Thoughts on App Store Pricing

An interesting thread discussing App Store pricing on Hacker News. There’s an unfortunate amount of noise on Hacker News nowadays, so here’s an attempt to collect the few good signals. Emphasizes and formatting are mine.

wisty argues that a good pricing strategy is to give plenty of information to customers first:

[…] when customers have very limited information, and side-by-side pricing, they’ll always minimise risk by getting the cheapest app. The cheapest app is free. And eyeballing statistics on sales, $1 apps don’t do any better than $2 ones (depending on the platform and app – iPhone buyers can be very elastic). Many customers aren’t so stingy they’ll balk at paying an extra dollar, they simply flock to free apps because you can’t beat free. Especially for an app which has lots of substitutes (todos, games).

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 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.

clarky07 points out that despite the race-to-the-bottom situation, people do pay for apps:

[…] the overarching point that isn’t really spelled out, is that people do actually spend money on apps. There are important pricing considerations in that going from .99 to 1.99 you don’t normally lose >50% of buyers. Once you’ve crossed the barrier from free to paid, another dollar isn’t a big deal.

Also, IAP and other methods of giving people trials helps. Overall the point is though that people do in fact spend money on apps.

jonnathanson suggests a freemium model:

Big game publishers can afford to give out their games for free, then harvest millions of dollars a week from in-app purchases, pour that money back into paid user acquisition, top the charts, and repeat until their next game comes out.

That business model is all well and good if you’re a game publisher, and especially if you’re a well-funded game publisher. But it kind of sucks for anyone who’s not in a category that benefits so dramatically from in-app purchases. In-app purchases are not a magic-bullet solution to pricing problems for most other categories of apps.

(Now, one could certainly argue that games provide more value to the user than other apps do. While there’s something to that argument, it’s not sufficient. Surely the solution to this problem isn’t “every app becomes a game”).

So what should you do if you’re an app developer, and you’re not making a game? To be honest, you’re in a tough spot. The deck is stacked against you. Prices are converging on zero, in-app purchases probably won’t keep the lights on, and the prospect of flooding your app with advertisements probably makes you (or your UX designer) cringe.

This is where the freemium model should make sense, IMO. Create something of general value to a large TAM, but of extraordinary value to a smaller slice of that TAM. Give away the basic version to the TAM, but upsell the power version to the power users. It may be the case that your app is better for the power users than existing solutions for which they’re paying hundreds, or even thousands of dollars. If that’s the case, don’t be afraid to charge higher than $.99 for the premium version.

If the delta in utility between Your App and Existing Solution is extremely high, and the price gap between Existing Solution and Your App is big, you’ve got a lot of room in pricing, and that pricing will be justified.

Unfortunately, absent a fantastic way to do trial versioning, the existing methods are pretty inelegant. Apple needs to get better about allowing developers to do trial versions, or this overall pricing and monetization problem is going to get worse.

NateDad suggests that an app should be part of a bigger service, ideally with recurring payments:

If your paid app can’t compete against a free app… that’s hardly the fault of the user or the app store. It’s the fault of the app maker. What you’re basically saying is “my app is so easy to make, that someone could make it without even caring to get paid for it”.

It’s competition. Yes, if someone can recreate your application for free, then your application wasn’t as valuable as you think it was, by definition. Make a better app, or turn it into a service that generates revenue past app deployment.

I think many app developers have gotten spoiled by tales of people getting rich off of P.O.S. apps, and expecting that to happen to them. That happened back in the day because there was a scarcity of applications and app developers. That scarcity no longer exists. Most of the easy stuff has been done, and a lot of free versions have been made because, let’s face it, most apps really aren’t terribly complex.

So, make something big and hard to duplicate. Make it part of a service you provide with recurring charges and give away your app. It’s a better model, anyway.

Touche adds that developers should stop making trivial apps:

I have my doubts that prices are going anywhere but down. You can stubbornly keep your app’s price high if you want but a couple of dozen others will gladly step in your place.

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.

kemiller offers an opinion about the relationship between apps and customer attention:

I have a somewhat different perspective on this. Apps cost people something much more valuable than the small amounts of money in question: attention. Most people find learning new software to be a chore. So every app they download has a cost in attention, in learning how to use it, however simple that might be, and some of them have a cost in money as well.

If the app is free, they know they can abandon it instantly if it doesn’t give them value right away, and lose almost nothing. If it costs money, they will feel obliged to get more value out of it, but that means committing to spend even more attention.

When you buy a cup of coffee, you’re getting attention back because someone else is taking on the slightly fiddly business of making coffee, and once you have it, there is nothing to learn, you can just enjoy it.

Viewing software transactions as paying attention, rather than money, for value, makes a lot of these markets make more sense. Because if you offer something that will reduce the net amount of attention they have to pay, they’ll often gladly give you money for it.

macspoofing pretty much concludes the whole thing:

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.