
Underscore Price Dynamics - mh_
http://www.marco.org/2013/09/28/underscore-price-dynamics
======
spolsky
The only business models I want to work on any more have some mass-market
component that is absolutely free, and a niche companion product that makes
money off of the exhaust fumes of the mass-market component.

The last two businesses I started are Stack Overflow, which is free, where the
careers business on the side makes money on the small fraction of Stack
Overflow users who are looking to get better jobs, and Trello, which is free,
but the business of providing administrative tools to large organizations
using Trello can sustain the whole business.

This is more than just "freemium" or "advertising-supported." Freemium and Ad-
supported business models are special cases of this general model. The real
insight is that the free product has a chance to reach an enormous audience
which provides distribution/advertising/marketing making it trivial to go to
market with your paid product.

What Marco is reporting here is that the old-fashioned "make something and get
people to pay for it" business is much harder to pull off and likely to always
be left in the dust by someone making the same thing for free, getting 100x
the user base, and getting 1% of them to pay for some value added feature.

~~~
markkanof
Demonstratively, you are right, as you have shown with Stack Overflow and
Trello. But, I think it will take a while for developer mindset to adapt to
this new idea. While in reality it may be more difficult to execute on the
"old-fashioned" model, in concept it seems much easier to approach. I build
something, and then people pay me for it, simple. The new model of I build
something, give it away for free, and then come up with a way to make money
from a niche part of that seems like a huge risk to take, especially for
someone who has not had the previous successes that you have had (using the
old-fashioned model) and so doesn't have the same reputation, connections, and
capital to support their new venture.

~~~
spolsky
Right. It's not so easy to pull off for someone bootstrapping (but then again,
rich players / people with audiences / people with social capital will always
have an advantage, this is no different)

------
nawitus
>Everyone outside of the immediate Apple tech sphere assumes, since I make
apps for iOS, that I work for Apple.

Interesting. I've never heard anyone having this misconception. Everyday
people seem to know that app developers are completely different from Apple or
other mobile phone manufacturers.

~~~
giovannibajo1
Agreed. On the other hand, basically everyone but developers believe that
billing/CC problems in the applications stores are developers' fault.

------
gdubs
I think one of the main reasons it's so hard for new developers to make money
is that -- as has been said so often -- discovery is broken on the App Store.
The "new" category basically doesn't exist anymore, and even if it did there
are a ton of new apps being released _daily_.

For everyone's complaints about Apple's stringent review process, there's a
ton of crapware on there, which makes customers really hesitant to buy.

In [some] ways you're better off charging _more_ money and targeting a highly
specific user base. Then you at least have a good shot at reaching the top-
grossing lists in niche categories and gaining visibility.

Edit: to be clear, there's a lot of different types of apps and the free or
IAP route can be the right choice. But, IMO you need something that has mass
appeal if you're going to rely on converting small percentages of free users
to paid users.

~~~
ruswick
I disagree. The issue is not exposure to customers, it is the mindset of
customers. The market has matured as smartphones have become ubiquitous and
free apps have come to dominate the market. Direct sales have simply faded
because they are less lucrative at the highest level, and users have re-based
their perceptions around that. Even if you could get your paid app to the top
of the charts and attain maximum exposure, you would still make less than if
you had used a fremium or ad-based model. Why do you think all the highest-
grossing apps are free?

I don't think this is a particularly surprising phenomenon. People work very
hard for their money and have far too little of it. If they can get something
for free, why would they not? Moreover, if everyone else is distributing their
thing for free, why on earth would people pay for anything?

Money is valuable because it is scarce, and if people can avoid paying, they
will.

~~~
angryasian
While I agree, I think the bigger aspect of maturity is people understand
their own usage. In the beginning it was cool to pay a dollar to try a new
app. Now people have learned their lesson and understand the value these apps
are quickly fleeting. They will open an app maybe 1 or 2 times and never find
it useful again. This goes for games as well.

------
sami36
I never understood why in-app purchases have been branded as "evil" in the
first place. As long as Apple doesn't offer developers a way to do trials,
it's the closest way a customer can get a taste of an app's features,
esthetics before deciding whether to pay or not for an app.

EX : I wouldn't have paid 10$ for flighttrack pro without the in app purchase
option. I would go as far as theorize that the main reason why the average
price for an app has remained stuck at 1$ is exactly that fear of paying for
something worthless without much of a recourse.

in-app purchases all the way.

