Well put.

Paul, I can comment only from customer perspective. I think I am moderately high-spending customer of iPhone App Store. I bring smth like $50/month revenue for it.

I never go for the lowest price. Actually, I am suspicious of low price. 1.99 or lower is almost never "a buy" for me.

4.99 is in my opinion lowest I usually go.

9.99 is expensive, but it is ok. I DO buy apps of this price. From your company, even more so.

Do not underestimate mac customers. We already made the decision not to go for the lowest price when purchasing our computers.

The single App Store policy that Apple is using is unsustainable. What makes it even more frustrating is that its not even necessary. Merely by having the App Store application installed on every iphone by default, the App Store becomes EXTREMELY valuable. Apple needs to allow other vendors to set up their own app stores, with differing policies. These stores can allow developers to sell apps which may be restricted by Apple. You can also have a store which chooses to be selective (kinda like the independent dealers) and only selects the best apps to be included in it. That would allow vendors on this store to charge as much.

Apple might be worried that it would lose out on the 30%, however, they can still charge money off the people running the app store, and even after this freeing of the market, developers (and customers) would flock there.

Paul, a few things:

1. The app store is not your company's marketing department. You should not expect extra help from the store in promoting the sale of your application. Like most online stores, it is simply a distribution channel. As long as customers can find your application in the appropriate way (searching works, direct linking works, hierarchical navigation works) and buy it, then the store has done its job.

2. The store provides to customers a "Top X Apps" so that people can see what's popular. Popularity is not necessarily quality. People know this. If you can get your app on a Top X list, then great, but you shouldn't expect it just because your app is good. Being good doesn't have to mean being popular. Do you think Ferrari is upset that they are ranked the low end of the popularity scale?

3. Sadly, most consumers generally don't care about quality as much as they care about cheap. Why do you think Walmarts are so popular? Given almost every market in which there is competition, there is a cheap product which is popular (in that it sells many), and a quality product which isn't as popular but well regarded. Computers, car, fridges, bags, washing machines, desks, etc. This happens everywhere. Don't be so surprised to see it happening on the app store as well.

With the Snapper/Walmart example, are you trying to tell us that your apps are too good for the App Store?

You're approaching things from the point of view that the cost to develop an app is directly related to the price it should be sold at, which is a very flawed point of view in my opinion. In addition, you also seem to be trying to make the point that lower cost has to equal lower quality and reliability, which I also disagree with.

Ultimately, it all breaks down to a supply/demand issue and if you're not prepared to deal with and adapt to the realities of the market, you're going to have a very difficult time succeeding in it.

It seems that what you're complaining about here mostly is that you'd like the benefit that having a low-cost app receives (much more exposure by potentially being in the Top 100), while still demanding a high price for it.

So if you're going about being an iPhone developer with the attitude of a "traditional" Mac shareware developer then you're simply going to have to get your sales via traditional marketing. With that will likely come much lower sales volume, but it's still possible to have a viable business if that's the approach you chose to take.

John Casasanta
tap tap tap CEO
www.taptaptap.com

Excellent article. I'm an iPhone app developer. Some developers are trying to embrace this "App Store Effect" by creating five 99c apps instead of one higher-quality $4.99 app. Do consumers want this? For the time being, the market appears to support this approach. I expect and hope that the App Store will evolve to better highlight apps at different prices levels. Allowing star ratings for a specific app version (for example, version 1.4) will help. This will allow consumers to see which apps improve over time and which apps are impulse items.
Chuck Soper, founder of Vela Design Group
Our VelaClock iPhone app is currently priced at $3.99.

I think the App Store effect is more about what's going on in the minds of the developers and less about what the consumers on the App Store are thinking. Is there any other place where people put up a product and expect that to be the extent of the sales and marketing activity? If developers begin to think of themselves as the primary marketers of the apps and simply link to their products on the App Store for the purchase, things will begin to change for everyone's benefit.

"The app store is not your company's marketing department."

Keep repeating this until it resonates. OmniFocus sells for $20. They already had a loyal customer base in their Mac product. Rolando is a new app that sells for $9.99 and went quickly to #10. Labyrinth has been in the Top 100 since day one and has always been $6.99.

At this moment (12/27/2008), if the Top 100 apps in the App Store, 56 of 100 are higher than $0.99. Looking at Top 100 in a specific random category, like Productivity, I see 62 of 100 greater than $0.99. LogMein Ignition is a $29.99 app at #15 of 100 in Productivity.

Some developers start or change their price to $0.99 as a marketing tactic, or because they developed a quick app and saw the impulse price point as the best way to get quick sales. That's not a substitute for putting time into an app's development or marketing.

This article seems to be a retread of the Craig Hockenberry article. http://furbo.org/2008/12/09/ring-tone-apps/

The argument presented is incomplete because there is no mention of sales volume. With 100% fixed costs (the developer has the same costs whether they sell 1 copy or 1 million copies), price becomes only half the issue. Revenue is really key metric.

