App Store Economics

There’s a lot been written about how amazing the iPhone app store is, how many apps it offers and how many downloads (a somewhat deceptive number since it includes updates) there have been. But recently there has been an increasing amount of noise in the developer community about the problems with the app store, and in particular its long term (or even medium term) viability. Why is that? Aren’t developers reaping the rewards of all those downloads and becoming rich?

Pricing Pressure

Large software house or individual, all developers are under pressure to push their prices down to the tier 1 level (US$0.99). The main reason for this race to 99¢ is to stay in the ‘top 25′ lists. Since these lists are based on number of sales, your chance of getting an app into one of them rises dramatically by keeping the price low. So what? Well, if you’re not on those lists, your price won’t matter at all as few will find your app. If you watch your reports you can see the days when you cross one of the magic ’25’ lines.

Making it worse, with 60,000+ apps in the store and still only a handful of categories, even the lowest price doesn’t get most apps into the top 100.

Random Approval Decisions

Anybody who’s been watching iPhone news recently will have heard about the decision to kick out all the Google Voice apps, several after they had been on sale in the store for several months. And the reason given why, after several months of successful sales, these apps are no longer allowed in the store? Simple: “It’s against our policy.

So, as a developer you put time and money into developing an app, promoting the app (which in a marketplace rapidly approaching 100,000 apps you need to do) and supporting your customers, then one day Apple just kicks you out of the store. Or perhaps you spend the time developing a polished app, testing it with some beta users and get ready to launch only to be rejected by Apple at the last hurdle. And there might be other apps in the store already doing exactly what they just told you was not allowed, but don’t even think about asking about those apps and how they can be approved but your app rejected.

User Reviews & Ratings

Another touchy topic is the whole user reviews & ratings aspect of the store. Many users assume that when they ask for help in the review that the developers will see that and be able to respond. Wrong. Developers don’t even get told about the reviews, letalone have an option for responding to requests for help there.

Oh, and we also can’t respond to inaccurate reviews. There are mechanisms for reporting reviews to Apple’s moderators, but nothing seems to change when you report even reviews with masked expletives, letalone inaccuracies. Developers can also complain about inaccurate reviews or worse (like false accusations about the app stealing personal information and sending spam, or even junk postal mail in one case), but Apple has returned every one of those as not meeting their criteria for removal. I’m willing to bet that similar comments about them would be removed in a matter of hours!

And then there is rate on delete. The “genius” that came up with that idea should be fired on the spot. Even a basic understanding of statistics will tell you that by making it easier for the people who don’t need or like the app to rate it than those who do, the average rating will tend towards the bottom. And it does. Perhaps the best example of this was the 1 star rating on the most popular app in the store last week: the iPhone Mirror app.

The Future?

As a developer it is increasingly difficult to justify spending time supporting an app that is out of the top 100 list for its category. The race to 99¢ makes that even harder to justify. The iNewz app has a loyal following of regular users and, amazingly for a mobile app, an average session time of over 20 minutes. If I was doing this as a living though there just couldn’t be updates based on the current sales.

What about new apps? New ideas? Sure, I have several in my notebook that I’d love to bring to market. At the very least though they require time to design and develop. It can cost tens of thousands of dollars to develop a serious app. To put some perspective on this, US$10K is around five weeks work for one engineer at average market rates (taken from a very quick look at the rates on a contract engineer marketplace site). That’ll get you a novelty, or ringtone, app, but not a something you’ll want to use for 30 minutes a day, most days.

Network Services

One way to make apps pay for their support is to find a way to keep them generating money beyond the initial purchase. If your app needs a service in the cloud, you have either got to find a way to generate enough per user in ongoing revenue, or factor the cost of operating the service into the up front purchase price (so much for the 99¢ price point!).

You could charge a simple subscription, but that tends to irk users, and attract even worse reviews than you would normally be getting on the app store. You can run ads in the app, but that will also irk some of your user base. And don’t even think about charging for the app and running ads – that seems to be a big no-no in the electronic world even though people have accepted it on TV and in print media for decades!

Another option, which seems to be working well for social games at least, is having a virtual currency in the app which users can earn or buy. Your free users (most of them) will have to earn credits after their initial ones are used up by doing something that adds value to your eco-system; those who don’t want to work for credits can simply buy them!

That’s easier to fit into a game than into other types of app, but it seems to be something that works well with some pretty impressive results being reported, especially from Facebook games using this model. I’m still trying to see how it could be applied to a news reader app though (don’t panic, I don’t have any plans to add something like this to iNewz).

Conclusions?

I don’t have any, but I’m not ready to give up on the platform just yet. I do think things need to change if the eco-system of developers is to survive.

A final thought to leave you with: Do people really only want Zippo lighters, fart apps and wet t-shirt apps? Or is there really a market out there for serious apps at sensible prices?

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