~~~
ghshephard
It's not In-App purchases, per se that are evil - I've spent around a hundred
dollars on new levels (great use of In-App purchase - you reward the developer
for creating new content), new tools, new capabilities in the last few years
(much less than the the close to a thousand dollars in "up-front" app
purchases I've made) - and I think I've gotten real value each time.

What's truly evil, is the cognitive manipulation that "free" games engage in
on those who are most vulnerable to those manipulative techniques. The "Candy
Crushes" of the world.

You want there to be a virtuous circle, in which developers are rewarded for
creating new, and improved apps; not for buying extra boosters so you can
clear the jelly without developing the skill required to (or wait long enough
for an easier level). How stupid do you feel purchasing "Diesel" for your
"Tractor" in a game? Particularly when you consume it and just have to buy
more diesel to continue at any reasonable pace.

That's the evil part of In-App purchases - I can show you a dozen places where
In-App purchases and/or subscriptions have been very well executed to the
benefit of everyone. (LetterPress, Flickr, Whatsapp, Path, evernote, Pioneer
Lands, Paper by Fifty-three - just to name a few)

~~~
wahnfrieden
It would be more helpful to show examples where IAP/subscriptions were well
executed by your standard and still made it to / stayed in the top grossing
list.

~~~
ProblemFactory
ghshephard gave a good answer to the question "why do many people consider in-
app purchases evil".

However, there is no doubt that "evil" approaches are more profitable than the
doing the right thing.

Techniques such as the ones described in
[http://www.gamasutra.com/blogs/RaminShokrizade/20130626/1949...](http://www.gamasutra.com/blogs/RaminShokrizade/20130626/194933/The_Top_F2P_Monetization_Tricks.php)
are very effective, and developers who do use them are likely to make more
money. But that doesn't mean that any means necessary to make it into the top
10 grossing apps list must be considered ethical.

------
Osmium
Flip-side on the IAP suggestion: I despise ads, but if I have an app with ads
I can't bring myself to buy an in-app purchase to remove them for an app I
probably won't use that often. Whereas if the app was just $.99 to start with,
and it looks decent, I'd happily buy it even if I don't use it much.

I wonder how this attitude would differ depending on whether you're an early
adopter of the technology or whether you're just getting your first
smartphone. I come from the Mac sphere where it's entirely reasonable to spend
a lot of money on a good app (I'm considering paying $90 to upgrade to the
latest OmniGraffle for example), so buying apps on a phone where most are
super cheap doesn't seem so bad to me.

Either way, I think losing the paid app market is a Bad Thing. Quality apps
are expensive to make, but I have an expensive phone; I don't then want to
load it up with cheap, ill-designed apps. It doesn't matter how good the phone
is if the apps are crap.

~~~
eropple
_> I don't then want to load it up with cheap, ill-designed apps._

The depressing thing to me is how much of a minority thing this is. It's not
platform-specific; Android sales have always lagged iOS in general, but the
aggressive ugliness of Android apps and cheapness of Android users (don't get
me wrong, fellow Android people, I use them as my daily drivers, I prefer
them) has now just made the jump to iOS.

Which is insane. But, hey.

------
FollowSteph3
People say they are willing to pay but more often than not they look not to
pay. Same as airlne tickets. Everyone complains the service and quality is
terrible yet everyone is always looking for the cheapest price. It's the real
consumer behavior drives the markets rather than our idealized behaviors ;)

~~~
libovness
Totally agree. If you had four movie theaters that:

1) Charges $12 up front 2) Shows the movie for free with ads 3) Allows you to
decide if you want to pay $3 for each quarter of the movie

Easy: #2 or #3, then #1.

~~~
klaasmer
You would rather watch the movie with ads?? Really? I would pay to get rid of
ads everywhere.