I am not an iPhone developer nor a software developer of any kind but business is business. A $0.99 app that sells 100,000 copies nets the developer $69,300. Sell 25,000 copies and in comes a check for $17,325. Sell 1,000 copies and you get $693. Etc. Etc.

How much work goes into producing an iPhone app?

How many Apps can a developer create and sustain per year?

How much income makes this a viable business pursuit?

Unfortunately, there has been very little data released about App sales other than Apple providing the total number of App sales / downloads. The only other App sales data I have seen has been from a very few developers who have provided their actual sales data.

With the installed base of iPhones/iPod Touches growing so quickly, it seems that developers very well may be able to make it up in volume.

Are developers creating / supporting Apps on a full time basis? A lot of the arguments against low prices make it sound like a developer needs to make lots of $$$ off of one and only one App. Is there really enough work to keep a developer busy 12 months a year working on only App? If not, then how many Apps can they work on?

Inquiring minds want to know.

Craig Hockenberry made a similar argument that fluttered around the web a couple of weeks ago. While I see the point, I don't agree with it. John Casasanta has it about right. You gotta market your product and you can't depend on the App Store as anything but a conduit. I didn't know Snapper was regarded as a high-quality mower, but if I was in the market for a high-quality mower I'm sure a little Google research would have made that obvious. Likewise, I have no clue what's good for me at the App Store unless I read about users' experiences (and not the App Store reviews either). I've made all of my App Store purchases that way. So get the word out about your app, and get people talking and writing about it. Of course the vast majority of purchasers aren't going to be very discriminating anyway ("Lookee! My iPhone farts, uh-haw haw!"), but that's the way it is, despite the un-Mac-likeness of that sort of behavior.

Paul-

The appstore is a free market, and in a free market people are able to compete on price, among other things. That you feel that you cannot compete in this market, is fine, don't. That you (apparently) think the market is flawed because its free, is an erroneous conclusion.

All the mac shareware authors complaining about the appstore are like windows programmers complaining about the mac development environment.

I sense an attitude of smug entitlement. But interestingly, the mac shareware community is more exclusive and cliquish, and to be honest, I hope the iphone development community doesn't go the same way, so when y'all hold your noses up in disdain, I can only cheer.

You've got a viable business, keep at it. The iPhone market is not for you.

Disagree. First of all, you denounce free market pricinciples -- where price is a major factor, no can do = lose out = your fault, not 'theirs', being the 0.99 cohorts. Second, there's a number of $9.99 apps speaking and selling for themselves -- 'Rolando', a mgmoco game, being one of them, purely selling on quality and word-of-mouth. Third, you may want to wait it out for a bit before calling it. Watch the scene mature, and you might see quality emerge at pricing that makes sense (see f.i. aforementioned $9.99 price point).

Although there's never been an ability to charge for Facebook applications, I see the same trend happening with iPhone apps that we saw with Facebook Platform.

Since the monetization of Facebook Apps has largely been through ad sales, and since CPMs or clicks don't sell for much, there's a similar 'race to the bottom' when you look at the Average Revenue Per User (ARPU). This quickly led to Facebook being crammed full of junk applications that take very little time to build, which started to seriously away users who were tired of being bitten by vampires or zombies.

I wonder whether the race to the bottom here is, as Jeff said above, is really in the minds of developers. The $0.99 price point might be a self-fulfilling prophecy in a sense: everyone has to lower their price to match everyone else. Apple could do what Facebook did and make changes to the platform to curb the junk apps (or, at least, improve the signal to noise ratio), but I suspect that the App Store will follow more of a free market model. Maybe what's needed is an informal agreement between developers to stop racing for the bottom of the barrel: if the top app devs agreed to price their apps higher, then the rising tide would float all boats.

In the meantime, I agree with other comments here. There are many marketing channels outside the Top 100 apps. As compelling as it is to be listed there, SEO, social media, and Google AdWords (to name three) are still very powerful. The ability to link directly to your app from the web should not be overlooked.

Paul, please see these two links for why none of this matters:

http://www.mobileorchard.com/99-cent-iphone-apps-not-significantly-more-popular/
http://www.mobileorchard.com/price-and-popularity-the-iphone-app-stores-data-shows-whos-making-the-big-money/

Paul, do you have an alternative in the mobile space, with any other app store, in scale and reach?

Do you also recall that the labels have forever put pressure on Apple to allow variable pricing on iTunes? $0.99 has been a primary factor for the ascendency of iTunes, despite all the naysaying. On App Store, there are not even Apple-dictated prices, but the point remains: in large scale/scope markets like iTunes and App Store where the customer base is measured in tens of millions, price elasticity doesn't each upwards.

Perhaps, you'd like Apple to make non-objective (not measureable by facts like sale numbers) decisions for a separate class of apps. I'm not sure Apple would want to or should get into rating apps, are you?

