AppStore Prices – Is Cheaper Really Better?

Over at the Apple iPhone Group at Yahoo, a discussion has cropped up about application prices in the AppStore. We think (and hear) about this a lot, so I want to take a minute to talk about application pricing (on any mobile platform). It is a topic that is important to developers, retailers, and customers alike.

So, if you’re curious to hear a developer perspective on pricing, read on after the jump!

AppStore Pricing: The Debate Rages On

The pricing of applications in the AppStore is a favorite topic of debate in online communities. Are the apps too cheap? Are they too expensive? What is the correct price point? Should there be a premium store? Typically, the debate falls out something like this:

High Prices = Good for Developer

Low Prices = Good for Customers

Unfortunately, nothing is that simple.

A Disclaimer
We have mobile device applications for sale ranging from $29.95 to Free, and frankly we’re doing great. The AppStore is no exception. The iPhone and iPod touch have been great platforms for us. I say this because I don’t want what I say below to be taken as “He’s just bitter because he didn’t succeed.” We have succeeded, and we’re pretty dang happy with how things are going.

What I’ve written below comes from retailers, developers, customers, and the hard earned experience we’ve acquired over the past 12 years. There are always exceptions, but what I’ve written below is, on the whole, how things are in this industry.

$.99 Apps Make $500K!!!!!
Yep, and a kid playing guitar at his high school can become a rock star. These stories (like the Trism Tale) make fantastic press, but just like the music industry, professional sports, and Hollywood, those are the exceptions, not the rules. The majority of folks will never sell enough of their 99 cent app to even turn a profit, much less make it to the “big time.”

Unfortunately, people start to think that these big money makers are how the store works, since these stories make better news for Wired and better commercials for Apple. There are tons of amazing apps that never sell well because they just didn’t have that lucky combo of good app/good timing/lucky placement in an Apple ad/etc.  etc. So, yes. Some applications get lucky, but for the rest of them, a 99 cent price tag will put them out of business.

Lower Prices = More Profit
This just isn’t true. Lower prices typically DO mean more sales, but it doesn’t necessarily mean more profit. The math is pretty simple. You need to sell enough additional copies to make up for the lost revenue of the lower price. Sometimes this works – usually it doesn’t. Often you make less than you did before, even though you are making a lot more sales. And this cost is multiplied by the fact that more customers = more overhead (support/sales database work/etc.), so now you’re making the same amount of money and have twice as many customers! When the final tally comes in, you’ve actually lost money! There is always a sweet spot but finding it is tough. Just going cheaper isn’t the answer.

No Profit = No Updates
AppStore bargain prices worry me. Although a low price might seem like the best deal, don’t expect to see your favorite cheap app get many updates as the years roll on. This is probably fine for small, casual games, but what about an information manager that you spend a lot of time entering data into? Do you want to switch software every year or two? What does an hour of re-entering data into an app cost you time wise? More than the 10 bucks to buy something more stable?

Here are some of the things you typically WON’T get if your favorite app can’t turn a strong enough profit:

     – New versions to keep it working when the OS gets updated.
     – New versions for new platforms when they come out
     – Bug fixes after the first month or two
     – New features
     – A sequel to that game you love but have played 1000 times already
     – Support

So again, cheap may SEEM cool – but it has a cost.

Free = Someone Else Pays
Too often folks compare free apps with paid apps saying something like:

“If Facebook can make their cool app and give it away, why do you charge 99 cents for your game?”

Simple – someone ELSE pid for the FaceBook app for you. An advertiser or other investor provided Facebook with the revenue. That free app you got is simply a machine that helps them to generate more income from those peripheral sources. The advertiser bought you the app. That 99 cent game, however, has no such luxury. Unless the gamer developer can find someone else to buy the game for you (difficult to impossible if you aren’t as big as facebook), you have to shell out the cash directly.

Cheap App Support = Phone a Friend
In general, cheap apps and truly free apps either don’t have support, or the developer gives up on support after a month or two. If you have a problem with the application it’s unheard of to have a phone number to call with live support and highly improbable that you’ll get a personal email response. Again, maybe this isn’t a problem for your favorite fart noise generator – but as soon as your application is doing something important to you, you NEED that person there to help if anything goes wrong.

AppStore Prices Are Dirt Cheap
I’m always amazed by the comments like:

“You’re charging $1.99? Stop trying to rob me!”

Compared to any other platform (DS, PSP, Game Consoles, Desktop, BlackBerry, Windows Mobile) iPhone software prices are INSANELY cheap. Bargain basement cheap. Unable to support most developers cheap.

The reality is that Super Monkey Ball set the bar. At the time that it came out, SMB was the most amazing thing on the device – more levels, better graphics, better gameplay – and it was $9.99. If you wanted to charge more than $9.99 you had to look like your app was a LOT more complex than SMB. Never mind that SMB was made by a large company with the resources to support a lower price point – never mind that MANY applications priced at $9.99 and less can never make enough money to pay for themselves – this was the price and that is what we’ve been stuck with.

The end result is a market where customers expect REALLY low prices. Is that good? Bad? Only time will tell. But that’s the reality of this market.

Wrapping It All Up
I love cheap applications as much as the next guy. Seriously, I have a ton of freebies and 99 cent apps on my phone. I am, however, worried about the the iPhone platform as a long term platform for software development. Windows Mobile has been great because over the past 12 years the prices have sustained ongoing development and innovation in the software market. Conscientious developers willing to work hard and support their customers are able to make a career in that market.

But is that true for iPhone? Can you put 6-12 months of development into an application and have any hope of a return for an iPhone application? And if not, isn’t that a terrible disservice to the customer? Will we be left with nothing but fart apps?

Yes, right now we still have a gold rush mentality. Everyone wants to make their fortune and they are willing to take risks to make it happen. The customer benefits from a huge list of apps. But what about two years from now? Or three? Here at Ilium Software we take the long view. We’ve been around for over a decade. We expect to be around for another 10+ years. Will the iPhone provide us with a market that will support the development, maintenance, and improvement of top quality applications over the long term?

Only time will tell. At this point, I think it could go either way.