AppStore Prices – Is Cheaper Really Better?

pricesOver 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.

19 thoughts on “AppStore Prices – Is Cheaper Really Better?

  1. Kevin White

    One thing I see people mention over and over again (in fact, I just saw it this morning in a blog comments section) is that an app on the iPhone is not a desktop app. Even Apple says this in their guidelines. Thus, iphone apps are inherently worth less than desktop applications.

    That’s actually a good point, but it’s not always true. If eWallet on the iphone had 100% of the features of the desktop version, would it be ‘less’ of an app because it’s on a phone? No.

    This person also said that developers will make an app that’s crappy and charge a lot, and then users will buy it and feel bilked that it isn’t any good. I fail to see how that’s different from anything else. I could go and sell dirt for 300 dollars a pound and claim it did awesome stuff, and you’d feel gypped when you bought it and found out it was a pile of dirt. That’s called ‘life’.

    Here’s an interesting analogy, and one I like (and have used in other comments): the gimme rack at the grocery, where small things are overpriced because the store knows you’ll suddenly realize you need/want one of them while waiting in line. The gimme rack has a captive audience bored to tears and who probably want some gum or treats for the dog or a nail clipper they just remembered they need.

    The App Store is the other way around. People will pay 2 dollars for fifteen cat treats in a little bag from the gimme racks, but when you hand them a complicated program like eWallet on the App Store, they go, “Ten dollars? This is rubbish, I wouldn’t pay ten dollars for a program like that!”

  2. Ian Goulbourne

    There are two schools of thought regarding pricing. The first is to choose a reasonable price for the work involved and to include a profit margin that is appropriate. The second is to go for the highest price that is compatible with the number of sales that will occur at that price point. One might say that the 2nd way is the way that Adobe seems to work. It is of course complicated by differential pricing in most markets – but not apparently iTunes App store. Windows Vista is sold at a very high price to the average consumer, but at a low price to a computer manufacturer so that Windows keeps up its dominant position. The same sort of thing happens with educational discount etc.

    The only way for a company to go is to sort out a combination of selling price, expected numbers to be sold and the costs of manufacture/overheads and support and profit margin. You may hope that your program/app is the best thing since sliced bread and that the numbers sold will compensate for a lower price – it is the companies guess – if you get it wrong, then you lose – lose too many times and the company will fold.

    My purchasing habits are two fold – I will try a cheap app – it may be fun/fill a niche that I did not realise needed filling. The other purchases relate to needs – eg eWallet, ListPro(I hope soon), Papers, Macfamily history, HandBase etc. The second category are in the more expensive bracket (ie not 59p) and often complement desktop programs.

    Yes the iPhone apps are cheaper than those for Windows Mobile but maybe the software writers have made a considered judgement (ie a guess) that the numbers will compensate and that a cheaper app will get more hits

  3. Marc

    @Ian: I’m not convinced the developers have a real choice in the app store for pricing, so I don’t think what you’re seeing reflects a belief that the lower price will return a greater volume in sales. I think it reflects the reality that any app with a price tag higher than $10 in the AppStore is considered “Insanely Overpriced!!!!” due to the bar that was set on day one of the store opening.

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  5. Markus

    Being an iPhone-developer myself I can only say that you actually *can* charge more and be in top 100. At least in the german top 100 there is an app for 9,99 thats just showing you your bank account. It’s selling and it’s not a game (another myth, that only games will sell well). You just have to sell something people really want and make it enjoyable to use. Apple itself showas that a pricey compuer/mp3-player/phone can be a hit.

    What bothers me most is this misinterpretation of the so called “Web 2.0”. The *real* problem with higher prices is only there because people can write on your store front whatever they want. Someone wished I’d die just because he thought “this app should be free”! Think about this for a moment!

    And now translate/transfer this to the real world. You have a shop, someone comes by, grabs a can of coke (it was a 99 cent app I am talking about) and wanders of. Later that day he comes back and uses a spraycan to write “Die Sucker! Should all be free! 1 Star!” on your wall.

    Would *that* be okay? NO!

    You would call the police, they would catch him and he would get a fine or something, your store would be cleaned on his expense. Not so in AppStore-World. Apple is the police. It doesn’t even bother to react in any way. You can call them or write them, file complaints via iTunes…nothing helps! These so called “reviewers” can do whatever they want. In older days this was called “anarchy”, today it’s called Web 2.0!

    And the worst thing about this is: they ruin your sales! They are the ones that tell people “Hey, this is to expensive!”. But yet these are only a few percent of your customers. The happy ones rarely speak out loud and post it on iTunes. I have had over 180.000 paid downloads so far and worldwide I got only about 5000 ratings (including these insane rate-on-delete-ratings that you could easily exchange for an automatic-1-star-ratings-function).

    Why is it today, that noone really complaints about this? Is it ok for a minority of poeple – who just want everything everywhere forever for free, complaining wihtout even thnking about it for a second -to tell the world what is ok?