I think a lot of the commenters above miss the point, of both this piece and the Hockenberry piece. I don't see these developers as complaining about *their* apps. They are making an analysis of how the STRUCTURE of the app store operates and impacts the customer base, and arguing that it creates an ecosystem that fosters 99-cent, quick impulse apps. See also this piece on it not being a free market.

I'm not seeing people rebut that point, only offering ideas for how to get around it. As a regular user, not a developer, I find it tedious and annoying to compare applications or evaluate complicated, expensive apps, and I am only willing to risk 1-2 dollars on something I might not use long-term. Apple could and should do a LOT more to help me find, flag, and evaluate the applications that offer $10-$50 worth of value. Without trial apps, I'm only going to expend money like that on phone clients for desktop apps that I am already committed to.

There seem to be two different types of strategy when developing for the iPhone, one is to try and get on the top 100 and make a mint, and the other is to go for a higher priced app with a longer term more sustainable strategy.
Trying to get an app in the top 100 has to be a high risk strategy, you have to discount your product, potentially selling to your entire market at a heavily discounted rate. This is no different to any other capitalist economy, higher risks should bring higher rewards. The really high rewards are there for those that come up with new ideas, develop something original or just get lucky. The quality probably isn't top notch but then this section of the market needs to have a high turnover of applications so that there is a lot of creativity and enterprise in the development.
The other side of the market goes for the long term sustainability. Here you charge what the market thinks it can sustain. Critically in this section of the market there must be less competition, otherwise a price war could develop and the prices could, but not necessarily will be driven down below levels that mean an application is not sustainable in the long term. In this section of the market you need something that will keep long term sales going. It might be the originality of your application, it might be clever marketing, it might be the name that your application has for quality or it might be the strength of the name that you already have such as Omnigroup. If you are developing for this sector you have to manage your business well, keep costs down, clever marketing and have a good quality application.
I think the app store is working for both types. Entrepreneurial developers do get the chance at making a mint with the high volume application, encouraging creativity and allowing some developers and development houses to spring up. Equally, there is a good market for the smaller ISV's creating quality applications and operating in a lean manner like micro ISV's always have done. I think the system is working well, it just needs developers to understand that developing for the iPhone is a business and developers need to go into it with open eyes, knowing how the risk / reward system works.

Weirdly, Brent Simmons thinks the problem is the app store has "no demo versions".

http://inessential.com/?comments=1&postid=3578

Which is wrong in my view, because I downloaded and tried free versions of all the following apps, then paid for full versions later:

Bix
Blackbeard's Assault
ChocChocPop
Dizzy Bee
Instapaper
Labyrinth
Loops of Zen
Moonlight Mahjong
MotionX Poker
PuzzleManiak
Solebon Solitaire
Sudoku Loaded
TanZen
Twitterific
Venger

The difference is, I didn't get annoyed by having an app "time out" on me. I got to try each app, discover I like it, and buy it on my schedule, and not on a "launch three times, then pay or we self-destruct" model. For all intents and purposes, I demoed all those apps and bought them.

But if your only definition of a demo is that it must time out and annoy the user, then yeah, guess the app store is broken.

Dainius Blynas: As a developer, we certainly appreciate that. Unfortunately, the market doesn't seem to reflect your own thought process. As well, it's worth remembering that iPhone customers are not the same as Mac customers. A huge (but as far as I'm aware, unknown) percentage of iPhone and iPod Touch users run Windows.

addicted: I've certainly been beating that particular drum since day one. Unfortunately, thus far, it doesn't seem like Apple has any intention of allowing other distribution methods.

John S.: 1) I certainly never said the App Store was our marketing department. Heck, Rogue Amoeba has worked on marketing our own app that way, ignoring the App Store itself except as the final selling point. Unfortunately, even as we do this, we're affected by the pricing seen in the App Store.

On another note, Apple certainly has pitched themselves as handling everything but the app development, particularly when explaining their 30% cut. But ignoring that, as things stand right now, the App Store itself is how most users get their information, not outside sources. Because of that, things like the Top Sales charts have tremendous value, which then leads to the behaviors I've described, driving prices below sustainable levels.

2) Again, I never said we belong on a Top X list, at all. The point is, the car market (and most every market) has a range of prices and quality. On the iPhone, because of the App Store, everything is being driving to $0, or as close as we can get.

3) Sure, but again, while cheap may be popular, it's not the only option. The way things are going on the App Store, however, there won't be room for a range of prices. As well, Walmart being popular is no indication of it being at all good for the economy, local or global.

John Casasanta: "With the Snapper/Walmart example, are you trying to tell us that your apps are too good for the App Store?"

No, and that seems a rather absurd conclusion to draw from this. I made a point of not mentioning our specific iPhone app, but it is in the App Store right now, at $9.99. I do believe that it's a deep enough app to deserve that price, as are many, many others. Hell, in regard to your own Classics, you said:

"Did we price it below what we felt our app was valued? Yes"

That's the issue that I'm addressing, nothing more. I believe the cost of development should be factored into the price, certainly. Directly related? No. But an app that does more, or does something better, should cost more than an application that does less, or does something worse. That's how value works, in a sensible, rational market. Higher value should command a higher price, and that's failing right now.

