5 is the new 10

The App Store is a tough place to do business. In addition to the countless hours I’ve spent overseeing the development of the App Cubby apps, I’ve also spent a ton of time poring over the App Store charts, experimenting with pricing and marketing, and studying accounts from other developers. I’ve managed to create some great apps and build a successful little business while swimming upstream in the App Store, but I’m finally willing to concede that for most apps, the price ceiling is now $5.

With the average price in the App Store now at $1.39 for games and $2.58 for all apps, the App Store is killing the value perception of mobile software shoppers. Some would argue that this is just market economics at work, but I think there is a very strong case to be made for Apple being directly responsible for this trend. Whether they did so deliberately or inadvertently is still up for debate, but either way, the future of iPhone platform and of the entire mobile software industry hinges on the direction Apple takes with App Store 2.0. The downward spiral in app prices caused by the Top 100 list and Apple’s relatively hands off approach during the first year of the App Store has created completely unrealistic pricing expectations that may haunt the entire mobile software industry for years to come.

Here are a couple choice quotes from recent Gas Cubby reviews:

“This is the best app I’ve purchased by far… the only down fall is the $10 purchase price. I highly recommend this app…”

“Real good app. Does everything I wanted and then some. The only reason I am giving it 4 stars is because of the price….$10 is a bit excessive, although I think this will help me save money in the long run, so it could pay for itself.”

I really don’t blame App Store shoppers for this perspective. When all sorts of amazing apps fly up the charts at $0.99, charging $10 *seems* completely unreasonable. “That’s why games are having trouble maintaining their price points. Human psychology makes value judgements based on peer groups, which is one of the reasons the competitive landscape is driving prices so low.” - Ian Lynch Smith of Freeverse

Apps with a strong brand name can launch at $10 to maximize revenue, but most successful $10 apps eventually end up at $5 (or less). Here are a few examples of apps currently in the top 100 after giving up on the $10 price point:

• Brothers in Arms - http://appshopper.com/games/brothers-in-arms®-hour-of-heroes
• Scrabble - http://appshopper.com/games/scrabble
• Hero of Sparta - http://appshopper.com/games/hero-of-sparta
• Tetris - http://appshopper.com/games/tetris
• Assassin’s Creed - http://appshopper.com/games/assassins-creed-altairs-chronicles
• Fleet Air Superiority Training - http://appshopper.com/games/fast-fleet-air-superiority-training

And here are a couple price drops that are a bit nearer to my heart:

• After being one of the most vocal critics of the rush to $0.99, Craig Hockenberry seems to have found the $10 price point unsustainable - http://appshopper.com/social-networking/twitterrific-premium

• After writing an incredibly inspiring blog post about value and premium pricing in the App Store, Marco Arment has also succumb: http://appshopper.com/utilities/instapaper-pro

I’m not going to rehash the entire argument about App Store pricing, but here are a few rather poignant quotes from recent articles:

If [iPhone] games could have a reasonable shelf life at $9.99, you will start seeing multi-million dollar development budgets as the market continues to grow. But if it turns out the only way you end up being successful on the iPhone is games that cost a couple dollars, you’re never going to achieve that parity with the other handhelds." - John Carmack of id Software

The collapse of the initial pricing model of $10 and $5 games to 99-cent and $3 games has made everyone very cautious. We’re trying to keep our developments to three or four months at most." Ian Lynch Smith of Freeverse

A casual observer surfing through the offerings on iTunes today could easily mistake it for a digital dollar store. Though the place is crowded with options, the app store bestseller list is dominated by 99-cent games like the Moron Test and Sally’s Spa — hardly the foundation of a new mobile economy.” - Jon Fortt of Fortune

Lots of cheap apps may seem good for the average App Store shopper, but it’s ultimately bad for the iPhone platform and the future of all mobile software development. Though the platform appears healthy and vibrant from a distance, the poor business opportunity of the App Store is not lost on those who actually have skin in the game. Most iPhone developers I spoke with at WWDC view the App Store more as a casino than a business. You can play all your cards just right and still walk away with nothing. Or you can get lucky on a single hand and walk away flush with cash. That’s true of many businesses, but is even more apparent with the hit driven nature of the App Store. Because of this, most developers I spoke with at WWDC (even the VERY successful ones) were looking to spread risk among several small apps rather than creating one amazing app.

So, instead of rehashing all the same issues in the same old way, I decided to offer some solutions based on Apple’s own sales strategies. At the end of the day, what iPhone developers really want is the same shot at success that Apple has with its own products.

1. Unit sales are seldom a good measure of quality. In fact, high volume products are often compromised in order to lower the price for mass appeal. Not Apple products. Mac hardware is the best in the business, but still only represents a small portion of the overall computer market. iPhone developers need opportunities to compete on merits other than sheer volume. The Top 100 list has and will continue to artificially incentivize lower prices rather than support value based business models.

