1Mby1M Deal Radar 2010: Avatron Software

Avatron Software develops productivity apps for Apple’s iOS platform, three of which have topped the list of top grossing third-party apps. Avatron has produced dozens of apps in partnership with media content owners in order to bootstrap its financing, but the company’s primary focus is on developing and marketing its own apps. Avatron has built its reputation around apps that help people get work done more productively, with a focus on wireless connectivity.

CEO Dave Howell has been leading and managing software development projects since 1988. One of his first jobs was at New Video, the first venture funded by both Apple and Intel. In 1994, Howell founded Pablo Media, a software consultancy firm. Over eight years, Pablo Media completed dozens of software development contracts. Apple acquired Pablo Media’s intellectual property in 2002. At that time Howell joined Apple as a senior engineering manager in the applications division, where he managed an app development team and an SDK for third-party software developers. In April 2008, after Apple launched the iPhone SDK, Howell left Apple to found Avatron Software.

Howell says that from the iPhone’s launch, it was evident that Apple has its own ideas about how most people will want to work with its new family of mobile devices. Avatron aims to capitalize on the difference between Apple’s vision and the needs of its users. For example, while Apple dictates that each app’s documents be isolated in a “sandbox,” Avatron’s Air Sharing app provides a familiar desktop interface metaphor to iOS users. Air Sharing allows people to organize their documents in folders, view documents, print, and move files and folders around among devices.

Avatron’s first app, Air Sharing, is a document viewer that was downloaded by over a million users in the first two weeks. Air Sharing lets people use an iPhone, iPod touch, or iPad as a wireless hard disk so that they can copy documents from their computer onto the iOS device. Once documents are in the app, Air Sharing acts as a document viewer, allowing users to take their documents with them to view when needed. Air Sharing HD and Air Sharing Pro also allow users to print documents over a local network, zip and unzip archives, connect back to their computer, and transfer files to remote file servers, including Apple’s MobileMe iDisk, Dropbox, and FTP servers.

Avatron’s latest app is Air Display, which lets users extend their computer desktop by using an iPad, iPhone, or iPod touch as a wireless display. The proprietary streaming protocol is designed to provide high performance, image quality, and responsiveness. In addition to acting as a wireless display, Air Display also lets people use iOS’s well-known touch screen to use a finger as a mouse on the device.

The company competes on selling apps that add great value to an iPad, iPhone, or iPod touch at a low cost – Air Sharing is $2.99, Air Sharing Pro is $6.99, Air Display is $9.99, and Whiteboarder, which organizes whiteboard images, is $1.99. All apps except Whiteboarder come in multiple languages.

Air Display’s market has been limited to iPad and to Mac OS X users, although a new “universal” Air Display now supports iPhone and iPod touch as well, and Windows drivers should be ready for release within a month. As roughly half of iPad users use Windows, that should afford a quick doubling of revenue from Air Display sales.

One of Avatron’s chief competitors is DisplayLink, a privately held company that has raised a total of $51 million in venture capital. DisplayLink produces a family of USB-to-VGA products that serve the same purpose as Air Display – adding an extra video display to a laptop – but can cost over $200 for a product that can be used only as a monitor, projector, or whatever it was designed to be. There are numerous other document viewers, file transfer apps and apps to find services on a local area network, such as GoodReader, Readdle Docs, and Bonjour. MobileRead has several forums where customers have discussed the advantages and disadvantages of the competing products.

Avatron’s market is the mobile app market. At the moment, Avatron’s focus is on iOS, which represented 99.4% of global app sales in 2009, but the company is watching Android and other contenders.

In the iOS App Store, Apple handles all of the payment processing, and direct-deposits 70% of gross proceeds into developer accounts. In the two years since the App Store launch, users have downloaded over five billion apps. Developers have received over $1 billion in royalties. The app marketplace is still growing rapidly: Apple has now sold over 100 million iPhone and iPod touches, and over 3 million iPads. A recent study by Chetan Sharma Consulting projects mobile applications revenue of $17.5 billion by 2012. Gartner estimates that revenue from mobile phone applications will reach $29.5 billion by 2013.

Avatron Software is profitable, with 2009 revenue of about $1 million. For 2010, the company is on track to reach $1.5 million to $2 million in sales. The goal is to hold onto the current app wallet share through the growth in the market, which would yield $20 million–$30 million in revenue by 2013. The company has been financed entirely by Howell. He started at Apple in 2002 when the stock was at $7.45, split adjusted. When he left Apple in April 2008, he cashed in enough stock options to fund Avatron, hired a couple of top-notch Cocoa engineers and a tester, and built Air Sharing by September 2008. Within a week they had sold enough copies of Air Sharing to recoup Howell’s investment.

While Avatron is growing organically now, the company will likely be looking for a round of funding in order to support more rapid growth. The staff are still doing their financial homework to study growth scenarios, but they expect to raise $1 million to $2 million within a year or two. Their preference would be to look for revenue-based rather than equity-based funds. They would likely use some of the funds to hire, including rounding out the management team, and some to acquire IP from app developers who have promising technology but have not had App Store success.

The company is not focused on exit but rather on building a company with great products, delighted users, and a valuable IP foundation of reusable software frameworks. That being said, it would certainly entertain prospects of acquisition. Avatron would be an attractive acquisition to Apple, which could integrate Avatron technology into its Mac OS X and iOS stack, or to a funded startup such as QuickOffice, DataViz, or DisplayLink.

Recommended Reading
Secret Recipe for an iPhone App
Review: Air Display turns iPad into pricy secondary display (from Ars Technica)

This segment is a part in the series : 1Mby1M Deal Radar 2010