The Experiment

This post may make a bit more sense in light of my two prior posts: “Financial Realities of the App Store” and “App Store Pricing (It’s not a free market!)

With App Store shoppers seemingly hesitant to risk $5+ on a new app, I decided to do a pricing experiment. For a limited time, App Store shoppers were able to purchase any App Cubby app for $0.99. I asked that if they felt the app was worth more than the $0.99 they paid, they make a donation to fund future development.

During the 7 days of the experiment, we received $75 in donations, and sales volume shot up enough to make the 7 day experiment essentially revenue neutral compared to the prior 7 days. During the first few days of the sale I was starting to think the $0.99 price point might actually be sustainable given the increase in volume. The thing is, our apps got a TON of press from news about the “experiment.” As the press attention waned, volume began to slide. It quickly became apparent that the $0.99 price point wasn’t going to work long term. There was a bit of a bump at the end, but that’s typical of anything that goes on sale; people rush to buy it just before the sale ends.

Mike Schramm in a post on TUAW said: “If someone can sell 100,000 copies of an app for a buck apiece (walking away with $70,000 after Apple’s cut), why are the talented developers leaving? Surely you can make a quality app for less than $70,000, right?” Yes, quality apps can be developed for less than $70k (all three App Cubby apps together cost less than $70k to develop), but the real question is: how many apps actually sell 100k copies? The answer: very few.

People seem to think that there is unlimited demand for iPhone apps, but that’s just not true. The time, attention, and discretionary income of iPhone and iPod Touch users ARE finite. They can only download and use so many apps in a single day. The published download numbers for the App Store are off the charts, but as I’ve pointed out before, those numbers are spread quite disproportionately among free apps and the top 50 paid apps. The harsh reality is that very few apps can “make it up on volume.”

All over the web, on TV news, and even in print, there have been stories about people cashing in on the App Store gold rush, but very few developers have been willing to share sales stats for apps that have performed poorly or even moderately well. A bit of logic and some simple math reveals that only a few independent developers are making crazy money… some are making decent money… but most are making VERY LITTLE MONEY.

Here’s a great example: Veiled Games’ really cool Payday Roulette has sold only 8329 copies to date. The $0.99 price minus Apple’s 30% comes to $5830 in net income. They don’t reveal what it took to create the game, in terms of hard costs and/or time, but I doubt it proved worth their time to create (at least financially). It took their second app, Up There, getting featured by Apple to give the company any hope of financial viability (very similar to my own experience with App Cubby).

Great software can and will be made by enthusiasts who work nights and weekends in a labor of love, but the iPhone will never reach its full potential as a platform until there is some semblance of sanity in the App Store. Most of the talented developers I’ve spoken with recently are planning easy to develop, gimmicky apps that aren’t much more than a roll of the dice. Here are a couple quotes from Duncan Wilcox that sum it up nicely: “I have a few really awesome iPhone app ideas (if I say so), but the current state of the appstore deters me from starting to design/code… you’re either in the top100 or you’re invisible; getting there is a gamble that has relatively little business sense”

So, I’ve been thinking an awful lot about what direction to head with App Cubby. Should I crank out a bunch of low cost apps and roll the dice? Should I spend precious resources updating existing apps, or just keep churning? Should I join the gimmick bandwagon and brainstorm the next iFart? Should I stop creating new App Cubby apps and focus on contract work? Should I get a day job and just squeeze every last dollar from my existing apps? Should I play the pricing game, putting my apps “on sale” every few weeks? Should I maximize short term sales and just sell the whole business? Those are just a few of the questions I’ve been asking myself over the last few weeks. Here’s what I’ve decided:

Quite a few developers, myself included, have posited more than a few concrete steps Apple could take to improve the App Store, but since they don’t seem so inclined, I’m going to do my best to find a sustainable strategy in the current iteration of the App Store. The thing is, I created App Cubby as a fan of the iPhone platform. My goal was to create great apps that people would enjoy and build a business that could provide for my family. If I manage to create the next big App Store hit, that would obviously be quite welcomed, but I’d like to do so with a meaningful application not a gimmick. I may never become an App Store millionaire, but I think I’ll have more fun and be doing something more worthwhile.

This experiment has helped me realize that App Cubby apps are just niche products. Trying to turn a niche product into a volume leader is picking a losing fight with the market. The App Store is definitely slanted toward high volume apps and there will continue to be gimmicky apps that fly up the charts and make tons of money, but I’d rather build a sustainable business than try and win the App Store lottery. I’ve decided to embrace what I am; a developer of very high quality niche products. My strategy moving forward will be to charge a fair price for my apps and focus on delighting my customers with the best apps possible and the most responsive support and development.

To have people say that my products are an absolute steal at $0.99 and that I SHOULD be charging more was a wake up call. As the saying goes, if no one is complaining about your price you’re charging too little. The thing is, the more I’ve thought about the App Store and my goals as a developer, I’ve realized that I would rather have small community of delighted customers than a gaggle of customers who don’t value what I’m doing. Health Cubby helped me figure out that the people I built it for absolutely love it and are willing to pay a premium, but those who didn’t even bother to read the description won’t be happy no matter how many features I add. Rather than chasing my tail trying to build apps that please every iPhone user, it makes much more sense to focus on the people who get what I’m doing and delight them with just the right combination of features (ie. not every feature ever requested) and great user experience.

Here are the first three steps I’m taking in light of this new strategy:

1) Raise the price of all the App Cubby apps to $10

2) Release Lite versions of each app so that users can “try before they buy”

3) Release substantial updates to each app in the next 60 days (including online backup/sync to ease the Lite to Paid app transition)