App Store Pricing: Worth Less than a Cup of Coffee

http://floriankugler.com/blog/2013/9/30/worth-less-than-a-cup-of-coffee

by floriankugler • 13 years ago

189 186 13 years ago

svantana• 13 years ago

That's a hard pill to swallow, but we should let it sink in. We pour all our creativity, time, and passion into creating basically worthless products.

What a weird conclusion. For me, the take-home is rather "why don't I stop doing this and try to figure out something that is actually worth something to someone?"

easytiger4• 13 years ago

I don't see those as incompatible end points.

Ntrails• 13 years ago

The question becomes whether the meaning is that all smartphone apps are worthless, or that you should work on one that isn't

ekurutepe• 13 years ago

Isn't that exactly the same conclusion as the article?

"But we should be aware of the fact that we're in the business of creating products which offer very little value to people. It's our choice if that's what we want to pursue."

digitalengineer3• 13 years ago

Yes. Like developing Apps for clients, not consumers. They can do with the App what they like. (usually give it away for personal data).

easytiger4• 13 years ago

Not what I expected but I completely agree.

Most productivity applications (anecdotally) are bought on a whim and oft are never used but at all.

ghshephard• 13 years ago

What is the worth of something precious or valuable, if all around it that same precious and valuable thing (or a very close substitute) is available for no charge at unlimited quantity?

I wonder if Apple was aware the App Store would lead to basically infinite supply of (in many cases) beautiful and high quality apps for little to no cost.

With 200 million+ users, many of whom have a greater than average tendency to pay $$$ for apps than your average smartphone user, an outstanding Apple developer has some chance of making money on the App Store - (That old saw about capturing 1% of a very large market) - but I really pity the third and fourth tier platforms - they are going to struggle.

It's an IAP future.

Kurtz793• 13 years ago

I guess that, given the chioce, most people would opt for a free cup of coffee over a paid one, if quality was similar.

masklinn3• 13 years ago

most people would opt for a free cup of coffee over a paid one, if quality was similar.

Quality does not enter the equation. Most people will opt for a free cup of coffee over a paid one if the paid cup is the best coffee in the world and the free one is barely a step over ground-up dried shit.

highace• 13 years ago

Ground-up dried shit is some of the most expensive coffee!

(Of course I'm talking about Kopi Luwak)

borplk2• 13 years ago

The economic reality is that most apps offer next to no value to people.

I'm not an app developer and I disagree that most apps provide next to no value (some apps, like everything else sure, but many of them do provide more value than their price).

For example there are many games priced $0.99 or $1.99 that people might play for hours and hours. Shouldn't that cost more?

The reason that the prices are low is not because people are not prepared to pay for them. It's because Google and Apple want it that way and also because developers are slashing prices to the extreme to compete.

Imagine if App store and Play store didn't exist and you'd have to individually find developers and buy/download their apps. That would certainly result in higher prices.

The bottom line is app developers have no one to blame but themselves for creating this perception about their apps and allowing this expectation of $0.99 apps to grow.

People also have no freaking clue how hard it is to make apps. For example most people think mobile apps are a lot easier to make than software/web apps, perhaps because mobile devices are 'small' so they tend to think of mobile apps as 'tiny' little widgets that someone pushes 20 buttons and it magically gets created.

If a large enough group of people start raising awareness and refusing to release their work for peanuts we'll see a shift in the market price towards more realistic numbers.

Touche2• 13 years ago

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.

threeseed2• 13 years ago

Exactly. If you can't build something unique then don't complain if there are 100 other developers (some of whom may come from developing countries) who are happy to do for it less.

There is a new era of apps being ushered in as a result of Bluetooth LE. Take advantage of it.

Shivetya• 13 years ago

Prices are not low because of Apple or Google, they are low for exactly the reasons in the article plus one, they are so many apps its just as likely you will find an acceptable one that is free that does what another wants money for.

I have purchased a few apps, namely ones I was familiar with on my desktop and wanted a portable version of. Yet for nearly every paid "other" app I could find one or more free ones.

the idea of finding a "large enough group" to correct pricing is laughable, go for it, the ease of development is that ideas undoing. Yeah, it does not guarantee good apps, but that old adage about a million monkeys and Shakespeare applies here too

macspoofing3• 13 years ago

It's because Google and Apple want it that way

I imagine Apple and Google are largely indifferent. Low price points make their platform more attractive. Higher price points, make them more money.

It's just competition. The barrier to entry is incredibly low (lower than it's ever been on desktop, because billing and distribution is done for you), and now it's a race to the bottom.

chrisdevereux2• 13 years ago

I think that applies to Google/Samsung/Amazon, who want to capture as much of the market as they can get.

Not sure it applies to Apple. They've made their position on the low/mid-range clear. If anything, having an App Store full of shovelware makes it harder to distinguish iOS from Android, which is what they've bet the company on being able to do.

masklinn3• 13 years ago

It's because Google and Apple want it that way

I fail to see where they have had any influence. Apple at least has historically priced a number of their applications pretty high (not all of them though, basically "core feature" applications such as ibooks or podcasts were free, but iwork applications are $10 each, and garageband and imovie are $5)

also because developers are slashing prices to the extreme to compete.

Mostly that one, from very early on there's been an insane tendency to price-dump and race to the bottom.

That would certainly result in higher prices.

It would also result in extremely low sales, as known by anyone who developed for S60 or Blackberry back in the bad old days.

If a large enough group of people start raising awareness and refusing to release their work for peanuts we'll see a shift in the market price towards more realistic numbers.

That's completely unrealistic. It would require a buy-in from every single developer.

corresation• 13 years ago

but iwork applications are $10 each, and garageband and imovie are $5

These are enormously complex, rich applications that supplant historic applications costing hundreds of dollars. If Garageband is $5, it makes it that much more difficult for anyone not making a significant application with a team of developers to demonstrate value for a couple of dollars.

hrabago• 13 years ago

Apple at least has historically priced a number of their applications pretty high

This is incorrect. Apple has historically priced their software very low, and their hardware very high. Their office suite is very inexpensive compared to MS Office, for instance. Their OS is also very inexpensive compare to Windows.

On the mobile side, their $5 and $10 price points make it hard for others to justify charging that much for less complex software (a point corresation has also made).

Their software pricing agrees with the points Spolsky made on http://www.joelonsoftware.com/articles/StrategyLetterV.html .

Now of course they are giving away their mobile software, which I think helps both themselves and 3rd party developers, so I think it's one of the few steps they've taken to help 3rd party developers charge more. (Last time around it was the creation of a "premium" category.)

netcan• 13 years ago

I think your comment is an example of exactly the sentiment this blog is trying to address: Complaining into a void. Users should value what you want them to value. Apple & Google should fix it.

The reality is that Apple & Google have their interests driving them, user have theirs & App developers have their own. Anyone who finds themselves frustrated and complaining into a void needs to channel the stoics and devote their emotional energy to stuff that can be changed, preferably by them.

That said, I don't quite agree with his approach. The price of a cup of coffee is not a good benchmark unless you happen to be selling tea or biscuits or something else in the coffee shop. The Cup of Coffee is a little anomaly involving self esteem, addictive substances, morning routines and other bits and pieces of dark magic. Every environment has its own price dynamics and very few are similar at all to coffee shops'. In a supermarket people are very cost sensitive. An extra 30¢ can be the difference between customers choosing one jar of instant coffee over another. That's less than one cent per cup of coffee. Enough with the cup of coffee already. If it helps you make a sale, go for it. If you are using cups of coffee to justify to yourself why people should be buying your stuff when they are not, don't.