This really isn't about our own software. As noted previously, we are working to market our application outside the App Store, but that's still not really the issue.

But I'm not concerned with our own sales or marketing here, the issue is whether it's possible to sell a reasonably priced, deeper application. If the App Store is the only market and prices are being driven steadily downward, then very few applications will have the sales volume survive. That's a net loss for everyone.

Chuck Soper: Many smaller apps is one strategy, but it definitely has plenty of its own issues. I certainly don't know the perfect fix here. I just know that prices continue to drop, and it worries me both as a developer and a consumer.

Jeff: I'd like to believe that's so, and it's certainly what we're doing with Radioshift Touch. However, Apple has positioned themselves as the full solution. Ignoring that though, I don't know that at this point outside marketing of more expensive apps will be enough to halt the price slide. We'll see, I guess.

Dylan: There certainly are apps that sell for more 99 cents, and even a few that are commanding the price they deserve, such as OmniFocus (which has a popular desktop component which may well serve as something of a "trial", it's worth noting). However, where we get a rare price complaint on the Mac, we see lots and lots of them on the iPhone. The price-slash tactic certainly is not a viable substitute for proper development or marketing, but it is gaining popularity. As that happens, it becomes harder and harder to charge those higher prices.

sfmitch: Developers most definitely do NOT have 100% fixed costs. While we certainly do see increased returns as volume increases, there are still costs associated with every sale.

"Making it up on volume" is an appealing idea. The problem is getting exposure. To sell 10000 or 100000 copies of a $1 application requires a whole lot of eyeballs, and the App Store is limiting in this regard.

How much work goes into producing an app? A range from very little to just as much as a desktop app.

How many apps? 1-N, depending on how deep each app.

How much income is needed? For a single developer, we'll say at least $40,000.

Full-time? Certainly many of us are trying, yes.

Some simpler apps absolutely can be part of a larger line-up for a developer. The point of the discussion above is that as prices are driven downward, these become the only applications that it's viable to make.

Doug Adams: Marketing doesn't instantly change consumer expectations on pricing. The App Store as a whole is driving prices down. It's tremendously difficult for a single application's marketing, or even several applications, to counteract that. There's no question that marketing needs to take place outside of the App Store. The problem is that sales must take place inside the App Store, and there, low price is king.

The fact that you're willing to hunt down information is a very good thing. Unfortunately, however, most customers aren't. They pop in to the App Store, find the lowest price sprocket that does X, and buy it. Without a better education system, or alternate sales methods, it's much more difficult to compete with low prices than in a more open market.

Liza: As Brent Simmons covered well, the App Store is most decidedly not a free market. Give his post a read:

http://inessential.com/?comments=1&postid=3578

and David Barnard's as well: http://appcubby.com/blog/files/app_store_pricing.html

I really don't feel entitled to anything at all. I do, however, believe that an ideal market would have room for both simple and more feature-filled applications, at a range of prices. Currently, that is not the case.

moros: I'm afraid I can't entirely follow what you're saying in your reply, but as noted, the App Store isn't a free market. That's just the problem. A free market would allow sales from anywhere, not just the App Store. This is a closed system, controlled by Apple, and from that arise nearly all of the problems.

That said, I certainly hope you're right, and that reasonable prices for deeper applications make a comeback. I'm certainly not calling anything, but since the store opened almost 6 months ago, we've seen prices driven lower and lower. That's a worrisome trend to me.

Jay Goldman: The origin of the race to the bottom is interesting, but I think it's largely academic. At this point, I don't think you'd ever get an sort of informal agreement - there are thousands of developers, and it just takes a few undercutting to force more and more to do the same.

Harvey: Mobile Orchard has had some interesting articles, but these articles hardly lead to a conclusion of "none of this matters". The first link is deeply flawed by not breaking things down beyond free, $1, and more than $1. Further, it's not just about what can earn the most money - certainly, some popular apps (like SimCity) cost more than $0.99, and are doing great. The problem is that right now, these seem to be outliers. If so, that makes it very difficult to charge a higher price for a more valuable product.

Kontra: I'd like two things. 1) Trials in the app store, so that customers can have a more accurate gauge of quality and/or 2) Open distribution of software, just as found on the Mac and many other platforms.

I'm really not asking Apple to do anything but open up. The problem is that they've locked down the market, and that market is failing. The music store comparison fails on this front - the labels have dozens of other distribution methods, from Amazon to Lala.com to traditional physical products. For iPhone apps, however, we have one and only one option - the App Store.

dance: That's exactly correct - as noted, I never mentioned our own app, intentionally. The discussion is much larger than our own software. If it doesn't cut it, so it goes, we'll continue to work on the Mac. But as a customer, I want there to be deeper applications, and right now, that seems to be growing less and less likely.

