[earl]

The app store for ios has exerted massive negative price pressure on apps, including creating a norm of free or $1 apps. I know it's basic psychology, but it still amazes me that tons of people using a $200 phone that costs on the order of $80/mo to use bitch endlessly in reviews and negatively rate apps for charging the ginormous price of $3. Or something equally out of line. This is exacerbated by shitty discovery in the app store. There's massive returns to being on the top app in category X list, and that's very difficult to do at higher prices. Plus you can't create paid upgrades without creating a new product in the app store, forcing you to start from zero with marketing and list rank. I predict the mac app store will likewise exert downward price pressure on app prices.

Sparrow is really really cheap. A generation ago I used eudora, which cost $50 to $100, for email. So between the mid to late 90s and 2012, the price fell something like 80 to 90 percent to $10 for the mac program. The above is worsened by the rise of decent free email clients since it diminishes the audience.

If you do the math, you have to sell a fuckton of $2.10 cent apps to afford salaries for good developers: say four people at $200k/year fully loaded (salary, health insurance, ss, medicare, office space, internet, diet coke, coffee, macbooks). That's 380k sales just to tread water. And we didn't deduct marketing expenses which are probably significant: you'll have someone fulltime doing seo / sem / banging on blogs and reviewers to get organic / etc. Plus, again, Apple has created a norm where apps get updated forever for free. So that $2.10 is close to being a lifetime value for a user. That means you probably can't use sem for user acquisition: a wildly optimistic 10 percent clickthrough and purchase rate (an order of magnitude high for most things) and 20 cents per click (also wildly cheap) puts you at $2.00.

I presume Apple does this because of classic economics: increase demand by decreasing the price of complements. But if developers can't get paid, users can't have nice things. And I'm not an ios or mac dev, but looking at the interactions in their apps, they seem super custom. That means you have to go to the bottom of frameworks, increasing development costs.

[spaghetti]

I'm puzzled by the psychology too. It seems counter-intuitive that people who pay a relatively large amount for the device + monthly contract would balk at paying an additional relatively small amount for an app which increases the utility of the device.

I'm not 100% satisfied with any of my explanations. Here's a few ideas I've been pondering: the $80/month can be thought of as a subscription fee for the apps that come with the device. So I'm paying $80/month to use Phone, Mail, YouTube, Maps etc. The amount of time I can use my iOS device is limited by time spent at work, with family etc. Therefore adding new apps into the mix reduces the time I spend with the default apps. For example I might download a game and spend a month playing that and ignore the YouTube app. But now my "monthly subscription" for the YouTube app has been wasted. Say I use 10 of the default apps regularly. That's $8/month for each app. Ignoring YouTube app for one month means $8 down the drain.

So when I'm deciding to buy your $3 app I'm subconsciously wondering if it's worth $11. And that's if I only use it for a month. What if your app is really great and I use it and ignore YouTube app for 10 months? Then I'm paying $3 + 10 * $8 for your app.

Now take into account $200 for the device + $80/month is a lot for most people. And it's a lot relative to the free basic flip phone + $30/month w/o a contract we all had in the not too distant past. Now it's clear why free throw-away apps are the easiest to download. Free implies no additional upfront cost in addition to the arm + leg I'm already paying. Throw-away app implies I won't ignore the other $8/month apps I'm already subscribed to for too long.

It's just a theory and I'd like to hear some counter-arguments. If it's true it could have interesting implications on tweaking value and price of apps with the goal of maximizing revenue.