Touch And Go Pricing
December 27th, 2008There has been much debate in the iPhone developer community about the price of applications for sale in Apple’s App Store. These prices are trending cheaper and cheaper, such that even products of considerable complexity are often available for just $1 or $2. I have myself experimented with selling a dirt-cheap and dead-simple application, Shush, in the App Store.
I have opinions about product pricing, and have not hesitated to share them in the past. I have mostly stayed quiet about iPhone application pricing, but for some reason I now feel compelled to add my voice to the choir:
iPhone applications are too cheap, and changes are needed to encourage the development of premium applications that sell for a fair price.
In particular, I agree with Craig Hockenberry, who suggests that the complexity and ultimately the greatness of applications is limited if Apple encourages bargain-basement prices across the board.
But what happens when we start talking about bigger projects: something that takes 6 or even 9 man months? That’s either $150K or $225K in development costs with a break even at 215K or 322K units. Unless you have a white hot title, selling 10-15K units a day for a few weeks isn’t going to happen. There’s too much risk.
I also agree with much of what Paul Kafasis, who has been writing regularly for the O’Reilly Inside iPhone blog, has to say on the subject. In today’s article, The App Store Effect, he compares the pricing environment of the App Store to Wal-Mart, where premium products are difficult to sell because low price is overwhelmingly the most important feature of any product.
Walmart sells customers disposable goods at the cheapest possible price. At the time, Wal-Mart had six different push mowers for less than $200, while the cheapest Snapper listed for $350. These low prices change expectations across the board, and leave customers wondering what they could possibly be getting with a Snapper to justify the much higher price.
The problem in a nutshell is that it’s difficult to develop a complex, premium application that earns enough to pay back its development costs and provide developers a decent living. The more 99-cent applications there are in the App Store, and the more Apple promotes and rewards 99-cent pricing, the harder it becomes to develop a product that will stand out and can be marketed at a sustainable price.
I’m Not Whining
I have watched as colleagues who scrutinize the situation have been dismissed by some commenters as “whiners.” So let me head that off right now: I’m not whining. I recognize the incredible opportunities the iPhone brings both to developers and to customers. The iPhone is great. Apple is great. Customers are great. Developers are great. We’re all great. Let’s make some great products, and let’s make some money.
I’m not looking for pity or for artificially inflated prices, and I don’t believe Paul Kafasis or Craig Hockenberry is, either. I’m just trying to call things as they are. Attempting to understand the App Store, and how customers relate to it, is the first step in speculating about what tweaks might be made to improve the situation for everybody.
Many Ideal Solutions
There is no simple solution to these pricing problems, but I think this is a good thing. Instead of focusing on a single solution, it’s both more practical and less daunting to focus on an ideal outcome. To me, that would be an economy where iPhone applications of all price levels can be freely and fairly evaluated by customers, ranked and reviewed for the benefit of others, and marketed collaboratively by Apple and developers so that the maximum number of interested customers is exposed to any particular app.
Any single solution that makes progress towards this is one of the ideal solutions. So this should be a piece of cake, right?
To Apple’s credit, some of the worst shortcomings of the App Store have been eliminated over the past several months. They have improved the reviews and ranking systems, making it harder for shoddy products to rise to the top, or for excellent ones to be pushed to the bottom. But many shortcomings still exist which are an unfair burden on premium applications.
There are steps that any of us can take to help to bring about the ideal outcome. I’m going to list some specific changes that I think Apple, developers, and customers should make in order to improve the health of the iPhone economy. These ideas are unoriginal, and you’ve probably heard them elsewhere, but I think they are important, and I agree with them.
Apple Should: Level the App Store playing field.
Three major changes would help a great deal:
- Facilitate trial versions of all paid applications in the App Store. The higher the price of an application, the harder it becomes for customers to have faith that the purchase will truly be of value to them. Trial installations would give customers the opportunity to verify that a premium application is well worth its price.
- Guarantee and promote a full refund policy. A reputable business of any size operates on the premise that customers will be satisfied with what they have paid for. It’s unseemly for Apple to operate the App Store division of their business as one in which customers have no recourse for having been sold a product that does not meet their expectations.
- Establish a rating system that rewards premium applications. With the proliferation of 99-cent “ringtone apps” as Craig Hockenberry calls them, it’s becoming increasingly difficult for customers to learn about premium applications. Helping to connect customers with developers who have solved complex problems would benefit all parties.
