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Pricing and the App Store

05-01-2009, 05:30 AM
Joined: Oct 2008
Posts: 85
Pricing and the App Store

Whilst I don't post a lot, I'm a daily visitor to these forums and have been since I bought my iPhone back in September. I'm also a freelance Arts Marketer, so have an interest in market trends and pricing theory.

One of the most difficult decision you as a developer will make is how to market your application. You want to keep it in the public mind, in the RSS lists and on the forums, as you know that visibility = sales. Sadly, the way most people have chosen to do this is through pricing, and I'm going to ask you to stop.

My background is in theatre, so please bear with me if that's what I use as an example. I hope I'll show you how it relates.

I worked for one particular venue for over three years, coming in to help with its re-opening, and then the two and a half years following. Prior to refurbishment, the theatre had a reputation for selling its tickets at a fraction of face value at the last minute. The management were desperate to get people into the auditorium.

In the run up to the reopening, we placed newspaper adverts, designed what we thought was an exciting season brochure, spoke to people in neighbouring arts organisations and mailed the hell out of the city. Tickets weren't selling. People were expecting the organisation to pick up where it had left off, and to offer cheaper seats to fill the house in the few days before the show.

We let actors play to 26 people in a 450 seat theatre.

Think on that - whilst as a charity we received public funding, we still needed box office takings to pay the staff, the visiting companies and our own actors. As it was, we had to disband out own ensemble, but we held firm.

Two and a half years later, during which we did not offer any last minute cheap deals, we would rarely have below 200 people in that room, often selling close to capacity.

What does this mean to the App store? Developers have created a market in which buyers are expecting discounts. Something new is released at a premium price, and then two weeks later goes down to $1 or $2 because the developer has decided they want more visibility and more sales, therefore hopefully more money.

As an independent, cash flow can be one of your greatest problems. I realise that some people are developing software in their spare time, whilst others are trying to make a full-time career out of it. If it's your only job, then things will start to look frightening when the money isn't coming in, and panic will lead to rash decisions.

Running alongside the problem of fire sales, is that of updates. Too many developers released unfinished, untested products, promising updates further down the line. Why should the public pay a premium price for unfinished software, when a month down the line they can pay $1 for a version that has been tested on early adopters?

Look at Gameloft. Their games are consistently polished and generally bug free on release. They don't pop up on the forums, and they don't add new features in patches - they release few patches in general. Their games also sell at a higher price point, and remain at the same price for a long period of time after release. They then drop to a consistent lower-tier price, still higher than the majority of other apps.

What can you do about this?

1. Don't release unfinished software. Polish, polish and polish again. Get as wide a selection of beta testers as possible. If they tell you your product is great, fire them and get some more - it's not, and it needs more polishing.

2. Be realistic, don't be selfish. You've heard stories about developers raking in the money. It probably won't be you, and by veering from one price to another, you're hurting everyone else far more than you're helping yourself.

3. Pricing is a statement. You're telling people what you think your product is worth. If you think it's a $1 game, that's quite alright. If you think it's a $5 game and then it's $1 next week, that's not. This leads on to...

4. Set a pricing structure and stick to it. Sure, apps have a lower shelf life and perceived level of quality than their store-bought equivalents. Be realistic and structured in your pricing. If it's a $1 app, sell it for that and keep it that way for good. If it's an $8 app, make sure it stays $8 for at least a month, and then drop to $5. Watch Gameloft -they're a big company, with a good marketing department and they get a lot of things right.

5. Promo Codes. Give them to review sites, give them to beta testers, don't give them to the public. Once again, you're teaching people that they can get something without paying. Don't be upset when they don't buy anything at a later date.

6. Talk on the forums, but not too much. They are an excellent method of generating interest, and getting feedback, but remember that you are a provider dealing with consumers. Do large businesses make angry public statements when they are criticised? Neither should should you - keep a professional distance (I know this is hard when something is your own creation, but keep it behind closed doors).

7. Talk to each other. As I said, variable pricing is damaging the app industry. Talk to each other, agree on some guidelines and then stick to them. Sure, not everyone will want to do it, but only you have the power to make a difference.

I could go into more detail on actual marketing, but I think this will do for now. Let me know your thoughts - I'm open to comments, and happy to try and help where possible.

Last edited by idespair; 05-01-2009 at 06:42 AM.
05-01-2009, 08:15 AM
The App Store's problems are structural

In an ordinary software market, I think most of this is good advice. I'd be careful about #7, which sounds like price-fixing. While I don't think the DoJ is coming after indie iPhone devs anytime soon, it's not a good habit to cultivate.

