App startups abound in the Triangle, though hurdles to success are many

dranii@newsobserver.comMay 17, 2014 

If there’s an app for that – and there probably is – then there’s an app company working diligently behind the scenes in hopes of breaking through the clutter and hitting it big.

The soaring popularity of smartphones and tablets has spawned an explosion of startup app companies. That includes a wave of Triangle startups, even though the region’s information technology companies typically have been oriented towards business customers rather than consumers.

“Scientifically speaking, there’s a bunch,” said Merrette Moore, managing partner of Raleigh investment firm Lookout Capital.

Moore said Lookout has reviewed business plans from 30 to 40 local app companies in the past few years.

“I would say there has got to be a hundred out there,” said Chris Heivly, managing director of The Startup Factory, a Durham business accelerator that invests in and nurtures startups.

It’s an appealing business because the barriers to entry are disarmingly low.

“All you need is a programmer or two,” Moore said. “It isn’t hard to get into the apps business at all.”

For Triangle app startup Knomad, the biggest expense to date has been buying a new MacBook, said co-founder and CEO Alex Carter.

Still, Carter, 28, and his co-founder, Michael Crouch – they’re childhood friends who went to N.C. State University together, where they majored in engineering –have been living on their savings for most of the past year while devoting full-time to developing their app.

That financial reality was one of the reasons they applied for Startup Factory’s program. The Startup Factory agreed to fund the business.

“We really needed some additional funds to help cover the costs of living before we launched the app,” Carter said.

The Knomad app, which Carter anticipates will be launched by the end of this summer following a beta test, is designed to make it easy for users to discover and share non-musical audio content – TED talks, podcasts, radio shows, news updates, lectures, etc.

Although the barriers to entry are low for app companies, the hurdles down the road are formidable.

Getting noticed is a huge problem because there are so many apps out there. The Apple and Google app stores each feature more than 1 million apps.

“You can’t have a ‘Field of Dreams’ strategy – if you build it, they will come,” Heivly said. “You have to understand how you’re going to inexpensively acquire your customers.”

The bottom line is that although app companies don’t require a lot of money at the outset, “they take a lot of money to grow” in the form of marketing dollars that can help you stand out from the crowd, said Lister Delgado of IDEA Fund Partners, a Durham venture capital firm.

At the same time, although it’s not absolutely essential to produce the first app of its type, being early to market is crucial.

“If you are the 20th app that is doing something, you can’t get discovered, even if your features are excellent,” Delgado said.

And then there’s the biggest issue of all – figuring out how to make money from an app.

That’s because there’s an expectation among consumers that there are two types of apps: low-cost and no-cost.

“It’s a tough business to succeed in,” said Moore.

Yillio

Yillio is looking to make something out of nothing.

“The name Yillio means nothing,” said Tully Ryan, the Raleigh startup’s co-founder and president. “We wanted a name that we could define ourselves – and that is what we are doing.”

Formed in 2012, the company’s free app – also called Yillio – enables on-the-go users to easily search for restaurants, shopping and other merchants along a particular route.

Yes, you can do that to some extent with a GPS or an app such as Yelp, but Yillio boasts that its “route-based search” goes much further, thanks to its patented technology.

“There is a pretty heavy-duty algorithm that goes along with it,” Ryan said.

Some examples of what Yillio can do: At the beginning of a 150-mile trip you can see where every Starbucks is along the way; restaurants can feed you information on daily specials; you can locate the service stations that offer the cheapest gas prices.

Yillio, which has four employees and has raised about $500,000 from angel investors, is working with partners such as the Golf Channel and Yahoo to promote its app. It launched its app at the Super Bowl in partnership with the Newark Convention and Visitors Bureau and also is teaming up at the U.S. Open at Pinehurst with the regional convention and visitors bureau.

Merchants can sign up to be featured on Yillio for free, but their message is limited to 36 characters. Those who agree to pay on a per-click basis, however, can enhance their visibility and promote themselves with photos and coupons.

Yillio isn’t disclosing how many consumers have downloaded the Yillio app so far. But in order to reach its full potential, the company recognizes it needs a marketing war chest.

Ryan said the company is contemplating seeking another round of funding – in the neighboorhood of $4 million.

“We’re looking to throw some gas on the fire,” he said.

Unlike many app startups, Yillio isn’t being run by 20-somethings or 30-somethings. Ryan is 47 and CEO Reid Overcash is 65.

“One of the things we feel really good about is, we are seasoned,” said Tully, who describes himself as a serial entrepreneur. “We have been through this before.”

Moreover, he said. “Yillio is not just an app company. The patents cover browser, tablets, iphone and even telematics – what’s in the dashboard of your car. ... So this is a huge opportunity.”

