99-cent Apps a Steal, but Who's Really Being Robbed?

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The App Store has been a battleground for much of the six months that it's been in existence, even as that battle has been fought on shifting terrain, covering the restrictive NDA and the mysterious approval process. Some battles have been won, others lost--for now--or at least fought to a standstill. But some rage on, such as the concern raised by both developers and consumers alike over the issue of price: namely, how much should iPhone applications cost, really?

It's a difficult concept, as the society we live in has inculcated in consumers the desire to always get the best bargain, which too often is mistakenly interpreted as the lowest price. Developers such as the Iconfactory's Craig Hockenberry have discussed the resulting prevalence of "ringtone apps"--cheap applications that usually go for 99 cents or less and often don't do much.

It's a tempting price point to hit, if only for psychological reasons. Apple itself knows that, having fought for years to hold onto the single price point for all music tracks on the iTunes Store. But producing a music track isn't the same as producing an application--music companies not only sell a huge volume of songs, but the production costs are usually for an entire album. And music companies sell hundreds or thousands of different albums a year, making up losses on underperforming tracks with sales on hits. A software developer, by comparison, often has only a few apps at a given time--possibly just one, if the developer in question is a single individual.

So if a software developer wants to make a living on creating applications--and why, after all, shouldn't they?--what are they to do? David Barnard of App Cubby is trying an interesting experiment, pricing two of their applications, Gas Cubby and Trip Cubby, at just 99 cents and asking for donations on the company's Web site if users think the software is worth more. It's a potentially risky idea, though I'm sure the data--which David has said the company will share--will be fascinating. This follows on the heels of a couple of interesting posts that David put up on App Cubby's blog about their experience in the App Store.  

Meanwhile, Infinite Loop has a fascinating interview with an anonymous iPhone software developer who tossed off a self-described "really terrible" free application in 20 minutes, only to watch in surprise as it racked up over 100,000 downloads. This, as the dev wrote on his blog, for an application "that has one Button, and one picture."

"Apparently," the developer went on to write, "there are people called consumers that like to consume and they want crap like Sound Grenade."

Among the central factors in this plethora of cheap iPhone applications has to do with the phenomenal, far-reaching success of the iPhone. Had, for example, the App Store opened when the only first version of the iPhone, the US$499 and $599 models, was available, the market would likely have been very different, as the customers would have been limited mainly to those early adopters who clearly demonstrated that they don't mind paying a high price for a better product.

But, instead the App Store accompanied the introduction of the iPhone 3G, which lowered the price for entry to just $199, well in reach for mainstream consumers who don't mind tossing down a couple hundred bucks for something not just because it's technologically advanced, but because it's flashy, cool, and a status symbol. Over 17 million iPhones have been sold to date worldwide--Apple doesn't break out its iPod line individually, but it's not hard to imagine that iPod touch sales have done good business as well, making a figure of 25 million potential App Store customers perfectly reasonable.

When we hit that number, we're talking about the levels of audience that we see for other sorts of entertainment products like music, film, television, magazines, et cetera: products that are designed to appeal to the lowest common denominator of consumers. By appealing to larger audiences, those products can attempt to make up their profits on volume. But again, while that model might work for large companies with big budgets and diverse product portfolios, the economics of the small software business don't necessarily support the same idea.

Other fields have similar problems: take the recent closing of JPG Magazine, a highly regarded independent publication for photography enthusiasts. Without the backing of a large magazine conglomerate, sustainability becomes a problem. Software developers who slash their prices in order to try and make up the profit on volume run the risk of failing to break even on development costs if sales don't end up rising dramatically.

So what's the solution? The right answer, I think, would be to retrain consumers to stop looking at the single metric of how cheap something is and reinforce the idea of goods costing what they're worth. Unfortunately, we don't have the hundred years and advanced brainwashing equipment that such a proposition would likely require. Despite the repeated examples that the products we pay less for are often more likely to break--if not be downright dangerous or produced under questionable conditions--we continue to change our ways at a leisurely pace.

Part of this problem is the perception of what software professional development costs. There's an idea that it doesn't take very much to put an application together, that anyone ought to be able to throw one together in a couple hours. Software, due perhaps to its inherent intangibility, seems inexpensive; there's also, for better or worse, a lot of really good free software out there. But a really good application can take as much time and effort to produce, start to finish, as a short story, song, or even a film, regardless of whether or not the developers are getting paid. 

Most consumers don't think about the long term: that's one of the issues at the very root of the current financial climate. When the focus is on quick turnaround and fast profits, you stop thinking about what the long-term implications might be, and quick as you can say "sub-prime mortgages" you're living out of a refrigerator box.

In terms of the iPhone, the risk we, the consumers, run is forcing the talented, professional developers out of business, and ending up with a proliferation of junk food applications that might satisfy our appetite temporarily, but lack any real redeeming value in the long run. While that might not be enough to kill off the iPhone as a platform, it could very well stunt its growth and prevent it from reaching its full potential.

This story, "99-cent Apps a Steal, but Who's Really Being Robbed?" was originally published by Macworld.

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