The problem is, the App Store is not an ordinary software market. In an ordinary market, an indie developer would throw up a web site and use online advertising and SEO to drive traffic. The App Store is different. Apple provides you space on the equivalent of their website, which is already driving more traffic per day than most devs could generate with a lifetime of SEO.

The catch is that they only display a handful of apps at a time. Sure, you can search for apps with the not-so-great search engine, but how many customers actually do that? I'd bet it's less than 1%. The vast majority of app-purchasing customers (and be aware that only about a third of iPhone owners buy apps at all) use the top lists to pick software. The net effect is that if you're not on a list, your software may as well not exist.

Most of the lists are top-seller lists. Obviously, a newly approved app can't get on a top-seller list. There are only three ways to get there: get featured on one of the other Apple-selected lists like 'What's Hot'; spend massive amounts on advertising; or go viral.

Unless you've got an old college buddy high up at Apple, Option #1 is unlikely. If #2 were an option, you probably wouldn't be reading this thread. That leaves #3. The problem with #3 is that it isn't really a strategy, it's an outcome. If people knew how to reliably make something go viral, we'd never be surprised by the things that go viral. Say, iFart. So I can only offer one piece of advice on going viral: be persistent.

You can only win a game you're playing, so the more exposure you can get, the better your chances. On the App Store, there's only one sure way to get exposure on a list and that's to be on the What's New list. Maybe you can't be a Top Seller, and maybe you can't be Featured, but you can certainly be New. And that's why devs do frequent releases---because the App Store makes it a good strategy.

Ditto with pricing variability. The popularity of sites like AppShopper create visibility for apps that drop their price. They incentivize a different kind of pricing stability---a stable pattern of steadily fluctuating prices. It makes sense to cyclically raise and lower your prices to stay in the price drop lists.

Finally, add to all this the 'newbie effect'. A dev works hard on an app in his spare time, dreaming of Trism/iShoot/iFart riches. After weeks or months of effort, he finally sees his app in the App Store. And...the silence is deafening. Sales are in the single digits or worse. The first thing he thinks is the price must be wrong (after all, the app is a masterpiece.) So he lowers it. Then he lowers it again. Finally he's at the end of the road---99 cents, and still no one is buying. He's discouraged. At this point, he just wants someone, anyone, to appreciate his work. He gives up on the Trism/iShoot/iFart riches, puts the app up for free, and goes on with his life. And the average price for an app on the App Store drops just a little more.

While it may seem like the 'newbie effect' is self-limiting (the newbie dev isn't going to waste his time on another app), the problem is that there is an endless supply of newbies, especially in the economic downturn. This continuous influx creates steady downward pressure on prices.

There are ways to correct these problems, but for the most part Apple created them and Apple will have to fix them. One simple way would be to eliminate free apps. After all, iTunes isn't known for all the free music it carries. Apple could offer a trial section, where aps could be downloaded free but would have a limited life. They could limit the number of price changes in a given period, or limit the number of price changes in an app's lifetime. Until then, I'd advise you to keep doing updates and keep dropping and redropping your price. (Full disclosure: we don't do either of these things. But we also aren't on any top 100 lists.)

05-01-2009, 08:53 AM
Joined: Oct 2008
Posts: 85
My apologies, and I don't mean this personally, but this is the attitude that I would seek to turn around.

Apple are only responsible in as much as they allow developers to set their own prices, and have no form of quality control. If the market were akin to Xbox Live Arcade, then I agree things would be different, but blaming Apple is the same as blaming McDonalds for people being fat. It's specious reasoning.

Yes, the majority of sales are for apps that are in the listings, but this comes back to my second point - you're probably not going to make money. Don't remortgage your house to fund development. Always assume the worst. It's like betting - don't wager more than you can afford to lose, or even better - don't bet at all. If you budget for worst case scenario, then anything extra will be a bonus - if you can't afford to not release a piece of software, then you should realise that you can't afford to release it, for the good of the paying public. You have a responsibility to your audience.

When I mention updates, I only mean that you should not release unfinished software. It's not enough to promise a future list of features - everything you intend to include should be there at the start. However, updating your software to add new features (Pocket God), extra levels (Rolando), compatibility with other people's software (Beatmaker) are all excellent strategies.

I mention above that I didn't want to delve too deeply into marketing, but many developers use the forums very well to drive interest and build an audience - just be careful not to promise more than you can deliver. As you say, you can't predict how viral marketing will work, so your best avenue is to do what small companies do best - talk to your customers.

