

Why Apple is driving app prices down: an economic explanation - guanX
http://blacksmithsoftware.com/blog/2013/02/03/why_apple_is_driving_app_prices_down

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jiggy2011
That explains why it is in Apple's interest for prices to be low , but not
really why prices are as low as they are.

I imagine this is because of there is relatively little "value" in most mobile
apps.

A great number are basically just novelties or an alternative to using a
browser for some specific task.

A popular area in mobile stores is games, but most mobile games are more of
the "Play for 10 minutes on the train" variety than "sit down and play
multiplayer until the sun comes up" games. I might pay $40 for a game in the
latter camp, but would be hesitant to spend more than $5-10 on the former.

You could apply similar economics to desktop PC apps, where some similar
effects can be observed in some cases. You could still argue that it is in a
computer manufacturers interest for all software to be cheap or free but you
still see plenty of big ticket desktop software that hasn't been particularly
disrupted by low cost alternatives.

Examples would be office, photoshop and the ilk.

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darkxanthos
I'm currently taking a microeconomics class and seeing someone discuss all of
the concepts my class covered in a single article was pretty cool! Thanks.

Quick niggle: FTA "So we can generalise: if the price of a good falls demand
for it’s substitutes will rise."

Should be

"... if the price of a good increases..."

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andreg
Ahh silly mistake. Will fix it asap. Thanks.

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radley
This didn't make sense. The title states Apple not only has influence on
prices but actively affects them. After eight paragraphs of introduction, the
author reverses his hypothesis to low priced apps drive Apple sales.

The simple truth for low priced apps is well established: market land grab.
When creating a new market it's essential to grab as much of the market as
fast as possible. Some companies will grab as much as they can regardless of
risk while others will be conservative and only grab as much as can be
defended. Success requires the lowest possible barriers to entry by users,
including price.

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BrianEatWorld
Its an interesting post, but it seems to stop short of explaining the full
situation.

Apps are complementary goods to smartphones, but I imagine in the case of the
App Store, substitution forces are more overwhelming in price determination. I
say this because as a Windows Phone user, it was common to see higher prices
for similar apps compared to other stores. The Windows Phone store having far
few developers and thus far fewer substitutes.

The complementary nature of the Apps can also work in the other direction. The
more people who purchase iPhones and iPads, the more demand for the apps,
which actually exerts upward pressure on app prices. The question is just what
is more important to the user, hardware or software, and I think while the
post makes one point, one could argue just as easily that the hardware
dominates the decision.

As with any econ problem, the forces at play are numerous, so this is no
slight of the post, just some other factors to consider.

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Retric
_The more people who purchase iPhones and iPads, the more demand for the apps,
which actually exerts upward pressure on app prices._

Software is not a limited good so the classic supply curve does not really
apply.

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10dpd
The problem with this analysis is that it assumes Apple has a strong influence
over the price of apps. Sure there may have a subtle weighting for free apps
in their search algorithm, but this is different to sorting apps based on
price.

At the end if the day, if an app isn't free, it's down to the App developer
community to set the price as a collective. However it only takes one rouge
developer to trigger a "race to the bottom". In my opinion, it is developers
who have created low prices on the App Store, not Apple!

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jiggy2011
True, somebody can always just clone your app and charge 1/2 the price.

OTOH if you can create something that is non-trivial to clone with advanced
functionality then you can probably justify a higher price for longer. I just
feel that apps with advanced functionality don't often get used on phones.

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niggler
The model has shifted from front-end (pay $X for application with all
features) to back-end (application is free or $.99, pay $X for features).

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andrewljohnson
Malarkey. Where is his evidence app prices have fallen, or better yet, apps
have become less profitable.

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fleitz
App prices are low because Apple sets low reference prices, eg. $10 for
Office, combined with developers with little marketing skill who can't
communicate a value prop and instead think basic econ, that is to say, lower
prices = more sales.

The average indie developer (and the entire android ecosystem) is more
interested in having users than having profit. iOS types talk profit share,
android types talk marketshare. It's a difference fundamentally in what the
product is, iOS is an Operating System, Android is an Advertising System,
hence you see lower prices on Android because the product is its users.

It's a classic overly competitive economic case where the benefits of reduced
production cost accrue to consumers rather than producers, such is the case in
textiles and the well known case of Berkshire Hathaway.

The similarities between textiles and software are interesting because they
are dominated by high capital costs (software is fundamentally a capital good
with huge labour inputs), and low costs of reproduction.