Developers Should: Resist the temptation to price products dishonestly.
Artificially low prices are often a form of bait and switch, luring customers in who you will not be able to support for the long term. On the other hand, some developers might react to the uneven exposure that premium applications receive by charging a higher price to those customers who need and seek out their product. This alienates customers and leads to an overall perception that software is too expensive.
The best thing you can do for customers is to charge a fair price that sustains your business, and pays for the cost of ongoing development.
Customers Should: Make an effort to take a balanced view of the price to reward ratio for applications you discover in the App Store.
In the “Wal-Mart” environment, among the 99-cent masses, it can be tempting to jump to the popular conclusion that an application is “too expensive.” But you know darned well that $10, $20, or even $50 is a fair price for any product that dramatically improves your life.
When you discover amazing premium applications, don’t be afraid to spread the word. Shout it from the rooftops that you paid $10 and that it was worth every penny. Your activism in helping to promote one premium app is what will make the next premium app possible.
I Should: Put a lid on this blog entry and get back to writing software. Thanks for reading. Here’s to a thriving iPhone software economy in 2009!
Update 12/27/2008: Brent Simmons keyed into the “free market” arguments that are coming up in comments both here and in other venues. I think he sums up the counter-argument well:
It’s still not a free market. It’s a market that has a certain shape (with hot-lists but no demo versions), and that shape rewards very cheap apps over higher-quality, more expensive apps. It’s a guided market.
Exactly.
December 27th, 2008 at 7:26 pm
And what about marketing outside the App Store? You didn’t mention anything about that, and marketing and buzz-making should be part of your “Developers Should” recommendations. Don’t wait for your market to stumble onto your app at WalMart–tell them why they need it and then point them to shelf and aisle where they can find it.
December 27th, 2008 at 7:28 pm
Doug: Definitely a good point. I was on the verge of including that but it felt heavy enough as it was. I agree that developers need to take more responsibility for marketing their own apps. But the extent to which Apple markets apps on behalf of developers should be more evenly spread.
December 27th, 2008 at 7:36 pm
I would say that your change n.1 is a must. Mac users rely on shareware a lot… install > test > buy or trash. As a iPod Touch user, I totally relate with that one.
The second one will be tough to implement, but I would love to see it too.
The third one would be easy. But Apple is damn stubborn sometimes. :P
Extra note: there will be a MarsEdit for iPhone, yes? :)
December 27th, 2008 at 9:20 pm
MJ – indeed, I am working on an iPhone MarsEdit … and no, it won’t be 99 cents ;)
December 27th, 2008 at 9:27 pm
OmniGroup just posted half a million in profits from OmniFocus, a $19.99 app.
Doesn’t seem like iFart is hurting them much.
December 27th, 2008 at 10:19 pm
I’ve paid $100 for an app that dropped support. I’d gladly pay $5 or $10 for an app and then pay again when nice features were added, vs $60 or $90 and hope for updates.
I think some companies have gotten too large, with too many resources on the payroll to compete effectively.
As a small developer, my main issue is artwork and design. Finding good, affordable artists has been a challenge.
I applaud $0.99 apps. It shows just how powerful cocoa is. I equated it to a candy bar to friends earlier today. People blow $1 (or $1.59 these days) on a new candy bar and if they don’t like it, they don’t buy another one.
That is the iFart model.
That model doesn’t work for more complex applications. So yes, we need demos. That would be fantastic, actually. Apple could manage the keys and expire them, etc. Maybe later we could have tiered applications (Lite, Pro) and sell people Lite, then one click on itunes and they upgrade to pro for the difference in price.
I find a lot of expensive Mac software that *just does too much* I found Application X because of Feature Y, but I don’t need Features B-H. Yet I am forced to pay for them to get X. And often the application’s UI suffers.
MarsEdit is great because it doesn’t do a whole lot; It just does what it does very well.
So why not re-think how we design applications? Maybe more, smaller applications that truly work together. These apps could be cheaper and if done well, *encourage* sales of the companion apps, or even the more expensive desktop versions.
Case in point: Using Mars Edit to post blog entries, but pressing command-J to edit with TextMate. I’ve used TextMate for blog posting and it is geeky and problematic. Mars Edit just *works* But the text editor is basic, and I really like some TextMate features.