There is a chasm between $0 and $0.01 for digital goods that is confusing but undeniably there. Yelling at it that it shouldn't be there and holding up your overpriced cup of coffee as proof that selling stuff should be easier is useless.

It's hard to sell software with a value anywhere in the ballpark of a cup of coffee regardless of price. That is reality. It was hard before the App store. It's still hard. It's also hard to sell (ppv) episodes of Breaking Bad (even though they're awesome), digital subscriptions to newspapers (even though the paper versions were clearly worth something to some people). We can discuss why the experience of buying software or TV shows isn't as rewarding as the experience of buying coffee, but lets not try to argue that it is or should be when it clearly isn't.

aestra3• 13 years ago

Coffee has its own culture and rituals around it. Some people tend to be snobby (for lack of a better word) about coffee. Our office provides free coffee, but lots of people bring in their own coffee shop coffee at a cost of a few bucks a day. Sitting in a coffee shop is kinda a "thing" to do, even though you can make coffee at home and sit in your living room for pennies. People hang out there, do work, read, what have you.

orangecat• 13 years ago

Shouldn't that cost more?

Some developers are willing to sell for $1, and make quite a bit of profit because that brings in lots of customers. Why "shouldn't" they do that?

Imagine if App store and Play store didn't exist and you'd have to individually find developers and buy/download their apps. That would certainly result in higher prices.

So you're saying that Apple and Google are providing most of the value here. Maybe they "should" be getting 90% of the revenue instead of 30%.

People also have no freaking clue how hard it is to make apps.

It's hard to make microprocessors. Should Intel and ARM make an agreement to triple their prices so that their engineers can be properly rewarded?

If a large enough group of people start raising awareness and refusing to release their work for peanuts

As a cell phone customer in the US I appreciate price-fixing cartels as much as anyone. But first you should really do something about those open source communists who have been devaluing software development for decades.

derefr4• 13 years ago

So you're saying that Apple and Google are providing most of the value here. Maybe they "should" be getting 90% of the revenue instead of 30%.

Maybe they already are. Another way to think about this might be, apps might nominally cost $20 or so, and Apple/Google do take 90% -- but they also choose to give an (invisible, constant) 80% discount to encourage purchases. Developers then get paid from net, rather than gross, profits.

pjc502• 13 years ago

_Imagine if App store and Play store didn't exist and you'd have to individually find developers and buy/download their apps. That would certainly result in higher prices._

Higher prices .. and much, much lower sales.

The analogous situation is developing with PC games and Steam; rather than spending £40 each on a very small number of games I find myself spending £4 - £15 on a large number of games.

Some sort of ridiculous Galtian producer's strike will get you nowhere here. People have plenty of other choices.

crucini• 13 years ago

If a large enough group of people start raising awareness and refusing to release their work for peanuts we'll see a shift in the market price towards more realistic numbers.

This is always the dream of the producer whose output is "underpriced", whether he's a laborer or capitalist.

"If we all band together and restrict supply, we can force prices up." But if someone breaks rank, our cartel collapses.

There have been at least temporary successes: trade unions, the Steel Trust, OPEC.

theneb• 13 years ago

The tagline for the post is assuming a cup of coffee, i.e a physical product has the same value of a virtual one.

To that end, is software value not dependent on the crowd which buys it? However, I cannot share your cup of coffee you buy from Starbucks.

My point only further raises the question: Do consumers see Apps as shared content? Or, Do they equate physical and virtual App products as being worth the same?

timruffles• 13 years ago

That's an overly negative interpretation. An app can can be worth a lot more than a cup of coffee to someone, but if there's a free alternative, why would they pay?

The business impact is the same under either interpretation of course, and the conclusion would be: don't expect it to be easy to launch a business in a space where people offer free alternatives.

kranner• 13 years ago

What justification does OP offer for calling mobile apps 'basically worthless' (followed by the condescending 'let it sink in', but let's ignore that)?

I'm confused: is this whole thing supposed to be sarcasm? Or does OP mean that apps are viewed by users as worthless because they are so cheap?

feintruled• 13 years ago

He's not trying to denigrate the amount of work or talent people put into making apps - he's saying that if no-one wants to pay for it (perhaps because they can use any one of a hundred free alternatives) then it is de-facto worthless.

jhh• 13 years ago

The author's argument is faulty. The value from being able to take notes / manage to-dos properly on a multitouch device may be rather great to many people.

However, the price is not determined by this. The price is the result of an equilibrium. There is a process of underbidding going on which lowers the price for the app very close to cost of producing it, until it is unattractive for new competitors to enter the market.

The magic thing about this is that it delivers these products to the world in great number at close-to-zero pricing and that's pretty nice for the world as a whole.

Think about it this way: It was worth buying mainframe computers at many million dollars a piece and with embarissingly low computing power back in the 70s to some people.

Obviously, when these people buy a computer with a million times the performance at 1/1000th of the price they get a great deal. So it's fair to say that the value of commodity computers is to some people much much higher than the market price. That does not change the fact that producing commodity computers is a cut-throat business with ultra slim margins.

So what I am trying to say is that this emotional / ethical notion of value needs to be seen as distinct from market pricing.

XorNot2• 13 years ago

If you're making a todo/notetaking app, you're entering a really crowded marketplace. And from my experience, you're probably also doing it wrong.

I mean first things first: does your app sync with anything standard or are you promising me your webservice? Because a quick glance through the non-existent featurelist from the app's website, and the only thing I see is "sync with iCloud".

So you know, worthless. To me and anyone else who has IMAP/WebDAV/Exchange accounts/CalDAV calendaring/Google calendars. Your apps are worthless because they're not that useful to start with.

borplk2• 13 years ago

What I find particularly messed up is the huge relative difference in the price of the mobile device and the apps that people install on it.

When it comes to buying the device, thousands of people line up outside Apple stores and pay - I don't know - $600 for their device.

Android devices are the same, many people easily spend ~$400-$600 on their device that they may only use for one year.

So a good chunk of mobile users are people with good income, living in rich countries and are well capable of paying $5-$10 for their apps that they run on their expensive/high-end devices.

Yet when it comes to paying for apps they struggle as if their monthly income is $10.

There are many factors involved but I think the most significant one is by far the psychological perception of the value of apps that has been created due to App store and Play store pricing.

There are also many people who are willing to release free and good-enough quality apps because it's their hobby or maybe they want to create a portfolio for themselves.

This reduces the perceived value of these apps.

In contrast people can't find other professional services/tools for free. I mean, say, lawyers, doctors, accountants, electrical engineers, etc... don't produce and provide their services/work for free where you can download a free health checkup from a doctor whose hobby is being a doctor.

So the perceived value remains high.

Software engineers are unique in this regard because they 'discount' their work constantly and justify it by saying 'i love doing this'.

Ilverin• 13 years ago

I would argue that authors are with software engineers on this. You can find many free works online from authors who were unable to get a publisher interested. They may not be as organized as software engineers, but they are definitely out there.

Kurtz793• 13 years ago

Just as well: there are people spending thousands of dollars in cutting edge PCs or Home Theatre systems, and then playing only pirated games.

And in the Appstores case the free alternative is even legal!

reddit_clone• 13 years ago

One minor reason could be lack of physical media. In old days people received a bunch of disks or a dvd with nice cover art which they can put on a bookshelf.

