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.
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.
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...
If someone is paying you, that means they have 4 or more users. That's gotta be worth $15-30/month. Have you tested your conversion rate with other pricing?
Both the American Economic Review and the Review of Economic Studies rejected the paper for "triviality," while the reviewers for Journal of Political Economy rejected it as incorrect, arguing that if this paper was correct, then no goods could be traded.[2] Only on the fourth attempt did the paper get published in Quarterly Journal of Economics.[3] Today, the paper is one of the most-cited papers in modern economic theory
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.
My coffee costs under a dollar, because I buy the ingredients from a supermarket. A cup of coffee in a mall costs a lot more, because when you buy it you are comparing it to other cups of coffee in a mall.
People are idiot savants when it comes to side-by-side comparisons. They can only compare stuff in context. It's called Anchoring. And it's irrational.
The supermarket near me has cheap instant coffee for $3 a tin, reasonably coffee for $5 a pack, and expensive coffee for $10. People buy the one in the middle (because it's "good" value). It's something like 5 cents a cup, vs 20 cents a cup ... but they still fret about the cost of good coffee.
Then they'll walk out of the supermarket, and consider whether a $3, $3.50 or a $5 takeaway cup is better value.
People generally make decisions on whether a purchase is relatively good value, compared to the stuff beside it. Once you get people purchasing stuff in a place that's not in exactly the same context of a $1 app, or a Free app, they'll be less biased towards thinking that $1 is a ripoff.
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.
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.
I think you underestimate the level of effort required to develop and maintain a quality app. Every year around this time my life gets real hectic. I would not do it for no money. I think the app store gold rush days are just about over. A couple people on a wing and a prayer who got in very early on have gone on to do pretty well. But an indie dev with no distribution is going to find a pretty cold welcome in the app store. And a pro is going to figure out a way to make the books balance, either via exploiting engagement however they need to, or freemium, or cutting effort expended.
I think you both overestimate the level of effort required to maintain an app that "just works" (kinda, for the kind of people who'd take a mostly-working free app over the paid one with lots of polish and working 99.999% of the time) and underestimate the "like me" effect. I've developed software for 15 years, including mobile apps. I know what's involved in creating and maintaining a high-quality, professional application. I also know that our society doesn't value that as much as a software developer might.
In particular, our culture, especially those in the "younger" (borderline Gen-X/millennial and younger) cohorts have effectively grown up in a world where "the self" has been commoditized in the form of "karma", "likes", and so forth in social media.
There are a lot of developers for whom the "skinner box" treat is another tenth of a star on the ratings bar or the next big "times downloaded" milestone. They're just as happy to "earn" 50,000 downloads in a few days and a 4-star rating as any amount of money for an app.
I agree to a large degree. I just think that the thrill of strangers' adulation is going to wear off after a while, what was new and novel becomes a grind, and people start to ask why, if you're so smart, you're not rich? And so the guy in his garage either gives up and goes back to his day job, sells out, or tries to monetize. You can do mobile apps for the love of the game in your early twenties, but I think there's a definite expiration date on that kind of thing. Maybe the next generation of young suckers will take the place of the old generation, but I think it's more likely that in a few years some other thing will be red hot and the gold rush will have moved on. (And mobile is very much a gold rush mentality, which is, at the root of it, centered around striking it rich.)
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.
It'd probably be helpful if the store let the developer set the trial period. An appropriately set period is going to vary by what the software does and the devs/publisher are the most likely to have (a) the necessary insight involved and (b) the highest incentive to get it right.
I heard people would buy an app, "backed it up" with Titanium backup, get a refund and restore. Not sure if they put something into Android/Play now to counter that though...
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.
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.
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.
The problem is you then have to have two versions in the App Store, Acme and Acme Pro. Each version will have to go through the torture that is the App Review process. What if one gets rejected, and the other doesn't? It's a pain to have to start over again and lose another week, not to mention coordinating marketing, etc.*
If you decide to sell the Pro features as an in-app purchase, i.e. pay $9.99 for "Pro", what happens next year? "Pro 2014", "Pro 2015" ... ? Also this assumes that your app is built such that Pro features can be isolated from the rest of the app.
*EDIT: Also, if you have a free app and a Pro app, and the user finally decides to purchase the Pro app, with sandboxing, you now have a problem of how to best migrate user data to the Pro app.
"The problem is you then have to have two versions in the App Store, Acme and Acme Pro. Each version will have to go through the torture that is the App Review process. What if one gets rejected, and the other doesn't? It's a pain to have to start over again and lose another week, not to mention coordinating marketing, etc."
Exactly, which is why I said that Apple needs to allow for trial versioning. Otherwise, people attempting a freemium model are forced into this inelegant and suboptimal execution of freemium.
Why can't you structure an app such that it runs for a limited time for free, after-which a one-time, in-app purchase is required to continue? That sounds like a trial to me.
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.
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.
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.
I'd actually be interested in some statistics for this; maybe an automated tool that scans my phone and tabulates how much I've paid for apps? In any case, I definitely have dozens of $0.99 apps. You're correct that they're sometimes wildly different in value, but I'm also definitely glad I've paid for them and supported the developer in some sense: I couldn't have bought all those apps at $20 a pop.
If they were universally more expensive I'd just have a lot fewer apps; certainly fewer than I would ideally have paid for previously. That'd be better for a minority of developers but worse for the rest.
I find it interesting that I indirectly benefit a lot from VC money too, because of my free apps they can roughly be split into two groups: ill-designed, crappy apps with ads, and really well designed, useful apps which I assume are largely paid for by VC money because I don't see how they'd make money otherwise. There are very few which are free and very useful and just, apparently, made out of good will/for the fun of it. But perhaps I'm way off base here and/or being overly cynical.
(And I'm a fan of Dark Sky too, but I can get the same info off Forecast.io for free (same team, same data) after all.)
> There are very few which are free and very useful and just, apparently, made out of good will/for the fun of it.
You're not going to find any on a pay-to-play platform like iOS. Try Android, where there is no entry barrier and there are tons of useful free apps, such as Terminal IDE and Gidder.
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.
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.
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.
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.
> 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.
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.