Developers Want Apple to Apply Mathematics to App Store Prices

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app store pricesThe 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.

This week, Craig Hockenberry, of app builder IconFactory and ARTIS, posted a letter to Steve Jobs on his Furbo blog in which he says he sees a disturbing trend:

[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.

Low-ball prices for apps indeed limit innovation, agrees David Barnard of App Cubby. We've given his company's Trip Cubby and Gas Cubby high marks here at AppCraver.

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.

Writes Barnard:

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.

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  • http://www.galleytech.com/ Galley

    $4.99 - $9.99 is a fair price. Selling great games for 99 cents is ridiculous, even at a high volume.

  • Eric

    Absolutely agree. To take it a step further, I would love to see iPhone software have more than one method of distribution (iTunes). That would do wonders for the iPhone market.

  • hkiphone

    Even $20 would be a fair price for a fully developed game that really does deserve the accolade. I would pay that much for a faithful replica of Red Alert 2 or Quake 3, which I'm sure is possible. I've also paid $10 for many games and also SmartTime app, so I am ok with paying money for decent software. Of course, $1 apps are fun for a short while, but I hope that long-term development isn't stiffled by this.

  • Bill

    I think people are afraid of wasting their money, 4.99-9.99 may be a fair price, but there's no way for the people to know, we can't test out the apps for a limited amount of time, and the only way we can get any idea of how it works is if the company makes a lite version. I don't see people going for the 4.99-9.99 apps until there's a way for the public to test the apps before purchasing......

  • http://planetoftheweb.com Ray Villalobos

    I think that the marketplace should set the price of the apps and I think the store has been successful at doing that. I like that competition has kept prices down. The developer/designer price is ridiculous. I'm sorry, but I doubt anyone's paying their designers $200/hour. If they don't like it and if it's not worth it, just don't build the apps.

    I do agree though, that there should be a model for testing the apps. I've purchased many apps that weren't really that great and then seen better apps that were either free or cheaper.

    Being that I already purchase software like Creative Suite, Lightroom, and a lot of other great software, I would pay whatever I thought the app was worth, but I'm very skeptic about buying apps without testing them. I love the online model that allows you to test things before buying. Shouldn't be too hard to program an app that expires after a certain timeframe until someone purchases it.

  • http://toykite.com Doug Hogg

    Well here it is more than six months later and this is still a problem. Because all apps in the iTunes store are ranked according to number of downloads regardless of price, there is a rush to the bottom tier of pricing to get a high ranking.

    Imagine if all cars, BMWs, Hundais, etc. were ranked only on the number sold and lumped into a store where you couldn't test drive them but had to choose based on which had the highest rank.

    It is time for ranking to be broken out into separate tiers: top 25 in the over $10, top 25 in the $5 to $10, etc. Then people can compare oranges with oranges. Developers would still be able to lower their price if they couldn't get ranking in the current tier, but there would be more possibility for a $9.99 game to show up in a their own ranking list against other $9.99 games.

    The iTunes App store is a unique creation--an ecosystem all its own-- and now it is time for it to evolve before many developers are forced out of the market.

    True, some people will find niche markets and do alright, and that is a good strategy, but for the market to really be healthy, especially in the game area, people have to be able to get exposure for their $10 games without lower the price to $0.99.

    Doug Hogg
    Toy Kite Software

  • Nemephosis

    I must simply be cheap because I have reservations about paying even 99 cents for an app. There are many apps I've seen on Appcraver so far that I've said "if only it were free" and skipped over.

    That's just me though, that is in no way a reflection on the quality of the apps or the people who created them.