Now it is all 1's and 0's coming over the wire(less). There is no sense of ownership. People are reluctant to pay for something that they don't touch or own.

pjmlp• 13 years ago

Computing is becoming a culture of free. I wonder where the users expect we get our money from.

tommorris• 13 years ago

I don't think it is app pricing that is the issue. I think it is far simpler. With a phone, you are spending a lot of money, but you are getting an actual physical thing.

With software, you are spending money on bits. Spending even small amounts of money and getting nothing physical in return just feels very odd after decades of consumerist stuff acquisition and a few hundred thousand years of hunting and gathering.

lgieron• 13 years ago

A case to counter your argument: Magic: the gathering online. Many people are paying hundreds of dollars per year for what's essentially bits and a purely digital experience. That experience is just worth that much to them though.

The moral here would be: make something as good, market it accordingly, and see the money rolling in.

judk7• 13 years ago

Doctors and Lawyers are part of a cartel, hardware is an expensive industry to enter.

This is all basic economics, supply and demand and marginal cost.

ricardobeat• 13 years ago

the business of creating products which offer very little value to people

my view is it's not that most apps offer little value, but the consumers' perception of value is skewed. You can buy tools today for <$5 that would have cost $50, $100 or more a few years ago, and are miles better than their old counterparts. Also, in a way, Apple is forcing the trial + buy model to become free + in app purchase, so paid upfront becomes a huge negative.

czr80• 13 years ago

Why is it emotionally easier to spend $5 on a coffee vs spending $5 on an app?

I have a theory on this - I think we price experiences differently from objects, and have a much higher bar for buying an object vs buying an experience. And I think the reason for that is ultimately loss aversion - if we buy a bad coffee it's gone and we can forget about it, whereas if we buy an object we're stuck with it, a constant reminder of how we made a bad choice and lost money.

lleims• 13 years ago

http://www.joshlehman.com/thoughts/stop-using-the-cup-of-cof...

Semaphor• 13 years ago

I rarely buy a cup of coffee (I buy beans). But when I do it's because I need/want it now and I have no alternative, for example at the train station. With apps that usually doesn't happen.

ProblemFactory• 13 years ago

A $5 coffee also buys you a place to sit down and use WiFi, and a bit of social interaction or "lifestyle". Nobody pays $5 per cup of coffee at a supermarket.

No app developers include "installed by a human" and the permission to go sit on a couch at their office for half an hour in the price!

aestra3• 13 years ago

My supermarket has a Starbucks inside, without seats or WiFi. It stays there because presumably people are buying $5 coffee from there.

fburnaby3• 13 years ago

Someone has made and maintained the app over a few person-months of effort, and can sell millions of copies of it. In order to pay for their time spent making the app, I need to give them one millionth of the cost of their time developing it. When there's lots of competition in the app market, app makers will have to sell their time at competitive prices.

Compare that to coffee. There are three baristas on this street who can make me a coffee, so they're also in a stiffly competitive market. But they have to make me my coffee personally, one at a time. I have to buy a larger portion of their time, since they can only make a few dozen coffees per hour (and they have more physical supply-chain issues to manage, like sourcing beans and managing a property).

It's emotionally easier to pay for the coffee in part because no-one down the street is offering it for half the price, or for free. They can't. An app developer can. And they'll have to, because if they don't, someone else will. Because they can.

wisty3• 13 years ago

I commented on this somewhere else ...

People generally judge value by looking at the competition. A good coffee shop is better value than Starbucks, so it's good value. A good $1 app is waaaay more expensive than a free one, so it's a rip-off.

threeseed2• 13 years ago

As someone who bought Clear I fully disagree with the premise of this post. All they had to do was recompile the app and potentially fix a few small bugs. You can't sit there and act like it was some monumental change that warranted screwing over your existing users. If they are unhappy with how much money they are making then they simply need to raise their prices.

shadesandcolour• 13 years ago

Unless you were the person who works at Realmac, and personally performed the iOS 7 update, I'm not sure how you can possibly say something like this. I didn't do it either, so it might be that you're correct. The notion that asking someone to pay for your work is "screwing over your existing users", is exactly the problem that is being discussed. Personally I don't think that it's that strange to ask people to give you a few dollars so that it is worth your time to keep working on things for them. But hey that's just me.

Your final point shows that you either didn't read the article, or you didn't read the first sentence that you wrote. If Realmac ups their prices because they are unhappy with the money they are making, then everyone (including you since you feel entitled to free upgrades for life) will just leave.

macspoofing3• 13 years ago

All they had to do was recompile the app and potentially fix a few small bugs.

That's all they had to do eh. It's all so simple.

If they are unhappy with how much money they are making then they simply need to raise their prices.

Haha. Or charge for upgrades?

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.

gurkendoktor3• 13 years ago

Haha. Or charge for upgrades?

Actually, there are many people (me included) who don't mind paying 10$ for a game, but avoid freemium games like the plague. So there is a psychological difference between raising up-front prices and upgrade pricing, even if I spend the same money in the end.

bryanlarsen• 13 years ago

Please don't down vote this guy for being "wrong". His view point is seemingly widely held and very appropriate for this conversation, even if it is not completely correct.

gurkendoktor3• 13 years ago

Then I'll add another point of view, hoping that I'm not the only one: The issue for me was not that I expected a free update for iOS 7 or a universal app, but that pulling the old app AND replacing it by a paid app with the same name was very misleading. Please name it "Clear 2", "Clear HD" or "Clear+", so that customers have a chance to understand what happened. Not everyone reads blogs.

After updating to iOS 7 (and before learning of the drama surrounding Clear), I wanted to download Clear to my phone again and almost bought it by accident: after all, the icon, app name and app platform (iPhone) were the same, so I figured that the price still being displayed was an App Store bug.

It's not that I care about paying 'a cup of coffee' for an app _at all_, but this felt like a scam. OmniGroup handled this a little better with OmniFocus: They've also pulled the old version, but the new one looks different and is called OmniFocus 2.

milen• 13 years ago

I am the engineer behind both Clear for iPhone and Clear+. Your statement could not be further from the truth - it has taken a lot of effort to make the iPad component.

I'll give you a taste of some of the work that needed doing (completely describing everything would take ages). Here's a few examples:

- With iOS7, we switched to using TextKit so that we can vary the text sizes (both internally and via Dynamic Text). This involved a significant refactoring as in the previous codebase, we had to hardcode offsets. Why was it all hardcoded? Anyone who's had to deal with the problem of editable inline text would know that there were no APIs to match the drawing of text and editing via UITextView (which was previously based on UIWebKit; while you could the drawing either via the convenience NSString methods or via CoreText; if you used CT, you'd end up with mismatched visuals when editing / displaying). Did you also notice that when completing items on iOS6, the strikethroughs extended beyond the text on items with more than 1 line? Not anymore, due to the new internals.

- The architecture on the iPad is completely different vs the iPhone - on the iPhone, you have a single "list view" (custom implementation to be able to provide all the advanced gestures). On the iPad, you now have two view controllers that need to stay in sync, animate in sync, etc. It also meant that I had to do significant refactoring to abstract away all the controller logic as it had to be embedded in different controller hierarchies - you really don't want to duplicate all that logic.

- List peeking on the iPad. This required adding support to both the list view and to the item views, again - something many people might not even use but it's extremely handy when you need it.

- Drag and drop on the iPad. iOS does not provide a standard API to drag between views, so I had to implement my own which is fully animated and interactive. Try to dragging tasks to lists on the iPad - the feedback is immediate and you will see the 3D animations when items drop. These are all little details but they take a lot of effort to get right.

