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Stop Using The Cup of Coffee vs. $0.99 Cent App Analogy (joshlehman.com)
339 points by joshlehman on Aug 16, 2012 | hide | past | web | favorite | 201 comments


The point about the coffee cup comparison isn't that cups of coffee are the benchmark experience for product pricing; if that were the case, my next root canal would cost $0.20.

The point of the coffee cup comparison is marginal utility: the money you spend on an expensive cup of coffee almost certainly has very little utility at the margin, because you are happy to chuck it away for a bad cup of coffee.

Oh, you really like Starbucks coffee? That's unfortunate, because it's pretty bad, but more importantly: you militantly miss the point of the comparison when you benchmark the experience of installing a new app against the enjoyment you get from a cup of coffee.

This place has an enormous problem with pricing and economics. Unlike Patrick, who really does sweat the fact that developers are making small fractions of their overall worth due to underpricing their offerings, I should be overjoyed at the fact that the biggest collection of new software entrepreneurs on the Internet hangs out at a meme generation engine for exploitable market inefficiencies. But unfortunately, I'm an obnoxious nerd, so all I can think to do about this is yell. ARGH.

A dollar at the margin for a person with a $600 phone on a $50/mo data contract is not an enormous gamble. It is a pittance too trivial for that person to even contextualize. The problem isn't that people are unwilling to give up $1 for apps; it's that they're hesitant to give up $0.25 for anything online. When you start with the understanding that there's huge impedance at "anything above free", it's clear why "$1" is not a particularly great price point, and why "better strategies to motivate people to part with $1" is a terrible meme to propagate.

Well said.

"Starbucks Craftsmanship"? Please.

Not sure what artisans you have running Starbucks cafes in the US, but in Australia the barristers are largely low paid teenagers using un-cleaned machines and second rate beans. To top it off most of the drinks have dollop of cream or some other sugary ingredient to mask the awful quality of the coffee.

I would gladly 'gamble' 99c with an iPhone developer over a Starbucks beverage.

EDIT: I'm talking specifically about Starbacks. Australia has excellent coffee. I'm drinking a lovely Sprocket coffee as I write this.

You're missing the point in two ways

a) "Starbucks" serves in this situation as a generic term for an espresso drink of your choice. Like Kleenex or Xerox or what-have-you. When someone says "people will spend $4 on a coffee at Starbucks without thinking about it" they don't mean at Starbucks specifically, they just mean "some coffee shop that isn't 7-11 or Dunkin Donuts or McDonalds".

b) Even within the category of espresso-serving, $3ish coffee shops, the argument still applies. In a strange town (), in the absence of other reliable information, I will probably go to Starbucks because I know that I'll get a somewhat over-roasted, but drinkable, latte. If I walk into a random independent coffee shop, there's some chance I'll get an excellent cup of coffee. But, experience has also taught me that it's more likely that I'll get something that's no better, or frequently worse, than Starbucks. Similarly, if I'm out of saline or need some allergy medicine while traveling, I'm likely to grab it at Walmart, because all their stores are laid out the same and I can find what I need blindfolded. There is value in predictability in many situations.

() caveat that this applies to travel in the US, and generally for work. In various European countries, I'd bet on the random local shop. And if I'm traveling on vacation, there's value in experiencing something new and local. But, if I just want my morning coffee on the way in to the office, easy and predicable wins.

It's hard for me to relate to your experience of Starbucks in the US. But in Australia the quality of a Starbucks coffee is inconsistent and typically bad. Australia has a relatively old coffee culture, so most coffee drinkers are discerning.

In the absence of reliable information in a strange town I will always gamble on a the small cafe, as they have to work to get customers as opposed to depend on an advertising budget and novelty style sugary drinks.

Starbucks coffee in the US is just as bad as Starbucks coffee is in Aus, possibly even worse because US customers seem to have much lower standards for coffee. Last time I had to drink Starbucks in the US I had to get 5 shots in a latte so that I could actually taste the coffee.

I've been hating Starbucks since 1993 where at my first job at a movie theater we shared a trash compactor with them, and those bastards would never press the button, so you had to stand in the smelly garbage room and wait for it to compress their garbage before you could throw yours in. It would be years before I could actually afford to buy a coffee from there.

Now I live in London, and as far as I can tell, all the good coffee is made by Aussies, so I can only imagine how terrible Starbucks is by comparison in your country.

> Now I live in London, and as far as I can tell, all the good coffee is made by Aussies,

In New York, Swedish coffee (of all things) seems to be the up-and-coming thing:



No idea why. Scandinavia is exotic and hip these days, probably. Then again, a lot of new Swedish things are popping up, like Swedish pizza places (which, if you haven't had it, mostly revolves around unexpected toppings such as banana, cabbage and kebab meat).

Whoa. I actually got a touch of national pride there! What a feeling! :D

Anyway, one reason Swedish coffee culture might be something that can be noticed in NY is that we're pretty good at drinking coffee.

See <http://en.wikipedia.org/wiki/List_of_countries_by_coffee_con...; to get a hint about how important coffee is in Scandinavia.

Sweden is down at #6 these days, but we still clock in at roughly twice the consumption per capita compared to the US.

And the word "fika" which the first place is named for has loads of connotations, it's simply deeply entrenched here.

You need to remove the trailing '>' from your link (or don't put it between angle brackets).

Going by that page perhaps I should start a dutch coffee house in NY!

I wonder if there are many Starbucks in Scandinavia? I know of only one here in the Netherlands.

Hum, there is more than one ... Only in Amsterdam there are at least 2 (went there 2 days ago), one in Central Station and one not far from the Science Museum (that I could see from the train leaving the Central Station :D ). And no doubt there are more in the inner city.

Then there is also at least one in Utrecht Central, so we are down to 3 already.

Anyway, I know it was not your point.

Besides, as a Frenchman (living in the Netherlands), I'm not fond at all of Dutch coffee, but hey, it could probably work in "New Amsterdam" ;)

Norway (#2 in coffee consumption) has a single Starbucks, located in the arrivals hall at Oslo Airport.

I overheard some people recently talking about how they sometimes take the airport express train just to have coffee at Starbucks. Which is just insane, not just because the coffee isn't particularly good (and Oslo has plenty of extremely good barista places) but because a round-trip ticket from Oslo to the airport costs $56 (€46).

I'm Norwegian. We're at #2. Finland leads by a large margin, though.

Whether through politics, skill, or home ground advantage, the Scandinavians have been doing all right in the World Barista Championships.


So they can at least make a decent cup.

Don't get me wrong, Aussies make amazing coffee. The best coffee comes from a portable stall outside Sydney central station crafted by a Polish Aussie using Campos beans.

I'm an Aussie coffee afficionado, and the best coffee I ever had in London was at Monmouth. No idea of the address, but it was about 5mins walk from the modern art museum, on that side of the Thames, near a food market. As if that'll help... :-)

I'm in the US and you have all really got me curious about the Aussie coffee. I too hate Starbucks and find it quite bitterly me a pot that's been on all day).

Unfortunately I just prefer Big Coffees off the shelf brand, but don't know what to try. Just that it's not Starbucks.

Is there somewhere that I can order Aussie coffee from and know its actually the coffee you describe and not just branded 'Aussie'?

There's really no such thing as 'Aussie' coffee, as I doubt coffee is produced in commercial quantities anywhere in Australia, although there are local roasters.

What they are referring to is coffee made by an Australia barista.

Basically, coffee culture is huge in Australia, and being a quality barista is seen as a cool kind of job to have, despite the generally low pay.

It's not unusual on a city street in Australia to have 5 or 6 coffee shops in a row. At this point, they are competing on coffee + barista quality. With this type of competition, the consumer gets well educated on the nuances between cups, and so it goes.

I had no idea this idea of 'the aussie barista' was being exported to the world, but I guess it makes sense.

In reality, what you're probably seeing is the competitive advantage given from a business cluster in Porter speak. http://en.wikipedia.org/wiki/Business_cluster

Ironically it grew out of Italian culture, mainly through immigrants to Australia. While my best coffee experience was still in Italy, generally I find coffee in other parts of the world appalling in comparison, esp in the USA.

>There's really no such thing as 'Aussie' coffee

Demonstrably untrue. Like most coffee producers, a lot of the beans are imported, some of it is grown locally. But they are hand selected, blended and roasted here in Australia and are most definitely produced in commercial quantities to be consumed here and exported as far as Korea.

To name but a few Campos, Sprocket, Lavazza.

Australia has very rich Italian and European cultural heritage which means we cultivated a coffee culture quite early on, relative to other western countries.

@andrewfelix - you're right in that there are specific roasters, but I'm unsure about where they get their beans.

I guess I took 'Aussie' coffee to be places that marketed themselves as 'Australian', or internationally recognised Australian coffee brands. While everyone can find a bottle of Australian wine, and what it means to be Australian wine, defining it for coffee is a difficult task.

dpark, 'Western' is more of a cultural moniker than a geographical moniker.

If you want to get specific about it, all of Europe west of Greenwich is not 'Western' - and that's most of it. Tunisia is definitely Western Hemisphere but you wouldn't call it west.

I recognized Lavazza, so I had to look it up. It's apparently an Italian company, with production in Italy, and seven subsidiaries in other countries (notably not Australia). Probably not the best choice to promote Aussie coffee. The others do seem to be Australian.

By the way, does Australia count as a western nation? It seems to be in the wrong location for that. This is totally tangential to the coffee topic, just something that I found curious.

Culturally western, yes. While we're positioned in 'Oceania', we were settled(invaded?) by the British and had a 'White Australia Policy' up until the 70's, meaning most migrants were of European descent.

Good point on Lavazza, was a bad assumption.

As an American living in Sydney: I've found it to be exactly the opposite. Sure there's a ton of coffee places, but mostly they're the same crappy $4.00 burnt roast. I suspect Melbourne is probably better, but I haven't had enough coffee there to confirm.