So for a decent cost, I get Mars Edit, and then if I want even more powerful editing, I complement it with TextMate. Because you guys work together, my life is a lot better.
I guess I just don’t find the App Store pricing to be much an issue. Apple has given us a way to sell apps for much less than we could do otherwise, mainly due to the associated costs.
What Apple does need to do is find a way that more apps could be featured. Maybe randomly select 20 apps to show on the App Store front page on each reload of the page.
Remember, the “top 5” effect is not just related to Apps. Music benefits *greatly* from being on the top N list. Maybe we have a little insight as to what goes on behind the scenes with the music executives and Apple. I bet their conversations are not as civil as ours :)
December 27th, 2008 at 10:24 pm
It’s frustrating when people look at Hockenberry’s post, and wonder why it costs so much, and argue that any other language/environment would be cheaper. They don’t realize that most Cocoa devs are Americans/Europeans/etc., who need higher income for costs of living (but deliver better quality code) than the Indians/Chinese they usually outsource to. In the same way that consumers often find rat poison in the toothpaste they get from China, the code they get from third-world coders will be riddled with bugs and instability. You get what you pay for.
December 27th, 2008 at 10:38 pm
Let’s not forget it’s in Apple’s best interests to see more expensive apps thrive. In the short term, they make more cash. In the long run, successful $10+ apps will lead to more high-quality apps, which elevates the value of the iPhone platform.
I will disagree on trial versions of all paid software. I think it’s fair to say many 99-cent apps are worthwhile if they entertain for a few days. A trial period would kill their value (use up all the entertainment value within the trial period). Some developers have been very successful with 99-cent apps that are actually worth that price; they should be left unharmed. I have the same opinion about refunds for the same reason.
Another (albeit more complex) solution is to allow developers to (at their discretion) have a parallel trial version of all paid apps over a certain price threshold, perhaps $5 or $10. By parallel I mean an app that might have less functionality and/or a timeout that could be replaced by the full app without loss of data once the full version is downloaded. Right now every paid app developer could offer a free trial version with nearly any limitation they desire, but they’d need to implement some off-iPhone process to transfer data to the paid version. Apple would need to implement some secured means of data sharing (which they should do anyway). [Re-reading this I find myself debating my first point on trial versions of all software; even flatulence humor apps could have a limited function trial version, although time limitation wouldn’t be appropriate here. On the other hand, a price threshold would further increase the value of apps above that threshold. [I believe I’m now done commenting on my own comment.]]
I have somewhat the same opinion on mandatory refunds; cheap is cheap. If you’re going to have it across the board, relate the expiration date of the refund offer to the product price (99-cent apps can only be returned within three days, but $20 apps have 30 days).
Apple could also help this cause by promoting more higher-priced apps (those which deserve promotion), and displaying more than two (“free” and “paid”) categories. Most popular under $5, most popular under $10, productivity apps in the $5-$10 range, etc.
Right now the App Store isn’t Walmart. The App Store is the candy-bar and gossip magazine rack in the checkout lane. It’s all about quick-fix impulse items.
And one other interesting note – of the top ten paid apps on the store right now, only four are 99 centers. Range is 99-cents to $9.99, average is $3.49. But all ten fall into some entertainment category. Go into Utilities and nine of ten are 99-cents. As someone who doesn’t play games, that’s sad!
December 27th, 2008 at 10:46 pm
I’ve got to agree with Doug. A lot of people don’t bother to advertise/market their iPhone applications or do so very little. It’s the biggest change I’ve noticed since the introduction of the App Store.
Compare Iconfactory’s page on Twitterific for iPhone against Cultured Code’s page on Things for iPhone.
It’s a new market and it will be unstable for a bit as people test it out. They’ll ultimately find out that bargain basement pricing just won’t work in the long run.