    If so, we just made the dumbest of all people our leaders!
    Thanks for reading…

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  7. Sachin Palewar

    I think once the initial hype is over, things will slowly fall in place and prices will be rationalized. Most of the companies won’t be able to support free/low-priced apps for long and will eventually go out of business. Only serious companies with long-term vision will be able to stand their ground. I think we will then see prices similar to Palm and Windows Mobile applications for iPhone as well.

  8. Graham

    Maybe I’m in the minority but if I’m looking for a particular type of application I generally look at the more expensive ones first, simply because I expect that application that costs a few bucks more to be a more well rounded application and so far I haven’t been disappointed with any of the higher priced purchases. I’m constantly amazed at app reviews stating that a couple of $ is a rip off.

  9. Sergey Kiselev

    My experience that price doesn’t always have correlation with quality and usefulness of software. You can charge 10, 15 or even 20 dollars but you must convince me with unique trade preposition. And it’s hard on iphone platform. More hard than any before. Because all you competitors are only hand long far. Because Apple produce genuine sdk software, that is the hottest offer on the market. This sdk promotes genuis individuals around the world to produce quality products. And they know, that they have the same distribution channel that is ready for any other company in the world. Of course it’s very terrifying for companies who make simple to reproduce software. And price will be lower that on any other platform. But! Nokia, Microsoft, Palm, Google opens the same model of distribution – and it will be available everywhere. The second step to produce SDK compared to Apple and this lower prices will be standard. It’s the future. as i think. More sales, but less price. And App Store proves that you can make a great profit with that model too. Of course you can come outboard of this way.

    I’m from Russia and it’s very strange to see such a boom of whinnies about software prices. Of course the same happens here, but we were born in another world. Because software cost you like a one meal, but you will use it for at least week or even years ,) It’s some problem of Apple jealousy and fans fights. I can’t understand the hidden motives of this problem.

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  11. Elia Freedman

    Thanks, Marc. Great summary. After all these years of floating in the same circles (12 years running Infinity Softworks myself) I’m surprised we haven’t directly met (although I’m quite familiar with Ilium). Two general comments:

    First, one thing you didn’t comment on that I think artificially suppresses the purchase price for iPhone is the lack of trials. I’m much more willing to pay $20, $30, even $50 for an application if I can try it first and make sure it’s the one for me. But absent that information, I’m going to struggle with a higher purchase price and may default to lower priced products to try to fill the need.

    Second, we’ve charged $50-120 for our powerOne products on Palm, Windows Mobile and BlackBerry. Our initial app for iPhone, FastFigures, is $6 as an introductory price. Were our prices high on other platforms? Very much so. My research showed my target customers would pay it willingly. My research for iPhone showed much lower price points were expected by my target customers, in the $7-$13 price range. (I’m below initially as a bonus to the hundreds who asked for the app and had been with us for years.) So clearly there is also some “price expectation” adjustments that have happened on the AppStore as well.

  12. Marc

    @Elia: Thanks, Elia! And great points – especially the “I’m not paying $20 for that if I can’t try it first.” That really is a big issue.

  13. Ken Fink

    My friend had got an apple iphone. He jailbroke it after downloading a few software from apple store. I asked him why, he said, apple store the things were costlier, I do not yet understand 🙁

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  16. Biglar

    Marc, Regarding your comments about NO PROFIT=NO UPDATES. I have Ewallet on my iphone and also the windows application on Parallels to sync it. Everything works ok, …. but the text on the Iphone in Ewallet is so small you almost need a magnifying glass to read the info. Particularl when many application keys are 20 or 30 digits long with alphabetic and numerical characters mixed. I know many people have asked to view the cards in landscape view or to have options to increase text size, etc. But no updates — or apparently none on the horizon. Hopefully, since we have paid some more than other apps, we could get the benefit of at least this small improvement, which would make the app completely usable.


  17. Marc

    @Biglar: I appreciate your concern and it is on the list. Regarding updates in general, we’ve continued to release improvements and updates over the course of the 9 months or so eWallet has been out. The last one was in February and added PassBuilder password genertion (a very big request.)

    So yes, your request is on the list of things we plan to address as we produce additional updates. Also, I’m fairly certain that this one will be sooner rather than later. At the same time, I won’t promise that we’ll hit the specific update that you (or another user) is looking for. We prioritize based on a number of factors (with customer requests as a big one.) Some things we get to right away (sync), others take some time – and in some cases we just don’t get to add a feature at all. It’s the nature of the business, I’m afraid.

    In the meantime, it does look like your particular request is likely to hit the app sometime in the next release or two.

  18. Jonathan W

    Very interesting read.
    Regarding the “can’t try before buy” problem mentioned by Elia, I don’t actually think this is a big issue thanks to ‘lite’ versions. Almost every paid app has a free version to give you a demo of what the fully featured version can do.

    I personally think the top 10, top 25 lists have a lot to do with the low prices of apps. Because these lists are ranked by unit downloads, they push developers to lower their prices and focus on achieving high sales volumes. I’ve written about this issue here:

    I’d love to hear your comments. Thanks.

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