XSF iPhone App Feasibility Study 3.10.2010

Richard Smith Edwin Aiken Zack Gregory

XSF iPhone App Feasibility Study

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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.

XSF iPhone App Feasibility Study

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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.

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II. App Functions and Features

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

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. 1 – The Home Screen

Fig. 2 – Schedule Page

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4 any possible confusion from duplicate team names. All

schedule modes will also allow for parents to make notes

(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

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

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.

Fig. 3 – Games Page

Fig. 4 – Photos Page

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5 D) Marketplace – Many of the key revenue streams

involved in the XSF app will be accessed through this button,

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

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

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-

Fig. 5 – Marketplace Page

Fig. 6 – Reservation Screen

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6 golf centers, tourist destinations, etc.) near XSF. The

merchants displayed through this function will only be

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

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.

Fig. 7 – Maps Screen

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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.

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8 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,

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

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9 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

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 dollarsxiii

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

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10 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.

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.xvi

We 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

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11 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.

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

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12 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.

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

XSF iPhone App Feasibility Study

13

13 forth here will be possible or practical to include, primarily because of memory or

computing power restrictions.

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.

XSF iPhone App Feasibility Study

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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

XSF iPhone App Feasibility Study

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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

XSF iPhone App Feasibility Study

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16 xii

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

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