Beware of the App Store Gold Rush

On November 16, 2008

goldrush.jpgNow that the App Store has reached the ripe old age of four months, it’s finally become possible to analyze what’s going on – which price points are popular, how people are “gaming” the system, how to properly title your apps, and so on. Naturally, the blogosphere has been on the ball and some interesting analysis pieces have been coming out.

Way back in September, Eric Ries wrote How to get distribution advantage on the iPhone where he speculated on some different retail models that could shape the App Store. Since on all but the most detailed pages, iPhone apps only have an icon and a title, he thought that viral marketing and word of mouth would need to become prevalent, although few apps had this at the time. At that point, he considered, it was just a “crapshoot.”

Zip forward to October, and Jason Ankeny was lamenting the App Store “gold rush” – the process where initially a lot of developers were making big bucks selling their apps for a few bucks a piece, but now the store is full of free or near-free (say, 99 cents) apps all attempting to outprice each other:

Technology research firm Rubicon Consulting reports that about 90 percent of iPhone applications are now free, and that percentage could go even higher later this month when Google premieres its rival Android Market, which at launch will offer nothing but free applications. That’s all well and good for Apple, which will continue making money on iPhone sales even if its 30 percent cut of App Store download revenues translates to virtually nothing. But it’s a different story for developers, who must now scramble for alternative revenue sources.

Eric Ries quickly responded with The App Store after the gold rush. He thinks that app developers should focus on both acquisition competition and retention competition. Not only do you have to have many ways to get people to buy your app (and these must involve non-App Store techniques, such as SEM, SEO, PR, word of mouth, etc) but you also need them to keep using your app – leading them on to recommending your app to others and them also buying your future apps.

This month, Steve of Demiforce (the developers of Trism, a popular iPhone game) chipped in with another analysis. While he also saw the change from a non-price determined app store to one riddled with free and 99 cent apps, he’s also proposing a solution – create another marketplace! Why?

The only companies who can afford to consistently sell games less than they’re worth are larger companies who aim to dominate the AppStore. This is classic sales technique called “loss leading”. You can see it in every large company from McDonalds to WalMart. What they do is advertise a mediocre item at a low price in order to get you in the door, and once you’re in, they convince you to buy other items which have huge markup.

His solution? A system called Onyx Online – an XBox Live Arcade-esque ecosystem of iPhone games. It’ll be open to anyone and it’ll link together games that use the platform. Sadly, it is not yet ready to check out.

Last, but by no means least, Andy Finnell has just written How to Price Your iPhone App out of Existence. He argues that most iPhone apps should be priced at $9.99. With the numbers of people buying iPhone apps – especially over time – he says that’s the ideal price point to actually earn a living from producing iPhone apps, and he argues that “[c]ompeting with another application solely on price is a sure fire way to go out of business.”

It’s still a nascent market and playing the App Store game is a very new sport indeed. You need to keep your nose to the ground, keep coming up with new tactics, and price your app realistically. The rest? Only the future will tell!

0 responses to “Beware of the App Store Gold Rush”

  1. Dan Cornish says:

    Which is better? Sell 1000 apps at $100 or sell 100,000 at .99? Which has the higher likely hood? If you are building a business app then I suggest higher priced apps are the way to go. Only a few .99 apps will ever sell over 100,000.

  2. Sean O says:

    A piece that you are missing from this analysis (although slightly discussed in some of your references) is that the price of software could increase dramatically if Apple would include the ability to expire software. This would allow software vendors to have reasonably priced software and still give consumers the ability to try the software to see if it fits their needs. I ranted on this very subject on my site about a week ago.

    Having your software advertise another software is a great idea in theory but the developer still needs to assure the consumer that the software will work the way they need and aside from games, this is difficult. Also, it is not obvious to me that the developer ever gets access to the consumer’s information so that they can entice them with marketing gimmicks (I am not a developer so I don’t know what Apple provides them).

  3. Mark Ferguson says:

    I think the problem that people are having with pricing is that they are looking at the App Store as a marketing channel rather than just a distribution channel. I think a lot of software developers are not good at marketing and this is the root of the problems they are experiencing. Selling on price alone is a recipe for disaster in the software business as the marginally cost of the software (even big ticket Enterprise packages) is virtually zero. The App Store takes care of your distribution but be under no illusion, its not helping with the marketing!

  4. Deepak Demiwal says:

    Price of an game depends on time taken to develop that game.
    0.99$ games are small game which will not take more than 2 week to a month, or even less, time to develop.I feel price should completely depend on the amount of effort put in to develop.

  5. Jon Sweet says:

    I hate that games like Enigmo (which is a decent game), started at $9.99 and has dropped all the way to $.99 (although it back to $1.99). I bought it at $4.99 and others at $9.99… I probably won’t buy another Pangea game until it drops to $.99. I’m proud of Subatomic Studios, they haven’t budged on their price point for FieldRunners, and I hope they never do. As an iPhone developer, we haven’t budged from our $12.99 price point for Dynolicious, and we’re not going to. Our app is a great value for the price, and it allows us to continue improving the application. IMHO, a developer with a $.99 app (or a handful of them), is probably not interested in improving the app (and is in it for the “gold rush”).

  6. James Wilkinson says:

    So the iPhone development learning curve is steep – you have to learn a new language (Objective C) and then get used to the not-yet-mature SDK and documentation.

    Given the effort required to get something of use together (we’re talking man-weeks), it’s a shame that the rewards may not be there after all.