My speculation is that this is due to a general lack of hip/divy/young "artisan" cafes/restaurants in Australia (yes, yes, I know there are some, I'm talking purely about prevalence) compared with "hip" American cities. This is particularly true outside of the hip parts of town (Surrey Hills, mostly).

US coffee quality depends greatly on which city you're in, and the barista being a cool job is true in many places as well. The Pacific Northwest (Portland, Seattle -- despite the Starbucks black mark) has really amazing coffee shops, and they're everywhere. If you're ever in Portland, I highly suggest Barista -- http://baristapdx.com/ -- it will change your life.

I have lived in Sydney a long time. I agree. Most of it is not that good. But everywhere you go there is usually at least 1 place that you can count on.

Sadly the best coffee comes from speciality roasters that only sell it over the counter (or wholesale if you own a cafe in the city), so it's hard to get if you're out of town. A few (like Campos and Cleanskin) will ship within Australia though.

I think it's mainly a freshness thing - after resting for four or five days after roasting, coffee is only at its very best for 10 - 20 days at most (as whole beans).

This is the one you're talking about: http://www.monmouthcoffee.co.uk/shops/the-borough

It's very good, but you'll wait a long time on weekends.

Melbourne, Australia appears to be a coffee Mecca. Have the Melbournites moved over there now?

> all the good coffee is made by Aussies

Hold on a sec. What about Italians?

Well I haven't found a real Italian coffee shop in London yet so I can't say. The only Italian joints I've been in have been mom and pop cafe type places. Someone you go for a quick bite. The coffee has been middling at best, certainly no baristas behind the counter.

I'd say feel free to replace "Starbucks" with any other purveyor of a product you enjoy at around this price point.

When I say craftsmanship what I'm really referring to is the overall brand that Starbucks (or other coffee shops) have built. A brand that says "what you get here will meet your expectations".

I'm sorry you even had to come here and point that out to people.. Jesus Christ, man. After reading your article, I clicked HN hoping for some good discussion, after all, I too have always found the coffee analogy to be a poor one, but the bulk of the comments here are people pissing over the quality of beans and who was superior taste buds.

For me, your first point sums up entirely my problem with the coffee argument -- and specifically why I spend $4 a day on coffee but rarely buy an app (though I wasn't like this initially). Even if I go to [insert coffee shop here (calm down HN)] and the coffee is a bit crappy, it still gets the job done. I won't be as happy that I spent the money on it, but at the end of the drink, I've got caffeine in my system.

The state of the software in app stores, and lets be honest here, is a bit shit. There was a popular post the other day by some guy about not being able to make a living being an app developer, and it was all "boohoo"s.. until you look at what he's made. absolute crap. A concrete calculator that looks like an Intro to Android chapter one exercise? Boy, I wonder why he's not raking in the millions. Look at the top 100 right now. It the same 3 games over and over. My issue is that when I take a gamble on your app, and it turns out to be completely awful I don't get anything out of it at the end of the day, I'm simply out a dollar -- and no, that's not a large amount of money, but it is the principle. I feel robbed of that dollar because I got nothing in return for it.

I travel for work constantly, when I first got my Android phone, I would browse through the Google Market before a flight, and then dump up to $5 on whatever game seemed interesting. I had an initial expectation of quality-- I thought up to $5 was perfectly reasonable. After, I'm going to (hopefully) get a couple of hours of enjoyment out of this app. However, I only did this handful of time before realizing that reading the SkyMall magazine is more interesting alternative to most apps.

"Those of us in app development love to talk about how ridiculous it is that people will drop $4 every other day on a cup of coffee but will not “waste” 99 cents on our hot new app."

For this to be an appropriate comparison, there would have to be a coffee shop that had the massive peaks and nulls like that of an app store. Imagine a coffee shop where getting a bad cup of coffee didn't simply mean, "of less than ideal quality given the price," and instead meant getting a black, undrinkable, coffee-ground-laden sludge that can only be thrown away after the first sip. I think people would be a little less inclined to spend money on their coffee. Only under these circumstances would I view getting a cup as holding the same "risk of waste" as buying a random app from the App store.

>and second rate beans

Actually, the tragedy of it is that Starbucks uses pretty good beans. If you buy their brand of beans and make the coffee yourself, you can make a damned good cup of coffee.

But Starbucks apparently has standardized entirely the wrong procedure for using those beans, so that the end product tastes like they accidentally dropped a bouillon cube in it.

While it is easy for some to slam Starbucks coffee for taste , the truth is nearly every cafe you go to will have a healthy business - and often perpetual lines - of paying customers. Quality is subjective, and the entire experience Starbucks brings is what the urban masses are looking for. For that matter, take a long road trip, and if you happen to see a Starbucks logo on an exit sign, more often than not you're going to throw in the towel and go get a Grande.

McDonalds does a roaring trade in burgers, but that doesn't mean their burgers are very good. I had starbucks coffee exactly once, and it was so bad that I vowed never to go back there again. The way to know if a coffee shop is good is to ask for a quattro ristretto with milk, or something like that. If the barista looks at you funny or hesitates in the slightest just go somewhere else.

> The way to know if a coffee shop is good is to ask for a quattro ristretto with milk

But I just want coffee flavored coffee.

I don't go on road trips without a significant supply of my concentrated aqueous solution of caffeine and theanine, and my handy concentrated flavoring so that I can make energy drinks on the go. So no, I wouldn't surrender to Starbucks in that scenario.

But I realize that my habits are not exactly typical.

Interested. Would you mind sharing your formula?

Sure. You need a scale, but high precision isn't terribly important if you mix up large batches at once. A postal scale probably won't cut it though; you want at least as good as 100mg precision. You can get these ingredients from online retailers (except the orange extract — get that at a grocery store). I've used Hard Rhino Muscle and Pure Bulk and been satisfied with both.

My caffeine/theanine formula:

Caffeine - 1.6g

L-theanine - 3.2g

Water - 2 cups

This makes for 100mg of caffeine per fluid ounce of solution, which makes measuring pretty easy. That is like a cup of coffee on the weak side of average, or 2-3 cups of tea. 200mg is like a strong cup of coffee. I have found that 100mg twice a day is close to the sweet spot where I get energy from it but don't build a tolerance. Obviously if you already have a tolerance, you'll want to use more. This mixture should be refrigerated to keep stuff from growing in it. Also, you can vary the concentration a little, but there is a limit at which the theanine solution will gel into an unusable colloidal mass. Hot water is useful for getting the ingredients to dissolve initially.

The theanine is there for two reasons: 1) it smooths out the jitters from caffeine, and has a mood elevating effect when used with caffeine and 2) studies indicate that combined with caffeine, it has a number of cognitive benefits. 2:1 theanine to caffeine is around the ratio that evidence supports.

My flavoring solution is:

Citric acid - 30g

Malic acid - 10g (optional)

Sucralose - 1.5g

Orange (or lemon) extract (83% alcohol) - 8g

Water - 2 cups

I put this in a squeeze bottle like the kind fast food places sometimes put vinegar and oil in, and it only takes a little squirt (about a teaspoon) to flavor a cup of water. I don't bother measuring this, as it's easy enough to do by taste. But do be careful not to make it too strong or the citric acid will hurt your mouth. Nothing dangerous, but it can make your gums sore.

Malic acid is not strictly necessary. It adds a bit of fruitiness, but it's subtle. You can leave it out and use 35g of citric instead of 30g.

Sucralose is the sweetener in Splenda, but it's important to remember that Splenda is highly diluted with fillers to make it the same sweetness as sugar. Pure sucralose is 600 times as sweet as sugar, so it must be measured with care. Hard Rhino is the only source I've found for it. Other sweeteners like xylitol, stevia extract, and erythritol are easier to find. Xylitol and erythritol are not sweeter than sugar, and I find stevia unpleasant. If you like stevia, it's actually more cost effective than sucralose; it's half as sweet, but it's cheaper.

If you don't want to bother with the flavoring solution, you can also mix the caffeine with anything that is sweet and sour because those flavors mask the bitterness of the caffeine. Citrus is particularly effective.

These are the most cost effective ways I've found to have tasty beverages and caffeine. The caffeine solution comes out to about 7 cents per reconstituted cup (18 cents for the equivalent of a Starbucks Grande). Most of that is actually the l-theanine; if you forgo that, it's only half a cent per cup.

The flavoring comes out to under two cents per cup, or $0.30/gallon, but depends on how much you use.

So basically, if I take this with me on a trip, I can have the same caffeine boost as a Grande, plus theanine to take away the jitters, for twenty-five cents. And as an added bonus, it's actually drinkable.

Edit: One more thing. You can use volumetric measurements if you can find the bulk density for your powders, but I don't recommend it. The scale I have is an American Weigh DIA20, which costs about 20 bucks. The only thing I don't like about it is that its maximum capacity is 20g, but it's easy enough to measure the citric acid in two shots.

Nobody should be selling "craftsmanship" for a dollar until they have at least 50 employees.

wow..sorry but that is completely incorrect. Melbourne has amazing coffee. I've been in Canada for over a year now (travelling to the US every now and then) and the general level of coffee here is truly awful (starbucks, tim hortons etc). The positive is that it is cheap.

Was talking about Starbucks not Australian coffee.

Ah makes sense. Starbucks is pretty terrible and I never really understood why you would go there (especially in Melbourne).

which is why, thankfully there are hardly any Starbucks left.

Although I noticed one has just opened up on Elizabeth St. I guess they still attract tourists looking for something they know?

On the other hand, if people all made such rational comparisons about marginal utility, not many people would be paying $100/month for TV channels that only allow them to watch certain shows at certain times and are full of interruption based advertising and not many people would be flushing $15 down the drain to go see a 90 minute movie instead of buying a month's membership to World of Warcraft and getting tens or even 100+ hours of enjoyment out of it.

