App Store Pricing (It's not a free market) | Hacker News Reader

App Store Pricing (It's not a free market)

appcubby.com

20 pointspxlpshr28 comments

For anyone interested on this topic, another good read is here:

http://www.polarbearfarm.com/blog/

We were making good money off our Jailbreak apps selling them for $10 a piece, some people liked them so much they donated over $80 a piece for them. We invested countless hours developing them, not only because it was a fun challenge, but because the support was there from our customers to be able to live off this and be able to develop them full time.

The reality is that we barely manage to match the money we were making with our Jailbreak applications through the App Store. Even at the peak so far, where “Record” was Top 10 paid downloads in 22 countries, and DuckShoot in 10 countries, sales barely reach those seen in Jailbreak.

This is a good thing. Ideally, companies wishing to sell their wares will compete like this. Consumers should have this type of knowledge rather than the supermarket style selling.

The problem occurs because no other industries are being forced to scrape the bottom like this. These people (iPhone devs) are earning the type of money you'd get from close to perfect competition, but they're having to buy things (food, TVs, etc.) at prices that aren't anywhere near that. The problem isn't that they're having to price down so much as all the other industries aren't having to do likewise. Their prices are being squeezed down by consumers having good knowledge and lots of competition, but they're having to buy things from people who aren't under that price squeeze.

Ideally, companies wishing to sell their wares will compete like this.

Is it ideal for products to be ranked on number of units sold and nothing else? Says who?

The real problem seems to be that nobody has yet found a good way to market apps outside of the app store.

I considered creating an iPhone game where each player would participate in a shared world that would be designed around the constraints of the high-latency EDGE network. The game would be free on the app store, but would cost $5/mo after 30 days. (I'd prompt each user for billing info from within the app.)

The reason I didn't devote my energy to that project is because I don't want to develop a product that hinges on a billing mechanism that circumvents the app store, because that seems like it could (perhaps rightfully) piss Apple off, since they wouldn't be getting their cut, and my game would be vaporized at Apple's discretion. Not that there's anything wrong with that -- it's their platform, and they can manage it how they like. But the lack of "subscription" billing for apps probably precludes many larger projects.

I think that problem stems from apples vice grip on the app store environment and iphone development ecosystem rather than lack of marketing creativity on the developers part.

I think marketing outside of the AppStore would be a lot more viable if there wasn't such a significant pressure to down-price your application. There's just no ROI to be found at .99 + marketing expenditures, IMO, unless you're realizing something on the backside like a subscription service, etc.. but then you might as well price your app for free and use iTunes for its marketing benefits in that regard.

If the only reason people are setting the 0.99 price is App Store promotion but you decide to use a different method of promotion, then you can set a higher price.

I agree with you in principle but I disagree in reality. Due to the influx of equal parts quality and junk, a lot of consumers have experienced buyers remorse on the AppStore. Particularly in the first few months... remember the flack the AppStore was receiving for the junk?

That said, there's a significant barrier that even a premium 'niche' app must now overcome aside from generating awareness. Couple this with the app likely having very few reviews, not in the Top 50, etc.. then a buyer will become very cautious. (Myself included). In addition, user review system is broken (1-way channel), significantly less than 20% of customers will leave feedback, and upon uninstalling the app rating defaults to 1-star.

I've been struggling with trying to figure out how to best overcome this as a marketer. It's difficult, costly, frustrating, and the .99 trend certainly doesn't help things when 12,000 apps are battling for 50 slots on a poorly weighted popularity curve.

That was exactly my point. If apps were sold the same way DVDs were, then placing in the App Store wouldn't matter as much. My feeling is it's actually possible to sell apps this way. For instance, the Ocarina app had so many people writing about it that I believe it would still have sold many copies at $5, especially if the people writing about it could easily toss in an affiliate link.

Perhaps the same would be true of AdSense sales.

Every market has a tail that looks like that. The App store is not unique in having a long tail.

Yes but I think his argument is that ranking apps by volume creates an incentive to compete solely on price in order to get the volume in order to get the visibility in order to get the volume... Kind of like if expensive low volume laptops at an electronics store were stacked away somewhere in the basement.

But I don't agree with his conclusion that this is not a free market. Every market is organised according rules that someone artificially creates. It is up to sellers and buyers whether they want to use that market or not. So there is a market of markets and that's what makes each of them free.

Of course Apple's dominant position in that particular market of iPhone app markets is a problem for everyone. That's why I would think very hard before I creating apps on top of someone elses proprietary platform. I'm not saying I wouldn't do it or that it's somehow unethical. I'm just making the observation that these are the problems that come with proprietary platforms.

Is it unique in having an incredibly shallow tail?

The argument that its not a free market (a market in which property rights are voluntarily exchanged at a price arranged completely by the mutual consent of sellers and buyers) is poor.

However, the point that iTunes placement is the biggest factor in marketing an app, and placement is driven by sales volume, which in turn affects the way the market acts is interesting. Maybe iTunes should judge apps by some sort of hybrid rating system (volume + ratings). Seems like a tough thing to come up with an accurate metric for.

"Free markets contrast sharply with controlled markets or regulated markets, in which governments directly or indirectly regulate prices or supplies, which distorts market signals according to free market theory."

I'd say my assessment is pretty right on.

david

App Cubby

David, Apple (the "government") does not directly or indirectly regulate the prices of apps (and there is no supply to regulate).

Individual developers are choosing to price their apps at $0.99 (or not). In fact, as I pointed out, most of the apps on the top of the chart are not $0.99.

More importantly, though, is that the charts are just one tool. They offer insight into what is already selling on the store. The charts aren't voodoo, and you don't just magically appear on them one day. Sure, they have an obvious positive impact on sales, but it has absolute no effect on the ability of other apps to sell or make it onto the charts themselves.