- If you run the iPad app, you will see that it has a completely interactive tutorial. We spend significant amount of time on that, to make it feel super nice and provide the best way to acquaint users with the interface. Again, anyone who cares about details will tell you that the final 10% take a considerable amount of the total time.

- You're also not seeing a significant amount of research and testing. We had experimental interactions that never made it to production. We've made many prototypes throughout the life of the app, none of them publicly available. We learn a lot from these but that's all invisible to our users.

The above points just scratch the surface on the work that was needed to bring Clear to the iPad. I hope it illustrates the point that it's not a simple job of just recompiling.

gdubs• 13 years ago

The issue is that users have come to expect free updates for the life of the product. I've had five-star apps get 1 star reviews because 'it hadn't been updated in months' – in one case, with an app that already saw nearly three years of continually free updates that each brought a ton of (painstakingly) added technological complexity. Most of our users love the product. We've gotten an award, and have been featured by Apple.

Those 1 star reviews, as you know, are very detrimental. I've had one or two in the past because they _thought_ we were going to charge for an update that we announced.

Anyway, point being that while I feel your pain -- this stuff is never easy to build -- many users do not.

Philadelphia• 13 years ago

The majority of those changes aren't visible to users. As a corporate developer, I can tell you that it's extremely hard to get funding to make even the most necessary technical changes to an existing piece of software. Normally, the best you can do is sneak it in with a big redesign that has features worth paying for.

6d0debc071• 13 years ago

If they are unhappy with how much money they are making then they simply need to raise their prices.

That depends on how elastic their pricing / demand is. You can raise prices and see your actual revenue decrease because fewer people use the thing.

joshdance• 13 years ago

Herein lies the crux of the issue. Apps are "small". Small seems to be easy. How many app devs have "tiny" or "mini" in their titles.

The inputs to apps are nearly invisible and or hard to understand. Therefore the results of those inputs are undervalued.

terhechte2• 13 years ago

The problem is that the difference between $2 and $1 is not the same as the difference between $1 and $0 (i.e. free). Humans are not rational in this way, and the abundance of free apps kills it for everybody else in the market. If one company would start giving away really awful-quality chocolate (or any product) for free in every supermarket, the chocolate prices & industry would crash.

Dan Arielly did a couple of interesting experiments on this. He had people paying for products in a cashier line (i.e. people who had their wallet out anyway) choose between two really good offers: Hershey chocolate for $0.10 and Lind chocolate for $0.20 (or something like that, I forgot the detailed numbers, it may have been $1/$2 or $0.5/$1). In that case, most people choose the more expensive Lind chocolate as it was clearly the superior product (i.e. higher quality). When he repeated the experiment with $0.10 for the Lind and $0.0 (i.e. Free) for the Hershey's, the game changed. Everybody took the Hersheys. Even though the pricing didn't really change, they only both became cheaper, by the same amount.

The verdict, really, is that if there's something free around, we go nuts and quality doesn't matter much anymore, because it is free. If free apps, on the app store, would be at least $0.50, or even $0.10, I think it would totally change the game. (I.e. if Apple would change the Free Tier).

But as it is right now, I think the downward spiral will continue. The only way out is to create a high quality superior product (many features, etc) with a high price tag and hope that you get enough customers to survive. That also should lead to less support load.

ronaldx• 13 years ago

This Ariely experiment is unconvincing because it's quoted with percentages.

Are the free customers switching down from the luxury product, or are they new customers who otherwise would have gone for neither option? The percentages withhold that information.

bigfudge• 13 years ago

I think the only way out is to allow demo apps. I find it really hard to justify $10 or $20 on an app which may or may not fit into my workflow.

That's on top of the problem of determining whether something is of reasonable quality (i.e. even does what it claims) from a few screenshots and likely-gamed reviews.

The problem gets worse the more complex the app... Yes, reviewer A might find it useful because some subset of the features work OK for them, but perhaps I just want one specific feature which they don't care about?

Without a demo I'm left with the size of the community around and app, and a general 'buzz', both of which make it harder to enter the market at all.

chrismonsanto• 13 years ago

What about giving away the first version of the application, and charging only for upgrades? This way the user has a chance to integrate the application into their life before you ask them for money. Nobody likes shareware--if you have an explicit time limit then people won't feel comfortable with making that app 'apart of them'.

I think pricing like this could work well for open source applications too. I see people now putting up donation suggestions with the download (see elementaryos for an example[0]). The problem is I am not going to pay for something that I have never used before. However, if I like the application, payment is easy, and the pricing is reasonable, the warm and fuzzy feeling of helping a community project that is apart of my workflow would probably be worth the money.

[0] http://elementaryos.org/

digitalengineer3• 13 years ago

Or instead of a demo, a good preview film showing how the app works. (Like Apple does on it's website, http://www.apple.com/ios/design/ (scroll down). Enough already with the static PNG files.

rbritton• 13 years ago

Reviews are very, very tricky in my experience. A few things I have noticed on my own app:

1. Any negative review hurts. It doesn't matter if it's a legitimate negative review, someone you're pretty sure isn't even referencing your product in the review, or a positive review where they thought 1 star meant great rather than 5 stars.

2. One negative review hurts worse than zero reviews. One or more negative reviews will consistenly drop my daily sales by around 30%.

3. People will almost never read beyond the current reviews. Those that do will ignore the date the review was posted, and often the top reviews shown are from years prior in the All Versions tab. Apparently Apple knew this too because that tab no longer shows the date on the iPad/iPhone App Store apps (iTunes still shows it).

4. Gaming the review system by submitting a new version works. This clears the reviews from the default tab (Current Version) and is the only way to "remove" abusive reviews. Flagging a reviews does absolutely nothing.

simonh• 13 years ago

Oh boy are you looking at this wrong. Only someone from a western country with a middle class wage could so utterly fail to distinguish between a choice between two costs in resources to a choice between a cost of resources and one of no resources.

Think of this another way. How many chocolates can you afford at a cost of $0.20 each? How many can you afford at a cost of $0.10 each? Now, how many can you afford at a cost of $0.00 each? The experiment artificially avoids this by manufacturing a situation in which purchasers only had a one-time choice, but the purchasers didn't necessarily know it was a on-time deal. For all they know, they may be faced with the same choice every time they go back to that store, even if it was advertised as a one-time deal. We get on-time offers pushed at us all the time these days.

So, is a marginal decrease in cost of $0.10 equivalent in both circumstances? Of course not. A cost in resources is always a cost. A cost of no resources is not a cost at all. Comparing two different costs is completely different to comparing a cost with no cost at all. To understand this, instead of adding costs together over a few transactions, try multiplying them by many decisions instead and you'll see that multiplying by zero has some very special advantages when it comes to resource preservation.

What I think is happening is that analyses like the above are considering only individual translations, but App store users download many apps. Multiplying costs over many purchases, even small costs balloon while free is always free no matter how outrageously you indulge your App store downloading habit.

That's without taking into account that not everybody considers buying a cup of coffee in Starbucks something that requires no thought or consideration. I certainly don't think that way for a start.

r0h1n2• 13 years ago

Sorry, but I found the parent's comment much more insightful, lucid and relevant to the point being discussed (why a large majority always seems to prefer free apps over paid ones) than yours.

And the utterly pointless ad hominem attack right at the beginning didn't help either.

