Sunday, September 29, 2013

Underscore Price Dynamics

Marco Arment:

This is the real reason why Apple doesn’t care about upgrade pricing: there’s no demand from customers. The market has shown that free apps will be downloaded at least an order of magnitude more than paid-up-front apps, and smart use of in-app purchase in a free app is likely to make more money. Over time, this trend has only become stronger and more clear.

Paid-up-front iOS apps had a great run, but it’s over. Time to make other plans.

A large part of this is due to the way Apple has set up the rules and incentives in its marketplace. Apple thinks it benefits from having a very large number of free or cheap apps. It’s in the business of selling $550 phones and wants to commoditize the complements. The more interchangeable apps are, the more power the owner of the store has. From Apple’s point of view, the App Store probably “behaves correctly.”

However, I think it reflects poorly on the platform to have so many apps that are junk or abandoned. It makes me unhappy that I “throw away” the majority of the apps that I buy, after quickly finding that they didn’t work the way I wanted. I feel like I’m funding development of apps that look superficially good while underpaying for the genuinely good ones that I like and use.

But the market for app stores is not competitive, so we don’t get to see what might have been. The dysfunction is just the way things are. The products we get will be the ones that can survive in this world.

Joel Spolsky:

What Marco is reporting here is that the old-fashioned “make something and get people to pay for it” business is much harder to pull off and likely to always be left in the dust by someone making the same thing for free, getting 100x the user base, and getting 1% of them to pay for some value added feature.

It’s a shame that psychology works this way. The more businesses do this, the harder it becomes for others not to do so. And most don’t seem to be able to provide good support for 100x the users.

Update (2013-09-30): Kevin Hoctor suggests In-App purchase; Mike Rundle suggests trials.

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>"But the market for app stores is not competitive"

Interestingly, on Android, there is a bit of a competition between app stores. On my Android devices, I have five app stores installed: Google's app store, the Samsung app store, Amazon's app store, D-Droid, which exclusively carries open-source software, and the Humble Bundle app, which technically qualifies as a kind of app store, I guess.

My Nvidia Shield also has its own app store frontend that only carries Shield-compatible software, but forwards you to Google's store for the actual purchase.

There's some competition between at least some of these stores for good Android apps, though most people probably just use the app store that came with their phone.

I'm not sure how well this works to incentivize Google to improve Android's app ecosysstem, but then, Google's incentives are a bit different from Apple's anyways. I would guess that Google makes a lot more money from app sales than it makes from selling Android hardware.

Some of these app stores definitely carry a lot less crap than Apple's, but I don't think there's an app store that's focused on providing quality above everything else. Maybe there's a market for an app store that prides itself not on how high its number of apps is, but on how low it is.

I think it's fair to say that devs have a lot more options on Android than on iOS, including selling their app outside of any third-party store. Though if they want to reach most people, there's no way around Google's store.

I'm mulling the economics of IAP myself. My current for-pay apps yield pocket change ($200 is a good month for me). In the past lowering my prices has tended to just lower my revenue because demand is relatively constant (and low). I also have a strong bias against the entire freemium model, as a user, and have designed my apps accordingly--I'm not sure what functionality I'd disable to allow in-app purchasing to unlock. I am working on a lot of app updates to modernize my apps, and I may lower their price somewhat, but IAP is another level of redesign, and I don't know yet if it's for me.

@Kevin Yeah, for a lot of apps I don’t think there’s an obvious freemium model, even if that’s what you want to do.

Perhaps there is a market for free apps with a "support incident" IAP with a guarantied response to any question. I wonder if that would work?

Well, the real issue is that the Apple license, guidelines, review team, etc. prevent someone from offering an application that would only list "quality" applications. Even if the applications, in the end, are purchased through the app store.

@Michel Interesting idea. It seems like the incentives would be bad for the customer unless (unlike Apple’s DTS) the charge were refunded if the issue turned out to be a bug or limitation of the product.

@someone What’s preventing someone from making a great Web site to do that, and rake in the affiliate commissions? As far as I can tell, no one has done that well yet.

One model that I've seen that I think works well is to have a free app that displays iAds, but has an "in-app purchase" to remove the ads. This is the type of IAP that I have willingly paid for, since I hate ads, and it also solves the problem of Apple's prohibition of demo versions. Perhaps @Kevin could dip his toe into the IAP waters with this model.

@Doodpants So instead of making money from iAds (since that doesn’t seem to be working too well for developers), use it as a negative that customers can pay to remove? My understanding is that Kevin writes Mac apps and iAd is iOS-only.

Ah, I was not considering Mac apps. Since Marco's post was about iOS, I assumed that was the context of the entire thread of discussion. Plus, Kevin's reference to "modernizing" his apps seemed like a reference to iOS 7.

But is the growth of freemium really as much of a problem on the desktop side as it has become on the mobile side? It's still possible to sell Mac apps outside of the Mac app store, and plenty of such apps are successfully priced in the $30-$100 range.

@Doodpants Things definitely seem to be better on the desktop side.

@michael This would require to make a web site optimized for the iPhone screen. Basically, a native app.

Also this would require to localize the web site (considering the poor localized descriptions found on the App Store most of the time (that is when they exist), this could be a plus).

I have a couple of iOS app, but my main one is a branding app that's a free download (signs of the times).

I'm glad the IAP bug hasn't hit the Mac desktop yet.

Regarding support incident IAP: It's also not clear if the app store rules allow this. There's room for interpretation inasmuch as it depends on what kind of service you think support is. Apple hasn't replied yet to some questions we asked them about this very topic a few weeks ago.

@Peter I was assuming this was just a hypothetical. I can’t imagine Apple allowing that.

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