22 July 2012 by Published in: iphone, rants 5 comments

Everybody’s weighing in on the Sparrow acquisition.

Marco says if you want great indie developers, pay them well.  Eleza says “that’s what I did!”.  Selligy says that Apple should do something.  Matt says everbody should stop whining.

It’s time for some sticker shock.  Matt has the right idea when he says:

Thanks for that $10. It did indeed keep the lights on between 09:30 and 09:35 this morning. So if you’ve used Sparrow for more than five minutes, I guess we’re even.

Let me tell you how it actually is, because I write iOS apps.  A fully-dedicated senior iOS developer is way more expensive than you think.  I’m not talking about “some guy whose LinkedIn profile says he is a senior iOS developer, let’s send his profile to HR.”  I mean, a person who can read your ARM assembler, lecture on the finer points of Core Data, coordinate with graphic designers, draw mockups, tell you what is going to pass Apple review, solve customer problems, be a primary on the sales call with the client, negotiate the cost, write the proposal, know what’s in the HIG, come up with a class diagram that doesn’t suck, give presentations to management, train any developer in your organization, and actually get the coding done.  Specifically, a guy who you can lock in a room with a Macbook for three months and he emerges without any oversight or management from anyone, with Sparrow.app.  That guy can go from interview to interview and never even hear a starting offer under $125k, or $175k in the valley.  Never even hear.  That guy has Apple HR calling him saying “we know we can’t poach you, but maybe you can recommend someone?”  Apple HR.

Do you have any idea how many $0.99 apps it takes to afford that guy?

So let’s talk about “premium” apps (because apparently the cost of a latte is premium these days.  Perhaps Starbucks has won.)  TechCrunch reported in 2010 that $6.99 app Scanner Pro netted its developers a cool… $257,000.  To split between the eleven-or-so developers who work there.  To be fair they have other products and these are old figures, but it should sober you up real fast.  Somebody is spending a lot more than their revenues to keep the lights on.

Apple award-winning iOS app Papers is created by a “team of 7”, which may have netted $325,000 (they also have a mac and windows client).

Now consider Sparrow, the latest darling, with its four developers.  They may have netted $400k on the iOS side.  I don’t know how much money they made on the Mac side, but I can’t imagine that it is much more.  Meanwhile, Google acquires Sparrow for $25 million, which, assuming our math is in the right ballpark, 31x what users were paying.  For every dollar you were willing to spend on Sparrow, Google was willing to spend $31.  To match Google’s offer, every Sparrow user would have to have paid $93 (for an iOS license) or $310 (for a Mac license).  That’s what Google is willing to pay, and so that’s what Sparrow is actually worth.  You’re just the loss leader, the guy who pays $20/month as a “special introductory rate”, or the guy who buys the car for 0% APR for 36 months.  Just because you are paying X does not mean that the thing actually costs X.  Not even close.

In fact, pretty much all software startups these days are built to flip.  Software developers are ridiculously expensive, and the half-million or so you can make on the app store is a pittance.  So the only reason that apps like Sparrow get funded and built at all is because some investor chooses to ignore the economic reality that the thing will make half a million dollars on the app store and invests on the sole basis that the thing might be sold to Google at a crazy multiplier (because that is the only real way to get a VC-scale return).  We’re actually incredibly lucky that it existed at all; there are so many great apps that nobody can afford to build.

But shouldn’t, like, the Sparrow team feel really bad about taking the money and running?

I’m sure they probably do feel bad about it.  They’re people too, and they read Hacker News.

But, money isn’t something that you get in order to make a bonfire.  It’s something that you do stuff with.  If I suddenly came into $25 million dollars, I would give some of it to charity, take a small vacation, and then put a lot of it into building software products that I don’t have time or energy to currently pursue.  To claim that Sparrow shouldn’t have taken Google’s offer is to claim that the best possible use of $25 million is to throw it away and work for the Sparrow users–and do what exactly?  Show me any possible Sparrow feature that is–to any customer–providing $25 million in value.

I think the real story here is that $25 million split ten-or-so-ways is more than enough to spawn a team full of serial entrepreneurs.  So three years from now, you have 5 guys who will never, ever, have to do another VC deal.  They can all build companies for the hell of it, and can fund ideas that no “flip it to Google” investor ever would.  This isn’t the death of a company, it’s the birth of five, none of which will ever need funding again.

Building for the hell of it

I had a meeting with an “famous” person recently, who reached out to me out of the blue.  I kept thinking, “what’s this guy’s angle?  Is he trying to poach me, is he digging for some information, does he want a testimonial for his product?”  But the conversation was all about my problems and him sharing solutions from his experience.  No sales pitch, no information dig, just advice.  Do I have a calendar slot to do it again next week?

And then it hit me: this guy is meeting with me just for the hell of it.  He’s already made his $20 million.  He’s not shooting for $200.  There is no angle.  He just wakes up and does whatever he wants to do.  Today, it happened to be taking time to help me with my problems.

That, in a nutshell, is what the Sparrow team has won from this deal: the freedom to wake up in the morning and do whatever they want to do, to work on whatever they want to work on, for the rest of their lives (after a few years at Google, presumably).  I think most HNers have a project that they really want to work on full-time but can’t due to financial reasons, or spend too much of their time dealing with investor BS, or chasing the next deal.  This should really be a day of celebration–five extremely talented developers, freed from the constraints of working on what VCs tell them to work on!  They can contribute so much more to our world than Yet Another E-mail Client.

I wish every software startup ended like this!  Think of how many great software projects would exist if entire classes of software developers were able to work all the time on the things they are most passionate about.


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Comments

  1. Sun 22nd Jul 2012 at 2:21 pm

    Those Xyologic numbers seem to be complete BS. I compared our own sales figures to those reported there and the numbers were WAY off.
    I would say it is fairly safe to assume that the Sparrow guys had at least 2 million $ in income, which is more than sustainable for a 4 person team.

  2. Drew Crawford
    Sun 22nd Jul 2012 at 3:28 pm

    Possible. Let’s say the company’s revenue is $2m, which reconciles with other analysts.

    It’s still a far cry from the $25m that Google offered. Your iOS license is now “merely” $37 or OS X license “merely” $125 to match Google’s offer. The best use of that $25m was not to throw it away and add more features to an e-mail client.

  3. Serge
    Mon 23rd Jul 2012 at 3:47 am

    “To match Google’s offer, every Sparrow user would have to have paid $93 (for an iOS license) or $310 (for a Mac license)”
    – Google paid all that money to kill the product and remove it from the market instead of making it flourish further. That’s what I’d call an ‘anti-investment’. Whether most/some of those folks “spawn a team full of serial entrepreneurs” is a big IF, not a given. Or do people join a huge corp with the sole aim of quitting it in a couple of years and starting spawning start-ups?

  4. Bob
    Tue 24th Jul 2012 at 8:38 am

    Well..it is a 5 person team. Going by this article…round numbers is $200k per person. Plus benefits (if they have any, if not then their pay needs to be higher). That is $1mil/year in salaries. So that $2mil would cover them for 2 years. Unless they have offices, equipment, etc. then less. Plus–that $2mil was probably gross revenue–meaning after Apple’s cut–only $1.4mil. They had worked for several months before it came out, by the time the $1.4mil hit they were probably a year into it. And sales had fallen off. Unlikely to have been able to make payroll by years end.

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