The thing is that some people want what they want and they don't care about the long term investment angle. So they're willing spend $8 on a beer at a bar instead of having something healthier and cheaper like water. A lot of those same people won't spend $8 in a year on apps, no matter how rational a case the author might make. In general, food, alcohol, caffeine and cigarettes are more effective than software for generating these kinds of poorly-planned impulse buys (though a lot of Chinese gaming companies have been doing well with free-to-play games and micro-purchases for the past 6 years or so).

In retrospect, I think I've only bought three apps in my nearly 4 years of having an iPod touch, one of which cost 99 dollars. It's a heck of an app, though, and has been in development for longer than the iTunes store has existed.

I very much think that's the wrong lesson to learn from people's willingness to fork over $100/mo for pay TV.

It is not an iron law that people will not pay $8 for apps because less than $8 is what apps cost, and $8 is what beer costs, and $100 is what pay TV costs.

It is a law, I believe called "gravity", that products that present themselves as market substitutes for other products that cost $1 will have a hard time selling for $8. This does mean that, absent a very effective and inventive marketing strategy, casual games and offline web page readers are hard to sell for $8.

Then the logic question as far as the OP's original topic is this:

Can any app truly be a substitute good for a sweetened beverage with stimulants in it? I would say no. It doesn't matter how much people are willing to spend at Starbucks. It has virtually no bearing on how they'll value your app.

I think "online purchases" (software services, mobile apps, etc.) are in special category because they are generally run and sold by people which really don't know a lot about pricing and selling.

I know that because I'm in that category.

>and not many people would be flushing $15 down the drain to go see a 90 minute movie instead of buying a month's membership to World of Warcraft and getting tens or even 100+ hours of enjoyment out of it.

So, playing some shitty game for 100+ hours instead of watching a movie would be the result of "rational comparison" of time spending? Who would have thought...

This has got more to do with production and consumption of a physical good as compared to a "virtual" good than anything else. The marginal utility you mention for coffee is derived from the physicality of the product - and thus I think the Starbucks vs. app comparison is invalid.

The barrier to entry to create and deliver a software application is extremely low as compared to creating and delivering almost any physical good. The physicality of a thing - especially coffee - ensures that only one instance of it can be used at any time (and it would probably be "used up" during consumption). Creating a new copy has costs (where copying and delivery costs are zero and more than one copy can exist at a time disorienting the supply/demand dynamics, people would always be reluctant to pay for a thing - hence digital piracy).

Software, has no such restrictions and virtually zero delivery costs. That's why RMS always said that charging for the act of software development is right. But charging for copies of the same stuff (and not providing its source) is not - people may talk about intellectual property - but that's a different debate.

When you buy a car, you pay for it - your neighbour with exactly the same model also pays for it. It's also "open-source" (or at least, it used to be) - you can take it apart and figure out how it works. What you might not be able to do is to create the car from scratch (you may not have the tools, materials, expertise etc.). And that's why you pay a hefty sum for it.

The same does not hold true for simple apps - they are easy to put together, the tools to do so are freely available in most cases and the expertise can be gained in a short amount of time. Hence, the $0.99 price tag - because the developer knows it's easy enough to put something together for free - if you had the time.

Note that this does not apply to high-end software where significant amounts of R&D and engineering effort is required - and hence the end-product can't be easily reproduced from scratch. That's why I still feel slightly guilty (and very privileged) when I can download and use Linux for free and browse through its source all I want - economics says it shouldn't be free - but it is.

The bit about "coffee" and "$5" and "less than" and "marginal utility" have to do with the value of $5 to the average Starbucks customer reading things on the Internet, and nothing at all to do with the nature of coffee other than that coffee is not Important to people's lives.

The point of the comparison is that coffee means so little to people that the cost of a cup of coffee is a good proxy for "how much you should spend without thinking".

That it is an imperfect proxy is something that obviously will not be lost on a site full of nerds like us, but s/trees/forest/g.

Why not price the coffee at $30 then for millionaires? Surely the marginal utility of $30 to them would be similar to that of $5 to someone earning $60k? Why would one pay $5 for the same amount of gas one month and $3 in another month when the marginal utility derived from the purchase of gas is precisely the same?

Ignoring the price effects induced by the supply/demand characteristics and intrinsic nature of the good in question (inelasticity of gas demand, in this case) leads to bad pricing as much as incorrectly estimating the marginal utility of a product to consumers.

All manner of ridiculously expensive gewgaws are priced that way exactly in order to exploit the marginal utility of $30, or $100, or $5000 to millionaires.

The problem with pricing Starbucks that way is that a huge chunk of Starbucks strategy involves there being a Starbucks on every quarter, ready for any passerby be they millionaire or middle class, and while it is notoriously easy to do price discrimination within a band of $1-$10 prices, it is very hard to do price discrimination across a $1-$100 spectrum of coffee.

"huge chunk of Starbucks strategy involves there being a Starbucks on every quarter"

The other chunk of Starbucks strategy is that it's not about coffee.

Speaking strictly of the product (and not the experience which of course is equally important) Starbucks secret sauce is essentially that it is a "sugar delivery system".

I've yet to be in a Starbucks (and I"m in them every single day) where the majority of the beverages that are sold are not black coffee but drinks with a high sugar and even mocha content that are addictive on several levels.

Sure. That's why they get away with selling bad coffee. If you're going to load it up with sugar and cinammon and whipped cream and three shots of caramel the quality of the coffee is largely irrelevant.

"Why not price the coffee at $30 then for millionaires? Surely the marginal utility of $30'

If they could figure out a way to differentiate the product either in taste or image they actually could sell coffee or a coffee drink at a higher price in addition to what they are selling now.

PR wise it could prove strangely to be a bad move thought and might send the wrong message.

This is currently done with liquor to mention only one product where people pay outrageous sums of money for something that is not clearly better (taste tests of grey goose come to mind). And who would have imagined that people could charge for bottled water? Or that people would pay money for luxury ovens? Unheard of back when I was growing up.

To some extent, they do this already, right? There's a big difference in price (5x or so?) between a drip coffee and their most expensive drinks.

This happens: http://en.wikipedia.org/wiki/Jamaican_Blue_Mountain_Coffee http://en.wikipedia.org/wiki/Kopi_Luwak

The difference is that coffee is a completely different kind of market: producing a small quantity of very good coffee does not give you much help in producing it in large quantities without at a linear increase in the costs (and actually has hard limits based on growing conditions, available labor, etc.) whereas software can be infinitely replicated.

The price of a cup of coffee is useful only in establishing the threshold for how much money the average person is likely to spend without significant thought.

>Why not price the coffee at $30 then for millionaires?

That happens all the time, including for coffee.

Coffee at a "high end" hotel / coffee shop etc does not cost the same as coffee at your local coffee joint --while the coffee itself has marginal difference. And there are places that sell $30 hamburgers (even $1000 hamburgers).

Same for brand name clothing etc compared to lesser known or bargain brands. The cloth / manufacturing quality in tons of cases is exactly the same, to the point of both being made in the same factory in China.

      That's why RMS always said that charging for the
      act of software development is right. But charging
      for copies of the same stuff (and not providing its 
      source) is not.
While I understand the rationale behind this statement, it never felt right.

When designing a new car, a lot of money goes into research and development, money that cannot be recovered (sunken costs). However, once that's over and the assembly line is put together, the cost of creating new copies (while never zero) it definitely converges to the cost of the raw materials involved. The more items the assembly line produces, the cheaper it gets. And when buying a car, you're paying a lot more than that, because you're in fact buying a brand, not just some pieces of metal put together.

I also disagree on a car being "open-source". Assuming you can make copies of your car and give those to other people, you'll be obliterated by trademark, copyright and patent lawsuits. Also many car manufacturers are voiding your warranty if you go to unauthorized car repair shops. And if you can look under the hood, that's only because of strong consumer protectionism laws.

Apple has more than 50% profit margins on iPhones. Is that moral? Well, they need to earn a profit (otherwise they wouldn't be in this business) and they also need to pay the research and development costs for newer versions or for other products. And after all, this is capitalism - if you don't like it, buy from somebody else.

So why can't this rationale also work for pure software? After all, the developer needs the profit to develop newer versions, improvements or other applications from which you may also benefit. And again, this is capitalism. If you don't like it, search for something cheaper, or create your own.

RMS's principle (being paid only for creation of software, not for delivery of copies) does not work because it doesn't scale. You cannot put together an assembly line for software, like you can for physical products. This effectively means that you end up selling your time, which makes a good living, but it won't make you rich and it won't allow you to work on lots of silly things that may or may not pay off.

Also, only simple apps can be cloned easily. No software can currently match Adobe Photoshop, which still deserves every penny, and it wasn't for a lack of trying. I use Gimp because the price of Photoshop is too high for my amateurish needs, but I would shell out the cash for Photoshop in a heartbeat if I would be a professional photographer or designer.

The $.99 price tags is common just because the app stores are filled with crap, with most apps not even deserving $.99 - but create an app that enriches people's lives and even allows them to make some money, and you'll have no problem selling it for $90 or even $900.

1) When you buy software, you often aren't paying for the brand. As was stated in the original post, purchasing software is often done blindly and is a total gamble. Given that the brand of most software is worthless and the cost of production is nothing, where does the value of that software come from?

2) Granted, there are some arbitrary restriction on cars, but they are still a lot more open than software. You can easily alter them, fix them yourself, etc. None of that is remotely possible with commercially-distributed software. I can't just fork Tweetbot, add in support for Orkut, and redownload it to my phone. However, if I want to install a better radio into my car I can. Software (especially on mobile) exists as an immutable "black box" that you have no access to other than the user interface, and that makes it less valuable.

3) No one is arguing that it is inherently wrong to charge for software. People refuse to pay not because they are principally opposed to it, but because the average price of an app in the app store is far below $.99, and thus $.99 seems like an inflated price.