~~~
sjs
That is not a popular stance. See cable television.

~~~
riobard
Sad thing is, even if we pay, we still get ads. Like before the movie is
shown.

Apparently we don't pay enough.

~~~
daemin
This happens in Australia as well, the cable TV channels actually show more
ads than comparable ones on free to air TV.

It seems that because you're comfortable paying for a product that you're
actually more valuable to advertise to.

------
markkanof
I general Marco's points seem accurate, except for the first one. I've
mentioned to many people that I build iOS apps and never have I had someone
assume that I work for Apple. There are certainly various misconceptions about
the app business (ie. it's an easy ticket to millions), but assuming I work
for Apple is not one of them. These are "regular" people that have no
knowledge of the Apple or tech sphere, other than owning a smartphone.
Doctors, teachers, retail employees, elderly relatives (who have no idea where
I work), all sorts of different people. There is definitely some interesting
psychology going on with regard to the amount anyone is willing to pay for an
app, but I really don't think believing the developer works for Apple has
anything to do with it.

------
miguelrochefort
On Windows Phone, every app has the ability to offer a free "trial" version.
So you can make a paid app, but still let the user try it (with less features,
or ads). I think this mechanism is ideal.

~~~
unsigner
Windows Phone is not exactly a sterling example of developer success, is it?

~~~
miguelrochefort
What do you mean?

Windows Phone has the best mobile programming environment there is. The tools
are much better than anything you can find for iOS and Android. I know, I
programmed apps on all major platforms.

So is it a developer success? I would think so. Is it a consumer success? Not
really. But it's consistently gaining marketshare, and is becoming quite
popular in Europe.

And no, I don't work for Microsoft.

------
k-mcgrady
In my experience it's gradually gotten worse over time. Up until someone in
2010 charging people $1-3 up front worked well for me. Then sometime in 2010
it slowly stopped working as more of the 'top' apps switched to a free with
IAP model. Consumers didn't want to pay up front for an app from an unknown
developer when people like EA were giving their apps away for nothing.

~~~
toyg
In Europe, 2010 is when people lost their jobs because of the 2008 crash. I
bet people like EA switched to IAP because they felt it was a way to bypass
the newly-developed _austerity mindset_.

------
crazygringo
Is there anything in the app store TOS preventing developers from releasing,
for example, free versions that are 14-day trials, that are upgraded to full
version in-app, or else stop working?

I have nothing against paying for apps, but after having been totally burned a
bunch of times, I refuse to pay for an app I can't even try out first. Lots of
people say "just look at the reviews", but they usually don't tell you what
you want to know -- it's not a substitute at all.

~~~
smsm42
IMHO this (disallowing trials) is a big mistake. I very rarely would buy an
app that I can't try. Of course I can afford to lose $1 or whatever - it's not
the cost but the fact that I had been scammed what would infuriate me. It
would only make sense for the app makers to turn my loss aversion against me -
if I already used the app for a couple of days and liked it, now the choice
for me would be "lose it or pay measly $2" \- and that would be completely
different game. Given that Apple exercises total and absolute control over the
whole ecosystem, it could easily make trial system that makes apps free for 3
days (or 15 days if the developer chooses) and then makes them stop working
until you pay. I think it would make Apple ecosystem much more friendly to the
user, because frankly reviews are usually worthless and screenshots etc. are
not much help either.

~~~
icelancer
I completely agree.

Apple contributed to the death of the up-front paid app by disallowing this.
It's ridiculous.

------
radley
There's really nothing new here. There was only a brief window during which
you could immediately charge for mobile apps. Desktop software has relied on
try before you buy for a while now. Mobile has simply matured.

------
mrtron
Lately I have been thinking a lot about the giant leap of faith you have when
installing an app. There is no free trial, and most apps you can't understand
until you start using them. One of the biggest gaps is games - most
promotional videos do not even display in-app activity.

I think most of us would pay for instagram and twitter now. I would have to
think twice about it above 20$/month. I don't think they could get to where
they are with a paid app model.

I tried out a few ways to solve this problem. Better app landing pages. Better
app videos. Nothing works, apps are an experience. Also their utility
skyrockets in certain situations.

Twitter is essential when something major is happening, like an earthquake in
your area. Instagram is essential when you want to e-brag. Yelp is essential
when you have a group of people deciding where to eat.

The barrier to pre-installing the app needs to be incredibly low, and the ease
of use for a noob needs to be low.

