Ad Sponsors: 10 CPM charged to Banner Ad Sponsors: $10 $7.46 (-25.4%) Number of Banner Ad Sponsors Upgrading to Map & Coupon Package: 5 0 (-100%) Cost of Add-On Map & Coupon Package: $20/month $0 (-100%) Number of Standalone Map & Coupon Package Sponsors: 15 11 (-20%) Cost of Standalone Map & Coupon Package: $50/month $36.50 (-27%) *Max/Min figures are max change allowable for each individual factor, with all others held constant—project would not be able to tolerate levels of decline given if multiple factors were to decline simultaneously 14
  16. 16. XSF iPhone App Feasibility Study 15 Appendix B – References i Mark Hachman, ―Apple Far Outpaces Other Smartphone Vendors,‖ PC Magazine, 2/5/10. http://www.pcmag.com/article2/0,2817,2358859,00.asp ii Press Release, ―Mobile App Stores Will Generate 15 Billion Dollars in 2013,‖ FutureSource Consulting, January 2010. http://www.futuresource- consulting.com/press/2010-01_MobileApps_release.pdf iii Chris Foresman, ―Apple Responsible for 99.4 Percent of Mobile App Sales in 2009,‖ ArsTechnica.com, January 2010. http://arstechnica.com/apple/news/2010/01/apple- responsible-for-994-of-mobile-app-sales-in-2009.ars iv Frank Hudson, ―iPhone App-vertising Effective Niche Mob Marketing Strategy.‖ Direct Traffic Media, October 2009. http://www.directtrafficmedia.co.uk/News/iPhone_App- vertising_Effective_Niche_Mobile_Marketing_Strategy_110264485071.html v ―iPhone and QWERTY Top Devices for Mobile Ads,‖ Millennial Media, March 2010. http://www.wirelessandmobilenews.com/2010/03/iphone-and-qwerty-top-devices-for- mobile-ads-says-millennial.html vi Leena Rao, ―Study Reveals More Details About the iPhone Mom,‖ TechCrunch, October 26, 2009. http://www.techcrunch.com/2009/10/26/study-reveals-more-details-about- behavior-of-the-iphone-mom/ vii Katie Berk, ―Greystripe Mobile Advertising Insights Report: the iPhone Mom,‖ Greystripe Advertising, October 2009. http://www.greystripe.com/wp- content/themes/gswordpress/reports/GreystripeAdvertisingInsightsQ309.pdf viii Joy Jernigan, ―Overbooked Kids? Nah, it’s the Parents Who Stress,‖ MSNBC.com, September 2009. http://www.msnbc.msn.com/id/32573893/ns/health-kids_and_parenting/ ix Peter Farago, ―Mobile Apps: Models, Money and Loyalty.‖ Flurry Analytics, September 2009. http://blog.flurry.com/bid/26376/Mobile-Apps-Models-Money-and-Loyalty x Dan Grigsby, ― iPhone App Buyers Survey,‖ Mobile Orchard, April 2009. http://www.mobileorchard.com/iphone-app-buyers-survey-revealed-category-preferences- price-sensitivity-and-discovery-behavior/ xi Dan Frommer, ―iPhone Ad Rates Way Below Expectations,‖ Business Insider, June 2009. http://www.businessinsider.com/iphone-ad-rates-way-below-expectations-2009-6 15
  17. 17. XSF iPhone App Feasibility Study xii Katie Berk, ―Greystripe Mobile Advertising Insights Report: the iPhone Mom,‖ 16 Greystripe Advertising, October 2009. http://www.greystripe.com/wp- content/themes/gswordpress/reports/GreystripeAdvertisingInsightsQ309.pdf xiii Peter Cooper, ―Some Brutally Honest iPhone Sales Numbers…‖ MobileOrchard.com, March 2009. http://www.mobileorchard.com/iphone-app-sales-figures-32k-vs-535/ xiv ―How Much Does It Cost to Develop an iPhone App?‖ Stackoverflow.com. http://stackoverflow.com/questions/209170/how-much-does-it-cost-to-develop-an-iphone- application xv Apple, Inc. ―Apple Answers the FCC’s Questions,‖ Apple.com, August, 2009. http://www.apple.com/hotnews/apple-answers-fcc-questions/ xvi Jim Dalrymple, ―iPhone App Developer Quits Over Approval Process,‖ Cnet.com, November 2009. http://news.cnet.com/8301-13579_3-10398624-37.html xvii Paul Miller, ―iPad Can Run All iPhone Apps Unmodified,‖ Engadget.com, January 2010. http://www.engadget.com/2010/01/27/ipad-can-run-all-iphone-apps-unmodified- new-iphone-sdk-out-toda/ xviii Phillip Elmer-DeWitt, ―Apple Grabs 25 Percent of SmartPhone Market Share,‖ Fortune.com, February 2010. http://brainstormtech.blogs.fortune.cnn.com/2010/02/09/apple-grabs-25-of-smartphone- market/#more-19698 16