4) It's true that apps like Photoshop are valuable, but it's apparent that their prices are absurdly inflated. Pixelmator can make an app with 90% of the functionality at a little over 2% of the price. Is that 10% extra functionality really worth all those hundreds of dollars? For most, it isn't. The same can be said of apps. Sure, that $.99 app is cool, but this free one does 90% of what the paid one does. Is that 10% extra functionality really worth all those dozens of pennies? For most, it isn't.

The car example is a bit more complicated nowadays: The price of the car does not only cover the variable costs of the producer, but also has to recoup the fixed R&D. Software is only special, because the variable costs per item are essentially zero.

Wait, what? Are people seriously arguing about the dollars and the coffee? Here, let me explain you why paying a dollar for an app or a theme or any such crap on my (full disclosure: Android) phone pisses me off and why I'm happy to go pay CLP3250 for Starbucks coffee once or twice a week.

When I go to Starbucks to buy my coffee, I get a beverage that has a certain level of caffeine I like, lots of milk, is sweet and will last me the better part of the morning. I found out that they have a product that I like and it's a repeatable experience: I go, I ask for my favorite brew and it has the same qualities that enjoy, every time.

When I look for an app for my phone, I can see screenshots of it and see the reviews and ratings. Neither of these are very reliable, for reasons I assume I don't need to elaborate here. At this point, I have the two options: 1) I can go online and do further research to try to separate truth from crap; or 2) I can install the app.

When it turns out that the app is crap after all -- or that it's good, but doesn't do what I need, or that it's excellent but the stuff I happen to need doesn't work for my phone or OS version -- I have to uninstall it and look for a better one. Or give up.

At this point, I've "paid" with my time and effort and hopes, so this is where the difference between free and $1 dollar is a lot more important than $1 dollar and $4 or $10 dollars. If the application was free, I feel disappointed and disgruntled. If it wasn't, I also feel ripped off.

But the most important part is that this whole process is repeated for every app. That is where the comparison with Starbucks breaks down: shopping for apps is fundamentally different from buying coffee at Starbucks. The comparison with movies is a lot better, because every movie is different and every movie is a gamble. Then again, movies still have more alternatives than apps: I usually go to see a movie because 1) I'm so excited about it that it doesn't matter that I'm risking a disappointment or 2) I want to spend some time relaxing with my wife and it doesn't matter that much whether the movie was good or decent, as long as it isn't godawful.

Bottom line: when it comes to purchasing apps, the reliability needs to improve. Alternately, I wouldn't mind if every paid app had a time-limited, full-feature free version. Whatever the cure, the problem has nothing to do with the quality of the goddamn coffee beans.

A POV of "repeatability" which is missed: It's not so much that you're buying a repeatable $4 item, it's that you're paying thousands of dollars for something instantiated over and over. You're not so much buying the individual drink as buying into Starbucks. You've made your evaluation, considered the options, and settled on a product for which you are going to shell out a pile of cash, using it for a long time (in $4 20oz increments). This vs. apps which, as you note, requires evaluation every time with a different experience for each $1. The "coffee vs. app" comparison would only be valid if every time you bought a drink you weren't quite sure what you were getting, knowing that there was high odds of chucking it on the first sip; you wouldn't be buying many of those either. The coffee analogy matches more the device you're running the app on: same device, used in small increments daily, with a little surface variation (the apps), for a very long time; this matching more that you're buying the Starbucks experience for $2 a day, and swapping out toppings/flavorings (apps) for another $1 or so.

BTW: the correct order is "short black". "Tall" isn't their smallest size, the un-advertised "short" is. They may not have the proper cups (as most customers don't know they exist), so you may get a free upgrade to "tall". As for "black", why would anyone want to adulterate a perfectly good coffee into a milkshake?

I've often thought that Starbucks should sell fractional shares a long with their coffee, thus becoming the biggest ponzi scheme in history.

The movie analogy is interesting, because you can see the way people have evolved techniques to handle the grossly different movie products:

rotten tomatoes aggregates professional reviewers to give a general score

imdb lets people see the entire body of work by directors, writers and actors. So people will see a movie by a director they like the same way they'll pick up a book by a writer they like.

and then you have companies like Pixar and Disney (same, I know) that exist on brand. People will see the movie because it's a Pixar movie and they know what to expect (or not expect).

but what is even more interesting about the movie analogy is that with all these tools for discovering movies, box office take seems to be a function of advertising budget than anything else (to the point where they believe that movies have to hit a certain take on opening weekend to be successful at all).

Situation in Apple App Store is actually much better then selling it via web. You could actually convince some people to buy your app for $1.

Convincing people to pay for anything on the web is much much harder. A know few real-estate agents which have all their data in Dropbox but they don't want to pay for Dropbox storage and constantly terrorise colleges with Dropbox invitations so they can get some more storage. Go figure.

No. The situation on the web is the opposite. People with real business problems can readily be convinced to lay out far more than they do in apps for a year for a web page that solves those problems. Case in point: teachers who want bingo cards to build a lesson plan for a single day's biology class.

The interesting thing to me is that the web seems to be a wholly different market than an app store. Getting me to pay even a dollar for an app in an apps store is tough, and frankly a bad bet. On the other hand, there's absolutely no way I'd pay a dollar for any app on the web. I assume that anything priced that low is a best trash and likely malware.

If you want me to buy an app in an app store, you've got pretty much the same sell whether you're charging a dollar or five. On the web, if you're not charging at least twenty, I've probably already navigated away.

But with that said, I don't spend much on random apps on the web, either. You've still got to make a good sell. It's just that "low price" on the web is $20.

Hmm, getting me to buy a mobile app for $1 is really hard. I consider most of them time wasting toys.

On the other hand I'm perfectly happy to pay $15/month for a useful web service.

And on the desktop I have no problem with paying $50+ for serious software.

I guess mobile has (to me at least) that shovel ware image.

I agree. My point is that as hard as it is to get me to buy an app for $1, getting me to buy software for $1 elsewhere is just impossible. I won't likely subscribe to a service for $1/mo, either (though I might subscribe for $12/year). Really low prices in an app store make me think "this might be crappy". Really low prices elsewhere make me think "this is probably malware".

I think you're missing the OP's point.

The marginal utility of a Starbucks coffee is indeed very small, but at least it is known. The marginal utility of your $0.99 app is unknown and possibly even negative.

Of course I agree with you on the issue of pricing, but I think that's orthogonal to this discussion.

> A dollar at the margin for a person with a $600 phone on a $50/mo data contract is not an enormous gamble

It's not a big economic gamble, but there are good chances of getting screwed, which is more important than the money. I believe that's contributing to the prices being pushed down. I don't mind paying for the software I like, but I absolutely mind paying to try out 4 other apps that turned out that sucked. Indeed, because I had to give them money to find out, they will have the funds to keep on sucking. Effectively, I can't vote with my wallet.

Try shopping for an ssh client or a vnc client in the app store. I suspect you'll have that exact experience.

> This place has an enormous problem with pricing and economics

I think the worst example I ever saw was someone implying that a copy of a digital photograph should (!) only cost £0.0001 as that's the cost of hard drive storage.

There is also a sort of price inversion principle going on with software that doesn't happen with physical products.

Say I make great coffee, I get the beans myself, I ship them by sailboat from Indonesia, and do everything by hand. People would expect to pay a lot of money for coffee like that, more than at Starbucks.

Say I make great software, I have the best designers, work for weeks on user interface details, and make a great web site to go with it. Quite apart from the general expectation that my software should be cheap, or free, there is a logical conclusion that if my software is so great I must be selling millions of copies, and at $10 a copy I'm charging way to much. If I'm selling millions of copies I should be able to price at a volume level. In economic terms my marginal costs are near zero, and if the app is so great that it is selling well then my fixed costs should be divided by a very large number.

So for physical goods, the better the product, the more you can charge. For software the opposite is often true.

At the other end of the spectrum there is software that is not expected to sell in huge volumes, and for educated purchasers they understand that these apps cost more. Probably most apps in the app store that are priced over $20 are in this category. Apple does a really bad job of supporting these apps though, theres no mechanism for trying before you buy, so the risk factor is large. If you are in a market that is well connected though, then this risk is lowered by word of mouth feedback. If your market is not well connected then you have a problem convincing users of your value.

We were in the top paid iPad apps category briefly with an app that was priced at $49, but our market for that app is small. We choose that prices based on an estimate of selling only hundreds of copies, to a user base that had already paid thousands of dollars for the required hardware for the app. We were competing against a $3 app at that time, but our assumption was that price would not be a large deciding factor for our user base, and we were right. We could invest more in the product because our price was realistic (I think) whereas our competitors had very little money to reinvest. They had to sell 15 times the volume to make the same revenue, in a small market, and that didn't happen.

Actually, what happened for the most part was that customers bought both apps. We got $35.00 from each customer and our competitor got $2.50. Once the purchase was made the price was mostly forgotten, it was the reliability and features that mattered from then on. If you do have a high priced app you'd better make sure that it works well.

you militantly miss the point of the comparison when you benchmark the experience of installing a new app against the enjoyment you get from a cup of coffee.

Actually, you're missing the point here. Yes, marginal utility blah, blah, blah, but you seem to be assuming I have infinite marginally useful dollars to piss away each month. There is, by definition, a limit to how much disposable funds I am able to spend each month.

I only have $X ± Y of disposable income to toss down the drain each month, and I'm going to try and optimize the value for that money.

A dollar at the margin for a person with a $600 phone on a $50/mo data contract is not an enormous gamble.

Sure, I have nothing to loose by buying your shitty app. But I don't have a whole lot to gain, either. I still have to choose where to spend money. I'd rather get my regular cup of coffee that tastes like dirt because I know its going to wake me up for work.

If you gave a shit about the dollars you were going to spend for coffee, you wouldn't spend them at Starbucks, which is about 4x more expensive than the second most convenient place you can get coffee. You spend the money for Starbucks because you do not care about those dollars. Which is the point, when you get past all the noodling about what Starbucks coffee actually does for you in the morning.

