App Store Commoditization

Making money in a crowded App Store: it’s dog eat dog and Spy vs Spy by Richard Gaywood laments what everyone knows: Apps and especially games on Apple’s iTunes generally cannot cost more than 99 cents. Price them higher, and customers will just wait for the inevitable price drop they have been trained to expect. Apple has no incentive to raise prices because commoditization of software is what helps sell its profitable hardware:

In other words, if you’re Microsoft and you sell PC operating systems, you want to create a market with hundreds of OEMs driving down prices of PC hardware; that way, more people can afford to buy a PC and can then be sold your software. If you’re today’s IBM, you work hard to foster Open Source software, so that enterprise software can be commoditized and the market for your profitable consultancy services grows. If you’re Google, you release Android to OEMs under permissive, almost-Open-Source licences, so as to commoditize Internet access from mobile devices; then you have a bigger pool of users using Google services, looking at ads and earning you revenue.

And if you’re Apple? Well, Apple benefits from a crowded App Store marketplace where developers cut prices to the bone in an attempt to stand out from the crowd. Every single app uploaded to the App Store adds value to every iOS device in existence; every single app a customer buys is another reason for them not to migrate away from iOS in the future.

On the other hand, Josh Lehman’s Stop Using The Cup of Coffee vs. $0.99 App Analogy argues that customers are quite reasonably reluctant to spend money. Every new app by a new developer is a gamble that might utterly fail to deliver; and for most apps, there are comparable free or “freemium” apps that avoid this gamble. His advice includes making apps as obviously unique and polished as possible, so as to help them stand out… but realistically, the most important advice is to stop asking an upfront price.

Free versions with various IAP (in-app purchasing) schemes dominate the sales charts already. There’s no point fighting this trend. I’m more willing to try free games myself, and usually end up spending more money on IAP than I would have upfront. This assumes I’m unlocking new game content with a one-time purchase, though – paying to avoid grinding or artificial delays is evil and should just go away.

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