App Store Pricing: Worth Less than a Cup of Coffee

[1] http://thenextweb.com/insider/2012/05/16/nielsen-us-smartpho...

I've also personally received more reviews than I can count where people talk about how much they love my free version, but I should really include (PREMIUM_PAID_FEATURE).

I honestly think people are in the process of a psychological transition into paying what apps are worth. Much of the App Store economy is a result of this. Won't pay for games? Freemium spammy junk. Won't pay for anything? Junky ad supported android apps. Making apps costs money, and the market is gonna produce what people are willing to buy. I honestly think people are starting to come around, but its still very much in a state of flux.

Newsstand allows a free trial period. Typically it's a month.

If you like the publication enough after your trial, you can pay a monthly or annual fee. From my experience, approximately 2% of users convert to paid plans.

Download Volumes. Free trial app : upfront paid apps - 250:1. The (automated) marketing challenge becomes converting new users into paying customers.

Most paid plans for magazines are circa $4.99/month. This resembles a SaaS fee to use your app and all its wonderful upgrades.

If customers have good information (they are already using the app), and only one price (your IAP), or pricing you control (your IAP, with dummy prices - feature by feature unlocks, and maybe a premium feature or two), they'll spend be more likely to spend money.

The big money is in exploitive IAP. Skinner box games which use psychological tricks to goad big-spending "whales" (addicts) into spending more. But the small money is probably in IAP too - unlocking the demo.

There's no money (IMO) in $1 apps - they are too expensive (compared to free apps), and they sell themselves short.

I've had a lot of success adding free versions to paid apps and then upselling the premium versions while making some money with ads in the free version as well.

The proverbial cup of coffee on the other hand, that's a sure thing. For $5 I'll be warmed, caffeinated and have a delicious drink.

I agree with your analysis, but this one line seems flawed.

The customer looks at app purchases like a game-theory person might look at the prisoner's dilemma mixed with 3 card monty. When faced with this type of "brain damage" most potential consumers, shut down. That is, the market fails.

Apple is trying to protect the consumer, so that people don't just walk away. The search, selection, and evaluation costs of something that is modest in value by order of magnitude (say 5x$1.00=$5 or 30 minutes at min wage) are so un-economic they are not worth it.

The problem with trials is time-wasting. Apple is worried about the funnel. Ie, that to trial for 10 will people who download 100 aps and spend ~50 hours in seach costs. and 9/10 apps will be worthless, a wast of 45 hours. No consumer is willing to pay 45 hours of time (~$450 @10/hour) for a $1 dollar app x 10. Even at 10x this is worth $100. It is still an oder of magnitude off. $1000 value would be a 2x return on investment. Unless your time is worth $20/hr, and then it is still a waste/neutral at best.

Does Apple block apps with countdown/timers on functionality?

The problem with this hypothesis is that Google (among others) does allow a variety of trial apps (I've bought several). Unfortunately, that isn't having a significant impact on Play Store sales as a whole (especially when considered relative to Apple's App Store sales). Instead, to the extent that the Play Store is closing the gap, it is through a growing user base and improved freemium games (just look at a Top Grossing chart).

Trial apps will certainly help some developers, but they're not a game-changer for most.

Here's our findings:

1) People who download the app for free tend to buy much less IAPs than people who paid for it. It seems they want the free app to stay free as long as possible.

2) We make much more money pricing the app at $1.99 than we do at $0.99. We do sell more units at a dollar, but only lose about 30% - 40% unit sales when we price it at $1.99.

3) People who pay for the app are more active users than people who got it for free.

4) We still made a nice profit pricing the app at $19.99, yet made substantially less than $1.99.

5) We removed the free "trial" version and saw sales increase. Our app got a lot of coverage (WIRED, TC, Mashable) so most people knew what they were getting into without the need for a trial version.

6) I think $1.99 and above is a fair price for devs who regularly update their apps. The good thing about pricing it above a dollar is, you can make 50% discounts every other month to drive sales on "on-the-fence" potential buyers.

Are the free customers switching down from the luxury product, or are they new customers who otherwise would have gone for neither option? The percentages withhold that information.

That's on top of the problem of determining whether something is of reasonable quality (i.e. even does what it claims) from a few screenshots and likely-gamed reviews.

