The question of how to make money selling apps at cut-rate prices or by giving them away free in the App Store is one we've asked a number of developers such as Simon Oliver (Rolando), Ge Wang (Ocarina) in recent weeks.
We've begun to wonder whether developers were "conditioning," iPhone users to undervalue their apps with free to rock-bottom pricing. If you regularly read reviews, you'll see perhaps overly high expectations for apps that sell for as little as $0.99. Apps selling for $4.99, for example, are routinely said to be "not worth the money," or "too expensive." That's the price of one DVD rental at BlockBuster, yet the utility of a good-quality iPhone app far exceeds a night of watching a movie on TV.
[Developers] are lowering prices to the lowest possible level...to get favorable placement in iTunes. This proliferation of 99 cent 'ringtone apps' is affecting our product development.
IconFactory and ARTIS are the developers of Frenzic and Twitterrific, which have received high marks from AppCraver and other reviewers. Frenzic is currently in What’s Hot and Twitterrific appears in both the Top Free and Top Paid Apps for 2008.
We have a lot of great ideas for iPhone applications. Unfortunately, we’re not working on the cooler (and more complex) ideas. Instead, we’re working on 99 cent titles that have a limited lifespan and broad appeal. Market conditions make ringtone apps most appealing.
Based on the typical hourly rate of developers and designers ($150 to $200), it would take sales of about 115,000 apps to break even, Hockenberry calculates.
What happens when you want to develop a more sophisticated app that requires several months of work? Development and design costs rocket to $150,000 to $225,000 and it would take sales of 215,000 to 322,000 apps just to break even.
Counting on getting featured in the App Store in hopes of jump starting sales is risky and raising the price of apps won't help because it makes it all that much harder to climb to the top of the charts where it will be noticed.
Barnard goes into a well-reasoned analysis of the financial realities of App Store economics on his blog this week, in support's of Hockenberry's position.
The closest thing I’ve seen to a 'business model' for marketing iPhone apps is to advertise like crazy until you get into the top 50 and once you're there, the top 50 list will start generating it's own buzz. Then, just throttle the advertising to keep it in the top 50. But that's not a business model, that's like rolling the dice at a casino.
If every developer dropped their price, volume would definitely go up, but it would just be spread across the top 200 [apps] rather than the top 50, and it would still take a top 50 app to justify months of development. That scenario doesn’t pose any less risk for developers than the current system and once the price expectation is set at $0.99, niche apps will never have a shot at profitability.
Barnard says he hopes the concerns of developers are being discussed at Apple:
"Would free trials help raise the quality and price of iPhone apps? Would providing click tracking to developers spur cost effective marketing? Is the top 100 list in its current iteration good for the platform? How can the App Store be improved to help users with search and browsing?
What do you think is a fair price for a well-crafted app that you would use every day? Is it $4.99? $9.99? More than that? Talk to us in the comments and let us know what you think.