The myth of the 99-cent killer app
Stung by criticism from frustrated developers, Apple (AAPL) redesigned its increasingly crowded iPhone App Store last Friday to showcase the most popular paid applications in each category — Books, Business, Games, etc. (See here.)
The developers' complaint — which reached critical mass last week — was that the old App Store, because it lumped applications together, was contributing to a "rush to the 99¢ price point" and pushing out anyone interested in creating serious (and profitable) programs for the iPhone or the iPod touch. See Trouble in the (99-cent) App Store.
But are those thousands and thousands of 99¢ apps — 4,209 to be precise — really doing harm to the iPhone ecosystem? Are they significantly more popular than apps that cost more?
Peter Cooper at Mobile Orchard, who has been following this argument for some time, took a hard look at the numbers and concluded that they are not.
Using data provided by the App Store, Cooper has created a fascinating series of bar graphs that plot the popularity (on a scale of 0 to 1) of apps in one of three price bands — free, 99¢, and $1 or more. The first graph, reproduced below, shows every app in the store — all 11,810 — plotted logarithmically to stretch out the data.
If you look at the different popularity bands, plotted left to right, you'll see that the 99¢ apps have a modest edge. For example, two 99¢ apps were popular enough to be catapulted into the right-most band (0.5-1.0), whereas none of the higher-priced apps made it that far. But both price points are represented in roughly equal numbers in the rest of the bands. As Cooper puts it:
"This isn’t a whitewash for the 99¢ apps by any means. Visually, you can see that even though 99¢ apps appear to have the edge at higher levels of popularity, it’s just not significant, and if you were to multiply the price by the sales obtained at each level of popularity, the higher priced apps would beat the 99 cent apps in overall revenue." (link)
The results vary by different categories, however. At Mobile Orchard, Cooper graphs several — Productivity, Games, Entertainment, etc. — and finds some interesting variations.
In Business and Productivity, for example, there's a clear preference for higher priced apps. In Social Networking, the willingness to pay more for quality is even stronger.
But Games are a toss up, and in Entertainment, 99¢ applications are considerably more popular than higher-priced apps.
And, as Cooper concludes: "As always, the free apps completely trounce the pay-for apps." (link)
UPDATE: Reader Per Sjofors points out that the App Store is an almost perfect laboratory for understanding price elasticity. In a piece published last August, he describes how by adjusting prices up and down and noting the effect on sales, developers can quickly chart the price elasticity of their apps and zero on the price points that maximize their profits. See The AppStore, a microcosmos for understanding price elasticity.
Awesome article. I am fascinated by the dot graph showing the popularity versus price for new technology on the app store, because it confirms a suspicion I have held for a while.
That is, people choose to create and share information, for free, that is of more value than the information which is sold.
My grand theory is that Human beings are inherently knowledge based creatures. We do not run on money. We crave knowledge, and we eat and reproduce in order to obtain more knowledge. We are not born with a simplistic craving for power in the form of money.
If you believe people are all about money, those green dots should be concentrated on the far left, and as price increases, the dots should move uniformly to the right on the graph. But they do not. Instead, the stuff created for FREE nearly always has value, whereas the stuff made for sale is most often not valued at all.
So, if we are naturally knowledge based creatures, is it possible that copyright law has things entirely wrong?
Is it possible that copyright is a tax on the innate thirst for knowledge, rather than the requisite stimulus for valuable new information?
Developers can, have, and will make a killing on a business model such as Apple's App Store. Are you jealous, are you just to lazy to to jump in?
Let's get one thing straight here: Linux is never going to be a mainstream OS in my lifetime, in our lifetime. They've had more than enough time to do this, and it didn't work. If you use and like Linux, be happy with what you have and hope for the best. Stop trying to push it on the rest of us.
I was a Mac developer long before the iPhone was in vogue. I dropped out and went on to new things just prior to the development of OSX. You need to get something else in your life that moves you. Linux is a great thing, but it's also a small thing for very few people. I know that accepting this is difficult, but that's the reality. Be well.
Wow. Peter J. did a scathing but very good and comprehensive evaluation of the so-called research. Kudos to you.
Whatever else the App Store is, it certainly is garnering a great deal of attention. And that is most certainly good for business.