You also seem to have mixed up "price" with "cost" at places. For instance I don't quite know what these lines mean:

a choice between two costs in resources to a choice between a cost of resources and one of no resources (what do you mean by resources? Whose resources?)
a marginal decrease in cost of $0.10 (the cost of the chocolate is borne by its manufacturer while a consumer pays the price)

I'm sure you have a valid counterpoint in there somewhere, but it's not clear what it is.

sp332• 13 years ago

The experiment artificially avoids this by manufacturing a situation in which purchasers only had a one-time choice

Well how many times are you going to download the same free app? And how many free apps can you really stomach having crowding up your phone all at once?

terhechte2• 13 years ago

I'm not sure I really understand what you're trying to say, but it really thinks as if you're proving my point: What I wanted to say was that the difference between $0 and $1 is entirely different to the user than the difference between $1 and $2. Just like you say, you're not investing any resources for the $0 case. However, from a purely rational perspective, it looks like this: Imagine that the quality of the chocolate is a utility-function. The cheap chocolate doesn't taste good, so you only gain 0.1 points of utility on a scale from 0 - 1. The Lind chocolate tastes really great, it makes you smile and happy, it has a utility of 0.3. In this case, if you decide to buy Lind instead of Hershey's, you are willing to pay $0.10 more than what's necessary in order to gain more utility. The added value of the better chocolate has a worth of $0.10 which you're willing to pay. In the free case, the utility is the same, and the price difference is the same, so if you, earlier, were willing to pay an added $0.10 for the added utility, you should still be willing to pay an added $0.10. But of course, when there is a free alternative, people don't. You're outlining some of the reasons for that, and they all make sense, I'm just saying that this is standard human behaviour which affects the realities of the app store even though it is not rational. On a Micro Level, human beings are oftentimes not rational at all and this is a good example of that.

Btw. there is a limitation in the study: People could only buy the chocolate once, so even if it is free, you could not take 100. So the no-resources point does not totally explain the behaviour either. There does not need to be a logical explanation to this anyway, it may be something that's still stuck from the Lizard Brain that's causing this.

JohnTHaller• 13 years ago

The point of the original experiment was to have the charges be near-zero but tiered with respect to the other items available. It could easily be adapted to another country and currency. And it wasn't a buy as many as you want thing, it was a one-time-only deal offered in the checkout line. So, it's not about multiplying zero. It's about a single instance. Free breaks the logic of most people.

auctiontheory• 13 years ago

Yup - I read the post and immediately thought of Dan. Free kills everything.

One "solution" is to write great apps that no one else can make, like Amazing Slow Downer, and charge a premium price ($15). But not every app is that "significant," so we end up with twenty guitar tuner apps, or Tabata apps, or whatever.

skc• 13 years ago

I'm just here to smirk at the old narrative - that the iOS customer doesn't balk at paying for stuff - being slowly whittled away as the march towards smartphone commoditization continues at pace.

derefr4• 13 years ago

The "iOS customer" of five years ago (the wealthy early adopter) didn't mind paying for stuff. Those customers are still there, and still buying iPhones (probably gold 5Ses now), and apps for them. But now there are way more, more price-sensitive consumers (the people buying those 5Cs, the people who still have an iPhone 4, etc.) and they have much the same buying behavior as (commodity) Android consumers.

In other words, there's still money in the market -- but it's a fixed supply of money (there are a fixed number of wealthy early adopters) vs. an ever-growing number of developers grabbing at it. The only way to get back to where we were would be to make a new app store that required new apps to be designed from scratch for the wealthy users to early-adopt all over again. (...and that's fairly clearly what iOS7 is trying to do, isn't it?)

twilightfog• 13 years ago

Nothing like another example of a todo list app to illustrate the downward spiral of app store pricing. Creativity can still get a high price in app store. Find a niche, and develop a great app, and customer will pay. Case in point: Cubasis https://itunes.apple.com/us/app/cubasis/id583976519

gurkendoktor3• 13 years ago

Absolutely agree. My coworker built a business app that sold very well for $120, until the company that provides the API crushed it with their own $10 app (bummer).

arbuge3• 13 years ago

>That's a hard pill to swallow, but we should let it sink in. We pour all our creativity, time, and passion into creating basically worthless products.

Obviously not. A cup of coffee is worth $2, period. An app only worth $0.50 to a million people is worth $500k.

bilbo0s2• 13 years ago

So the question is ...

How many apps are worth $0.50 to a million people?

arbuge3• 13 years ago

Well, you're already beating the cup of coffee if they're worth $0.50 to 5 people.

rythie2• 13 years ago

A lot of people pay a lot less than $2 for coffee.

swang• 13 years ago

Author is saying a cup of coffee is worth $2 to the customer, but an app is not worth even the $0.50 to that same customer.

In this example, you seem to switch out this comparison where instead you compare the cup of coffee the customer buys, to the amount you could possibly make for a $0.50 app bought by a million people.

arbuge3• 13 years ago

Agreed, but the point is that the "total worth" of an app is the total utility that it creates in the world across all its customer base.

Of course you're right that to each individual customer the worth remains less than a cup of coffee; if this affects the app writer psychologically, hopefully the size of his/her bank account will be a consolation.

ktd• 13 years ago

We pour all our creativity, time, and passion into creating basically worthless products... we're in the business of making products that provide very little value to people.

Yikes.

rythie2• 13 years ago

This is distorted based on the idea that most people pay more than $0.99 for a cup of coffee - which is not true.

I think the price of a "Cup of Coffee" needs to be defined here. Coffee can be made for $0.07/cup [ http://thekrazycouponlady.com/finance/a-wake-up-call-a-price... ].

People who buy coffee at Starbucks are buying a luxury version of a luxury item + they are buying time in a public venue. Does Starbucks actually outsell (in numbers) coffee made at home? seems very unlikely to me. In fact most people buy coffee in a supermarket, which is seems almost free when you actually make a cup (you don't pay everytime you make one).

AznHisoka• 13 years ago

A cup of coffee is like temporary marijuana to drown out the dreary feeling of going to work. To me, the value is much much greater than most apps, no question. Coffee to me is like having a shower. Sure, a shower is basically just splashing water to your body.. but it's also one of the few places where you can think to yourself with no distractions.

easytiger4• 13 years ago

The biggest cost in most cups of coffee is the cost of renting/buying the space in which you sell it.

NateDad• 13 years ago

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.

hemancuso• 13 years ago

Couldn't agree more. It's not the users or Apple who are racing the app market to the bottom. It is the developers and the competition amongst them. And it's because creating an app is not that hard. Perhaps designing a great one one and creating and and building a market for it is quite hard. But cloning that exact app [even if it is inferior] and providing it for free or supported with IAP or ads is really not terrifically difficult or time consuming once the idea is proven. It is basically impossible to build a competitive moat.

Games are a bit different given how much art and content is often associated with the production, but users are looking for a fun distraction. Perhaps one should try to build a $2 game with a $50,000 art budget rather than a $500,000 art budget. The users don't really care. It sounds more profitable. Tiny Wings FTW.

k-mcgrady• 13 years ago

> "creating an app is not that hard"

How is this true at all? It depends on the programmer, what they are building and the tools they are using to build it. Apps are no different to building desktop or web software. In fact the constraints arguably make it more difficult.

nobodysfool• 13 years ago

The app in question is a "to do list" app. There are thousands of to do lists on the App store. Lamenting why they can't get someone to pay for an app that is usually free and should come with the phone is fruitless. Big whoop if you can do everything with just 'gestures'. Tapping an onscreen button is usually easier to remember and reliably do than a gesture.

In other words, you are exactly right. They aren't providing value. I could write their app in one week, tops.

judk7• 13 years ago

FWIW, this is the same argument against minimum wage, which you may or may not feel the same way about.

kamjam3• 13 years ago

Really? There's big difference between someone not choosing to pay for an app and exploiting people who may have no other choice or fallen in hard times.