Ian Turner: Those are definitely the two major strategies we're seeing right now. The problem is that the balance is heavily skewed towards the cut-rate pricing strategy, and that affects customer expectations. Prices being driven down across the board makes it much more difficult to try the longer-term, higher-priced, lower-volume strategy.

The App Store is certainly working well for a small number of simpler, low-priced, high-volume apps, but as noted, there are more apps every day, and still only 100 slots in the Top 100. More and more developers are vying for the same number of top sales slots, and eventually, average prices fall below the cost of development for most developers. At that point, only hobbyists and companies that can afford loss-leaders are left. That's a frightening scenario as both a developer and a consumer of apps.

Jacob: While some apps, particularly games, can offer a Lite version, or an ad-supported version, Apple's restrictions make it very difficult in general. Their rules are both strict and arbitrary as to what can and can't be done in a free version, particularly as far what up-selling can be done to the full version. On an open platform, we're able to experiment to see just what the right level of features and upselling is. Here, Apple has the final say.

You don't like the demo or shareware model found on the Mac and Windows, and that's fine. It's great to hear of a customer who's willing to pay for software after he gets a good chance to try it out. However, years of development have show that this is far from typical. Nagging and limitations happen because they work, and they work quite well. They increase sales across the board, and developers are able to earn a living, while customers can generally get a pretty good idea of what they're getting before they purchase. On the iPhone, it's much more difficult to do this, and that's a definite problem.

Hi Paul,

Two parts of your essay stood out to me before:

"If developers could charge a price lower than 99 cents, there's no doubt that some would, and the price curve would shift even lower."

and

"A low price is required to get a top sales spot"

Based on those two things, I expected that almost all the apps in the top 100 would be priced at $0.99, but as I mentioned in my previous post, that's not the case. Certainly there's a lot of $0.99 apps, but there's plenty of non-$0.99 apps on the top 100 lists too.

Imagine if the top 100 was based only on revenue over the lifetime of the app. Then something like OmniFocus would probably be very high on the list, as it's $20 and been available since day one. But then other developers would complain "it's too hard to get on the top 100 if you're a small developer with a simple, cheap idea! Only the big publishers can get on the list!"

The real problem is that when you focus on the top 100 as the only successful criteria, then the majority of apps will get left off by definition. Apple has done a few things that help this though.

First, they separate out the free apps into their own top list. Imagine if they didn't do this. Now perhaps they should have three list: Top 100 Free, Top 100 $0.99, and Top 100 Everything Else. But then I suspect we'd get complaints that too many $1.99 apps were on the Everything Else list.

Second, they feature apps on the App Store separate from the top 100 lists. Cultured Code's Things is currently featured on the main page, and while it's in the top 100 for Productivity, it's not in the main top 100 list. Perhaps they need to feature more apps here, or limit the number of featured apps that are already on the top 100 list?

Third, they recently made it so each category has their own top 100 free and top 100 paid lists. I think this is great. If I decide I want a new fitness based app, I can go to the Healthcare and Fitness area and get some ideas. Maybe they need more categories?

What I'm really curious about is for people that write articles like this to tell us: what apps are being neglected? What would your Top 100 be like? I'm not a fan of iFart myself, but instead of just mentioning that, I'm curious what applications are out there that I'm missing out on? Are there ways developers can promote these apps outside of the App Store that can give them significant exposure?

@addicted : I certainly hope that Apple does not allow additional stores to sell apps for the iPhone. This fractured market is what I think will doom the Android. Review sites, app store cover sites (like ours), etc are fine as long as they direct users to the one and only store. We want the consumer to know they are dealing with Apple, not some unknown company.

@Paul & @Dainius Blynas : Here are our stats for Operating Systems : As with the overall OS environment, most iPhone users are Windows users.
Windows : 55%
Mac : 34.2%
Mobile : 9.4%
Linux : 1.4%

@All App Developers : Several weeks ago, AppBeacon made an offer via Twitter to give free advertising through January for 2 apps in each category. Only games is fully reserved. The only other requests we got were for Entertainment, Business, and Education. If you've got an app whose primary category is not already reserved, just let us know on the contact page. We'll give you about 50% coverage of that category and coverage via smaller links as well. This offer is first come first served and is only valid through January 31, 2009.

You started the analysis onthe right track but then you came to the wrong conclusion. Why is Snapper ableto command a premium - as you point out - reputation and quality - SAME PRINCIPLES apply as you point out ... why is SimCity able to "command" more - because we know its reputation. If I start selling tomorrow - who am I? i have to START at the bottom ... and maybe sell for $.99? Snapper. EA/SimcIty, etc ... did not build a reputation overnight but after many years, they are able to price it higher but they also have more overhead ... YOu have to start somewhere but you only imagine that $.99 apps sell - that is clearly not the case but you also have to factor in that about 80% of the apps are one trick ponies ... they do what they set out to do and not much more AND THAT IS FINE. If I want a ruler app, I don't really want one that plays music also ... so $.99 for a ruler app is fine ... but it's also an oportunity for someone to come in like the great DIMENSIONS app for $1.99 that does 10 measuring things ... so don't confuse TWO ENTIRELY separate marketplaces and apply the same principles of selling/buying lawmovers to an app store ... you bring up a lot of points but you don't connect them corectly.