Nobody who makes this comparison gives a fuck about coffee.

I haven't missed the point of this blog post. It suggests that developers should find ways to make their "craftsmanship" show in order to get prospects to part with $1. I find the idea of "$1" and "craftsmanship" sharing a sentence to be disturbing.

I do care about the money I spend. Our family plans a zero-balance budget every month, meaning we track every dollar. I still end up getting Starbucks once or twice a week. That would fall into the "snacks and candy" category.

I do not go to Starbucks for "good coffee." Ironically, I have given up on finding "good coffee" in the US for one of the reasons mentioned in the article: going somewhere else is a gamble and I have yet to find a decent cup of espresso. I go to Starbucks for exactly the reason that he mentions: it is a known quantity. I want caffeine and I know Starbucks will give it to me in a drink that is consistently good. It is not great and it does not really qualify as coffee, but it tastes good and it does not change (if it does they remake it free of charge).

The main point I took from the article is that comparing a cup of coffee to an app is not a useful comparison. Even though the marginal utility of both is low, the pattern of buying is very different. People don't get in a habit buying their daily app like they do coffee. Personally, I ran out of apps I wanted to buy on my phone--or even download for free--about three days after I got it. Now I only go to the app store when I hear about something that sounds interesting or I think of something new I want my phone to do.

I do agree with a higher price point than $1. If one of the problems with app purchases is finding a well-made app amidst the crowd of crap, then using price to signal higher quality makes sense, from both a marketing and business perspective.

I think that the reluctance to pay for anything online is what explains prices like $0.99 - the developers are trying to pitch their apps as "almost free" or "just about free" - sneaking in under that impedance. The whole point of that price is to send a signal that this doesn't cost real money. So this price point is not accidental or unexpected. How developers can get out of this is a different question...

There are people here with much better scientific data to argue from, but my sense is that this is exactly the wrong strategy: the biggest hump is from "free" to "pay", and most points on the spectrum from 0.01 to "whatever a DVD movie costs" are similarly hard to sell at, all else being equal (market sabotage by people selling apps at 99 cents notwithstanding; don't build apps that will compete at 99 cents).

> market sabotage by people selling apps at 99 cents

The real sabotage comes from Apple who are encouraging 99c ents applications. It fits well in their strategy to commoditize software so their hardware becomes more appealing.

The problem is that this strategy works: For every "homeless" developer who gives up there are waiting 10 in line to flood the market with their 99 cent apps.

The real problem is that the app stores are generally a winner takes all top list driven market. If you price an app at 99 cents, you probably have more of a chance of appearing on the paid top list. At which time you generate a lot more revenue that you ever would have at a higher price point, despite the inefficiency of the price point.

That's true, if the only way you have to market your product is people randomly hitting the app store looking for stuff to install.

Just from the first two pages of my phone: Rdio, Downcast, Google Authenticator, PCalc, Songkick, Ratio, and the This American Life app are all things I installed because I went to the App Store to get those specific apps. (Top Shelf, Star Walk, Flashlight, Fruit Ninja, and Osmos are examples of apps I "discovered" in the app store; those are probably not great app categories to compete in).


One of the best and most precise and enlightening comments you have ever written. Thanks for this.

Wow. The negativity of the comments here to this post is astounding.

I personally find this post very insightful. Just yesterday, I bought the EA Tetris app for $0.99. I played it for three minutes, and decided I hated the "touch" interface for Tetris. It isn't Tetris at all. And it pissed me off that I paid money for something useless. It doesn't matter if I paid $20 for it or $0.99. It just makes me feel like a fool, like I got taken in.

When the author says "Your $1 App is a Total Gamble", that's exactly the point. And it has nothing to do with it being an app or an online purchase. It's the same way I feel about buying a new snack for $0.99 and discovering it tastes like cardboard, or a shirt from a new store that turns out to shrink unexpectedly in the wash.

People hate buying things they'll regret, particularly when they're buying blind, or have no idea of the risks. It's psychological, not necessarily economic, but it's true. And in app stores, there's rarely a trusted brand to rely on, or anything at all, to tell you you're not being taken for a fool. Customer reviews tend to be worthless, and you're not going to spend 20 minutes researching a $0.99 purchase. So you just won't buy it period, because you hate feeling like a fool. Psychologically, it makes perfect sense.

But what if the app stores switched to a subscription model? Pay $10/mo for unlimited apps. Suddenly, no regret. Pay developers based on their proportion of hourly usage across all phones. All of a sudden, no regret, and developers are paid based on people finding their apps useful, instead of their ability to convince people to buy them...

I would say review systems and internet research negates most of the 'gamble' involved with most app purchases. But I guess most users are just mindless consumer zombies.

There are a few instances where you "wont know till ya try it yourself"... but they're few and far between with proper research.

I think it really speaks to the expectation of developers here that users are expected to "gamble" on app purchases without knowing whether the app is good or not by reading reviews, and general consensus. Thats a really exploitative purchasing pattern to expect from your users...

Not saying there arent plenty of dumb people to pray on, but... yea.. wow. A lot of app store developers here on HN just expect their users to be dumb ill informed "johns" to exploit for a dollar on a gamble... That really says something.

That's the whole point: you don't have to research the coffee because you already know what it's like. People don't like to pay for stuff they don't like, and they don't like doing research. So if you can somehow assure them that they are going to like what you're selling, that's worth a lot. I'd rather spend $5 on a cup of coffee that I know I will like than $.05 on an app that I don't know I will like. I don't trust the opinions of people on the internet, or even most of my friends in real life, so reviews are not that useful to me.

> I would say review systems and internet research negates most of the 'gamble' involved with most app purchases.

Logically, it seems like it should. But a lot of apps are just good fits for some people and bad fits for others. Some people love Angry Birds, and some people hate it. For a lot of apps, it doesn't matter how many reviews you read -- you just can't tell if you'll like it or not.

I bought the $0.99 Tetris app because it was getting rave reviews. And after just a few minutes, I realized I hated it. In my experience, reviews/popularity are a very bad predictor of whether or not a particular app will be useful to me.

> I bought the $0.99 Tetris app because it was getting rave reviews. And after just a few minutes, I realized I hated it.

And you only have to experience this once to "double-negate" the gamble. One time is enough to make a user realize that it's still a craps shoot. Reviews online are often a very weak signal for quality.

google play (android) allows for full refund within 15 minutes of purchase. I don't know if you bought from them, or somewhere else (maybe itunes), but you can check their policy. It likely won't help you this time, but maybe in the future you can just get money back.

I've returned and gotten a refund for most apps I installed on Play. I kept maybe two dozen or so quality ones.

Works great since you can pretty much get the crux of the quality of an app in an extremely short time (sometimes as little as several seconds).

>I would say review systems and internet research negates most of the 'gamble' involved with most app purchases.

I like to occasionally take a flier on a new application that's not gotten enough attention to have research and reviews yet.

The "inapp purchase" can prevent this. Download for free, play a few levels, if you like buy more.

This is the same strategy cut the rope, angry birds, use. They started before inapp purchases became available but clearly demonstrated the concept.

This is the model that works.

Or users can be allowed to refund their apps

Or better still, allow developers to specify a trial period if they wish to. Only Windows 8 and Windows Phone App stores currently do this, I believe. Some apps that might be of a single use kind won't make sense for this, but most apps like games will and there will be less resistance to upgrading rather than downloading the "Pro" version all over again.

> People hate buying things they'll regret

They also has been found to regret less when they buy the experience[0], which is what coffee in Starbucks is more about. I wonder where do apps fall—are they things or experience? Or does it depend on how you market it?

I guess it's pretty hard for an app to offer unique experience, in comparison with a coffee shop.

[0] There were studies, paper posted here on HN some time ago (“If money doesn't make you happy…”)

Mmm, I like your line of thinking with a subscription model for apps although there's still an unknown time investment for any new app.

Try out this app and spend five minutes on it? Eh, maybe.

Subscription music services work very nicely because the time investment for listening to new music is essentially zero. There's no download or queuing wait at all.

But listening to music itself takes time, doesn't it?

For evaluating the likeability of a song? Yes, but it (like Starbucks) is a known quantity. 10-30 seconds of listening.

Stop using Starbucks vs App analogy

People try new restaurants all time spending between $10-$75 per person. They are often disappointed.

People try new foods all the time (hey look at these new nuts, this new sports drink, this new natural pasta, this new gluten free cereal)

Starbucks is a known brand. If you liked the last game made by Sid Meier you'll probably like his next one. Starbucks vs Apps is the wrong analogy.

Spending a few bucks on a movie or a meal or a drink or a snack is exactly the correct analogy. I spent $11 on several movies recently and was often disappointed. How is that different than an App? I've tried several restaurants I'll never go back to as they were mediocre at best. How is that different from an App?

If I try a new restaurant and they don't bring my food to the table, I walk out without paying. If the food is horrible, I can send it back. If I pay the bill, I'm acknowledging that I got something of value. I may not decide to go back, but at least I'm not hungry any more. The same applies to your other examples. If the projector malfunctions when I'm watching a movie in a theatre, I get a coupon to come back another day.

With the app store, there's no recourse. I bought several apps that didn't work. It's not that they weren't as good as I expected, not that they crash occasionally. I wasn't disappointed. I was SOL, having received no value for my money. Sure, it was only couple of bucks, but I hate being a sucker.

If the app store would let me delete an app in the first 24 hours for a full refund, I'd buy a lot more apps.

> If the food is horrible, I can send it back.

You CAN...but legally, you can't walk out on the bill. Even walking out after ordering is illegal, as I understand it. And if one thing that arrives is terrible, then are you really going to trust that something else will be better?

Probably not. So are you really going to walk out without paying? Most people won't, and you would be breaking the law if you did walk out.

Google already did an experiment in a 24 hour return policy. Guess what? A HUGE percentage of games -- GOOD games -- got bought, played for 8 hours, and returned.

