It isn’t often that you hear of Lithuanian start-ups making it big in the US. Yet this sums up GetJar‘s story perfectly.
GetJar’s mission is to make the mobile applications space “as open, neutral and free” as the internet, explains founder Ilja Laurs. He says that with websites, no one has to approve what you do, you don’t have to pay any fees on what you earn from them, and you can choose whichever billing provider you want. Why should apps be any different?
Unlike standalone content, such as music or films, apps are an extension of the web. Laurs compares current app stores to the early internet: “When the internet started, there were just vertical services provided by internet service providers: the AOL portal, the Prodigy portal, etc. A major ISP would essentially create a range of services within their portal. When Netscape levelled the field, it enabled services to become equal across all ISPs. Then Yahoo! and Google came and worked across all them all; the individual ISPs had no chance. It took five to seven years for them to all disappear as service providers. That is what will happen with mobile platforms. The space will be fragmented and services running across all platforms will be more powerful.”
To achieve its “open, neutral and free” mission, GetJar is investing in building what Laurs calls the “distributive platform”. He says that mobile apps are complicated; you need the sophistication of identifying every single device out of tens of thousands of devices. “Which apps are compatible with each specific device? What operating platform does each app support? You need thousands of builds.”
Nearly the entirety of the $42 million the company has raised in investment is going on building this technical infrastructure. “It has to be our own proprietary infrastructure, as the the players that could potentially be of help – Google, Apple, Amazon – are the ones that are building closed environments.”
Laurs has an interesting background. He funded his university studies through freelance development projects, which eventually grew into his first development business, which eventually led to GetJar.
GetJar was the product of a bottleneck between developers and customers. “When we started, there were quality apps available and massive demand on the consumer side, but the apps weren’t available from the phone carriers.”
The company was started as a beta testing platform to test beta versions of games with consumers. “The fragmentation was terrible at the time,” explains Laurs. “Unless you physically tested each build on each device, you could never guarantee that it would work. You had to test the games on the Siemens C35, then the Siemens C45, etc.
“Our solution was to crowdsource this; put the game online and just let anyone download it and tell us what the problem is on their specific device. We could then build a compatibility matrix based on what is reported by the consumer. The consumer would get the game for free, so they wouldn’t mind if it didn’t work immediately. Our beta testing community eventually became so big that we then converted the service to full-scale distribution.”
GetJar is now the world’s largest free app store, with more than two billion downloads to date. Laurs will not disclose GetJar’s revenues, but says the company has been “flirting” with profitability. “It’s a ‘controlled burn’. For a start-up, you never want to be profitable. Profitability means not getting the fastest speed of development that you could have had. Of course, you don’t want to be too far from profitability and run out of cash; so you want to stay slightly negative, just beneath profitability.”
Developers make money through downloads on GetJar. There is no revenue split on downloads; apps are free. Developers make their money inside the apps themselves, for example through advertising or in-app purchases. “Developers just need distribution, so that is what we decided to focus on completely. We’ve deliberately stayed away from payments; developer will get the best deal if they deal with the revenue issue themselves. We want to make the app space as open, neutral and tax free as the internet itself.”
GetJar’s revenues come from selling featured spaces on the website. “Developers need our help. What all of them want, with no exception, is massive downloads; the more the better. It’s simple: as long as the developer has some kind of business model, they make revenue from each incremental user. They’re willing to allocate a portion of that revenue to get as many users as they can. So instead of depending on the free listings, developers pay to have their apps discovered.”
The featured spaces, or slots, were popular from the beginning, he adds: “We charged the first ones for $1,000 per slot per month. Then we realised there was much more demand so we charged $2,000 a slot, and then $4,000…etc. The demand for these slots far outstripped the supply.”
And as the VC industry started investing in app developers, demand for GetJar’s slots increased. “The companies realised early on that spending money on GetJar for app marketing was by far the best way to acquire users and report hockey-stick growth. The joke at the time was that we could predict when each start-ups next board meeting would be. The start-up would call us up and say, ‘I don’t care how much it costs, but by Thursday I need an additional 50,000 users.’”
A byproduct of this was that GetJar’s profile in the VC world increased significantly, as the company started to appear on start-ups’ marketing budgets. “At the time when Accel got in touch with us, at least five of their portfolio companies were spending massive marketing budgets with us. Now if you’re a VC, and at each board meeting, you know that X-thousand dollars goes into marketing through Getjar, GetJar, GetJar, you follow the money and find out where the hell all of your money is ending up.”