Funny thing is this: Apple gets 60% from the apps store, developers need to pay $99 (and wait over a month like myself to get certified) and 90% of the the apps suck (they’re stupid apps) and one needs to go through iTunes. No wonder devs are pissed, Apple gets the bounty and is taking them for a ride, (everyone forced to learn iPhone OSX and Objective-C) when they can be focused on a Symbian, WM6.1+, Android, or J2ME app and make more money.
It's funny, how many developers get rich because of other platform?
Using iTunes actually the key of success of iphone apps. App for mobile already exist for long, but iphone brings the convenience to life. make it as a streamline activity.
How come you still don't get it?
Hilarious distortion of numbers to manipulate readers onto thinking wrongly. Object selection (Getting the app) does not equal popularity in any way at all. This only demonstrates the elasticity of downloading, not the elasticity of demand, but then the author knows this, which is why "popularity" is undefined.
Karl is dead on correct, "Yawn, just another advertisement pretending to be a news story"
Nothing of any meaning can be derived from that scatter plot except the degree of randomness that people possess for downloading random applications. The End.
Karl, this is an open dialogue between developers and consumers, i find your yawn insulting
ct sucks
First let me say that Apple has done an amazing job of providing a marketplace where users and devleopers can relatively easily find each other. I feel (as an iPhone developer) that the main thing holding prices down is Apple's refusal to let us release demos of our apps. If you put trial or demp anywhere in your description Apple will reject your app. Sure you can release a crippleware lite version but I want people to be able to try out my app fully and then judge to see if the price I"m charging is a good one. Also even in crippleware you're not allowed to upsell your full version. I don't really blame consumers for not wanting to drop $40 on an app where they can only see 4 screen shots or a walk through video. There's no substitute for a real test drive and until Apple allows devs to provide one, I don't see this problem being totally solved.
I read the article, and i am arguing that 99 cents for an app is not a substantial amount to pay, which is great because i can buy all the apps i want…. but the apps being generated are not made to make money, but to market and advertise to the consumer. So actual developers that are trying to create a useful piece of software are cut out, because no one wants to pay 10 dollars for an iphone app. Right?
Also, about windows vista: very poor answer to OSX, windows 7 is already on roll out, which says to me that Microsoft has come to conclusion that vista was a mistake, and they're investment has been ultimately lost.
@Sam from chicago –Microsoft has held a monopoly in consumer operating systems for so long that innovation has literally halted, i feel like im still using win98 when i look at vista.
@Chicago Sam
"Who’ll teach them to use Linux and its rather daunting learning curve?"
What is so difficult about using Linux? Have any of you used Linux lately? Point, click, shoot. What is so difficult about that?
Administering a Linux box? Is that what you are getting hyped up about? Well walk though the steps with a Windows user on administering their workstation sometime. I can guarantee you, it isn't trivial (it is for a person with considerable experience, but you were talking about "training someone to *use* Linux" – not administer it).
The same can be said for Mac. If something doesn't go quite right in the initial setup of a Mac (at least in a heterogeneous computing environment – can't speak to the Mac-centric office), then walking a non-admin through any particular difficulties is also non-trivial. Binding my Mac to a ADC involved opening a Unix console. Is anyone going to argue that their Old Aunt Tilly is going to have the patience to carry out that function?
The canard that Linux is more difficult to *use* than a Windows or Mac computer is based on misinformation and plain, old-fashioned FUD. Administering ANY workstation, regardless of what operating system is installed, is not a trivial exercise and requires training. So anyone thinking of deploying Windows or Mac, with the intent of having their users rise to the level of expertise of "admin", will have to train against a sharp learning curve. That is a fact.
Anyone who just wants to "use" a Linux box can without additional training provided they have ever sat down and operated a mouse and keyboard. Period.
0.99$ is a Apple paradigm. iPhone is so tightly coupled with the iTunes ecosystem, $0.99 apps was obvious.
Funny thing is this: Apple gets 60% from the apps store, developers need to pay $99 (and wait over a month like myself to get certified) and 90% of the the apps suck (they're stupid apps) and one needs to go through iTunes. No wonder devs are pissed, Apple gets the bounty and is taking them for a ride, (everyone forced to learn iPhone OSX and Objective-C) when they can be focused on a Symbian, WM6.1+, Android, or J2ME app and make more money.
Honestly, don't you have better things to do? Who cares about these useless apps that will be out of date in a few years? Lemmings, save your dollars or give them to charity.