December 27th, 2008 at 11:00 pm
Daniel, please see these two links for why none of this matters:
http://www.mobileorchard.com/99-cent-iphone-apps-not-significantly-more-popular/
http://www.mobileorchard.com/price-and-popularity-the-iphone-app-stores-data-shows-whos-making-the-big-money/
December 27th, 2008 at 11:23 pm
@Harvey:
The problem is, despite what they’re making, they cause two problems:
1. These “cheaper” apps give consumers an unrealistic expectation of lower prices
2. Consumers focus more on the free/cheap apps, and their attention is drawn away from quality product, and leads to the issue that Hockenberry points out – being unable to sell 100,000+ units to recoup costs for the more expensive projects. You can’t expect developers to cost less, and they need some kind of sustainable business model. If the App Store is filled with all of this 99 cent shovelware, then legit apps tend to drown, and not get the attention needed to pull in the necessary revenue and cover costs. Outside advertising is fine, but it doesn’t always get the attention of people who just browse the store from the iTunes home page. They need to get on the top 10 lists, but that has lately required some dirty tricks (or just being a hot seller, which is extremely rare). Being ethical and making a good profit on the App Store is tough.
December 28th, 2008 at 1:22 am
As a consumer, it’s annoying to spend money (and I’m not talking about $1 apps, but ones that are over $8 or more) to find that they aren’t worth it. I’ve spent a significant amount of money (in AppStore terms) on apps connecting my iPhone to 37signal products (unfortunately, not by 37s) and have been disappointed by most. Apple needs to implement each of your 3 points quickly, as well as give developers of premium applications the ability to market them through the AppStore directly to consumers. I also think that the Developers of supported and “trusted” apps themselves should be highlighted.
The freemium “economy” has set unrealistic and unfair expectations. I would have no issues, and expect that in the future, that you’ll have to pay for major iPhone app upgrades in the way you pay for software. That would guarantee support and further development. Especially as the firmware gets upgraded more frequently than an operating system.
I also think that these guidelines and infrastructure needs to be set up now, while the market is still fluid and new, before the the platform becomes even more mainstream.
December 28th, 2008 at 1:32 am
I think Apple will slowly evolve the App Store to reduce the proliferation of Ringtone App, because there are just too many crap apps prominently featured, and too many good ones buried behind suboptimal browsing and search. The App Store started with the iTunes Music Store model in mind, but a number of significant differences made that model less efficient.
In the meantime, developers ready to spend a few months under should think about delivering great apps, sell them at a fair price and ignore the App Store, following Omnifocus example. In 6 months or a year, these developers will be on top. Here is my prediction for 2009, to be added to the Claim Chowder!
Anyway, I now need to link to this piece on MacResearch: http://www.macresearch.org/business-models-iphone-applications
December 28th, 2008 at 1:45 am
I’ve got a pet theory that prospective buyers consider the software as add-ons to the hardware, and they consider app price as a function of the device cost. A $40 Mac app can be considered a good purchase if it makes the $1000 Mac 4% more useful. But it’d be a hard sell to convince someone that the same app, at the same price, makes the $200 iPhone 20% more useful.
Given that the iPhone has Safari, whatever web sites that can function on the iPhone serves as the baseline that the app has to improve upon. For a medical or other industry-specific program, where there’s few free online resources, or possibly even zero prior functionality, the prospective app makes the phone infinitely more useful. For games, where the lack of flash eliminates many online alternatives, prices can be more in line with a Gameboy. But with consumer-grade utility apps, where there’s built-in apps as well as the likes of Google docs online, the added 4% utility for an $8 app is a lot of work.
December 28th, 2008 at 2:02 am
@Jason:
Okay, I see your (and Daniel’s) points. The incentives are wrong. (Been hearing that a lot lately…)
@Daniel:
Looks like it’s time to file some bugs?
December 29th, 2008 at 4:55 am
sorry, i missed the explanation about
_why_ this isn’t another whining post.
-bowerbird
December 29th, 2008 at 12:51 pm
@bowerbird: Then reread it. The thing of note here is that the majority of the issue addressed by Daniel isn’t about simply making it easier for the high-end developer, but about making it better for the end user.
Refunds and proper trial versions would make the app store more of a free market than it is now, and benefit the developer only in that it makes purchases less risky for the end user.
December 29th, 2008 at 3:26 pm
It seems that the central issue is attention management, especially the attention of software consumers as influenced by the popularity ranking at the App Store. It occures to me that the interests of software consumers and producers might both be met if pupularity ranking were corrected by price. That is to say, rank by dollar volume sold, rather than just by the sheer number of apps. To the extent that this is a proxy for value, this would be far more useful to the consumer than the current system. And it’s value to the producer is that it further helps “level the playing field”. It may be a clean way to implement Daniel’s #3.