The problem gets worse the more complex the app... Yes, reviewer A might find it useful because some subset of the features work OK for them, but perhaps I just want one specific feature which they don't care about?

Without a demo I'm left with the size of the community around and app, and a general 'buzz', both of which make it harder to enter the market at all.

Think of this another way. How many chocolates can you afford at a cost of $0.20 each? How many can you afford at a cost of $0.10 each? Now, how many can you afford at a cost of $0.00 each? The experiment artificially avoids this by manufacturing a situation in which purchasers only had a one-time choice, but the purchasers didn't necessarily know it was a on-time deal. For all they know, they may be faced with the same choice every time they go back to that store, even if it was advertised as a one-time deal. We get on-time offers pushed at us all the time these days.

So, is a marginal decrease in cost of $0.10 equivalent in both circumstances? Of course not. A cost in resources is always a cost. A cost of no resources is not a cost at all. Comparing two different costs is completely different to comparing a cost with no cost at all. To understand this, instead of adding costs together over a few transactions, try multiplying them by many decisions instead and you'll see that multiplying by zero has some very special advantages when it comes to resource preservation.

What I think is happening is that analyses like the above are considering only individual translations, but App store users download many apps. Multiplying costs over many purchases, even small costs balloon while free is always free no matter how outrageously you indulge your App store downloading habit.

That's without taking into account that not everybody considers buying a cup of coffee in Starbucks something that requires no thought or consideration. I certainly don't think that way for a start.

One "solution" is to write great apps that no one else can make, like Amazing Slow Downer, and charge a premium price ($15). But not every app is that "significant," so we end up with twenty guitar tuner apps, or Tabata apps, or whatever.

Games are a bit different given how much art and content is often associated with the production, but users are looking for a fun distraction. Perhaps one should try to build a $2 game with a $50,000 art budget rather than a $500,000 art budget. The users don't really care. It sounds more profitable. Tiny Wings FTW.

In other words, you are exactly right. They aren't providing value. I could write their app in one week, tops.

I think the author is wrong here; apps do offer real value but they are still close to being worthless economically. What developers should start realizing is they shouldn't spend so much effort on todo lists, podcast clients, rss readers, or any other trivial app category that many people do as side projects for free for fun.

As a result we might get more genuinely innovative apps as developers look more closely at what niches are being underserved.

I have purchased a few apps, namely ones I was familiar with on my desktop and wanted a portable version of. Yet for nearly every paid "other" app I could find one or more free ones.

the idea of finding a "large enough group" to correct pricing is laughable, go for it, the ease of development is that ideas undoing. Yeah, it does not guarantee good apps, but that old adage about a million monkeys and Shakespeare applies here too

I imagine Apple and Google are largely indifferent. Low price points make their platform more attractive. Higher price points, make them more money.

It's just competition. The barrier to entry is incredibly low (lower than it's ever been on desktop, because billing and distribution is done for you), and now it's a race to the bottom.

I fail to see where they have had any influence. Apple at least has historically priced a number of their applications pretty high (not all of them though, basically "core feature" applications such as ibooks or podcasts were free, but iwork applications are $10 each, and garageband and imovie are $5)

> also because developers are slashing prices to the extreme to compete.

Mostly that one, from very early on there's been an insane tendency to price-dump and race to the bottom.

> That would certainly result in higher prices.

It would also result in extremely low sales, as known by anyone who developed for S60 or Blackberry back in the bad old days.

> If a large enough group of people start raising awareness and refusing to release their work for peanuts we'll see a shift in the market price towards more realistic numbers.

That's completely unrealistic. It would require a buy-in from every single developer.

The reality is that Apple & Google have their interests driving them, user have theirs & App developers have their own. Anyone who finds themselves frustrated and complaining into a void needs to channel the stoics and devote their emotional energy to stuff that can be changed, preferably by them.

That said, I don't quite agree with his approach. The price of a cup of coffee is not a good benchmark unless you happen to be selling tea or biscuits or something else in the coffee shop. The Cup of Coffee is a little anomaly involving self esteem, addictive substances, morning routines and other bits and pieces of dark magic. Every environment has its own price dynamics and very few are similar at all to coffee shops'. In a supermarket people are very cost sensitive. An extra 30¢ can be the difference between customers choosing one jar of instant coffee over another. That's less than one cent per cup of coffee. Enough with the cup of coffee already. If it helps you make a sale, go for it. If you are using cups of coffee to justify to yourself why people should be buying your stuff when they are not, don't.