You wrote: "As the average price is driven down, however, a negative-feedback loop is created."

Nope, that's a positive-feedback loop. It continues away from a stable set-point until it hits a limit, e.g. the $0.99 minimum chargeable price.

"Negative" and "positive" don't refer to the desirability of the outcome. They don't refer to the direction of the outcome, either (away from zero or towards zero). They refer to the sign of the summed error-term.

You and many other people are making the mistake thinking lower price and lower quality will win out forever. You compare the App Store to Wal-Mart, saying that app developers have no choice in where to sell...

While the lack of other sales outlets is true, the other truth is that Apple is not the one driving pricing pressures. No-one at Apple is leaning on a software company to produce a huge app for an unreasonably low price - it's all market forces and competition from other apps. If you are an app developer with a large application that should be set at a price point higher than .99, then there is no-one but yourself to blame for pricing your product too low.

The whole reason Snapper chose to drop Wal-Mart as an outlet was that Wal-Mart drove a price point and volume target that Snapper could not meet without compromising quality. With App-Store sales, who cares what volume of sales is reached? Apple does not care if they sell one or one million of any one application, it's all the same to them. Similarly Apple only cares about sales in aggregate, not the sales of any one application - Each Wal-Mart store has finite shelf space and so constantly seeks to maximize Wal-Mart profit from every inch and so each and every product undergoes constant re-justification as to its presence.

The truth is that really good quality apps take longer to produce, and only now are we starting to see a larger number of productivity applications and games with the kind of time spent on them that really warrant higher prices.

Over time you will naturally see prices ratchet up from .99 as bigger players or deeper apps come on to the market, with the goal of staying for the long term - something you cannot do at a price of $0.99.

I think that you have the right analogy, but for the wrong reasons.

The biggest thing about Walmart is that you get huge exposure once you hurdle the barrier to entry. For Walmart, you essentially have to sign over your business practices to Walmart, and in return for hurdling that barrier, you reach an immense market. That market is so big that you immediately get economies of scale if you are prepared to capitalize on them. It appeared from my reading of the article, Snapper wasn't willing to adapt to that market. It isn't a market for every company, and some thrive outside of it when they wouldn't in it.

You are seeing the same thing in the App Store for those apps that are relying on the top whatever to get seen. For those apps, they have to be priced to compete with other huge volume apps. Those prices are going to be razor thin compared to what you get, and frankly, you don't get much from most $.99 apps.

What you see in Walmart -- and the app store -- are the real, "exposed to the entire market and with huge volume, what is it really worth?" prices.

In the computer universe I have been conditioned over many years to carefully examine & evaluate all the freeware offerings first then carefully research the payware applications.

I learned that often a freeware application does what i want simply & elegantly without bloat & responsive updates from the developer.

On the payware side I often see bloat & poor response to bug fix/feature request.

This is not always the case.
If I find a high quality payware app that does a better job I have no problem with paying for it!

IMO the App Store suffers from its iTunes Music Store roots. Music and iPhone apps are totally different markets. Therefore some of the mechanisms that worked well in the music store don't quite work in the app market.

First, music (and movies) are mostly priced exactly the same. So the whole price differentiation doesn't apply for music and it made perfect sense to base the charts on volume as the only factor. In the App Store this favors the cheaper apps.

Then, the 30 sec. music preview is an effective way of demoing goods in the music store. There is currently no adequate way of demoing apps. This also favors the cheaper apps since a demo functionality is less needed for small apps.

Finally, the review system: In the music business there is never a version 2 of a song. In the App Store that's the normality, at least for any app that is not a one-shot but made to build a sustainable business. However, old reviews with already-eliminated issues still appear and take average ratings down.

Some people argued that the free market should decide and that the App Store is just a conduit. This isn't quite true as Brent Simmons correctly points out: "it’s not a free market". And since it's the only channel to the customer, the App Store and its mechanisms has a huge influence on the buyer decision.

I'm a big fan of free markets and would love to see the App Store shift more into a market that resembles truly free markets out there. With some adjustments that move the App Store a bit more away from the music store, it should be possible to do it.

I'm fairly optimistic that Apple also acknowledges the need for some adjustments. Compared to how the App Store started in July we're already miles ahead.

Ortwin Gentz, FutureTap CEO
Our Where To? app is priced at $2.99.

I tend to agree that the prevalence of free and near-free software on the App Store is probably not good news for people who want to make their livings selling high-quality (and therefor more costly to create) apps.

