Why Do App Developers Still Live with Their Moms?
With the virtual disappearance of major white-collar employers like Eastman Kodak and Westinghouse ā once fairly reliable career on-ramps ā young talent is focusing on entrepreneurship as a path forward. Some kids are skipping college entirely and heading straight into business, pointing to the success of dropouts like Bill Gates, Steve Jobs, and Mark Zuckerberg. But unschooled entrepreneurship is unlikely to end happily for most.
A recent story in the New York Times highlighted a pair of high school students who had experienced considerable success as app developers. Their product, a program designed to combat procrastination, quickly became the best-selling productivity app on iTunes. They received acclaim and took meetings with heavyweights at industry conferences. The money was not exactly life-changing, though: after Appleās cut, they split $30,000, some of which went to business expenses. Not bad, but hardly Zuckerbergian.
Unfortunately, app development came at the expense of schoolwork, resulting in a sharp decline in one developerās grades as the pair headed into the college application season. As a fallback, heās applying for a Thiel Fellowship, which pays 20 lucky winners $100,000 to skip college and start a business instead.
There are certainly some high-profile entrepreneurial success stories out there. Facebookās recent purchase of WhatsApp for $19 billion instantly created fantastic wealth for many of its 55 employees. Kids might understandably dream of retiring rich before they reach drinking age. Yet like most apps, WhatsApp is hardly unique as a product: Line, Kik Messenger, Viber, WeChat, and others do much the same thing.
This is not uncommon. The Apple Store lists more than one million apps and claims that there are 275,000 registered app developers in the U.S. A fair number of apps are indistinguishable from one another, and the vast majority will not yield riches, or even a reasonable income. It is hard to dominate a product category where a pair of self-taught high school kids can create a bestseller; success in this situation is more a matter of luck than of merit.
The reward system for app developers follows a familiar āwinner take allā pattern described by Cornell economist Robert Frank, where a few outstanding successes capture huge returns while those not lucky enough to reach the top see very little. In this way, the industry parallels drug dealing. Hear me out.
In a chapter of their best-selling book Freakonomics, āWhy Do Drug Dealers Still Live with Their Moms?,ā Steven Levitt and Stephen Dubner note that most street-level drug dealers earn modest wages at best ā they may neglect their schoolwork, and some take straight jobs in addition to make ends meet. But a few drug dealers become fantastically wealthy, and the chance to play this lottery keeps many lower-level dealers in the game.
The Thiel Foundation president points out that āthe safe career track is totally broken.ā Lawyers can be laid off; janitors have PhDs. This is true. But encouraging kids to blow off schoolwork to write apps, or skip college to become entrepreneurs, is like advising them to take their college money and invest it in PowerBall. A few may win big; many or most will end up living with their moms.
There is a possible consolation prize: perhaps these kids can parlay their programming skill into jobs at Facebook or Google. Unfortunately, the odds there are only slightly better. Facebook had 2,400 employees in 2011; 3,500 in 2012; 4,900 in 2013; and 6,300 today. With about 1,400 net hires per year, getting a job at Facebook is only slightly more likely than getting drafted into the NFL. Twitter has 2,700 employees; Dropbox has 550; Snapchat has 21. The combined global workforces of Groupon, Facebook, LinkedIn, Zynga, Yelp, Pandora, and Zillow is smaller than the number that Circuit City fired in January 2009 when it was liquidated. (Hey, it could be worse: the computer and electronics hardware industry has shed 750,000 jobs since the turn of the 21st century.)
Iāve looked up every company that did an IPO in the U.S. since 2000. Even the best-known employers of knowledge workers often have fewer people than a local car dealer or Walmart store. For instance, real estate site Zillow has 812 employees, and travel site Kayak has only 205.
The message for aspiring entrepreneurs? Stay in school, and resist the lure of quick success. In introductory economics courses in college, kids learn about āopportunity costsā and the ātime value of money.ā Though $15,000 seems like a lot to a high school senior, itās hardly a great choice for entrepreneurs or anyone else if it comes at the expense of an education that yields a far higher lifetime income, a more agile mind, and a more rewarding life.
Credits:Why Do App Developers Still Live with Their Moms? was originally published in HarvardBusiness.org on March 26, 2014 at 07:30PM. This was shared via Feedly
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