There is a chasm between $0 and $0.01 for digital goods that is confusing but undeniably there. Yelling at it that it shouldn't be there and holding up your overpriced cup of coffee as proof that selling stuff should be easier is useless.

It's hard to sell software with a value anywhere in the ballpark of a cup of coffee regardless of price. That is reality. It was hard before the App store. It's still hard. It's also hard to sell (ppv) episodes of Breaking Bad (even though they're awesome), digital subscriptions to newspapers (even though the paper versions were clearly worth something to some people). We can discuss why the experience of buying software or TV shows isn't as rewarding as the experience of buying coffee, but lets not try to argue that it is or should be when it clearly isn't.

Some developers are willing to sell for $1, and make quite a bit of profit because that brings in lots of customers. Why "shouldn't" they do that?

Imagine if App store and Play store didn't exist and you'd have to individually find developers and buy/download their apps. That would certainly result in higher prices.

So you're saying that Apple and Google are providing most of the value here. Maybe they "should" be getting 90% of the revenue instead of 30%.

People also have no freaking clue how hard it is to make apps.

It's hard to make microprocessors. Should Intel and ARM make an agreement to triple their prices so that their engineers can be properly rewarded?

If a large enough group of people start raising awareness and refusing to release their work for peanuts

As a cell phone customer in the US I appreciate price-fixing cartels as much as anyone. But first you should really do something about those open source communists who have been devaluing software development for decades.

Higher prices .. and much, much lower sales.

The analogous situation is developing with PC games and Steam; rather than spending £40 each on a very small number of games I find myself spending £4 - £15 on a large number of games.

Some sort of ridiculous Galtian producer's strike will get you nowhere here. People have plenty of other choices.

This is always the dream of the producer whose output is "underpriced", whether he's a laborer or capitalist.

"If we all band together and restrict supply, we can force prices up." But if someone breaks rank, our cartel collapses.

There have been at least temporary successes: trade unions, the Steel Trust, OPEC.

And in the Appstores case the free alternative is even legal!

With software, you are spending money on bits. Spending even small amounts of money and getting nothing physical in return just feels very odd after decades of consumerist stuff acquisition and a few hundred thousand years of hunting and gathering.

This is all basic economics, supply and demand and marginal cost.

> Apps that are "beta", "demo", "trial", or "test" versions will be rejected

It sure sounds like your app breaks this rule. I'd ask what your app is, but I don't want Apple to see this and reject you.

One, the casual developer. A lot of these apps are being developed by programmers sitting in their underwear watching ESPN Gameday on Saturday morning. Or teenagers with nothing better to do. If they make money... well, that'd be great... but they really have other motivations.

That alone would flood the App Stores with product.

The second point, is economics.

ie - it doesn't matter.

If you live in an agrarian society... most likely, you have to be a farmer. It's largely irrelevant how many other farmers there are... it's probably the only thing you can do.

I think there is a similar dynamic in the app world. There are an AWFUL lot of unemployed programmers... chances are... they are going to ... well ... program. What else are they going to do with their time? It's actually a pretty smart thing for them to do as well. Keeping the skills sharp and all that.

So... I think that's, most likely, where a lot of the apps are coming from. And those two groups will only grow in the future.

edit: Plug, plug - it will be alpha at some point in the next month or two, I hope. If my description intrigues you, email me, and I'll add your name to the tester list.

No app developers include "installed by a human" and the permission to go sit on a couch at their office for half an hour in the price!

Compare that to coffee. There are three baristas on this street who can make me a coffee, so they're also in a stiffly competitive market. But they have to make me my coffee personally, one at a time. I have to buy a larger portion of their time, since they can only make a few dozen coffees per hour (and they have more physical supply-chain issues to manage, like sourcing beans and managing a property).

It's emotionally easier to pay for the coffee in part because no-one down the street is offering it for half the price, or for free. They can't. An app developer can. And they'll have to, because if they don't, someone else will. Because they can.

People generally judge value by looking at the competition. A good coffee shop is better value than Starbucks, so it's good value. A good $1 app is waaaay more expensive than a free one, so it's a rip-off.

How many apps are worth $0.50 to a million people?