A game for $0.99 isn't intended to be a lot more than a few hours of enjoyment. A $60 game may need at least 16-24 hours of solid content, but a $1 game is still a better value if it can entertain you for three hours. The 24 hour return policy was a stated reason several big developers refused to develop Android games, so Google changed it to 15 minutes.

One extreme to the other. Sigh.

Regardless, this whole thread is completely missing the fact that A LOT of good apps have demos/samples that you CAN try for free, and people still complain and whine about having to actually PAY $1 for a game they can find out for free that they like, or an app that they can find out for free works just fine for their purposes.

AND, you can look at reviews to see if the app works. When you go to a random restaurant, you don't get a pile of reviews pasted to its front door that you can read to find out if it's any good. In the world of apps, you CAN see reviews at the point of purchase.

And I hope you posted bad reviews (after contacting the app developers to see if they could help you!) on the apps you bought, to warn others.

Well, maybe the law would side with the restaurant if it came to that, but it won't, because the last thing a restaurant wants is a customer hauled away in handcuffs while shouting about how terrible the food is.

And when it comes down to it, my beef with the app store isn't a legal issue either. I might be able to sue the developer for breach of contract or fraud or something, but I won't. That's an even worse move than the restaurant calling the cops.

It may be that 24 hours is too long. Or maybe the return policy should only a apply to non-games. I'd hope a return policy would obviate the need for demo versions and so on. I use them whenever possible, but sometimes it's too much of a pain to be worth it. As for reviews... please. They're too easily gamed. All the apps I've been burned by had good ratings and reviews. If they hadn't, I wouldn't have bought them in the first place.

Perhaps the rational thing to do is just buy more apps and accept that it's always a gamble and sometimes you lose. I don't find myself doing it all that often though.

I believe in the UK you can leave what you think the food was worth (down to zero) along with your name and address so the restaurant can take you to small claims court if they wish to dispute the value they provided.

I have heard of precisely one first hand account of this being used for a truly terrible meal. The police were called and confirmed the dinner's rights.

Almost correct, I believe. You have to pay full price if you finish the meal, because it is assumed you must have thought it was worth the money - otherwise you would have stopped earlier.

Totally agree, but 24 hours is time enough to finish a game...

I've seen movies that had a powerful emotional impact, even some that brought me to tears.

I've eaten meals that filled my entire body with contentment and happiness.

I've used apps that -- kept me mildy entertained? Were somewhat useful? Somehow that just doesn't seem the same.

Maybe we make those gambles on the first two because there's a 'jackpot' to be hit. It doesn't work like that with an app.

Well at 10-75 bucks for dinner they know that they are at least going to get some nutrients. They can't say that the app will even boot up. I had an app that just crashed to the main screen because it wasn't written for the particular iOS version I was using. Getting a refund on a 99 cent app wasn't worthwhile to me so I didn't do it.

I used to develop apps for Dan Ariely and we would often chat about this topic. By the latest in psychological research it's less rational than that [1]. Additional factors:

Mental Binning—when we think about buying a $1 app, it doesn’t occur to us to ask ourselves what the pleasure that we are likely to get from this $1 app — or even what is the relative pleasure that we are likely to get from this app compared with a $4 latte. In our minds, those two decisions are separate.

Price Anchoring—we have been trained with the expectation that apps should be free.

1) http://danariely.com/2011/12/25/the-oatmeal-this-is-how-i-fe...

I like the article, but yeah, price anchoring is the real issue here. App prices on mobile devices is largely a result of the race to the bottom, hence why there's a large disparity between price for the same app on mobile and desktop. (Assume equivalent functionality and difficulty of development.)

The coffee cup analogy is about putting the price of mobile apps back into perspective, getting people to not feel ripped off because just they're paying $1.99 instead of $.99.

That's somewhat encouraging, I think. At least it seems that some of the behavior could be changed, if the right references are invoked and if people's expectations can be changed (which they can, it would seem, as free was not the expectation, even 10yrs ago).

I think there's a deeper cause behind many of these arguments. People hate to feel ripped off, to a degree that is highly irrational if you assess the impact in purely utilitarian terms. Even a billionaire will feel a bit shitty after paying $0.99 for a lemon.

There are various reasons why this happens. Partly it's the fact they wasted time researching and purchasing the app, and people's time is usually more important than $0.99 or coffee. Partly it's an innate sense of justice. But the main factor is that we don't like to feel that we screwed up. Even worse if you just paid for an app before learning there's a better one that's free.

A good book that covers this is The Paradox of Choice (http://en.wikipedia.org/wiki/The_Paradox_of_Choice:_Why_More...; credit Build and Analyze podcast for raising the topic a while back.)

Yes, it reminds me of a story about a guy named Joe who spent hours on the phone with the phone company and had the erroneous billing charges removed saving him $11.

Joe tells his neighbour Bob of his ordeal and how he got his $11 back, Bob has the same problem and asks whether the Joe could take care of his billing problems with the phone company for $11, but Joe refuses insisting he isn't being paid enough to deal with the phone company for hours.


The goal is to make it not worth the oppressor's effort to rip you off.

This also reminds me of a study mentioned in Dan Ariely's book Predictably Irrational (currently reading, great so far). Tversky and Kahneman gave people two scenarios. You go to buy a new office pen and find one for $25, but then you remember the same pen is on sale for $18 at a store 15 minutes away. Do you go? Most people do. Now you're shopping for a suit and you find a great one for $455, but someone tells you it's on sale for $448 at a store 15 minutes away. This time, most people don't make the trip. So is $7 worth fifteen minutes of your time, or isn't it? We apply a different standard depending on the reference price.

I'm not sure this is the same phenomenon that's going on with mobile apps, but a case can be made it's related. Arguably, the reference price is $0, so any deviation from that is going to be treated with the greatest significance. But now I'm just getting back to the OP's point that "Starbucks Has No Free Alternative", from a slightly different angle.

Lets take it that people are worried about being ripped off. If it was easy to return an app for a refund from Apple, would you expect the baseline $0.99 price to go up?

I totally would.

I purchased Dark Sky a couple weeks ago on the recommendation of a friend. I thought the $3.99 price tag was way too steep for what is mostly likely another crappy app, and I would never have bought it if my friend hadn't sung its praises.

And it's now one of the most useful apps on my phone, and if it had been a 14-day free trial, I'd happily pay $20 for it.

If free trials were available, like are common in the desktop software world, I think app prices could go waaay up.

Really enjoyed reading the article (though the criticism by kineticflow about using "Fact", seems valid to me), thanks.

For me, the two stellar points were: "The Starbucks Craftsmanship Is On Full Display" + "App Craftsmanship Is Hidden Away".

I'd also like to add that the "Craftsman is hidden away". Apps do not connect at a human level the same way a person selling you a cup of coffee does. Even for mega corporations like Starbucks, at the end of the day, you interact with a Barista or someone at the cash register. We being creatures of habit, tend to go back to the same Starbucks (mostly), and in the process bolster this connection. That doesn't happen with an app. You might go back to the app every day, but there is no tangible connection with the craftsman. So what exactly can be done? For starters, one can associate the developer's name and face with the app. I think this is particularly important for Free apps. If you've ever used Adblock on Safari, at the end of the setup, there's a note that "humanizes" the app as being the creation of a person. You get to see the name and a photo.

One of my favourite mobile apps, Instapaper, has the developer leaving tiny personal messages during app updates. I know his name, the fact that he recently had a baby and at some basic level it helps me connect to the person.

Does this make any sense?

Note: if your first reaction to this is to say: “Starbucks sucks”, please substitute your favorite coffee shop. Magically, the article probably still works.

Bingo. Thanks!

I'm not so sure about the argument that most people would forgo the $4 cup of Starbucks, given a free alternative. Every office that I've ever worked in provided free coffee, and half of the office would still regularly pick up coffee from the nearest Starbucks daily. I think there's something to be said for

1) Crafting the "image" of superiority that people get from purchasing Starbucks (having that nice branded Starbucks cup, rather than the crappy styrofoam one your office provides, allowing people to order ridiculously tailored drinks -- soy half caff with a dollop of creme...etc) and

2) Providing an ecosystem to encourage the purchase over free alternatives (I've noticed that I'll stop at Starbucks for a snack because I'm hungry in the morning, and pick up coffee/tea as well, just because I'm there)

Yours is a good point (and I can't fully refute it), but I'd like to point out that the article's argument is that Starbucks doesn't offer a free alternative. Surely if Starbucks offered a free alternative, people would choose it instead, as long as it provided a reasonable number of the benefits the paid version does.

To bring the analogy back around to apps, let's say there was an Instagram app that costs $9 and a notJimstagram app that does something similar for free. Instagram = Starbucks, notJimstagram = your office coffee. Most people would buy Instagram, because Instagram is well known, has a strong brand, etc.

On the other hand, suppose there was the $9 Instagram and the free Instagram. In that case, most people would probably choose, or at least start with the free Instagram.

I've found in offices that a lot of the times the $4 coffee is just a nice reason to get out of the building and go for a walk.

Hi Josh, interesting read. I noticed the following typos:

"Great software masks it’s complexity"

"Package it such that it shows off it’s craftsmanship"

"I don’t expect it to even last beyond it’s last drop"

"Its like an infant child in that regard"

I've been downvoted, so could someone set me straight on the etiquette for pointing out errors here please?

The original article gives only a Twitter account for contact info, the submitter of this HN post is the same as the author of the original piece, and my comment above is 251 characters.

Well, people don't ye olde typo corrections, but seems OTT to downvote this when comments are closed on the post.

^people don't like

Thanks, I appreciated the feedback. Fixed those issues. For what it's worth, I up-voted ya.

I get the point, but I think the analogies are a bit artificial.

"Starbucks is a trustable experience." The assumption is that all people all the time buy known brand coffee. From my own, I know I walk into coffee shops I have never been to before. Sometimes good, sometimes bad. Even at Starbucks there are times I ask for decaf and get caffed coffee, or other times, the green tea latte is just not mixed right, or the milk was a bit on the old side, etc.