2. People like to “kick the tires.” Apple Retail stores are designed to help shoppers fully experience Apple’s products. The computers are fully loaded with full versions of software. The iPhones have apps pre-installed for shoppers to play with. Most everything is spaced out in a way that encourages shoppers to spend a few minutes kicking the tires. Even with software and services Apple recognizes the value of offering demos. MobileMe, Aperture, and iWork all have full featured, timed demoes. Developers need a way to let shoppers fully kick the tires. “Lite” apps are woefully inadequate and introduce all sorts of problems of their own. A timed (5 days?) or triggered (by completing a certain number of levels, etc.) trial period would be best.

3. App Store analytics. Though not to the extent of someone like Amazon, Apple does monitor and make decisions based on shopping data and analytics. Developers need at least a little peek into the black box that is the App Store. Allowing click tracking all the way through to purchase is a minimum, but any additional data would be helpful (such as where shoppers are coming from: direct links, search, top lists, featured pages, etc.).

4. Shopping experience. Apple’s retail stores are finely tuned sales machines. The current iteration of the App Store was sufficient when there were only 1k apps, but with 60k apps it now feels a lot more like a Sam’s Club than an Apple Store. I’d like to see better separation from the music store with improved searching, sorting and filtering. There’s quite a bit more that could be done, but I wont bother creating a long list here. Shopping experience is something that is a priority to Apple, so I expect that they are already working on some significant changes in this area.

6. Pricing flexibility. Walk into any Apple Store today looking for a laptop and you’ll probably end up with a laptop, Apple Care, a printer, an iPod touch, and a few accessories because of various promotions and the hard sell Apple Store employees are trained to give. Bundles, rebates, other incentives work. Developer’s need similar opportunities to maximize revenue. I’d love to be able to offer coupons, bundles, and other promotions to maximize the cross selling among my apps.

7. Customer data. I recently got an email from Apple’s online store after setting up and saving a cart, but not purchasing it. When someone buys something online, signs up for the iTunes Store, or any number of other actions, Apple stores their email for various marketing purposes. This could get very sticky, but it would be really nice is developers had some way of communicating directly with our customers. In addition to marketing, it would be really helpful for notifying customers of bugs or explaining new features (people don’t seem to read the update descriptions, I know I generally just hit “Update All”).

Not surprisingly, I could go on…

Until Apple takes some major steps to curb the price deterioration in the App Store, I’ve decided to put all the App Cubby apps on sale.

Gas Cubby - $4.99    •    Trip Cubby - $4.99    •    Health Cubby - $4.99

david

Additional reading:
http://www.pocketgamer.biz/r/PG.Biz/Gameloft+news/news.asp?c=14077
http://www.macworld.com/article/138384/2009/01/appstore_prices.html
http://www.polarbearfarm.com/blog/?p=79
http://www.polarbearfarm.com/blog/?p=21
http://www.polarbearfarm.com/blog/?p=48
http://furbo.org/2009/07/10/year-two/
http://furbo.org/2008/12/09/ring-tone-apps/
http://furbo.org/2009/02/16/raising-prices/
http://blogs.oreilly.com/iphone/2008/12/the-app-store-effect.html
http://blogs.oreilly.com/iphone/2008/11/iphone-pricing-revisted.html
http://blogs.oreilly.com/iphone/2008/12/app-store-glitches.html
http://blogs.oreilly.com/iphone/2008/10/refunds-and-trials-in-the-app.html
http://www.pocketgamer.biz/r/Various/iPhone/feature.asp?c=9936
http://www.macuser.co.uk/news/242325/iphone-app-store-favours-ldquosimple-and-cheap-instead-of-complex-and-expensiverdquo.html
http://arstechnica.com/apple/news/2008/12/iphone-dev-cheap-apps-dont-necessarily-make-a-hit-platform.ars
http://daringfireball.net/linked/2008/12/09/ring-tone-apps
http://www.atomicwang.org/motherfucker/Index/93E914B5-89ED-4D46-8EFD-9AACC6BAE818.html
http://www.taptaptap.com/blog/how-to-prevent-the-app-store-from-becoming-the-crap-store/
http://daringfireball.net/linked/2008/07/29/app-count
http://www.dragthing.com/blog/?p=30
http://www.losingfight.com/blog/2008/11/07/can-you-make-a-living-off-an-iphone-app/
http://blog.cosential.com/?p=80
http://blog.iliumsoft.com/2009/03/19/appstore-prices-is-cheaper-really-better/
http://www.gamasutra.com/view/feature/4038/persuasive_games_i_want_my_99_.php
http://www.slidetoplay.com/story/app-store-pricing-puzzle
http://brainstormtech.blogs.fortune.cnn.com/2008/12/10/trouble-in-the-99-cent-app-store/
http://dealrange.typepad.com/deal_range/2009/01/the-apple-app-store-and-pricing-power.html