Imagine my surprise when I notice that the Editor’s Choice in the App Store this week is a game that costs $20. Yes $20, for an iOS game. But not just any game. This game, Xcom, is a port of a popular PC and console game that won multiple game of the year awards. While the port is not complete yet, as it lacks multiplayer, from what I have heard is a pretty accurate representation of what you can expect on the PC or console. It also costs substantially less money than what you would pay on the other platforms. So while the game maybe expensive for an iOS game, it’s a bargain overall. But the price of this game got me thinking about the popular topic that is App Store pricing.
Most of us have come to except the $.99 pricing model that dominates the App Store. While this was initially good for consumers, developers do have to make money. This has led to developers finding more and more creative ways to squeeze pennies out of consumers. We have seen the much loved freemium in-app purchase model become more and more popular. Some developers have recognized that some users may never pay for their game, while other users may endlessly pump funds into the game to keep on reaching the next level. Therefore, the freemium model allows for near-perfect price discrimination. Everyone can download the game for free, and you pay what you want to pay. This allows developers to literally squeeze every last penny out of you which would not be possible if the game simply sold. Unfortunately, this has led to scenarios in which you literally cannot progress any further in a game unless you sink hundreds of hours into it or hundreds of dollars. While some games have managed to walk this line perfectly, others, like Real Racing 3, take what used to be a solid game and break it down into a bunch of micro transactions. This typically causes bad will with consumers and is not a popular model. If you ever look at the top grossing list in the App Store, you will notice that freemium games dominate that list. While consumers may dislike this model, it works for developers and will likely not be going anywhere anytime soon.
On the other end of the spectrum, we have apps that cost $10 or more, a small fortune for most iOS users to pay. Many times this software is productivity based (think Things or OmniFocus) or fills a very specific niche that users would pay for because their are few alternatives (like Diet Coda). In situations like this, a developer can maintain a steady revenue stream by selling the app for a high price. Because the app is either incredibly useful or has few substitutes, consumers have little choice but to pony up the money. This is a successful model in these cases. However, this model cannot work for every developer. Considering the sheer amount of apps in the App Store, most have hundreds if not thousands of competitors. Therefore it makes it nearly impossible to compete on features and instead price becomes the main differentiator.
On the other hand, we have seen paid apps that decide to offer additional in app-purchases to generate further revenue. One such example is the app I’m using right now to write this blog post, Byword. Byword Offers a five dollar upgrade that allows the user to share their work to other services. This is a purchase that is not necessary for all but is definitely useful in many cases. This is a great way of a developer finding a way to extend the life of their product among existing users and does not detract from the original product if an existing user chooses not to upgrade. Adding features this way is actually a more productive route because it makes the user feel like work was put into it. This justifies paying for the additional features. The consumer feels like they get something and the developer gets additional revenue. It is a win-win for both sides.
Another route that is becoming more common is to introduce a major upgrade to your app. Since the App Store does not allow for upgrade pricing, developers have instead chose to release an entirely new app that is a separate purchase. We have seen this so far with Twitterrific, 1Password, and Bento. Each of these three apps launched a major redesign that featured entirely new styles as well as tons of new features. Because the upgrade was so substantial, few people complained and many paid. This is a great way for both the developer to gain revenue in the consumer to receive a better product. Often times these new apps gone sell temporarily upon release sold customers can upgrade anymore fair price. On the other hand, this method can be abused. One example is Instacast which has released four versions so far, all which required a paid upgrade. Many users felt shunned by this and stopped buying them. I feel that with iOS 7 coming out and being such a radical departure in terms of visual style, we are likely going to see a lot of apps launch a separate iOS 7 only version. This will cause many of us to have to decide if we want to use our old app or pay to upgrade. But I think this is a great opportunity for developers of established apps to gain a little more revenue for the work it will take to make their app stylistically iOS 7 compatible.
So after looking at all of these methods, which one is best? Well, that seems to depend on what you are selling. If you are selling a niche product or one that has few competitors, it seems like charging an incredibly high price is the route to go. The market has demonstrated that iOS consumers are willing to play a premium for apps that have few alternatives. On the other hand, if you are just making another Angry Birds rip off, $.99 is probably the best route for you. While your app may never gain traction, there is little you can do. The economics of the App Store are such that there is too much supply and not nearly as much demand. This has caused a race to the bottom with pricing that will be unlikely to be fixed anytime soon. This also causes apps that are high-quality to lower their price to compete with the much cheaper, much more inferior alternatives. This is a bad situation for everyone involved. While consumers may initially enjoy quality apps for a low-price, the developers who make these unique apps will see that there is not much profit for all of them and will back out. Or at least that is what we are told. Instead we have seen a market that is not only supported these top apps, it has also supported many of them. This is why we have so many choices for things like camera or weather apps. Not every developer will become a millionaire, but not all of them are as destitute as we are led to believe. The App Store has so many choices for so many different apps that it is unlikely anyone will come to dominate one category. This is fantastic for consumers because we have so much choice. In the App Store, you can pretty much find something for everyone. Do you like a weird to do list? There is one. Do you have some very specific desire for a weather app feature? I’m sure an app out there has it. And guess what? The app store such a great chance for opportunity to arise that is a top developer fell apart because no one bother $.99 app, a new one would quickly emerge. The App Sores is always fast-moving with new big names shooting to the top. Well this may not be a great market for developers, there are too many developers. If one falls, another will rise in its place. So at the end of the day, the App Store is a consumer marketplace more so than a developer one. As a consumer, I like that.