"Starbucks (or any known brand coffee) has no free alternative." Yes there is, it's water. Or, if you're looking for the substance of coffee, then there certainly are cheaper alternatives --Jolt, or no-doze, etc. Or there is also just plain regular non-espresso coffee for a quarter of the price, or office coffee.

"Apps can be a gamble." Trying a new flavor of coffee drink can be a gamble, but given that Starbucks and other introduce new drinks, someone is taking the chance on unknowns. Well, it's trusted! Sure, but as you know, people will try stuff and will go back to what they always bought. Still, they're willing to forgo $4 to try something new which may or may not suit their palate.

PS. For example, I really doubt people research new flavors before buying a new espresso drink combo but apparently they are willing to devote massive amounts of time and opportunity cost to research a dollar app. It's very lopsided and strange.

You're taking "Starbucks" too literally. Consider any tangible branded good, even if it's your local corner florist or a gas station.

Tangible goods are largely non-free. The alternative to a cafe beverage is either one from a competing establishment, or one you make yourself (I'm considering water and coffee to not be directly competitive, YMMV, I don't drink decaf).

I think you're understating the gambles involved in technology products. Or maybe I'm just overly risk-averse.

Hmm, looking back, you're right. I missed the forest for the trees.

I guess then, the question is why people find it natural to pay for tangible goods like coffee (a temporary good, but physical), a movie (an experiential good, also ephemeral and not physical) which by the way can be either good or mostly poor, a hammer (an extremely re-usable good and physical good) preventive care (is this tangible? not physical, anyhow) but when it comes to SW, people, depending on platform, perhaps, just don't want to pay, even if it's a nominal amount and go to extraordinary and disproportionate lengths to scrutinize the purchase taking hours perhaps researching an insignificant (in dollar terms) purchase.

Sorry for going off topic, but...

>In short, I know what I’m getting for $4 and I’m getting that same experience every time I hit the drive thru.

Drive-through Starbucks? America, you are way ahead.

Also, is $4 the norm for a cup of coffee? Is that standard filter coffee, latte, or one of their elaborate coffee-based concoctions? In the UK Starbucks will sell you a standard no-frills coffee for £1.50-ish.

$4 drinks are usually the sugary/milk filled drinks like a mocha. I think drip coffee is like 2 bucks or so at SB.

I just got a coffee yesterday at Starbucks in California, the small regular coffee, for $1.65

~$2 for a cup of standard joe in California Starbucks and most other places.

$4 refers to the venti lattes and other sundry sugary crap. (ie, they're stretching the truth)

This seems like a poor argument for being cheap.

"Starbucks Coffee is a Trustable Experience" Not true - I've had mixed results depending on time of day and what barista is making my drink.

"Your $1 App is a Total Gamble" Nope. You have every opportunity to read the reviews, look at screenshots, use Google, etc.

"Starbucks Has No Free Alternative" and "Free Apps Are Often A Great Alternative" I'm not sure how this matters - if you're cheap, it doesn't matter how good the app is. Do you tip waiters? After all, the alternative to tipping is great - you get to keep your money!

"Starbucks Craftsmanship Is On Full Display" Not really. I don't think anyone would agree that "craftsmanship" goes into making a Starbucks drink.

"App Craftsmanship Is Hidden Away" Like I said before, you have ample opportunity to read the app description, check out app store rankings, read user reviews, and look at screenshots.

Screenshots and reviews are very, very limited channels of information.

Reviews can be gamed, even when they're not, the ratings provided are typically highly inflated or simply binary (people give very high, or very low ratings, few in the middle). While descriptions can be useful, in practice most are not ("works great", "does everything I wanted" -- doesn't tell me "... for what" or "... and that was ..."). Negative reviews are often more useful (they're generally specific as to faults), but even then, as apps change over time, it's not clear what reviews relate to the current state of your app (Starbucks generally doesn't radically change its coffee composition from week to week).

Screenshots show a static view of an app but not its flow, responsiveness, accuracy, stability, privacy policy, and a whole slew of other issues.

The best way for me to judge software is to use it. Often for a prolonged period of time.

The analogy I like to use when people under price their software is "When you price you apps like toilet paper, don't be surprised when most of your customers are shit and your whole business ends up in toilet.


You managed to say it all better than I did somewhere here.

Let's just hope the message gets trough.

"Is There Hope for the Paid App? Sure there is. Just do what Starbucks does: Build an app experience that’s unique and doesn’t feel easily replicated."

I'm not sure Starbucks does this :-) Overall a pretty good acticle.

The truth is the that the bar was set very low for apps by Apple in order to commoditize the apps being sold. In economics if you can commoditize the complements to your product, then you can sell your own product at premium rate.

People call console themselves by talking about app experience etc, and even though app experience is important, i believe experience is not why apps are sold at shitty 99cents. Apple's strategy was to commoditize apps and guess what they succeeded.

My conclusion is that there is little or no hope for paid app or any breakthrough success for the majority of app developers. It was not meant to be, because that will affect the appeal of the iphone which will in turn lead to a drop in demand which will in turn force down the price of iphone and ipads. Do you think Apple will ever let that happen?

Wake up and smell the coffee.

Haha yeah, but they make it a convenient experience by having one (or even two) on every corner.

I agree with the idea that purchasing 99 cent app is a total gamble, even if I don't have much to lose.

If I were writing a mobile app, I'd have a free version and a paid version. The only difference between the two would be with the free version, you'd have to look at a screen trying to get you to upgrade to the paid version, and you would be forced to look at this screen for at least X seconds, where X is proportional to how many times you have used the application.

I like this approach because it users could try out my app risk free, but those who want to freeload off of my hard work would be inconvenienced enough where I think I could manage to convert a decent percentage of free users into paid members. Plus, the user can still use the app, but each time they use it you get a chance to upsell them, which you don't get if you just lock them out.

Also, by the time the user is willing to spend money on your app, they're hopefully willing to pay more than 99 cents.

That's a great way of accumulating a lot of 1 star reviews very quickly.

I've seen that method used on a few desktop apps.

This is how I'd fix the problem, create an app that reminds one to avoid drinking a coffee. http://i.imgur.com/FkNSU.png

Then you can continue using the analogy and make sure users actually value your app.

Coffee is an addiction for a lot of people. A routine you simply repeat day after day. I used to drink several cups of coffee per day for years. Went cold-turkey one day several years ago. I haven't touched it since. I realize this isn't the case for all.

Some truly like to have coffee in the morning. I get it. The discussion is about comparing the purchase of a daily cup of coffee with the purchase of software on a daily basis. To me this is simple: Create an addictive software product and you'll have your daily purchases. Hard to compete with a stimulant though.

In the last few days after I woke up, I picked up my iPad, and I started to see all these posts trying to figure out what's wrong in the app business. This looks like random debugging more than anything else. Seriously, stop. Please, just read some business books, talking about like say the 4Ps, and then try to figure it out.

We're over thinking the problem, and the cup of coffee analogy is a perfect hit, it is a pricing issue. We as developers don't know how to price our products. Just search HN and see how many posts are talking about pricing experiments.

To the post. It mainly blames three areas: customer experience, free/paid issue, and craftsmanship. Which in business talk translate to product, pricing, and promotion.

We first tried to fix this mess by cutting down the price of our products. Things didn't work, sales still going down. And what did we do? Rinse and repeat. We kept doing that until we reached the bottom price, which now seems to be free. Newsflash, the problem stills there.

Worse, to stay in business the only option we had was to keep cutting down on other areas. The candidate picked for the next round of random debugging was the product itself. Quality development costs money, so product quality had to suffer. As a result we've got this endless sea of crapware we see in the AppStore and elsewhere.

That has led to another round of random shooting at business bugs. The next victim is promotion, or in other words, software craftsmanship, which is an attempt to fix the image problem caused by the race to the bottom. It won't work! People don't care about all the sweat and tears that we put into our work, they just want to save money. And thanks to us, they're all doing that.

In the end the problem remains, and we still have to go the the source in order to make the right decisions to fix this mess. The shareware business model sure would be an easy fix, but it won't happen. Another solution, if you aren't in SAAS or IAP, is to raise your prices and pull out the free products. Some developers have done it and they have gotten good results.

Finally, people spend four bucks on a cup of Starbucks coffee because they need the kick to wakeup and go about their life. If you figure an app to do that, please don't sell it for one buck! It worths more.

Fact: starting every paragraph with "Fact:" will make you sound condescending to readers.

To be fair the author is condescending to the people who read the article, which the author labels as "the internet".

From the bottom of the article:

> Comments are not currently enabled because the internet has not yet learned how to deal with the ability to post comments. Its like an infant child in that regard. - Josh

Fact: he is not starting every paragraph with "Fact:"

He is presenting several facts labeled as such and then follows each fact with a paragraph or more explaining the fact. It's not condescension... it's science, man.

I don't know but, I can hardly ever justify spending EUR 3.25 (~$4) on a cup of Starbucks coffee. When I can spend EUR 5.00 on a bag of really nice beans that'll make me many many really NICE cups anywhere I bring my filter-holder and have access to an electrical outlet (for the grinder and water-boiler).

In fact I really hate spending that money on a single cup of coffee since even in the rare case when it's pretty good that merely means it's "almost just about" as good as what I brew myself and the expense puts such a damper on the enjoyment factor I might as well not bother.

But then, I'm probably one of those stereotypical cheap Dutch bastards :-P (that happens to brew a really kick ass coffee)

I disagree. I think this is completely wrong. Software didn't use to seem expensive at $0.99. Once enough people agree to low-ball at bargain basement pricing, consumers start to get the idea "so good software should really be like $0.10 bubblegum."

