Is App Store pricing hindering app development?
The growing proliferation of bargain-priced iPhone applications is inhibiting product development according to Craig Hockenberry, principal and engineer with The Iconfactory, the software firm behind top-selling App Store downloads Frenzic and Twitterific. In an open letter to Apple CEO Steve Jobs posted on his blog furbo.org, Hockenberry writes "As an iPhone developer who's been in the App Store since its launch, I'm starting to see a trend that concerns me: developers are lowering prices to the lowest possible level in order to get favorable placement in iTunes. This proliferation of 99¢ ringtone apps is affecting our product development... We have a lot of great ideas for iPhone applications. Unfortunately, we're not working on the cooler (and more complex) ideas. Instead, we're working on 99¢ titles that have a limited lifespan and broad appeal. Market conditions make ringtone apps most appealing."
Hockenberry goes on to crunch the numbers, concluding that at an average developer and designer cost between $150 and $200 per hour, a three man-month project requires more than $80,000 in development costs--to break even, an application priced at 99 cents must sell in excess of 115,000 downloads. Hockenberry concedes those kinds of sales totals are doable given a compelling concept and a few weeks of prominent App Store placement, but adds that more complex projects requiring six or even nine man-month project run up development costs in excess of $150,000 or $225,000, with a break-even sales totals of 215,000 to 322,000 units. "Unless you have a white hot title, selling 10-15K units a day for a few weeks isn't going to happen," Hockenberry writes. "There's too much risk... This is why we're going for simple and cheap instead of complex and expensive. Not our preferred choice, but the one that's fiscally responsible."
A chart published in late November by news site EdibleApple.com notes that of the 9,700 or so apps available in the App Store at that time (the total topped the 10,000 mark a week later), about a third are priced at 99 cents. More than 2,000 App Store downloads are free, and close to 1,500 are priced at $1.99 each. As Hockenberry points out, the fight for prime App Store real estate will only grow tougher as more applications enter the virtual storefront: "What's it going to be like when there are 20,000 apps? Or 100,000 apps? Volume is going to get split amongst a lot of players, hopefully the number of devices/customers will increase at the same rate." Hockenberry stops short of recommending how Jobs might solve the pricing quandary, however: "I'm not going to give you suggestions on what to do about this," he writes. "You and your team are perfectly capable of dealing with it on your own terms."
For more on the App Store pricing debate:
- read Hockenberry's blog entry
Comments
Posted by Anonymous | December 12, 2008 - 8:09am
Sounds like to me you're paying your developer / designers to much per hour. I bet a search on any good job board will yield you people that will work for 1/2 the amount you currently pay. I know of several excellent designers that have cut their current rates due to market conditions. I suggest you renegotiate.
Posted by Anonymous | December 12, 2008 - 6:56pm
He's not talking about freelance developers. He's talking about having a studio team in place able to sustain itself. That said, these costs are pretty accurate. Employee will only see 1/2-1/3 of this. It includes all the overhead and insurance that comes with an FTE (full time employee).
Posted by Barbara Ballard | December 12, 2008 - 12:32pm
This line of thinking is yet another example of misunderstanding design. The design of the App Store is flawed, though pricing and revenue sharing is fine.
Specifically, the categorization and sorting methods make many applications nearly impossible to find (unless it's a staff favorite). We'd like to see some combination of the following approaches to be adopted:
- recommendations based on purchase history, possibly even including music or audiobooks
- a more social star system, in which you see a second rating based on either friends or people who purchase or rate the way that you do
- sort by rating (currently only name, price, and release date) - which would be the default sort!
- a more complex algorithm for "top" applications that considers ratings, longevity,
- update popularity counts based on what users take OFF their phones, maybe even subtracting 2 for each user who does that
- star ratings in list views, so I can visually filter out poor ratings
- filter out low rated items as a control (only apps with 3 stars or more over 20+ reviews)
- block app types. I, for example, never want apps that are iPhone only (I've got a Touch), nor certain stupid-simple apps (I wouldn't want ringtones even if I had a iPhone)
- subcategories for more than just games; tags (perhaps user generated)
There's more, but you get the idea. A redesign of the UI would tilt the tables in favor of a new set of apps and also serve user needs better.
Alas, too many people think that anything Apple does is great, and is the best possible experience. I think we as an industry can do better.
Posted by Adam Warshaw | December 14, 2008 - 4:27pm
Good Afternoon All! I am currently working with GSMA to promote a new awards event being held in June in Barcelona. I am looking for developer blogs to inform people about this event. The event is from June 16-19th and will include Networking sessions to give developers the chance to interact with mobile developing venture capitalists, key industry decision makers, vendors and many more. There will also be awards given to developers who create apps. They will present their app to a panel of judges as well as the entire 70,000+ attendees. Talk about exposure, this is the place to be! 20 finalists will present their business plan in Barcelona in front of more than 100 international investors. There will also be conferences and discussions as well. Entries for the awards portion of the conference start feb 25th. please email me or respond to this posting with other sites to post this on or if you yourself need more information. Look at the events page this week to get more information on this event!
PS: Awards for top 5 global developers include: support for developing and promoting the project, a cash prize, space, global contacts and connection to an international community of inverstors (BAN networks, Family Offices, Early Stage Funds, VC, Investment Banks, etc.)
And please let me know of developer blogs that would be great places to post this information. I want to see some winners from the U.S. since we are known for being behind in the mobile developing world.
Posted by Lafayette Howell | December 16, 2008 - 11:18am
The App Store concept is a good one, but what we are seeing is the first iteration of this new phenomenon of mobile app development. Here's the more acute challenge for developers: First, most applications are not relevant, they are built for fun and entertainment, which ALWAYS has a limited value proposition and return financially.
Second, developers often confuse simple with sexy. Simple is simple and that is what people want. Unfortunately, simple starts to look like more features that are simply not useful.
Third, is the underlying content of value for the end-user. This is where the money is. It costs to provide highly relevant, useful and easy to share content that impacts people in a helpful way. I would submit, people are willing to pay an ongoing fee if this was the case rather than a one-time .99 or $5.99 for the app. How about, .99 per month over a 10 year period times 50 million people? By definition, what happens is that the "nice to have" apps such as games, social networking ultimately wither and die. The real cream rises to the the top.
Fourth, and most important is that the same mental models about business pervade the app development space for the mobile market. Innovation in tools is great, but what is missing is innovation that meets real needs for real people. Remember, the iPhone has a small share of the handset market. For argument's sake, let's be generous and give the iPhone a 5% market, and the remaining 95% is with other platforms. Therein lies the problem: mobile app developers have moved towards what is sexy and cool, not to mention a big enough screen to work with.
Combined, what you have is a classic case of: irrelevant, over-crowding, where price is the primary driver. The answer is to flip the model on it's head and do something completely different and get to market fast, rather than another variation of social networking to update my Facebook and Wordpress from my phone. I don't do anything exciting enough or have time to do this. And in reality, the people that do, which is a scant number are the lowly few who are buying those 10,000-15,000 unites of iPhone apps.
If it was up to me, and it is, I am developing an app that will serve the needs of 3.3 billion handset users potentially, that over 100 million will likely want to pay for at .99 per month. Delusional, not really! The challenge is that we often see mobile apps as nice to have and thus charge accordingly. I believe that if we think in terms of "big needs" and global scale to solving common challenges, people, governments and corporations will pay. Stay tuned for more developments in the coming months ahead.
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