There 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.