Developers are some of the laziest and least intelligent IT people around, so it's no wonder that they are whining about their apps not selling. The complicated act of picking an app to write is over the head of most, so it should be no surprise to anyone that they would cry about it not selling.
Did you even read the article Sam? The stats show only a slight favor for the $.99 apps which is actually saying that people DO recognize value in software. Price was merely another factor as opposed to THE factor.
In addition, your line about Windows shows how little you actually know about Windows, and even less about the software market. Vista SP1 is a far more stable and secure OS than XP and is only universally panned for 2 reasons: brilliant negative Apple marketing and a rough launch. As for the market, it is not the consumer's responsibility to scour the earth for the perfect OS, so why would you fault them for using Windows? Besides, is there a more user friendly broadly available OS? Who'll teach them to use Linux and its rather daunting learning curve? What you don't realize is that MS and Apple have put forth substantial resources in doing just that for their respective OS's. That value in itself has been greater than any put forth by anyone else. There's a reason for their popularity, because they worked for it.
As the data shows, the biggest difference is between freeware and pay-for apps. In this respect, psychologically I believe the $.99 cent is an important gateway price point that helps customers get used to the idea of paying *something* for a quality app. The $.99 cent apps get you in the market, and then make you more likely to perhaps buy something more expensive.
Well first off, Linux is far from "dead". Many mission critical systems run on Linux because it is the most stable OS. The New York Stock Exchange and its European subsidiary exchanges run on Red Hat Enterprise Linux. I use Ubuntu 8.04 Linux which has all the features of Vista for Free without spyware and virus threats, and it doesn't need hundreds of updates to fix bugs that slipped out during development. Most colleges use Linux because of its scalability. On the topic of the cheaper apps I think it is a mood point because if you pay $200 for a cell phone you should be able to get cheaper apps and of course cheaper apps will be more popular because who wants to pay $4 for a piece of crap software to put on your cell phone when you can pay under a dollar for something that will be just as good.
It's sad that so many entrepreneurs/developers seem to take these platforms for granted – even when they are a key ingredient for success.
Apple wants to increase sales…so they are naturally going to try to maximize sales numbers & avg sale price in their App store
@ John from Ewing, NJ,
Of Course developers would complaint. Do you have any idea how much it costs to build even a simple iPhone App ? No ? Read this App Developer Post to get a clue !
I think a killer 99 cent app would be to mms from an iphone?? Or open multiple applications simultaneously.. The lack of functionality is major so the phone sucks..
Back in August, I wrote on my blog how the App store really provide developers a way to maximize their revenues/profits by defining the price elasticity of their product:
http://bestpracticepricing.blogspot.com/2008/08/appstore-microcosmos-for-understanding.html
For those who do not know, price elasticity i the name for how demand of a product changed with its price.
You can learn more on this topic here:
http://bestpracticepricing.blogspot.com/2008/09/but-i-know-what-my-market-will-bear.html
A bit off topic, but thought I'd point out that the devs are also a captive audience. No way around the app store if you want to sell or distribute an iPhone app.
Great, so people are taken with iphone, thus they will accessorize with cheap applications and not be hindered by how devastatingly useless they may be. Unfortunately for developers, you are untrained to who you're target consumer may be. The truth is that the average consumer doesn't recognize value in software. Take microsoft, they are vetted in an operating system that is more trouble than its worth, and yet it continues to be the most popular OS. The reason for this being that there are no cheap alternatives save lynux which is dead.
So a word to developers: don't be down about 99cent apps, they aren't worth anything. If you want to take advantage: create something of value for corporate, not the apple crazed consumer.
I can't believe developers are complaining! They have a near captive audience, one click shopping, no hassles of overhead or physical product, and non-existent product piracy. They also aren't competing for floor or shelf space with the Microsoft's of the world. All that far outweighs their complaints. People will buy value, try making some demo or light editions, why dontcha?
SF, CA – You may want to check your facts. Apple gets 30%, not the 60% you quoted, from app store downloads, and the developer or software company gets 70%.
Also, you don't have to use Apple's SDK if you don't sell in their store. If you can find a way to sell a Cydia or Installer app, go for it. You'll pocket 100% of the Benjamins, but get none of the exposure of the app store. I think I'd rather pay the $99 and give up that 30%, and consider it a marketing expense for HUGE exposure to millions of iPhones and iPod touches in the app store. Apple's deal is better than one you can get from any software company on Earth. Your mileage may vary.