Do you have any articles about this? I would be interested in reading the arguments for/against.

cognivore• 13 years ago

> We pour all our creativity, time, and passion into creating basically worthless products... we're in the business of making products that provide very little value to people. <<

If you take nothing away from the article but that you've gained some insight.

If you take a way someone's smart phone with a handful of paid apps on it and give them a dumb phone they'll get by just fine. They will lose no significant advantage for either work or personal life.

To drive up the price of something with little value you introduce artificial scarcity. Nintendo does this well. If the Nintendo game platforms were open games would be priced like apps. But Nintendo gives their Seal of Approval to everything that goes on their platforms, and there is a high barrier to entry.

I doubt that the software development community would like that model, either. I'm not even sure it's more profitable. But it does seem to create more valuable software. Nothing on smart phones comes close to the quality and polish of a good Nintendo game.

prottmann• 13 years ago

All the time i did not understand why so many developer jump on the App-Train. Most of them did not make money with their apps. But thats another problem.

The real problem is, that everybody try to be cheaper than others and so all developer destroy their own markets.

Why did so many sell a good product for 99 Cent ? CRAZY !

If somebody likes your app and find it usefull, this person will pay more than 99 Cent (ONCE IN HIS LIFE).

Ok, admittedly, it exists millions of todo apps, so you have a special problem with many competitors, but this can't be the reason to be cheap.

iwasakabukiman• 13 years ago

While I do agree that the App Store and the Play Store both trend toward the free apps being the most successful ones, I disagree with his mentality about the value of apps completely.

Yes, there are plenty of apps on my iPhone/iPad that I rarely use, but there are also a whole host that I use every single day.

The author cites Clear as an example in his article. I use it every day to make lists and keep track of things for work.

There are also apps like Downcast (a podcast player) and Comic Zeal (a comic reading app) that I have gotten 10x the value of what I paid for them, since I use them so frequently.

shizzy0• 13 years ago

Here's a potential solution to this mess. We treat app store placement like it's a free resource right now since it doesn't take up any physical space. However, it does increase its users cognitive load. All apps that have ever been produced sit on the app store unless their creators explicitly choose to take them down. That's like a department store that houses every invention ever made no matter how antiquated or outdated. Apple could introduce a "property tax". If you want to take up shelf space, you've got to pay a yearly tax or make way for other apps that will more productively use that space.

icebraining2• 13 years ago

You're confusing profitability with productivity, and potentially killing lots and lots of very useful apps that are distributed for reasons other than profit.

commentzorro3• 13 years ago

This is an interesting thought, but history has already shown the outcome. Shelf space dominated by the big players and defacto price fixing.

A better approach would be for a few very high quality niche apps to get together an open their own app store. They sell only though their store and price the apps appropriately. Thus starting boutique markets. Could happen now with Android but currently not Apple.

derefr4• 13 years ago

Without needing to support sideloading, Apple could let users group apps on the store into their own collections, which other users could browse. They could even let the users theme them, somewhat like Apple's own decorated collections -- and give the "curator" a user ends up purchasing from a small cut (5-10%) of the sale price.

In other words, replicate the well-trodden player-vendor system from MMOs.

sadkingbilly• 13 years ago

Apple already has this tax. It's the yearly developer renewal fee.

mrgordon• 13 years ago

That isn't per app though

jaynos• 13 years ago

Comparing the Clear app to a cup of coffee is interesting, especially since I received the app for free from a Starbucks promotion.

I quickly stopped using it because that is my M.O. with all ToDo list apps. I've never found one to replace a folded up envelope in my back pocket.

paul_f• 13 years ago

"The economic reality is that most apps offer next to no value to people."

This is completely wrong. The author of this article confuses price with value. Apps have tremendous value. But because of market dynamics, human nature, free alternatives, etc, they cannot sustain a high price. Price and value are different things altogether.

icebraining2• 13 years ago

I agree. The problem to paid app sellers is that the extra value they provide - the difference between the free app and theirs - is low, not the absolute value.

Even if your app solved half of my life problems, it'd still not be worth a lot if the free competitor solved 49% of them.

crazygringo2• 13 years ago

The whole problem comes from Apple not allowing trial apps.

I would easily pay $20 for Dark Sky, or Moves, or FitnessFast, InstaPaper, even ExitStrategy -- but I would never pay $20 upfront. It takes a couple weeks using an app to see if it turns into an invaluable daily tool, or if you just delete it. (Which is why free software trials for desktop apps have existed for decades.)

I refuse to pay $1 or $2 for apps just to try them out, not because of the money, but because of the moral issue -- I don't want to be rewarding crappy spammy developers with their $1 or $2 just as much as the truly good app developers out there, because that's just contributing to the problem.

Marco Ament took down the Instapaper Free version. But I never would have downloaded the paid version if I hadn't been able to try the free version first.

pjc502• 13 years ago

The strange thing is that games can effectively be "trial" by structuring themselves with in-app purchases to overcome obstacles. I wonder how well this would work with "productivity" apps.

jonnathanson2• 13 years ago

Indeed. 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.

yaeger• 13 years ago

But consider this:

The apps maker at some point stops selling the app in the store. You of course still have the binary file which you can install on all your devices.

But: What if you want to setup a new device and not restore from a backup? A brand new device synced with the app binary would result in a clean install. Meaning you would only have the bare-bone app and I highly doubt the in app purchases are still working if the developer no longer operates through the app store.

This is also my reason for shying away from IAP as much as I can cause I'd hate to have paid money on something I may in the future no longer posses.

Osmium2• 13 years ago

I agree with the lack of trial apps but you're crazy if you think people will pay $20 for apps like Dark Sky. The problem with apps is that there are so many: I have > 100 on my phone, while the average user apparently had 41[1] and for all I know may have more now. And that's why the $1-3 is the only price point that makes sense for most apps.

[1] http://thenextweb.com/insider/2012/05/16/nielsen-us-smartpho...

crazygringo2• 13 years ago

That's not a fair comparison. A ton of the apps on your phone (at least on my phone) aren't even designed to be paid for -- Chrome, Kindle, VLC, CitiBike, Twitter, Yelp, Facebook, etc. And a bunch of "dumb" apps that only make sense as free and ad-supported. (I'm not going to pay for someone to turn the NYC Bikemap PDF into an app, but I'll use it if it's free.)

I will happily pay $20 for an app, but only if it's one of the 4-6 that are worth it. I'm talking a ~$100 budget total. The ones I listed, are worth it for me. (Dark Sky is worth it for me, it might not be for you.) Other people will have their own list. But of course nobody's going to be spending $20 a pop on 100 different apps. The point is, those 100 apps are of wildly differing value.

warcher3• 13 years ago

Android has that fifteen minute return policy, where you can test out literally anything, and their dollars per user is about half iOS.

I've also personally received more reviews than I can count where people talk about how much they love my free version, but I should really include (PREMIUM_PAID_FEATURE).

I honestly think people are in the process of a psychological transition into paying what apps are worth. Much of the App Store economy is a result of this. Won't pay for games? Freemium spammy junk. Won't pay for anything? Junky ad supported android apps. Making apps costs money, and the market is gonna produce what people are willing to buy. I honestly think people are starting to come around, but its still very much in a state of flux.

Iftheshoefits2• 13 years ago

I think you underestimate the power of narcissism. People will develop and distribute free apps of relatively good quality just to get recognition for it. Consequently there is, and will be for some time I think, less of the pressure you indicate, simply because there will be a higher ratio of (relative) quality free apps to paid.

