Parse and what it means for mobile app economics

Parse, the mobile backend as a service provider bought by Facebook, is shutting down, and there’s a lot of speculation around why it’s being shut down and what it means for the business of mobile apps. Allen Pike wrote an excellent article where he explains:

As much as Parse will try to get the word out that they’re shutting down, many apps’ owners don’t even know that they’re reliant on Parse. Parse’s overly generous free plan made them popular with freelancers and consultants building quick app backends for their clients. Many of those clients don’t know what Parse is, let alone that the little app they commissioned a couple years ago is a ticking time bomb.

There is an obvious danger in running a business in something you do not understand or can not control. This is hardly the first time that a platform has fallen out from underneath of honest business people at inopportune times. It’s happened time and time again, where a startup has shipped a product which relies on a titan’s API, only to have it pulled out from under them when the provider realizes the startup has worked out how to monetize their service or that it’s no longer strategically valuable for them to continue.

Nicholas Carr has a classic article where he outlines that the relation that Web 2.0 developers stand in with the titans is the same as the relationship that farmers stand in with the massive agribusiness corporations:

One of the fundamental economic characteristics of Web 2.0 is the distribution of production into the hands of the many and the concentration of the economic rewards into the hands of the few. It’s a sharecropping system, but the sharecroppers are generally happy because their interest lies in self-expression or socializing, not in making money, and, besides, the economic value of each of their individual contributions is trivial.

This relationship works tremendously well when everyone’s interests are aligned: when developers are making things that are interesting, when users are paying for a quality product, and when the titans get their cut for hosting, everyone wins. In fact, there’s something very optimistic about it: indie developers are expressing themselves, earning enough to keep their hobby business in the positive, and letting the titans worry about the accounting.

But the App Store economics are changing. In the past, you could develop an iOS app, perhaps a Twitter client, that was genuinely good with unique features that differentiated it from the competition. Users expected to pay and were looking for quality software, and there weren’t many apps so a query for “Twitter” would probably reveal your app, and everyone would get paid: the user would get a quality app for the cost of a latte, and the developer and the host would get their cut. You could have a hobby with a decent return.

But today things are quite different. As Marco Arment, in response to Allen Pike, puts it:

One of the most damaging side effects of unhealthy App Store economics is that developers have little motivation or resources to keep apps updated.

In the flush early days, Apple could release a new screen size or entire platform (like the original iPad), and developers rushed to support it as quickly as possible because we knew we’d probably see a return.

Today, Apple’s shipping new platforms and screen sizes like they’re going out of style, but so many apps are rotting in disrepair that very few developers are adopting them.

This is where the problem with the Apple App Stores really lies: it’s not that Mac App Store is an unreliable web hybrid app or that the iOS App Store needs better discovery tools or that the tvOS App Store needs more apps or that the watchOS App Store needs a better SDK or that Apple need a framework like Parse – it’s that developers need a better business model. Indie developers no longer figure that they’re going to see a return on hobby project on iOS, and so they don’t start. On OS X, we’ve already the exodus from the up-front model happen, where high-profile apps are leaving to distribute their app themselves, with the intention of building their own upgrade or subscription model pricing. There, you can distribute your own apps, given that users need to jump through a few hoops to give your application permission to run. But on iOS and watchOS and tvOS, it’s not possible to distribute without conforming to the App Store’s economics, which are:

  1. Make your app free and get paid by advertising (Facebook, Twitter, iAd apps);
  2. Make your app free and get paid by in-app purchases (Candy Crush, Clash of Clans);
  3. Make your app free and get paid by outside subscriptions (Adobe, New York Times);
  4. Make your app free and sell physical things (Amazon, Ebay);
  5. Charge for your app and wallow in obscurity.

These economics, along with the fact that many large companies do not have the internal resources or knowledge to ship and app, is why Parse was so popular: contracted developers used Parse to ship faster and to make more money. Because the App Store’s economics have become a race to the bottom, developers have cut corners when developing the backend out of necessity. And just like when Twitter shut loyal developers out of their platform and Apple are complacent in the App Store’s race to the bottom and Google and Microsoft have taken land from sharecroppers in the past, Facebook taketh Parse now. As Sascha Konietzke, founder of Parse competitor Contentless, explains,

When Facebook acquired Parse back in April 2013, many people thought this meant Facebook goes all in on becoming a developer platform. If you recall, Facebook was at a crossroads back then, with a share price below IPO level, desktop traffic plateauing, and mobile revenues a big question mark. Enter Parse, which brought immediate mobile app developer reach, helping Facebook to distribute its SDKs and ensure developers are using Facebook’s login system. That in turn helped secure mobile adoption and a foothold in user profiles and mobile advertising. Fast forward to 2016, and Facebook essentially owns the mobile ads space, and its SDK is #1 in terms of mobile reach. Meaning Parse has run its cause as an SDK distribution vehicle. In other words, they never wanted to host your app, they just wanted you to use Facebook login.

It would be easy to read this post and think I’m endorsing never using a vendor to ship anything because you never can trust them. But of course that would be wrong, because many fruitful businesses rely and one another every day to create value. Instead what I’m endorsing is an awareness that developers are sharecroppers, and to have contingency and growth plans for your business ideas. Insofar as you can use social media or mobile platforms or advertisements or frameworks to grow your business, you absolutely should: but be ready for the day when you’re shut down, sherlocked, or acquikilled.

Parse shutting down

Parse, the backend-as-a-service for mobile and web apps, is shutting down, and Marco Arment explains one of the reasons he doesn’t use those sorts of things:

The short answer is that I can’t afford to — for my business models to work, I need to keep costs very low, a discipline I’ve built over time as one of my most important professional skills. […]

For whatever it’s worth, running your own Linux servers today with boring old databases and stable languages is neither difficult nor expensive. This isn’t to say “I told you so” — rather, if you haven’t tried before, “You can do this.”

I agree that getting a Linux box with one of the cloud-hosting providers is very easy, with numerous vendors and 3rd party tutorials provided to get you up and running. However services like Parse can offer peace of mind if you suddenly get 1,000,000,000 users and need to scale. Instead of having to learn how to deploy very complicated load balancers and shards, you can pay Parse to work it out and keep the lights on. Of course, that peace of mind can evaporate suddenly, as it did here, if they cannot keep the lights on with what you pay.

I predict the problem with Parse was also the reason it was so successful: the barrier to entry was so low, and the ratio of paying customers to free-tier customers was probably too low. What I don’t understand is that Facebook could probably afford to run Parse at a loss forever, and just keep tabs on up-and-coming apps.