I have to commend the developers of Pocket God for this. Without changing their pricing at all, they've continued to build a real community around their software, through good communication and honesty. They make regular updates, don't promise anything they can't deliver and they apologise for their mistakes. I notice that they are planning on raising the price, but they have given people a clear indication of why and when - once again, excellent business sense.

I'd add that I certainly don't believe in price fixing, but a set of price guidelines for items of a certain size or quality wouldn't be out of the ordinary. Pop into GAME (or the US equivalent) and you'll see that new games tend to be 39.99, budget at 19.99 and PC budget at 9.99, with internet stores setting themselves somewhere in between. It's not price fixing, it's acknowledging your market.

I completely agree with your concerns about Appshopper, and indeed, Touch Arcade et al. These sites give too much prominence to sales, and so continue to foster unhealthy pricing practices within the market. They're far more to blame than Apple for this.

Surely the existence of App Sniper is absolute proof that developers need to change their practices - a paid for application, that informs potential buyers when you have dropped your price.

Last edited by idespair; 05-01-2009 at 09:13 AM.
05-01-2009, 09:12 AM
...blaming Apple is the same as blaming McDonalds for people being fat. It's specious reasoning.
Not quite. We're essentially talking about game theory here. You're criticizing a certain strategy as being counterproductive, while I am arguing that if you look at the context of the 'game' being played (ie, the App Store and its policies), it is actually optimal. You are indeed correct in saying most developers will make no money in the App Store, but that doesn't mean they shouldn't use the best strategy for winning.

I agree that the Pocket God dev has done a great job building community, but it's not at all clear that the actions we admire have directly contributed to its success. Pocket God went viral, and as I noted in my previous post, if we knew exactly how that happens the world would be a lot more predictable than it is. Assuming you have an app that has the potential to go viral, your best course of action is to maximize its exposure to have the highest chance of realizing that potential.
05-01-2009, 09:31 AM
Joined: Oct 2008
Posts: 85
I understand your application of game theory, but would suggest that this method of thought is at the root of the App stores problems. Surely the best way to 'win' would be to create an environment in which everyone has the best chance to sell their work on an even playing field. Maybe its an arts background, but winning at the expense of customers, competition or the market in general is not a 'win'.

As an example - one thing we did in the theatre was to contact all the other large arts organisation in the area and organise the sharing of data. Sales trends, demographics, personal details (where data protection allowed), etc. This allowed us all to build up a better picture of who was consuming product in our area, and then to target our marketing accordingly. People have limited time and money, so on a basic level we were still in competition, but by working together we were able to reach a larger audience and provide better choice than if we worked only for our own benefits.

I meant to mention that I agree with your thoughts on free apps - whilst small tasters (or demos in this case) are often a good thing (unless your product is poor), people who get entire products for free rarely go on to become paying customers.
05-01-2009, 10:19 AM
Joined: Sep 2008
Location: Washington, DC
Posts: 1,151
Really interesting discussion here, guys.

@portableh0le - you've described the developer mindset perfectly.

@idespair - really interesting insight into the theater industry. And I completely agree with you that if *everyone* behaved as you describe, it would be better for all of us. However, you can't run a business based on how people *should* behave. You run a business based on how people do behave.

For example, you suggest that we work with other developers to discuss pricing. Well, we do. We talk to tens of other developers on the forums, on Twitter, and at conferences. Because really, you can only get to know so many people in person. But the app store has tens of THOUSANDS of other developers. There is no way to collaborate with all of them. And while we and our friends may agree that pricing everything at 99c is not a good long term strategy, along comes Idiot Test and gets to #3 at 99c, and we're left banging our heads against our keyboards (other developers - raise your hands if Idiot Test makes you do that).

Point is, being in theater, calling all other theaters in the area and discussing strategy is actually an option. For us, working with ALL other developers in the App Store is not an option. Other than the sheer number of them, there's also the fact that a lot of them are NOT trying to build a business or make a living. A lot are just making throw-away apps for fun, and this marketing thinking is irrelevant to them.

At this point, I'm grateful that Apple set 99c as the floor for paid apps. Because believe me, if it was 49c, we'd all be selling 49c apps, and making half the money.

So basically, I think you are making great points about how the store should work. But until the store actually does work that way, we have to go based on how it does work. Which means that we price things to market, and if the market price for a great polished app is low, then we have to price our apps low. At this point, nobody is going to buy a match-3 for $5, no matter how great it is.