On the other point, I'd argue there will be "freemium spammy junk" no matter what the market conditions were in the mobile app space. Compare it with, e.g. the e-publication market for books, "shareware" or even the desktop or web-app space. There is plenty of "freemium junk" there.

jiggy2011• 13 years ago

15 minutes is a worthless trial period for all but the most trivial apps. The standard trial period for any serious software (IDEs etc) seems to be 30 days.

barrynolan• 13 years ago

Apple already implements a solution for free trial of apps. They're called Newsstand apps - and sadly, only available to Newsstand publishers.

Newsstand allows a free trial period. Typically it's a month.

If you like the publication enough after your trial, you can pay a monthly or annual fee. From my experience, approximately 2% of users convert to paid plans.

Download Volumes. Free trial app : upfront paid apps - 250:1. The (automated) marketing challenge becomes converting new users into paying customers.

Most paid plans for magazines are circa $4.99/month. This resembles a SaaS fee to use your app and all its wonderful upgrades.

wisty3• 13 years ago

Here's my logic - 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 spend 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.

clarky074• 13 years ago

Everything you said is pretty much spot on, but I think the overarching point that isn't really spelled out, is that people do actually spend money on apps[1]. 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.

[1] My longer response to this article - https://news.ycombinator.com/item?id=6471131

davidedicillo• 13 years ago

True but not always true. Our application (http://syncpadapp.com) is free to download and to use up to 3 simultaneous users. If you need more we offer a "pro" plan at $5 for up to 30 simultaneous people. You'd be surprised by how many people are asking me for a discount rate on a $5/mo plan for an app that they use daily...

judk7• 13 years ago

http://en.m.wikipedia.org/wiki/The_Market_for_Lemons

Nothing new under the sun.

clarky074• 13 years ago

You can do trials on the app store. It's just not the standard time limited trial that you're used to. With most apps, you can find a way to limit the app that is still within the rules. For example, anything that saves something you can just limit the number you can save. As long as you allow delete the app can still be useful as far as the rules go, but people don't want to delete their data.

I've had a lot of success adding free versions to paid apps and then upselling the premium versions while making some money with ads in the free version as well.

XorNot2• 13 years ago

It's not even a moral issue. If you go through 5 apps which are useless, at a $1 each - that's $5 down the drain. You got nothing for it - arguably you wasted your time.

The proverbial cup of coffee on the other hand, that's a sure thing. For $5 I'll be warmed, caffeinated and have a delicious drink.

001sky• 13 years ago

The whole problem comes from Apple not allowing trial apps.

I agree with your analysis, but this one line seems flawed.

The customer looks at app purchases like a game-theory person might look at the prisoner's dilemma mixed with 3 card monty. When faced with this type of "brain damage" most potential consumers, shut down. That is, the market fails.

Apple is trying to protect the consumer, so that people don't just walk away. The search, selection, and evaluation costs of something that is modest in value by order of magnitude (say 5x$1.00=$5 or 30 minutes at min wage) are so un-economic they are not worth it.

The problem with trials is time-wasting. Apple is worried about the funnel. Ie, that to trial for 10 will people who download 100 aps and spend ~50 hours in seach costs. and 9/10 apps will be worthless, a wast of 45 hours. No consumer is willing to pay 45 hours of time (~$450 @10/hour) for a $1 dollar app x 10. Even at 10x this is worth $100. It is still an oder of magnitude off. $1000 value would be a 2x return on investment. Unless your time is worth $20/hr, and then it is still a waste/neutral at best.

judk7• 13 years ago

I thought IAP enables trialware, with some creativity (like disabling Save/Share/Export/Import)

Does Apple block apps with countdown/timers on functionality?

fpgeek• 13 years ago

The whole problem comes from Apple not allowing trial apps.

The problem with this hypothesis is that Google (among others) does allow a variety of trial apps (I've bought several). Unfortunately, that isn't having a significant impact on Play Store sales as a whole (especially when considered relative to Apple's App Store sales). Instead, to the extent that the Play Store is closing the gap, it is through a growing user base and improved freemium games (just look at a Top Grossing chart).

Trial apps will certainly help some developers, but they're not a game-changer for most.

pedrowunderlich• 13 years ago

For over a year, we've experimented pricing our app from Free to $0.99, $1.99 and even tested $19.99. The app also has IAPs, so the free version could be monetized.

Here's our findings:

1) People who download the app for free tend to buy much less IAPs than people who paid for it. It seems they want the free app to stay free as long as possible.

2) We make much more money pricing the app at $1.99 than we do at $0.99. We do sell more units at a dollar, but only lose about 30% - 40% unit sales when we price it at $1.99.

3) People who pay for the app are more active users than people who got it for free.

4) We still made a nice profit pricing the app at $19.99, yet made substantially less than $1.99.

5) We removed the free "trial" version and saw sales increase. Our app got a lot of coverage (WIRED, TC, Mashable) so most people knew what they were getting into without the need for a trial version.

6) I think $1.99 and above is a fair price for devs who regularly update their apps. The good thing about pricing it above a dollar is, you can make 50% discounts every other month to drive sales on "on-the-fence" potential buyers.

tsunamifury• 13 years ago

Do the smaller developers realize that the hardware manufactures pay development houses to do this? I've been paid by pretty much every AppStore provider to develop apps, which subsidizes me to undercut competition.

I feel like most app developers have a severe lack of business intelligence and the allure of easy money has kept them from thinking rationally about how to succeed in the market.

Provide a high quality cheap product at scale, while reducing risk of investment in every way possible. Companies like S2BB can replicate your cute app in days and provide it for free using carrier, oem, or AppStore provider subsidy.

I don't think smaller app devs even realize the uphill battle they are about to be playing.

bilbo0s2• 13 years ago

A couple of reasons...

One, the casual developer. A lot of these apps are being developed by programmers sitting in their underwear watching ESPN Gameday on Saturday morning. Or teenagers with nothing better to do. If they make money... well, that'd be great... but they really have other motivations.

That alone would flood the App Stores with product.

The second point, is economics.

ie - it doesn't matter.

If you live in an agrarian society... most likely, you have to be a farmer. It's largely irrelevant how many other farmers there are... it's probably the only thing you can do.

I think there is a similar dynamic in the app world. There are an AWFUL lot of unemployed programmers... chances are... they are going to ... well ... program. What else are they going to do with their time? It's actually a pretty smart thing for them to do as well. Keeping the skills sharp and all that.

So... I think that's, most likely, where a lot of the apps are coming from. And those two groups will only grow in the future.

pnathan• 13 years ago

A thought. I'm working on a virtual pet game (Firefox OS/Web based), and it's designed to be a mobile game. It's clear that I can't compete against, say, OMGPOP or Zynga. What I've chosen to do is target a very specific niche - "smart people". People like me, in other words, who aren't really very well served by the games on the market right now. I want my game to be intriguing and have depth of thought, if at all possible. I see this targeting as very different from a typical "Farmville" style game, and thus fairly lucrative.... if I can swing the business/sales/marketing side of it.

edit: Plug, plug - it will be alpha at some point in the next month or two, I hope. If my description intrigues you, email me, and I'll add your name to the tester list.

satyrnein• 13 years ago

Reading some of the comments here reminds me of the Adam Smith quote:

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

programminggeek• 13 years ago

You know how you can offer a free trial? By offering a free trial!

No seriously, make your users create an account and give them a time-limited trial. Offer them an IAP upgrade. It's doable.

The problem is to hit the mass market of millions, well you have to be free or have a good marketing/advertising strategy. Actually, you probably need to be a bit of both.