However, I think one piece of your argument misses the point. Prices of goods are never (or *should* never be) tied to cost to produce. This is true of hardware, software, and services. Assuming a true free market, which I know the App Store isn't, the real determining factor of of the price is the value the product imparts to the purchaser.

If Developer A produces an app at half as much development cost as Developer B, but they provide the same value to their users, then they should be priced identically. This is incentive to produce your app at the lowest reasonable cost to yourself. Alternatively, if Developer C produces an app at the same cost as Developer D, but can provide greater value, the market can bear a greater price.

Ultimately, it is utility to the user, and not how much something costs to produce, that impacts the price an item can be sold at.

You wrote: "As Brent Simmons covered well, the App Store is most decidedly not a free market."

He's right, it's a regulated market; Apple controls the content (i.e. approves the apps) and sets policy on how things are bought. But he's wrong in saying that trial periods are necessary to be a free market; not many real-world items allow a trial period or have nags screens!

He may well mean that trials result in a *successful* (for developers) market but that's not the same as a free market. Free markets feature, amongst other things, price competition. Your example of Snapper mowers is a case-in-point; last I checked, my local Snapper dealer isn't going to allow me to take a mower home and cut my grass a few times so I have to make my decision on the basis of both price and quality (partially determined by folks like Consumer Reports). Personally, I'd love an iPhone app review site that really tested a wide variety of apps; then I'd have more info on which did what.

I also don't want multiple App Stores; I want one place to get apps. That model didn't help WMA-based audio players; it just confused people about what rights they got at what price where.

I still believe that quality apps will sell; the real question, which remains unanswered, is will they sell *enough*?

I disagree with Brent Simmons about the App Store not being a free market. Although there are some limits on what can be put in the App Store, once on the App Store an app is free to do as it likes - charge any amount compared to any other, change descriptions, link from other places to sell the application.

I also find the arguments about not providing demo versions to be puzzling. Although Apple does not make it an instant operation to produce a demo version, if you as a developer feel that a demo is necessary to help sell your application then you are able to create a trial version of your app and put it on the App Store for free.

As for the question about quality apps selling "enough" to my mind this has already been repeatedly and forcefully answered by the games segment. The fact is that the games segment has undergone the same evolution that all other app segments will see, but very highly accelerated. There's no question that good games can sell "enough" at a reasonable price (from the developers perspective). I would argue that the draw of successful games has taken some of the wind out of the sales of productivity applications as there is a mad rush to crank out games, but over time that imbalance will correct itself and truly rich productivity applications will arrive that draw high sales even at higher prices (as we have already seen with a handful of existing productivity apps).

Paul:
You say "I'd like two things. 1) Trials in the app store, so that customers can have a more accurate gauge of quality and/or 2) Open distribution of software, just as found on the Mac and many other platforms."

The benefit of allowing trials are obvious, but I don't understand how allowing open distribution of software would help.

The majority of users will still use the App Store as their first port of call, and the Top 10 lists will still disproportionately reward $0.99 apps. The only customers willing to do the research to find the apps sold elsewhere are the same customers that will find the apps marketed elsewhere currently.

How is a $9.99 app sold elsewhere any more attractive to customers than a $9.99 app sold on the App Store?

Or are you arguing that the App Store should be removed entirely?

The analogy with Wal-Mart falls down, I think, because Wal-Mart would actually refuse to stock the more expensive apps unless the prices come down.

The problem at the App Store is that the cheap apps are given more exposure, and I don't see how also allowing alternate distribution methods will help, when Apple are still providing a centralised store which will always be seen as being more official than the alternatives.

@Kendall: Brent's point about it not being a free market is exactly for the reasons you assume it is:

> once on the App Store an app is free to do as it likes - charge any amount compared to any other,

There are no upgrade prices (IE, from v1.0 to 2.0, you can't charge anything), nor cross-upgrades, nor site licenses, nor piecemeal sales. Periodic charges require that the paid service exists outside the iPhone version (IE, that there's desktop or web app users that also pay). It's either free or the same one-time price for everyone across the board.

In a free market, I could make foo 1.0, sell it for $1, then make foo 2.0 which is three times better. I'd sell foo 2.0 for $3, but $2 to upgrade from 1.0.

In the app store, I have two options. I could make foo 2.0, increase the price to $3, but I lose any upgrade sales oppurtunity. Or, I could let foo 1.0 molder or even yank it from the app store, bringing out bar 1.0 for $3. Both are suboptimal.

In music, there's no upgrades, only remixes or remasters which are charged at full price. In games, you can sell the same game over again as a level pack, or call it "Dance" instead of "Revenge".

> if you as a developer feel that a demo is necessary to help sell your application then you are able to create a trial version of your app and put it on the App Store for free.

An app can not be identified as trial. If it's labeled trial, the app is rejected. If the app has a time expiration, the app is rejected. If the app has any feature greyed out because it's full or pro-only, the app is rejected.

If you have some killer feature that you want to demo or show functionality for, it has to be either there in full (thus mooting the reason to upgrade) or missing without a trace (thus mooting the reason for a demo).

