The Sparrow Opportunity

Since writing “The Sparrow Problem” I’ve felt a bit of pressure to follow it up with a grandiose piece about the future of apps. To that end, I’ve spent many hours researching, thinking, and talking to fellow app developers. Turns out, the core of what I’ve learned has been written about for years and can be summarized rather simply:

The future of sustainable app development is to give away as much value as possible and empower those who receive more value to pay more for it.

The definitive work on the subject is Chris Anderson’s “Free: The Future of a Radical Price”. Prior to publishing the book, Anderson wrote an article in Wired that is essentially a summary of the book: “Free! Why $0.00 Is the Future of Business”.

Back in 2009 I listened to the free audiobook and thought the concepts made sense in general, but people were still making money hand over fist in the App Store with paid apps, so I mostly ignored what I had learned. I did create free, ad supported versions of several of my apps, but I didn’t spend much time exploring a true “freemium” model.

Freemium — I cringe even writing the word, but I’m more and more convinced of the viability of the principles behind it. Though freemium has gotten a bad rap from companies like Zynga preying on addictive tendencies, it’s so much more than just selling digital consumables to hapless users.

In many ways I think software is being disrupted by the web in ways similar to other industries like music, news, etc. Software has been sold, pirated, and given away on the web since the very beginning, but boxed software sales artificially propped up a dying model and the App Store — with its ease of payment — extended the shelf-life. In the age of efficient, mass market digital distribution, why is it so hard to give up the business model created when software was shipped on floppy disks? Because it was working.

I’ve argued that Apple caused the race to the bottom in App Store pricing, but now I’m starting to think that Apple just accelerated the inevitable. The App Store is by no means a free market, but it is an efficient one. Early on I was able to charge $9.99 for my app Trip Cubby, but now most people use free or cheaper alternatives, even though I dropped the price all the way to $2.99. The odd thing about paying a fixed, one-time price for software is that people who find the most value are essentially subsidized by people who pay, but don’t end up liking/needing/using the app.

There’s also the matter of value over time. As shown in this brilliant chart — created by the founder of Pocket, and inspired by the CEO of Evernote — paying a one-time, fixed price for something really only makes sense for commodities that diminish in value:

Chart created by Nate Weiner

And that’s exactly what we’ve seen in the App Store. People have no problem paying 99¢ for a gimmick, and don’t mind risking 99¢ on an app whose value is unproven, but trying to make the boxed software model work at 99¢ a pop is a fool’s errand. Sure, gimmicks and mass market apps like Camera+ seem to prove the opposite, but they are the outliers. The vast majority of apps are financial flops even though they deliver tremendous value to their niche.

And all of this brings us back to Sparrow. Most Mac and iOS users are content with Apple’s free Mail apps, and of those who find Mail lacking, only a small percentage really care enough to spend money on an alternative. So, Sparrow was ultimately a very niche app. But as we saw in the days after Google acquired Sparrow, the niche it served found a lot of value in the app and were incredibly disappointed to see the app shelved. I’m still not sure how Sparrow could have empowered those who received more value to pay more for it, but developers who crack that nut are the ones who will still be making a living on apps in the years to come.

Many have and will continue to fail with freemium, and I don’t think freemium makes sense for every app in every situation, but it’s time to get serious about finding ways to make it work for more than just games. To that end, my Timer app is now free. Over time I’ll be experimenting with ways empower users to pay for whatever value they find in it.

david

Update: I tweeted a few clarifications and follow ups, but figured I should include some of the thoughts here for posterity.

It seems the word freemium has such a negative connotation that many people have completely misinterpreted the true premise of this post: “The future of sustainable app development is to give away as much value as possible and empower those who receive more value to pay more for it.”

Most online software sales have actually followed a freemium model — free trial, then pay, then pay again for major updates. Paid updates can be great way to “empower those who receive more value to pay more for it”. The App Store is what turned all this on its head, yet we keep trying to charge up front without trials or paid updates. If Apple eventually allows free trials and paid updates, I think it will be a great thing for developers, but I now wonder if there are better ways to scale price paid to value derived. With a market as efficient as the App Store, I think it might just work, and ultimately be better for both consumers and developers.

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