In this example, you seem to switch out this comparison where instead you compare the cup of coffee the customer buys, to the amount you could possibly make for a $0.50 app bought by a million people.

A better approach would be for a few very high quality niche apps to get together an open their own app store. They sell only though their store and price the apps appropriately. Thus starting boutique markets. Could happen now with Android but currently not Apple.

Quality does not enter the equation. Most people will opt for a free cup of coffee over a paid one if the paid cup is the best coffee in the world and the free one is barely a step over ground-up dried shit.

In other words, there's still money in the market -- but it's a fixed supply of money (there are a fixed number of wealthy early adopters) vs. an ever-growing number of developers grabbing at it. The only way to get back to where we were would be to make a new app store that required new apps to be designed from scratch for the wealthy users to early-adopt all over again. (...and that's fairly clearly what iOS7 is trying to do, isn't it?)

Even if your app solved half of my life problems, it'd still not be worth a lot if the free competitor solved 49% of them.

"But we should be aware of the fact that we're in the business of creating products which offer very little value to people. It's our choice if that's what we want to pursue."

I mean first things first: does your app sync with anything standard or are you promising me your webservice? Because a quick glance through the non-existent featurelist from the app's website, and the only thing I see is "sync with iCloud".

So you know, worthless. To me and anyone else who has IMAP/WebDAV/Exchange accounts/CalDAV calendaring/Google calendars. Your apps are worthless because they're not that useful to start with.

Your final point shows that you either didn't read the article, or you didn't read the first sentence that you wrote. If Realmac ups their prices because they are unhappy with the money they are making, then everyone (including you since you feel entitled to free upgrades for life) will just leave.

That's all they had to do eh. It's all so simple.

>If they are unhappy with how much money they are making then they simply need to raise their prices.

Haha. Or charge for upgrades?

The 99c app business, is shit-business. I feel for app developers. You can't build a company around that price point. Either you charge more or you go down the recurring revenue model. Neither is easy. If you're a game developer you go freemium, and you try to squeeze as much revenue out of your customer base.

I'll give you a taste of some of the work that needed doing (completely describing everything would take ages). Here's a few examples:

- With iOS7, we switched to using TextKit so that we can vary the text sizes (both internally and via Dynamic Text). This involved a significant refactoring as in the previous codebase, we had to hardcode offsets. Why was it all hardcoded? Anyone who's had to deal with the problem of editable inline text would know that there were no APIs to match the drawing of text and editing via UITextView (which was previously based on UIWebKit; while you could the drawing either via the convenience NSString methods or via CoreText; if you used CT, you'd end up with mismatched visuals when editing / displaying). Did you also notice that when completing items on iOS6, the strikethroughs extended beyond the text on items with more than 1 line? Not anymore, due to the new internals.

- The architecture on the iPad is completely different vs the iPhone - on the iPhone, you have a single "list view" (custom implementation to be able to provide all the advanced gestures). On the iPad, you now have two view controllers that need to stay in sync, animate in sync, etc. It also meant that I had to do significant refactoring to abstract away all the controller logic as it had to be embedded in different controller hierarchies - you really don't want to duplicate all that logic.

- List peeking on the iPad. This required adding support to both the list view and to the item views, again - something many people might not even use but it's extremely handy when you need it.

- Drag and drop on the iPad. iOS does not provide a standard API to drag between views, so I had to implement my own which is fully animated and interactive. Try to dragging tasks to lists on the iPad - the feedback is immediate and you will see the 3D animations when items drop. These are all little details but they take a lot of effort to get right.

- If you run the iPad app, you will see that it has a completely interactive tutorial. We spend significant amount of time on that, to make it feel super nice and provide the best way to acquaint users with the interface. Again, anyone who cares about details will tell you that the final 10% take a considerable amount of the total time.

- You're also not seeing a significant amount of research and testing. We had experimental interactions that never made it to production. We've made many prototypes throughout the life of the app, none of them publicly available. We learn a lot from these but that's all invisible to our users.

The above points just scratch the surface on the work that was needed to bring Clear to the iPad. I hope it illustrates the point that it's not a simple job of just recompiling.

That depends on how elastic their pricing / demand is. You can raise prices and see your actual revenue decrease because fewer people use the thing.

The inputs to apps are nearly invisible and or hard to understand. Therefore the results of those inputs are undervalued.