Anyway, it's dumb to complain about the pricing cuz it's been this way for what 3 or 4 years now. It's not a new phenomenon.

On Google Play, it's even harder to get people to pay for an app up front.

kemiller• 13 years ago

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.

aestra3• 13 years ago

This is a great point. There is a useful free app that I use which has a 5 star rating. I looked at one of the 1 star reviews to see what they said out of curiosity. It said something along the lines of "I had to customize the settings and the user interface isn't standard."

andrewljohnson• 13 years ago

This idea that Apple does not allow trials is a total misconception.

I just released a subscription boating app that has a basic free version, and then a button to let you "Test Drive" the complete app. You can trial the paid version over and over.

Previously, I have released a product that had limited functionality, and prompted you to upgrade or buy the paid app.

People interpret the App Store guidelines very literally: Rule 2.9: "Apps that are "beta", "demo", "trial", or "test" versions will be rejected" https://developer.apple.com/appstore/resources/approval/guid...

This doesn't mean you can't set up an app to have a trial, it just means you can't submit garbage. You're best understanding that there is a certain twisted humanity to the app review process.

robterrell• 13 years ago

Some of us interpret the guidelines literally because we've been burned before. A couple of years ago, I spent months working on an app, including paying a designer, and I was really proud of the final product. After it got reviewed, Apple added a new rule to the guidelines and rejected the app. That was a seriously expensive lesson. Now I recommend interpreting the guidelines as strictly as possible... even if you know of other apps that squeak past the rule, it doesn't mean you won't get burned.

Apps that are "beta", "demo", "trial", or "test" versions will be rejected

It sure sounds like your app breaks this rule. I'd ask what your app is, but I don't want Apple to see this and reject you.

useful• 13 years ago

I happily pay $60/year for Strava. But I would never buy the app.

clarky074• 13 years ago

The economic reality is that most apps offer next to no value to people. They might say otherwise when asked about, but their actions speak pretty clearly: A cup of coffee is worth more than almost every app on the store.

Two things.

1. That's probably true for a lot of apps, but I don't think it's fair to say "most." Perhaps "many". There are a lot of apps out there that provide huge amounts of value. Of course, I don't think a cup of coffee is worth anywhere close to the price of a cup of coffee and I make my living selling apps. I might be biased.

2. Starbucks made 7.5 billion last year. Apple alone paid out 5 billion to devs for apps. If you include advertising revenue and Android revenue, I'd guess that people actually spent a similar amount on apps as they did coffee.

clarky074• 13 years ago

We get posts like this all the time, but it isn't actually what is playing out in the world. Apple paid out $5 billion to developers last year and that obviously doesn't include advertising revenue and Android profits. People ARE paying for apps. Developers ARE creating value. These things aren't worthless. I know because I sell lots of paid apps every day, and every month Apple and Google deposit money into my bank account.

My response to this article - https://news.ycombinator.com/item?id=6471131

hawkharris• 13 years ago

"A cup of coffee is worth more than almost every app on the store."

That is a "hard pill to swallow," but it's true and poignant. The problem is not only systemic (i.e. Apple's fault). It's that many developers jump into creating apps withour conducting market research to prove that their products will have a long-lasting utility from a consumer's point of view.

I don't mean to be cynical or overgeneralize. To be fair, not all apps are created equal. But in my experience, the vast majority seek to provide a fleeting sense of entertainment (as opposed to utility). And the more practical apps are simply unimaginative iterations of existing solutions (e.g. fitness trackers and to-do lists).

We need to think differently about the purpose and expect more from them in the way of tangible impact on consumers. For instance, the Robert Wood Johnson foundation is using apps as part of nationwide campaigns to inprove childhood nutrition.

dscrd• 13 years ago

Umm, no. A cup of coffee is worth about $0.1

fburnaby3• 13 years ago

It's not that your app doesn't have value. It's that the marginal value compared to a free app is small.

fburnaby3• 13 years ago

If something is worth $10,000 to me and I can get it for $0.99, I will not pay $10,000 for it.

jennyjitters• 13 years ago

While I agree with the people here saying that many apps are "worthless" due to the sheer number of free apps available, I can't help but compare this issue to starting a business (likely because that's what many app developers are trying to do). Most startups fail. That's just the way it goes. Starting and running a successful business requires success in a lot of areas: product dev, design, marketing, customer service, etc. I think the claim that apps are worth less than a cup of coffee is a bit narrow-minded. If you look at the (huge) number businesses that have incorporated over the last several years, and then compare that to the number of those same businesses that are currently "successful", those numbers will likely look a lot like the number of "successful" apps vs total apps. It's hard to create something that people love, whether that be a physical product or an app. I think there's still a market for well-designed, useful, paid apps. Just like it's still possible for a startup to be successful. It's just really damned difficult.

lnanek2• 13 years ago

A cup of coffee can only be consumed by a person, or maybe another splitting it. A digital offering can be copied for almost no cost.

This is why Bill Gates is rich. You pay to write the software, then you sell it over and over and over again with little cost to you. You can't do that with coffee.

So I see the low price of apps to be more indicative of this advantage being shared with the buyers rather than it indicating the app is worth less to a person than a cup of coffee.

You can have a successful app business selling at very low prices because if it becomes a hit you will still make a lot. And being cheap helps you become a hit. So everyone does it and you have to compete with those people doing it.

judk7• 13 years ago

Howard Schultz did pretty well selling coffee.

zxcvvcxz• 13 years ago

Here's my perspective as both a user and developer.

Most paid apps there are the equivalent of small side projects. They're simple things that should exist, and after enough time, someone will make them for free. The ones that are not free tend to have better visual design. Big whoop. I'll take my coffee please.

Here's an example of something that's worth more than a coffee: Shazam. It identifies music around you by doing some crazy audio processing and database magic. Aaaand I'm still using their free app (haven't had the need to upgrade yet). So if someone offering that much value still can't convert me to a paying customer, how will you?

I'm a developer as well. It's hard to create something worthwhile, I get it (I still haven't really). My theory is that if it's not technically defensible in some way, or doesn't get a network-growth lock-in effect quickly, then it's easily replicated as a free app.

Would love to hear counter-arguments to any of this. Frankly all I see is people complaining about everything except the intrinsic value of the apps, which is exactly what the article mentioned would happen. We live in an era of increasingly less low-hanging fruit.

sanjkris• 13 years ago

Note to all my iphone app users: -Yes. I just tripled the price of my app. Why you may ask. Read on -You whined about missing features; I added them. You whined about in-app purchases. I removed them. You whined about a missing help section. I gave you videos & pics inside the app. You never saw them. Dont lie to me-I see all your clicks inside the app. -Oh yeah! You are threatening me with a 1-star review because you forgot to check your inbox for the result from the app. You are an app review terrorist. I just tripled the price of my app as insurance against such terror threats -You asked for a discount on the app when it was priced $2.99!! I am responding by tripling my app price. I HAVE read all my competitor's reviews. They priced it $0 for a reason.

ok...got to go catch my flight to Hawaii and relax. With your $$$ thanks

FiddlerClamp• 13 years ago

So, in comparison - would the same people who want prices on apps to be higher be willing to avoid using contest sites like 99 Designs? Seems like the same principle to me...being unwilling to pay someone 'the going rate' to design a logo because you're not sure about the value of the underlying process sounds a lot of like being unwilling to pay what developers consider a 'fair rate' for an app when you can pick a free one instead....

App Store Pricing: Worth Less than a Cup of Coffee

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