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Appster collapse shows ‘fixed-price dangers’

Adam Zuchetti
Adam Zuchetti
11 December 2018 2 minute readShare
Warning siren

The tech industry is mulling the impact of the collapse of Appster last week, with one insider suggesting that it serves as a warning to businesses of the “dangers of fixed-price services”.

On 6 December, the Melbourne-headquartered company with four offices around the world went into liquidation.

In an interesting twist, the collapse came just days after it was revealed that a number of Australian technology companies, including AirTasker, had been issued with demands to repay millions of dollars’ worth of R&D incentives to the ATO.

At this stage, it is not clear if Appster had also been a target of the R&D repayment demands. The ATO has previously said that it does not disclose information about individual taxpayers, while liquidators for the company have not responded to requests for comment.

But industry chatter has emerged as other businesses weigh in on the potential issues that led to Appster’s demise, with several business leaders suggesting that it is serves as a warning against fixed-price digital services.

“Appster disrupted the app development market by claiming that fixed-priced development was the only way to go, implying anyone not working this way was in some way ripping off their clients,” said Mikel Lindsaar, the CEO and founder of reinteractive.

“Co-CEO Mark McDonald wrote on the Appster website: ‘First, I advise you to NEVER agree to pay an app developer or an app development company by the hour. This is a great way to end up throwing your money away… Professional, responsible app development companies know how long it takes to develop an app and will have no problem quoting you a fixed cost.’”

Mr Lindsaar, who previously appeared on the My Business podcast with a detailed breakdown of his approach to driving profitability and sustainable cash flows within his business, suggested that this was inaccurate, and may have ultimately contributed to Appster’s failure.

“While I feel for the founders, I know that the fixed price quote business model they chose to work with is simply unsustainable for any software business and leads to bad outcomes for the company and their clients. They chose a deeply flawed position,” the CEO said.

“I believe Appster ultimately failed because they were a fixed-price development shop and they got caught in what I like to call the ‘fixed price quote development death spiral’.”

According to Mr Lindsaar, the variability in the level of detail, features and demands on any particular app vary greatly, and the final cost should reflect this. A fixed cost, he argued, means that “either the development shop or the client are going to lose out”.

Similarly, Anushka Bandara, co-founder of app developer Elegant Media, suggested that for business clients of app developers, monthly subscription services may be a better alternative, particularly for businesses working on a restricted budget.

The comments mirror those of website developer Tim Barnett, who previously told My Business about the huge range of factors that go into determining how much a new website will cost.

Appster collapse shows ‘fixed-price dangers’
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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