Shopify Apps are great businesses; here's how you can find profitable opportunities

[jakobgreenfeld]

Last week I got the chance to pick Daniel Sim's brain on the opportunities he's seeing related to Shopify apps. And what he shared is pure gold.

Even if you don't care about Shopify apps you should keep reading because most of the frameworks and strategies he shared are directly applicable to any other marketplace.

Here's just a small sample of the topics we talked about:

• Where exactly you should look in the Shopify app store to find opportunities for new apps.
• Why changes by the Shopify team create new opportunities and how you can stay ahead of the curve.
• What exactly you can learn by studying app store data.

Let's dive in.

Default Advice​

The default advice that's shared over and over again is this:

"Search for merchant problems and build an app that solves them"

It's of course great if you can find something that way. But how exactly do you find merchant problems worth solving?

• You could reach out and ask a few store owners what problems they're struggling with. However, there are plenty of pitfalls and asking the right questions is an art in itself. (Book tip: The Mom Test by Rob Fitzpatrick). Also for introverts like me, talking to lots of strangers is an extremely energy-draining activity. So this is definitely not everyone's cup of tea.
• Another possibility is that you start your own Shopify store and then build something for yourself. But if your primary goal is to develop Shopify apps that's a huge detour and even then there's no guarantee you'll encounter a problem worth solving.

So while the default advice is certainly great if you can make it work, it's not as easy as people often make it seem. Luckily there are lots of other good ways to discover opportunities no-one talks about.

Underserved categories​

A great way to get started is to look for underserved categories. Here's how you can find them:

• Browse all apps that are listed on the official Shopify App Store. There are 12 categories, each with its own subcategories.
• One reason why there might be just a handful of apps in a given subcategory could be that there isn't enough demand or there isn't money to be made.
• So a good indicator that there is space for a new entrant to make money is if there are just a couple of popular apps on the first page while all the others look like they don't have many installs.

Unfortunately, install numbers are not publicly available. But we can get a rough idea by looking at the number of reviews. One caveat is that there are utility apps that quietly do their work in the background and hence don't garner many reviews.

So Daniel recommends the following trick to find out how popular a given app is:

• Browse 'All apps' and sort by 'Most relevant'.
• The ranking takes into account installs and reviews, weighted on recency. An app ranked high in 'All apps' is doing well.
• Anything ranked in the Top 1500 definitely got good traction.

Once you've found a category that fits the criteria (small number of apps in total, but with a handful of big winners), it's time to do some deeper research. If you can see a way how you can compete with the big winners and have some understanding why the apps with just a handful of reviews are not as successful, you could be onto a winner.

Examples:

• Store design > Popups and notifications has 590 apps (bad)
• Store design > Internationalization has just 74 apps listed (good)
• Sales and Conversion > Order Option with currently just 64 apps listed is potentially very interesting.
• Finances > Store Management has just 96 apps.

Underserved keywords​

While categories are interesting, this is not how users usually discover new apps. Instead, like anywhere else, the search bar is king. The majority of apps are discovered on the app store by keyword search, not browsing.

Wouldn't it be great if we knew the most popular keywords merchants are searching for? Daniel shared the following trick to discover those:

• When we type a couple of characters into the search bar, autocomplete suggestions pop up. There are around 1,200 of them. They're the most-searched keywords in the app store. You'll find keywords related to features, product types and brand names.
• If we can find some of these autocomplete suggestions that are underserved, then that's a great opportunity. The process is just as above, albeit with a lot more legwork involved.

Changes that create opportunities​

Technology is not static. The Shopify platform has a steady flow of changes that affect merchants.

A common pattern Daniel describes is that when something changes or a new thing comes out, the apps that exploit it do well since there aren't many competitors.

• One of the biggest recent changes was the subscriptions and post-purchase upsell APIs from Shopify. For a long time apps had been replacing the checkout and came with hacky solutions. Now all listed apps are required to use the new APIs. At launch there weren't many options using the new APIs and a lot of merchants were unhappy due to the limited options available. Hence this is clearly a great opportunity for an app business.
• Another relevant recent change is iOS 14 and its tracking limitations. This privacy trend is only going to continue. How will merchants get the Facebook, Google, ads and analytics attribution data they need?

To stay ahead of the curve, Daniel recommends the following resources:

• The Shopify developer changelog is a great place to go to get ideas.
• Every month or so there's a Partner Townhall. That's where early announcements are made.
• Shopify publishes Developer Previews that give developers early access to new features so that they can build on the platform with confidence.

Acquisition Trends​

Getting from zero to one on a new app if you have no audience is hard. You can skip that by buying an existing app if you can get the numbers to work. (That's a big if.)

Since selling his app business, Daniel has monitored the Shopify app acquisition industry closely. Here are a few trends he's seeing right now:

• The sub-$500k space for Shopify apps is seeing extremely high multiples. A financial buyer would usually value on a 3-5x seller's earnings multiple. Recently, he's been seeing sales go through on an 8x or more multiple.That means if you're just buying these apps for a financial return it's going to take a long time and has a lot of risk. As a pure financial acquisition paying 8x doesn't make sense. But what's happening is that folks are spending $50k cash to buy learning. Instead of starting from scratch, they start with a working app with existing customers and history.This is also, for example, what happened with Shaan Puri's micro-SPAC experiment. They ended up buying the Sold Stock app for $22k and gifted it to one applicant who's now operating it primarily as a learning opportunity.So if you have the cash then spending it to buy an app that already generates some revenue, gets you a lot of learning. You then have a platform to develop that app, or use its merchants to market your new app.
• If you can break out over $1m then multiples get back to sanity and can be a good financial investment. Then further up the market we see multiples go high again as strategic buyers enter the picture.

Underoptimized popular apps​

The app store has been around for a long time now. There are some apps that have gotten fat and lazy. They've neglected support, features are falling behind, or there are now better ways of doing what they do on the platform.

You can find them by searching for apps that are slowly but steadily moving down in the "All Apps" rankings. Other signs to look out for are reviews slowing down, bad reviews accumulating, or a neglected app listing.

It might be that it's just an okay passive income for the developer and they've lost interest. Hence there might be room for a competitor or it might be possible to buy the app cheaply from its owner.

Just as interesting are of course apps that quickly move up in the rankings. There's either a lot to learn from them when it comes to marketing or the category they're in as a whole is gaining traction.

At this point it seems appropriate to give Daniel's Shopify app database a shoutout. It's an incredible tool for these kinds of data-driven analyses and makes it easy to keep track of rising and declining apps.

Thanks for reading!

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