Mind you, this can be mitigated with Daniel Jalkut's suggestion of an easier return policy. Effectively, a sane way for the end user to unpurchase an app within an amount of time from purchase would make all paid apps demos where upgrading is the default.

I wholeheartedly agree with Dance's comment (and it's worth repeating):
As a regular user, not a developer, I find it tedious and annoying to compare applications or evaluate complicated, expensive apps, and I am only willing to risk 1-2 dollars on something I might not use long-term. Apple could and should do a LOT more to help me find, flag, and evaluate the applications that offer $10-$50 worth of value. Without trial apps, I'm only going to expend money like that on phone clients for desktop apps that I am already committed to.

Ortwin really nailed it. The structure of the Appstore app sales and marketing paradigm is to blame for the 'walmartization' of the iPhone app market. The battles between 'free market' ideologues and the more nuanced critics of the distorted marketplace are mostly beside the point. The discussion has largely been taking the Top 100 as virtually synonymous with the AppStore because ths AppStore is really the only effective venue for communicating with potential customers (sorry AdWords), and because the AppStore UI, particularly on the iphone, is limited to showing only a handful of apps. It seems clear that the Top 100 list is itself to blame for the over-reliance on price as a sales driver. It is the source of price feedback. In other marketplaces, product popularity is not directly available information, and as long as sales volume or even revenue are used to directly determine AppStore exposure, unhealthy feedback will continue to exist. The solution, it seems, must lie in replacing the AppStore shopping model by displaying a list of random apps, for example, or using categories and sub-categories and maybe some tags after that. The app subcategories are, as yet, unused.
Another option might be to display apps by average rating of paying customers. It seems clear that any ranking that can be gamed by developers, like release date, price, or name (AAAAFart anyone?) will be.

This analysis is flawed in so many ways, I don't know where to start....literally. I don't know where to start.

@Blain said:

"There are no upgrade prices (IE, from v1.0 to 2.0, you can't charge anything), nor cross-upgrades, nor site licenses, nor piecemeal sales."

You can charge for upgrades if you must by releasing a new version as a separate app.

Piecemeal sales are already done today, the Oreilly Safari iPhone app for instance requires a more expensive subscription to allow you to download the PDF chapters it relies on.

Any app that requires site licenses would obviously be worked using an enterprise account instead of through the App Store.

Again while Apple does not make some things you might want to do easy, there are not many limits around what you actually can do if you just think for a bit. At the very least, the market is more free than not as it's all shades of grey.

"An app can not be identified as trial. If it's labeled trial, the app is rejected. If the app has a time expiration, the app is rejected. If the app has any feature greyed out because it's full or pro-only, the app is rejected."

A simple search on the word "trial" in the App Store refutes your claim. There are many, many limited or free versions of more expensive applications. Perhaps the word "trial" is not accepted (as I did not see it in the title for any of the apps) but as the App Store shows, that does not mean trial versions are not accepted - they just have to be whole unto themselves and are generally called "free" or "lite".

The very first free application I looked at when looking at the trial keyword, said that it was a subset of the more popular full version. Between being called "lite" and being able to note that a more full-featured version of your application exists, how is that not a trial?

I blogged recently about the App Store not being a free ride as some developers had no doubt hoped:

http://www.doubleencore.com/blog/2008/12/17/the-app-store-isnt-a-free-ride-really/

While you may only be able to purchase at the Apple Store, That does not prevent anyone from putting together their own "storefront" that has links to the AppStore, and have the developers share a part of their 70% take with the people who run that "storefront". Why have I not seen this option mentioned anywhere?
This could be used to create a completely different "Shopping" experience, and makes it much more similar to other phones. Having all the apps in one place does not mean that is the way I research my apps. Usually I find the app I want in google, then I click on the "Buy in iTunes Store" link the developer created (on their website, at a review) and that takes me DIRECTLY to the product page in iTunes. I did not search in iTunes for it, I searched elsewhere...

I think that you make a reasoned argument that is non whiny, which is appreciated. Acknowledging gravity is not the same as bitching and moaning about it.

That said, there is another view that suggests that this is part of a Darwinian cycle. First comes supply. Then comes land grab at all costs. Then comes differentiation and defensibility. And plenty of crap and roadkill along the way.

In absence of cheap (read: VC) expansion capital, you will see more measured, bootstrapped startups, intermediaries like ngmoco that specialize in launching and marketing third party iPhone apps and ample numbers of good old fashioned sole proprietors.

This is not the same as Walmart flight to the bottom, and it is somewhat akin to the way the PC market grew into a multi-billion dollar industry from hobbyists and hackers (although not drawing a strict comparison here).

I have blogged further on this topic in a post called:

Surplus, Scarcity and the iPhone App Store
http://thenetworkgarden.com/weblog/2008/12/why-the-iphone-app-store-is-a-surplus-marketplace-enabler.html

Check it out if interested.

Mark

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