Changing the way the charts work is a bad idea, for a lot of reasons. The most important is that the proposed solutions are even easier to game then the current system. The real solution to the perceived problem is to add more ways to discover apps.

Search on the store needs work, and "featured" is entirely editorial (and the choices aren't that great in my opinion). More ways to find new products like a "movers and shakers" view, a "top rated" view, etc, are better ways Apple could actually improve the situation for developers and customers.

Well, technically Apple is regulating the distribution, which is factor of supply. I'm not an economist and may be mixing certain terms, but the bottom line is that I can't sell an app directly to a customer, so the App Store is inherently not a free market. Therefore, Apple IS regulating the supply of my products! How much is debatable, but as someone who has several apps in the store, and talks quite frequently with other developers, I'd say my argument in the blog post is the reality of the current market.

Also, the charts are "voodoo" in their ability to create exposure for an app. You have to have enough sales to first get into the charts, but once you're there, it's amazing how things change. I've had developers describe it as being "sucked" up into the top 10. There is an undeniable momentum that is created once you break the top 50.

As far as changing how the charts work, did you read my blog post? What I suggested is that apps be ranked by volumeprice or even (2volume)*price to calculate the rankings. That's no easier to game then the current system. People have to buy the app either way, and raising the price will only benefit apps that have enough value to warrant a higher price. The idea of the App Store charts is to get the best apps in front of people. My argument is that by ranking only by price, you're getting cheap apps in front of people, not necessarily the best ones. By taking price into account, amazing niche market apps that can demand a higher price will get the same exposure as a broad market $.99 app.

I definitely agree that search needs work, but even with search, there has to be an order in which they are displayed. For a long time it was also volume. Recently it changed, but I can't find any pattern to it. With a ton of crappy apps in the store, showing search results in a random order doesn't help the consumer. Popular apps should still be rewarded with good placement. I'm just questioning how that popularity is determined.

Popular apps do get preferential placement in search -- so much so that exact searches for some apps do not match in the first page.

Putting niche apps that demand a higher price doesn't do that much good, because the majority of people looking at the charts won't be in that niche. That's why apps with broad appeal get on the charts. It's also why there are sub charts in each category.

As for the the supply issue, you're right. You can't sell anything you want on the store. If anything, though, I think it hurts your argument. By your own definition, Apple is exercising at least some quality control, and preventing you from having to compete with total crap. Unless your app gets blocked from the store (which plenty apps have for no reason), Apple's manipulation in this regard just keeps out your competition.

You're wrong, though, about it not being easier to game your proposed chart metric. You're not taking into consideration price manipulation (or questionable ethics). I'm not going to go into specifics, but it doesn't take much imagination.

Ultimately, its not only cheap apps that are getting in front of people, which is where I think your argument falls down. The majority of apps are not $1. 60% of the top 10 apps cost more than $1, and 40% cost $5 or more. This holds up for the top 20 as well.

You talk about the "voodoo" momentum, and I agree, there is a huge upside to getting to the top of the charts. But it isn't the only way to make money on the store. If that was your entire plan, you only have yourself to blame if it doesn't happen. The evidence shows that price is not the determining factor.

Ordering by volume * price is in fact ordering by sales volume measured in dollars, and is bound to maximize that. It makes sense economically for the app store, not just the developers.

It's not about gaming the system but about having the proper economic incentives in place.

why not rank it by money brought in rather than volume of sales? So it would be sales * price. Then the only way for someone to get into that top 50 is to maximize their profit, which is what they're trying to do anyway. Then the app store encourages people to try to make the most money all the way along, rather than selling a lot and only making money BECAUSE they make the top 50.

It's a huge mistake to buy into the argument that you need to sell at $0.99 to make any money. More than half of the top 100 paid apps on the store cost more than $0.99. Many of those cost >$5.

true, but as we have discussed, the apps at each position can get tenfold the sales of lower positions. selling 13k apps a day for 99c a la Ocarina is obviously advantageous over selling 200 a day for $10 each if you have the number 100 spot. No one is saying its impossible to make money with apps priced > 99c, its just a lot easier if they are

But the number one app on the store, the one selling "13k a day", costs $10 right now. The number 5 app costs $5. Clearly price is not the determining factor.

If anything, the sales distribution he shows is significantly flatter than a normal Zipf ("long-tail" or "scale-free" or "80/20") distribution, as you would expect in a free market; app #1 should sell 50× as much as app #50, not merely 10–20× as much, and 100× as much as app #100, not merely 30–50×. It's great that unknown developers can get free marketing by making it to the App Store's top 50 list. Maybe that's why the distribution is flatter than you'd expect?

It's been interesting to watch the decline of the App Store from a license to print money to a source of frustration for developers. The App Store is operating like a microcosm of the overall market for PC software, but at an accelerated rate. With no manufacturing cost acting as a check, there's always a temptation to give away software if doing so bolsters another, more lucrative line of business - particularly if everyone else is also racing to the bottom.

That graph is nearly identical to the distribution of youtube videos with X number of views:

http://christopherhan.tumblr.com/post/61871360/how-many-vide...

(not my blog, it belongs to Chris Han: http://vimeo.com/2519605)

if other app developers are selling themselfs short, the only answer is to wait until they go out of business and if they don't then they probably weren't selling themselves short.... Or they have deep pockets..or until apple changes something ( but I'm pretty sure they don't mind having cheap apps)

Because the cost of entry is so low, we should expect a revolving door of app developers heading to the gold rush. For every one that gives up, another will take his place.

Reply on news.ycombinator.com