TabSprint

TabSprint is teaming up with beer makers in order to make money from its free app.

The Durham startup’s app, also called TabSprint, makes it easy for consumers to order and pay their bar tab – and for nightlife spots to to handle the transaction quickly.

Rather than leaving your credit card with the bartender or paying separately for each round of drinks, “we make the ordering experience easier and more pleasant for consumers,” CEO John Chipouras said. “We make the bars more efficient because the bartenders don’t have to interact with their point-of-sale system.”

At peak hours, Chipouras said, bartenders can spend 60 percent of their time processing payments rather than serving drinks.

A customer who downloads the TabSprint app and inputs their credit card information can place an order on their phone through the establishment’s digital menu. Bartenders can then process the sale with a swipe of their finger on your phone.

When the app was tested by about 200 beta users, TabSprint charged consumers 30 cents per transaction. Pushback from those beta users convinced the company to go another way.

The company also experimented with charging establishments but found that was a hurdle to getting them to sign up to use the app.

So now the company is charging beer companies for ads and for greater visibility on the digital menus featured with its apps.

“The brands are the players that have the most to gain from having a touchpoint with customers right before they order,” Chipoura said. “When we help brands sell additional beers, we make money.”

Today, TabSprint can be used in 40 different establishments – all of them based in the Triangle. It has more than 3,000 users.

But Chipouras said the company’s partnership with some of the world’s largest breweries – he’s not saying which ones – will help it expand to other cities.

But the company, which has three full-time employees and a part-timer, needs to raise funding, too.

“A $500,000 seed round is the most logical next step,” Chipouras said.

WedPics

Now that WedPics has established itself as a force in its space, its next goal is to figure out how to capitalize on its popularity.

WedPics enables crowdsourcing for wedding photos. Wedding guests who download the free app can share the photos they take, creating a wedding album for the happy couple.

Justin Miller, the CEO of Raleigh-basaed Deja Mi, the company behind WedPics, said 150,000 couples signed up for the app last year. This year, it’s on track to attract another 400,000 couples.

As for total users, “two weeks ago, we passed the million mark, which is a huge milestone,” Miller said last week.

That level of popularity makes WedPics the dominant player in its space, with about 55 percent of the wedding app market, Miller said. WedPics has three significant competitors.

Along the way, the company has raised $3.4 million in funding and today has 15 full-time employees.

But it’s still working on the formula for making money.

Early on the company charged couples $99 for a WedPics photo album, figuring that was a nominal price in the world of weddings. But it quickly discovered that was a losing strategy.

“It didn’t matter whether it was $99 or 99 cents,” Miller said. “The fact that you have to pay for it creates a barrier to adoption.”

Now WedPics is looking to cultivate multiple revenue streams without “jeopardizing” the consumer experience.

It already is charging for “app cards” – that is, cards that wedding couples can give out at the ceremony or include with invitations to let guests know how they can participate in creating a WedPics photo album.

Prices start at $29.99 for 100 cards and $34.99 for 200 cards. Since the company started promoting the cards in January, it has been receiving close to 500 orders a month. Couples can still choose, however, to notify guests on their own without paying the price.

WedPics also recently began selling a $19.99 package of “photo props” – think silly moustaches, hats, etc.

It’s also teaming up with corporate partners, including one it plans to unveil soon, as well as expanding a partnership with Kodak and Target that enables it to share revenue generated from printing wedding photos for WedPics couples. And it’s starting to “dabble” in ways it can generate revenue by driving couples to wedding registries.

“It’s about looking at and exploring all of these different offerings and seeing what works and what doesn’t,” Miller said.

Profiting from apps

Some Triangle companies have jumped on the apps bandwagon even though they don’t produce an app they can call their own.

One of them is Two Toasters, a Durham business that develops apps for other companies. Its app for e-commerce company Birchbox recently won a Webby Award. It also has produced apps for the likes of Dick’s Sporting Goods, Lexus and Airbnb.

Today Two Toasters has about 28 employees, nearly double what it had two years ago. Revenue has grown 60 percent or more each year since the company was founded in 2008, said Kayla Bourgeois, director of strategic development.

Another Triangle company profiting from the explosion in apps is Appia.

Appia uses advertising to help businesses get their apps discovered by consumers. Companies pay Appia $1 or more each time a consumer installs their app.

Last week, Appia, which is based in Durham, surpassed 76 million installs. That makes it No. 2 behind Facebook.

“It’s kind of surreal to look back at how many (installs) we’ve driven,” CEO Jud Bowman said.

Currently, Appia is conducting more than 800 advertising campaigns for more than 100 companies. It has more than 70 employees.

Ranii: 91 9-829-4877

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