December 29th, 2008 at 4:45 pm
@Michael:
This could introduce a couple issues:
1. Apps could raise their price to the point where they could sell fewer items than those with lower prices, and still beat them in “sales”. A shovelware app author could artificially raise the prices on his apps, and this would give him incentive to do so. Without trial versions, users *still* wouldn’t know whether the app is truly worth it, or if the ranking is rigged.
2. The cheap 99-cent apps can continue to sell huge numbers (as an impulse buy), and could also easily push enough volume to outrank the more expensive ones. Without the ability for the consumer to easily refund their purchase, those look (incorrectly) like “satisfied customers”.
Someone above alluded to the idea that a customer could refund their purchase after they suck all of the fun out of whatever game it is – or play the trial until they’re bored of it. If this is a concern, then you need to rethink your model. Offer features in the “full” version that aren’t in the trial. Extra items, levels, etc. Or make the game addicting/fun enough that they won’t want to toss it aside before the 14 day refund limit is up. If your game/app can’t stick past two weeks or two levels, and push them to buy, then you need to rethink it.
December 29th, 2008 at 9:17 pm
Interesting comments about trial versions. Evidently, it should be optional for the developer, oreven better, the duration could be adjusted depending on the developer’s will.
January 4th, 2009 at 10:19 am
I think the major issue iPhone developers are forgetting is the marketing aspect.
Everyone is relying on Apple’s Store to get them the sales they need. With each new app introduced, the ability to make your application stand out becomes that much more difficult.
Developers need to spend some time and money marketing their app in other ways. This will help bring in purchasers at higher price points because they won’t be instantly comparing to the $.99 app that has similar functionality.
Generate Buzz that links directly to the app at a price point that makes economic sense and you’re more likely to sell it at that price.
January 4th, 2009 at 10:39 pm
I think developers should use a bit of patience… I mean, the iPhone platform has the potential to let them offer users great value apps at a good price, with good profits.
But it’s just that all the pieces needed are not exactly there. They’re converging but it still need some time.
There’s the external marketing ecosystem issue – which is just starting to building up.
Take a look at the Mac desktop software market – there are estabilished brands, well-respected review sites, users’ communities, some good year of word of mouth behind it – things the iPhone software market hasn’t yet.
Users willing to spend more for software don’t magically discover “serious” apps at the store, they are informed about them by a wide array of sources.
Then there’s the issue of the maturity of the iPhone platform – which again is not there yet. The OS and the hardware are awesome, and a leap forward for smartphones, but there are many rough edges to iron out before they can make a great mobile computing platform – which is, one that allow developers to build powerful apps that are clearly distinguishable from “ringtone apps” and can command a high price.
More ram, multitasking allowed for third party apps, advanced UI issues solved…
If Apple keep pushing the os and hardware development, there is much room to grow.
And hopefully they could widen a bit the scope of things they allow third party apps to do.
Once these pieces are in place “serious” developer will have a better time making their higher price apps stand out of the noise.
Menawhile, the AppStore model can use some improvements but it’s not going to make everything work by itself.
The ability to distribute demo versions would be the biggest improvement imho.
January 20th, 2009 at 2:16 pm
I haven’t thought through this as much as I’d have liked, but I was just wondering if a Slashdot system of voting would in some way benefit the AppStore?
(Yes, unfortunately or otherwise, I’m rather enamoured of Slashdot. All thanks to a friend, actually.)
January 20th, 2009 at 4:01 pm
I think Jon Ive would be a good successor to Steve Jobs.
It takes someone who’s been through something to lead Apple and provide all the inspiration that all of us live by.
Frankly speaking, I don’t care who leads Apple so long as Apple survives; so long, as I get to use and buy well-designed products that I truly care for.
–Apple, is part of my personal identity.
It’s a designer’s art, to listen.
January 28th, 2009 at 11:13 pm
I don’t see why apps being too cheap is primarily Apple’s fault. They might be doing a few things that are contributory factors, but at the end of the day, apps are cheap because that’s how developers price them, and they are operating in a market.
Is it a free market? The more interesting economic question is whether it is a perfect market. A perfect market is where everyone has perfect information with perfect competition. And the App Store is one of the most perfect markets ever devised by mankind. Not completely perfect, for reasons I’m sure people will point to, not least of which is that no two pieces of software are precise substitutes, but closer than what has been attempted before. And what happens in a perfect market where the marginal cost of producing a unit is zero? Pricing approaches zero the economists will say.