My full disclosure - all 3 of our games are currently $1.99, with Lite version for two of them out. We do sales pretty infrequently, in order to give our customers confidence in our pricing.
05-01-2009, 10:48 AM
Joined: Oct 2008
Location: UK
Posts: 288
there is a lot of truth in everyones posts. I, like many others, have absolutely no idea how some apps are making top 10. We all, as developers work very very hard on our apps. I am currently putting in an 8 hour day at work and 6 hours or more per night working on apps. I for one certainly never intend to release something which is not fun to play. However they can always do with more polish, but then so could every app I have ever downloaded.

When it comes to pricing, I think that apple have created this amazing marketplace for indie developers to show what they can do, and it has an audience of 40 million. I think $2 is the most that any indie developer can expect to charge for an app given the download potential. If every app was $10, then people would not impulse buy and the amount of sales would fall through the floor. I like to compare it to selling on ebay. Items will always sell for what someone is prepared to pay for it. In the case of some apps on the appstore, that price is zero.

If an app has had thousands of hours work lavished on it by a team of 40 people working for a developer, then I would expect their app to be orders of magnitude better and longer lasting and therefore they can charge significantly more.

I am increasingly thinking that app names are playing an enormous effect on sales too. I am just glad apple isn't selling reserved app names, because that could get very messy. First one to Market wins. No doubt we will end up with (if they haven't been released already) iPaint, iSing, iKaraoke, iSmell, iSki, iSanta, iRun, iScratch, iWobble, or god forbid, iBible. If I search they're probably already released LOL
05-01-2009, 11:10 AM
Joined: Oct 2008
Posts: 85
I really do feel for developers, because it's a difficult line for you to walk. As lazrhog says, you put a lot of time and effort into your work, and it's disheartening to see what you know to be rubbish selling whilst your own products languish. At that time it's easy to think that price is the way forward.

The vast majority of people would never go to the theatre. They might come along if I offer them free tickets, but they wouldn't come back. We actually tried it for a season, everything in one stage was free and every performance 'sold' out. Less than 5% of those people ever paid to come back. Should I continue trying to sell to them?

This is where marketing comes in. A key component of marketing is knowing who your target audience is. It's a lovely idea that everyone would want your product, but common sense tells you that's not true. Therefore you need to reach the people who will respond.

portablehOle: You mention websites and SEO, and these are tools that will always help people to make a purchase, yet I can't see evidence of any metrics on your website - easily the best method of finding out who is visiting you, where from, and then what they go on to do next.

lazrhog: You make an excellent point about expectations. As I said, pricing is a statement, and if you stand by your pricing then people will start to believe you. I'm actually quite wary of 59p games, and am more likely to buy something more expensive.

nattylux: I loved the video you put out for Little Red Sled of the theme song being played on piano. It really caught my imagination - I'd be interested to know what kind of effect that had on your sales.

Of course, what I've missed out here with the talk about price as a sales tool is better ways for independent developers to market their products. Leaving discounts out of it, what do you all think are your most powerful tools for generating sales?

Last edited by idespair; 05-01-2009 at 11:12 AM.
05-01-2009, 11:24 AM
Joined: Oct 2008
Location: UK
Posts: 288
Originally Posted by idespair View Post
Leaving discounts out of it, what do you all think are your most powerful tools for generating sales?
thats easy ...


... and the list goes on and on (sorry for not mentioning everyone). The service these guys give us developers is amazing, and is a testament to how well they are doing their jobs in that soooo many people trust their opinions and recommendations for buying apps. Luckily they are all really interesting people too, and not just anonymous websites. Cant wait to meet Arn and Blake one day in San Francisco at one of the bashes. My missus won't let me go at the moment tho ... (new baby)
05-01-2009, 11:52 AM
idespair: Not sure what kind of metrics you'd expect us to post on our website, but I can tell you that we do track our website traffic. But if you think the dev web site plays a significant role in an app's success, let me introduce you to iShoot. :-) Ethan is obviously not pouring a lot of resources into the website because it simply doesn't make any difference.

I second lazrhog, the most activity we've gotten has been generated by game sites, and specifically this one. TouchArcade generates an order of magnitude more traffic than any other online source we've been on. I'm sure getting mentioned in Gizmodo or Engadget is pretty good, but you've got to have some angle (or some luck) to get their attention.

The only drawback to this site is that it tends to be a harder-core crowd. Our game Bang! is really aimed at casual gamers who just want a few minutes of uncomplicated action. The key to going viral is to get critical mass in your target market, and that can be elusive.