Saturday, July 26, 2014

Apple “Frustrated” That “People Don’t Want to Pay Anything”

Jared Nelson:

The second really interesting thing to come out of this interview is that, according to Watson, Apple is also sick of the race to the bottom mentality and rampancy of free to play games. “Apple is frustrated, along with everybody else, about the mentality that’s gone rampant in mobile app markets, where people don’t want to pay anything,” says Watson. “They think that four dollars is an exorbitant amount to pay for a game, which is very illogical considering most people’s lifestyles. They’ll spend $600 on an iPad, and $4 on a coffee, drop $20 on lunch, but when it comes to spending four or five dollars on a game, it’s this life-altering decision. I’m frustrated with that too.”

I don’t see any evidence in the article that Apple is frustrated. Apple literally encouraged the race to the bottom with its initial App Store pricing guidance (99 cents or free). And it continues to encourage it through the lack of trials, the types of in-app purchases it allows, and the types of apps that it features.

Update (2014-08-01): Lukas Mathis:

But I think there are other aspects to this: Apple intentionally commoditized apps, and still encourages unsustainable app pricing despite publicly claiming the opposite.

7 Comments RSS · Twitter

I frequently see discussions about how App Store prices are too low to be sustainable for developers.

However, I think the problem has more to do with how people buy apps and how they're rated.

As an app consumer, I frequently download paid apps, but most of them I never use.

However, I mentally count all of them as "money paid for apps".

When I do get a good app that I keep using, even if it only cost 99 cents, I also count all the money I spent on apps that (mostly) sucked or (occasionally) were great but didn't turn out to be useful to me.

Prior to the app store, the barrier to buying and installing an app was much higher. With boxed software, you really had to be sure that you were going to use it before you bought it.

After boxed software but before the app store, there was still the barrier of having to get out your credit card, fill in an online form, download and install the software.

Ironically, Apple has eliminiated all the barriers that caused people to think a bit before installing software, and as a result they buy lots of crap.

I, and I think most people, keep a sort of running (if inaccurate) tally of how much we spend on apps, and want the overall equation to work out: money spent versus value received.

As long as, along with the good apps, there are tons of crappy apps being bought, developers of good apps will lose money to the crappy apps.

I don't see a good solution. Increasing the granularity of App Store rankings, ratings and reviews might help. Kicking a lot of the crappy apps out of the store might help some, too. But as long as the barrier to buying is so low, people will buy lots of crap.

There's a principle called the "Alchian–Allen effect" (see Wikipedia), which predicts "when the prices of two substitute goods, such as high and low grades of the same product, are both increased by a fixed per-unit amount such as a transportation cost or a lump-sum tax, consumption will shift toward the higher-grade product."

The opposite is also true: when there is no fixed cost, consumption will shift toward the lower-grade product.

This is brilliantly illustrated by the App Store. Apple has completely eliminated the fixed costs of software, and the result is that buying has swung radically to the crap side.


Sorry to go on so long. I read your site religiously and have been thinking about these questions a lot, but I hadn't seen anyone present this point of view before.

I would love to know what you think.


@Andrew I think that’s right. I’ve blogged (or perhaps tweeted) about this several times: post–App Store, I only actually use a much lower percentage of the apps that I’ve bought. I’m not spending that much in total, but it feels like most of it is wasted. I feel sad when I open iTunes and see the long list of purchases that I regret. At the same time, there’s no way for me to pay more to the developers of the small number of apps that I actually use (and that have become essential for me). I think trials would help a lot because they would let people pay more for the good apps and nothing for the crap without spending more overall.

When I see an app I want to try in the MAS, I go look for a demo at the developer website. I'll only purchase and download without a trial if the app is very cheap, i.e. a couple of bucks. I charge higher prices for my own apps ($30) but offer a demo, and it's my expectation that users will try before they buy--that's what I do.

Apart from the developer's own say-so, I likewise saw nothing to support an assertion that Apple is in any way "frustrated" by the race to the bottom that they themselves created.

Perhaps if they are, though, they are "frustrated" all the way to the bank; for as a friend of mine put it quite succinctly, "Apple doesn't give a [crap] what people pay for software or don't so long as they keep buying iPads and iPhones." And Macs.

And if the app stores are full of crap, $AAPL doesn't really care much about that either, because app demand drives hardware sales, and profit from the app store is, I assert, pure gravy.

[…] The Alchian-Allen effect and the app store. Great comment.  […]

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