~~~
angryasian
I think its a little naive to think that users wouldn't jump to another
network, if they started to charge. I think what mobile has proven is that the
micro social networks are easy to start and can get big fast because of people
reluctance to stick with a single solution.

------
radley
On Android a common method is free / prime. A free version has basic features
while a paid prime apk acts as an unlocker for advanced features.

Haven't heard of removing a free app and replacing with a paid. That doesn't
make sense or work for anyone. That free app is an essential promotion. The
only downside/difficulty is all the user support. Free users can be pretty
rough.

~~~
ghshephard
The two removals mentioned by marco in his article were not a case of removing
a free and replacing with a paid. In one case, it was removing the free
competition to an already existing paid application. (Only works if there
isn't other free competition in the market)

The other case has started to really annoy me - it's where developers are
starting to remove their version 1 application, and replace it with a version
2 which you have to purchase. The only problem with that, is if you were
perfectly happy with version 1, you can no longer migrate it to your next
Laptop/iPhone - because it's been removed from the market. Somewhat defeats
the value of keeping your content in the "Cloud" \- you are back to square one
where you have to have local copies of everything because you never know when
the developer is going to yank your functional version.

~~~
josephlord
You can transfer the apps from iTunes even if they are no longer available.
You can even keep old versions if you copy the .app files or rescue them from
the recycle bin after the updated version is available. I suspect you can only
install them on devices attached to the correct account and I'm not sure what
happens with the Mac App Store (or Google Play, Windows store etc.)

------
jarjoura
It's all about value-add really regardless of whether someone assumes it
"comes from Apple" or not. If it's obvious what the value-add for your
application is in the app store, then pay-up-front works. One problem is, 5
screenshots and non-rich text descriptions really make that hard.

------
pc86
To the App Store developers out there: is it even worth getting into this
market? I've dabbled in Objective C/iOS development, but never built a full
app. Never released anything into the app store. I've been looking for
something to direct my free time toward and was thinking this would be it, but
I've read an increasing number of articles like this essentially stating that
the single-developer part-time app model is dead and you'll be lucky to make
enough to pay the $99 to Apple every year.

------
xamdam
Dude made searching my own instapaper articles on my own device a
"subscription service", I switched to Pocket just for that. Unforgivable
existing-customer f*king.

------
berzniz
There is one hack that seems to work.

Keeping the app free for its first week on the store. This gets the app in the
hands of the right people, the "early adopters". If the app is good, they'll
use it and recommended it to friends long after the promotion week is over.

People are not afraid to pay when the trial was confirmed as a success by
their friend (who is an iPhone genius).

~~~
mesozoic
Do you have any case studies of this you can refer us to?

~~~
berzniz
Can't provie it, but I'm seeing this for my own app (It's in Hebrew and quite
successful in Israel
[http://bitly.com/DriveModeHeb](http://bitly.com/DriveModeHeb) ) and other
previous apps.

------
kristianp
I apologise in advance, but what is the significance of the "Underscore" in
the article title?

~~~
smackfu
The podcast he references is by David Smith, who uses _davidsmith as a twitter
handle, and then gets called "underscore david smith" on podcasts.

------
radley
One thing I think he overlooked was the benefit of cross-promotion through a
proven track record. Had he held on to his old apps, he would have been able
to leverage them to promote his new app. Now he has to start from scratch,
using only his blog to promote it.

~~~
ghshephard
"only his blog" (...and his conference appearances, and wildly popular
podcast, and twitter feed, etc.. Marco is a well-honed promotion machine.)

------
jonny_eh
What's Overcast? He talks about it like I know what it is. I even follow him
on Twitter, I must have missed a tweet. Is it a podcast app? Is it out?

