Dan Ariely: "Why is the price anchor for apps so low?"

No. While I laugh as hard as the next guy at that Oatmeal comic, the reality of the situation is that these examples aren't actually true: people are /often/ "really cheap".

1) tons of people refuse to go to Starbucks: "coffee should cost $0.50; I'll just stop at McDonald's"

2) tons of people don't go to see movies when they are released: "why watch it now when I could wait a month and watch it at the budget theater?"

3) tons of people don't buy concessions when they do watch movies: "I can make popcorn at home for almost nothing; maybe I can even just sneak it inside"

4) tons of people buy Dell laptops: "why would anyone knowingly pay the 'Apple Tax'? I can get a much better computer at half the price if I go with a PC instead"

I know people who refuse to purchase soda water in bottles: they only use the SodaStream, as the compressed air cartridges are cheaper (or, more simply, drink flat tap).

Everyone knows people who sit around endlessly comparing prices on plane flights on the one hand, while constantly complaining about the decreasing in-flight meal quality on the other.

Hell, McDonald's is even trying to take advantage of this by directly attacking Starbuck's where it hurts: they are now selling stronger and more intricate coffee concoctions.

http://www.seattlepi.com/business/article/McDonald-s-challen...

This isn't because these products were introduced too cheaply (I remember when domain names cost $75/year), or even because there are lots of free comparables (people optimize fractions of a percent on their plane tickets).

People are simply cheap. If you want to list a reason for it, I'd guess "short-sighted": they expect (nigh unto demand) things to be commodity products that aren't.

I mean, how many of these people who complain about in-flight meals ask themselves "how much would I pay for a better meal"? The people I know who ask that question are already drastically different consumers.

I went out shopping for a microwave yesterday, reading reviews of the various models, and I see tons of complaints that X model only lasted a year or two.

You have to wonder: if a company makes a product for $20 less that starts to fall apart in a year (as it is held together with cheap glue and plastic that wears through), will people actually not buy it?

As far as I can tell, people still buy it, and they buy a lot of them (these are the microwaves with the largest numbers of reviews; yes, the ones that don't work even have more positive reviews, as more people are buying them).

The incentives that consumers are enforcing on their suppliers simply suck. If people looked into their purchases ahead of time, asking the right questions, and knowing what they are willing to pay for various benefits, these broken products might simply never be made.

This is why companies like GoDaddy can exist: charge slightly less than the competition (as people are cheap), make it up in the backend with irritating upsells or by directly selling your personal information.

How many people who demand unlimited bandwidth wonder how that business model possibly works? Further, how many of them wonder whether the answer is more complex than "they have secret caps"?

(For the record, the answer is pretty complex, and involves a market where application vendors such as Netflix would normally pay off carriers on the backend to get their apps onto devices; the App Store has disrupted this market.)

So, given all of this, we now have to direct our questions to the story of the app developers, to see why they think their situation is so different, and I think this is where it gets good.

First off, it isn't in fact the case that people offering cheap goods are making the most money. They have the most downloads, but are not the highest grossing.

This became really clear when Apple added a "top grossing" category: in the market where everyone was whining that apps "had to be $1 to sell", the top app was actually a $50+ GPS navigation app.

So really, developers just /think/ they are in a market where no one is willing to buy apps for more than $1, despite even more obvious high-cost examples ($10 apps from EA and PopCap).

Why? Honestly, because we have made producing and distributing goods so simple that people who are neither trained nor experienced in the numbers are now dominating it (and certainly are the ones most blogging about it).

Airlines hear complaints about pricing (or alternatively, about their meal quality) /constantly/; as does Starbucks, as do movie theaters (as does Apple itself on hardware, btw).

However, they don't care. Even if they get 10,000 complaints; /if even if they get more complaints than sales/, these are not lost customers: these are people below their chosen profit point.

I seriously see app developers who seem to be optimizing for "no complaints". They keep dropping the price point trying to find a place where it becomes a "no-brainer" so that "everyone will buy it".

However, you really need to ask: if you sell it for $10 instead of $1, do you get 1/10th the customers, or simply 1/5th? If the answer is "1/5th", you should seriously consider $10.

Notice: if you do sell it for $10, and it is really really easy for people to complain or leave feedback (internal rating/commenting systems are really bad at contributing to this), you are going to see /tons/ of complaints.

You might even see more complaints than satisfied customers, and you might even see four times as many complaints as you see satisfied customers; and yet, you made twice as much money.

This allows you to hire twice as many people, allowing you to make a much better product, allowing you to make more sales at the higher price point... this is how quality products work.

Apple has classically had a fraction of the market Dell did, but they had /such a higher margin/ that they could offer all kinds of things that Dell couldn't (such as great service).

(Which is also an important point: if you increase your price from $1 to $2, the difference in margin might be much more than "twice as much": if Apple sold their iPhone at $170 they'd make no money at all.)

Instead, developers self-select themselves into the bargain bin; they are so tied in to their negative feedback (I mean: it really does hurt to get it), that they have a difficult time realizing the positive feedback.

What people really need to do is analyze their market, think about what kinds of customers they are targeting (which might very well be "price conscious consumers"), price their product appropriately, and learn to live with some complaints.

One reason is the risk involved in app purchasing. With all the other items you essentially already know what you are getting.

With apps you essentially buy them blind. A crappy app already has your money when you realise it's crap.

Uncertainty leads to a tendency to put things off.

Apps might be much better off if there was an easy way to have a free trial period/limited feature set.

One reason free apps are desirable is because there is no downside risk in obtaining them initially.

If more apps had a free trial period, be it a day or hell even an hour I think we'd see a much greater propensity for people to pay and pay more after the quick trial is open.

Because when I tried to open your page on my iPad using an acclaimed 3rd party browser (that I 'underpaid' for)...it crashed. And when I relaunched and attempted a gesture that I thought would get me back to your page it instead loaded 5 blank tabs. Generally my coffee doesn't explode and Brokeback Mountain was ... Ok. I finally got back to your site on my desktop, but generally the apps themselves are the best explanation for their cost. If you want a mildly theoretic explanation, usability and programing languages are probably where you should look... despite the sun never seeming to set on the behavioral economics empire...