The company eventually picked Accel for its network. “For a small Lithuanian company, most of the doors in the West are closed. I can’t go to Nokia, Microsoft or Google, or hire anyone very good. I realised that we really needed the support of someone strong in the space.
“Secondly, in 2007, there was no mobile business in the US and American VCs had no clue, except for Accel’s Rich Wong. It was a perfect combination: here was someone who really understood mobile and who came from a tier one VC.”
After raising the money, Laurs didn’t touch it for nearly two years. “A bootstrapping start-up knows the value of each dollar, so we were naturally extremely careful with every dollar spent. Going global from Lithuania was something I couldn’t do quickly. I wasn’t well known in the industry, we needed an executive team and I had no clue how to build a team in the US.
“It took me a couple years to become comfortable with what we were doing, our strategy, out product and so on. The first two years were a time of careful growth, even to the extent that Accel suggested we take a more aggressive route. They would rather see the money working than sitting in an account.
“But I wasn’t comfortable taking a faster route. We only launched the US office in 2009, at which point I was much more sure of our ability to execute. In 2009, app stores became ‘hot’ – the stakes started to increase. We had to maintain the pace once app stores started popping up. But luckily, we were really ahead. At the time that Nokia launched OVI and Google launched the Android Market, we were six years into the app store business and already had hundreds of millions of downloads. So we then decided to take a more aggressive approach.”
Last year, the company closed another round of investment worth $25 million, bringing GetJar’s total investment to more than $45 million. The round was led by Tiger Global Management, and included Accel Partners, which had funded GetJar’s two previous rounds. The company had previously raised an $11 million Series B round in June 2010 and a $6 million Series A round in 2007.
“The value added by venture capitalists, such as Accel, is that they know everybody. The value that adds along with the money they put in the company is enormous,” says Laurs. “When we closed our first round, the company was already profitable, so we really decided to go with Accel for the added value, not so much for the money. In fact, in the first two years since closing the round, we haven’t paid much attention to the money.
“As you grow and mature, you have to build a professional executive team and establish your image. At that stage, you need more of a late-stage investor who can write large checks, who is less involved in the daily management and with more ‘affordable’ money. If an investor realises they need to spend a lot of time participating in a company, they factor it into the valuation; the money is more expensive.”
Since taking investment from Accel, GetJar has significantly invested in its US operations. The company now employs nearly 60 developers in the US, only six people work in Lithuania.
“We’re probably the only example of an Eastern European company outsourcing the development to the US,” says Laurs. “It’s a common mistake to think that for a tech company the cost of development is the highest. Many people assume that we would build a team in Lithuania because the East European costs are still half of the US costs. But the reality is that the development cost for a start-up isn’t even the tenth priority.
“The reason is simple: if you win, you win so big and create so much value that the cost of development becomes irrelevant. If you lose, then so what if you’ve saved a few thousand bucks of your VC money? You lost anyway.
“There are two very critical things that are important for a start-up. One is the environment, and the other is the ability to scale quickly. Suppose you’re building up a company and things are going great; you need to hire a hundred people in one year. That speed, while still preserving the quality of the hire, is simply not available anywhere outside of Silicon Valley. You need an environment in which you can scale quickly if necessary, otherwise you’ll lose opportunities.”
He says that for start-ups that need to compete against giants such as Google, having quality staff is key. “Quality means having access to very specialised professionals in a specific domain. If you’re building a website, you must hire the best UI builders; someone who can build not just a good UI, but an awesome UI that can compete against Apple and Google. Because the markets in Europe are so small, you don’t find specialists – they’re all generalists. Specialist professionals don’t exist outside of Silicon Valley because the market is too small for them to survive.
What’s next for GetJar? Laurs says that the company is still too small to go up against the Apple App Store as the platform is too closed.
“All of our investment will be spent on the platform, on technical investment. It would be naïve to believe that a start-up could beat the big boys in their fields, such as UI. But what we’ve built is pretty significant and different. We totally believe in cross platform vs single platform.
“Our app store doesn’t distinguish between Android and iPhone or Blackberry and Windows. We simply build a destination where the consumer can just see which apps are compatible with their phone. It’s a dramatically different approach from the other players, who focus on verticals. Google Marketplace only does Android. Apple only does the iPhone. Nokia is just Symbian… you get the picture.”
“If we win, it won’t be because we have the better UI. We don’t have the same level of resources for it to be as polished. We will win because of our strategic approach, which enables an ecosystem to evolve. This is much stronger than any ecosystem in a closed environment.”