An Evidence-Based Evaluation of App Store Pricing

There's currently a lot of discussion going on about the pricing in the iPhone App Store. The consensus seems to be that prices are too low, that people expect cheap apps, and that they won't buy more expensive iPhone apps.

The two remedies usually mentioned are

1. Give users demos
2. Make it easier for users to find expensive apps in the App Store

So let's look at the evidence. Here are the three questions we need to answer:

1. Do expensive apps really sell poorly?
2. Would demos help sell expensive apps?
3. Do people ignore expensive apps because they can't find them in the App Store?

Do expensive apps really sell poorly?

The premise of the whole discussion is the assumption that people will not buy expensive apps. Mobile Orchard looked into this, and found that the sales distribution of all price tiers look roughly comparable.¹

Some specific examples (of course, keep in mind that the plural of anecdote isn't statistic). OmniFocus, an app which sells for 20 bucks, sold 40'000 copies so far. Apps which get good pre-release press, such as Rolando (10$), Trism (5$) or Things (10$) often debut in the "Top Sold" list. If you look at the "Top Sold" lists which exclude games, such as the "Top Sold Productive" list, you'll see LogMeIn Ignition selling for 30$, ranked in 5th place.²

So the whole premise of the discussion seems to be flawed. Expensive applications are not being ignored.

Would demos help sell expensive apps?

I don't know of any studies on this for mobile applications, but there is a study for games. Granted, games are a slightly different market than mobile apps in general in that games are played for a shorter period of time (which even a demo may satisfy), while most mobile apps are used during much of the lifespan of a phone. Still, the findings are interesting. The Electronic Entertainment Design and Research Group (EEDAR) found that games which release only a trailer sell substantially better than those which release only a demo, or demos as well as trailers.

The evidence here is unclear. It's not a given that demos would help increase sales, and the evidence seems to show that demos might actually hurt sales for iPhone games.³

In an e-mail to me, David Barnard, Master Craftsman at App Cubby, raises an interesting point: While demos may lower the total sales of applications, they will skew sales numbers towards higher-quality applications. He writes:

Right now, people buy several cheap apps and just delete the ones that don't work out. If the app store had demos, a user could try several apps and only pay for the quality app. Developers who produce amazing, easy-to-use apps will be rewarded and the crappy applications will be made irrelevant. As the sales volume goes down, the gross revenue will likely go up, which is good for everyone. The consumer gets great apps that fit their needs without wasting money on crap. Apple makes more money in the long run as prices stabilize and benefit from the perception of running a quality retail outlet rather than a shady dollar store. Quality developers will thrive and have the confidence to spent time and money on development of more complex apps.

With demos, people may evaluate poor applications before buying them and eventually not buy them, which makes it easier for great apps to break into the "Top Paid Apps" lists, reaching a wider audience.

I've changed my mind on this since writing the first version of this blog post. Demos would probably be a good idea. Not because they help sell great apps directly, but because they help people avoid poor apps, thus helping push great apps into the "Top Paid Apps" lists and helping their sales indirectly.

Do people ignore expensive apps because they can't find them in the App Store?

Are expensive apps at a disadvantage because they can't get exposure? There are two questions we need to consider: First, whether exposure in the App Store is important, and second, whether expensive apps can get exposure.

First, is exposure in the App Store important? Since top-selling apps are displayed so prominently, I would assume that being in the "top paid apps" list helps your app tremendously. iPhone developer App Cubby has numbers which show that being listed prominently in the App Store drives sales tremendously: Financial Realities of the App Store, App Store Pricing (It's not a free market!). So the answer to that question is definitely a "yes."

Second, can expensive apps get exposure in the App Store? At this very moment, the average price in my iTunes' "Top Paid Apps" list (the one on the iTunes Store homepage) is 5.2 US$. The top ranked app costs 10 bucks. Granted, the top ranked app is Sim City, and you're probably not writing something with the same kind of name recognition, but expensive apps definitely do appear in the "Top Paid Apps" list.

So can just games and items with name recognition sell well? Going to the list of top-paid productivity apps, only four of the current top ten sell for 99 cents, all others are at or above 5 bucks. The one in fifth spot sells for a whopping 30 bucks. On the other hand, many of these apps don't show up in the "normal" "Top Sold" list. Not being a game seems to be a bigger issue than not being cheap.

The answer to the question whether expensive apps can get exposure seems to be "in many cases, yes."

Even so, here's something to keep in mind: People will see the top 10 to 20 apps in the "Top Paid Apps" list at any given point in time, and there are about a dozen apps Apple chooses to display in prominent ways at any given point in time. At the same time, there are over 10,000 apps in the store. Even in a perfect App Store which only rewards great apps, your great app would be up against hundreds of other great apps. A lot of great applications never get any kind of significant exposure, expensive or not.

And what if you write a "niche" app? Not all apps appeal to a large percentage of all iPhone users.

Even in a perfect App Store, you can't rely on getting in the "Top Paid Apps" list or getting singled out by Apple. To get noticed, an application needs press attention, and to get that, it needs to be promoted outside of the App Store regardless of its price.

So why are there so few expensive apps?

Some developers seem reluctant to invest much time and money into expensive iPhone apps because they can't be sure it'll sell. But that is true of any platform. You can't be sure your Mac app will sell, and you can't be sure your Windows app will sell. The iPhone is no exception here.

Another reason why developers don't want to invest a lot of time into iPhone apps is Apple's acceptance process. Apple has in the past refused to sell iPhone apps for reasons which the developers could not have foreseen. This, I believe, is a more important reason than pricing.

And finally, I believe that there are few expensive apps because there was little time to develop them. Most developers have had their iPhone SDKs for less than a year. Many iPhone dev teams are small and are working on more than just a sigle iPhone app.

Developing substantial applications from scratch takes time.

In Conclusion...

Do developers currently price their iPhone apps too low? Probably. Do you need to sell your iPhone app for cheap in order to be competitive and satisfy people's price expectations? Probably not.

Please note...

I'm not saying that the App Store works well (it doesn't). I'm merely saying that you can't avoid the App Store's issues by simply lowering the price of your app. It's obvious that the App Store needs fixing, but simply cutting the price of your app doesn't seem to help you get noticed. Factors like brand recognition and press attention seem to be more important.

Further Reading

Craig Hockenberry's original piece which started the whole discussion. Daniel Jalkut on the subject, telling developers to resist pricing their apps too cheaply. Paul Kafasis thinks the iPhone App Store is similar to Walmart. Gedeon Maheux writes that looking at Top Sold lists and finding expensive apps is not a good way of figuring out whether expensive apps in general sell well. Brent Simmons points out that the App Store is not a free market. The App Cubby blog has entries on the financial realities of the App Store and App Store pricing. The Polar Bear Farm blog talks about how changing prices influenced sales numbers, among other things.