By the way, Starbucks is not a "trustable experience" per se. Also, the point is about frivolous spending, many people are willing to plop $5 bucks on a new snack at the grocery story, not knowing how it tastes or not, but not willing to pay anything for software. I think the author is searching to make some point but defining some concept called "trustable experience" but I'm just non-plused.

I'd like an App Store with a "if you delete it within X days you get an automatic refund" model. That would make buying apps risk free and refunding them hassle free, without the annoyance of having "Lite" vs "Full" versions.

The failure of that model are the apps which provide only short-term functionality. e.g., I'll probably only need my offline map of Brussels or that puzzle game for a few days. But my being through with them within 96 hours doesn't mean I'm entitled for a refund-- in fact, they probably served their purpose! Such a refund model would rob developers of that niche.

Doesn't Google Play work like that? The rebate period might be a lot shorter though, perhaps even minutes. I think they started out with a day but it was exploited too much.

It is 15 minutes now. (Which is far too short to even begin to use a lot of apps like games that download tons of additional resources without mentioning it in the app description.)

The Starbucks coffee cup also has a definitive endpoint. I buy the coffee, I enjoy it, the end.

When I buy your amazing app v0.1 I'm also signing up for a time investment of unknown quantity. At the very least I will have to wait for it to download/install, start it up, figure out how to use it, evaluate it, and delete it if it sucks.

Rovio can release Angry Birds N and it will be a hit because that time investment has already been validated and quantified. I liked Angry Birds N-1, these screenshots of Angry Birds N look similar, I will probably like Angry Birds N.

While good points, these counter arguments are not strong enough.

Trustable Experience: Most people make many transactions in a week that are not trustable. The lower the price the lower the hesitation. $0.99 is as low as it gets.

Free alternative: For many transaction higher than $0.99 there are free alternatives. Newspapers, magazines all have free substitutes online. Still people spend on these.

Craftsmanship: True for Starbucks, not for majority of transactions. Maybe be not even... most people are staring at their phone anyway waiting for their coffee.

Why doesn't the App Store just let people get a free 24-hour trial of any software? Or at least for any software where the developer didn't specifically opt out of offering free trials?

Yeah, I still don't understand the logic behind this. I've used the App Store and the Windows Phone Marketplace, and of the two I've actually bought a lot more stuff from the Marketplace. The concept of "trial" software where you can later upgrade to the full version if you want is built right into the Marketplace and the phone OS, so it's fairly easy for developers to offer it if they want. When confronted with several apps that do essentially the same thing, I pick up the trial version of each one and then buy the full version of the one that works best. I've bought a lot of apps this way, almost all of them more than $0.99. If I decide to try a new version of a different app later, I can do so with pretty much no risk.

Does anyone know why Apple doesn't offer this? Are they just worried it will somehow cause customer confusion?

Don't you think it is the developer's responsibility to provide a demo/trial if they wish?

No, because it would be difficult to do without OS support. Each developer would have to write their own time bomb code, and come up with a way to protect against users just deleting and reinstalling the app over and over.

Plus the whole process would be much smoother if baked right in to the app store.

$4 Starbucks coffee is a gamble imho

But it's not a gamble because it's the same every time. It's high quality every time. It has the weight of a quality brand behind it. Maybe it's a small gamble the first time you buy it, but after that it's not a gamble. The argument isn't about the price of your app or their first cup of Starbucks coffee, it's about the price of your app or another Starbucks coffee.

People know Starbucks; people know Starbucks coffee. It's a very stable and well known experience to regular customers.

People don't know you; people don't know your software. I don't know if buying your software will actually cause me more inconvenience than convenience. (Buggy, bad UX, hard to uninstall, installs additional crap like browser plugins)

That's why buying an app is a gamble, and buying coffee isn't. That's why you cant make a good argument by comparing the price of your app to the price of a coffee.

EDIT: Actually I guess the $4 drinks are a gamble afterall. My only Starbucks experience is "normal" coffee. Which I guess is more in the $2 - $3 range.

Not a gamble, really, just the certainty that that $4 coffee will suck, no matter which street, city, state or country you find yourself. But this is not about Starbucks.

It actually is about Starbucks, not the coffee or the price.

It's about you knowing that Starbucks is Starbucks no matter which street, city, state or country you find yourself in. Whether you love or hate it, it's at least consistent.

That's why it's not a gamble.


Starbucks sucks.

If you're in New York or San Francisco it's true that Starbucks has chased away the independent coffee shop and you might think it's a good cup of coffee.

It ~was~ a good cup of coffee 15 years ago, but now every population center with 50,000 or so people has an espresso bar that puts Starbucks to shame.

The exception is a few big cities that Starbucks put up a store every half block or so, probably to make Wall Street investors think that every site from Cinncinnati to Omaha is stuffed with them.

Is it just me, or is it kind of odd that he titles and begins the post with a plea to "Stop Using the Cup of Coffee vs $0.99 Cent App Analogy" but then proceeds to totally use Starbucks as an shining example for how to run your app business (and at the end he even says "Just do what Starbucks does") ? By the end he's promulgating that people should adhere to the analogy by taking lessons from Starbucks.

Maybe I'm being pedantic but this seems like a contradiction.

Does anyone think that 'Starbucks' or 'Pay me $1' are great signals for Craftsmanship?

I know plenty of office environments with free coffee. There is your alternative, but it isn't relevant. People buy experiences. You go to Starbucks because you like the experience. The terminology. The chatty baristas. The drive-thru you can complain about with your sympathetic co-workers. They could probably charge twice what they do and keep a big fraction of their customers.

The big reason the cup of coffee vs app analogy doesn't hold is that my iPhone really only has space for about 30 apps.

I'm a big music/podcast listener so I only afford enough space for about 30 apps. For a $0.99 app to be useful it has to has to beat out apps like Shazam, kindle book reader, bloomberg anywhere, evernote, etc.

The likely hood of an app at any price doing this is pretty low.

For me this is why the analogy doesn't hold. Price has nothing to do with it.

I don't think many people use this argument as much to whine about bad sales but more on customers who also expect amazing support on the product.

"omg I just PAID for this app!! and you can't even listen to me and add this completely ridiculous feature that nobody in the world except me would use!!11 and btw, the alignment of this grid isn't pixel perfect and you spelled the word calendarr wrong!! i want my money back!"

For a lot of people, a cup of Starbucks also feels like a "must-have". We all feel groggy in the morning, and spending $4 for coffee isn't a lot if it helps us survive the day.

An app on the other hand, most of the time doesn't give us that same feeling. It's more of a nice-to-have, or nice to play with once and then forget. If it's an utility you use everyday like Evernote, it's different of course.

That sounds less like an argument against coffee analogies and more like an argument for making apps that are actually useful.

Although I agree with much in the article, I just want to point out that google app market has a return policy of 15 minutes after purchasing an app. So you can return it. I don't know if Starbucks offers refunds (I'm sure they would if you make a big deal of it), but apps are not a total gamble - you have the 15 minute window to get your money back.

No, I don't think I will stop using it. It is a good analogy because it addresses the unnecessary tradition of cheapness related to getting anything online even though many of those online things do provide more (and longer lasting) value than a cup of coffee. It's still an analogy, it has obvious limitations, but it's not a bad one.

  Fact: Starbucks Coffee is a Trustable Experience
Coffee isn't specific to Starbucks, and though I admit given the choice between reasonable alternatives I'll choose Starbucks by default, that still doesn't mean the experience of sitting in any coffee house is even remotely consistent. Location matters, clientele matters, it matters if the staff has a bad day or not. And in reality, no coffee house experience is 0.99 cent - it's 5 bucks or more in practice.

  Fact: Your $1 App is a Total Gamble
It is a gamble but not as much so as, say, trying out a new coffee flavor, a new kind of pastry, a new pizza delivery service, or a million other new things you don't know anything about until you give them a spin. With apps, at least there are screenshots, feature lists, and reasonably reliable testimonials. With anything new, there is a risk. If I stick with the old stuff, I might miss out on something great. If I take a risk and explore, it might not be as good. It's a gamble.

  Fact: Starbucks Has No Free Alternative
Nothing is really free. Everything costs resources to make. The price you're paying in the app store is just one aspect or this. But sure, the closest physical world analogy would be bargain-hunting, which some people spend considerable amounts of energy on. In the software world, there is also the danger of confusing "free" apps with open source apps, that would be another thing entirely.

  Fact: Free Apps Are Often A Great Alternative
Not every app idea is worthwhile. In fact, I posit that most of them are not. For stuff that is really obvious or trivial, free is of course the best alternative. "Free" is not a bad thing per se. It's just that some things do cost money to make and a lot of times, app developers need to make a living as well. In these cases, "free" simply doesn't work in the long term. However, I would argue that app developers are not primarily competing with "free" rubbish apps, their struggle is to get the customer to engage at all as opposed to doing nothing.

  Fact: The Starbucks Craftsmanship Is On Full Display
Granted, not all app stores do a good job of making stuff discoverable - but in my opinion, they do have sufficient UI provisions for showcasing the detailed workings of apps. I would argue that apps are in fact on full display. If customers are wise enough to make good judgement calls is another matter entirely, but the same dilemma applies to food products actually.

  Fact: App Craftsmanship Is Hidden Away
Customers don't care how complicated your app is, the same way they don't care how much craftsmanship goes into making good coffee. Both processes are not generally known (or even of interest) to the average customer.

Fact: You're already addicted to coffee.

Odds are good that if the Starbucks you go to regularly closed, and there wasn't another one conveniently close by, you would go to that coffee shop on the other corner. Coffee is a good with proven value to the addicted.

It's also highly substitutable. Some people really insist on the specific order that they've worked out in mind-numbing detail, but most coffee drinkers are happy if it's good enough, hot enough, and can be easily doctored to their preference for dairy and sweetener.

IKEA has free coffee

There's another half of this argument though, and that is the people who complain that an app cost's $0.99, saying instead that it should be free. No one is standing outside of Starbucks protesting that the coffee should be free. Most times that I hear the app/cup of coffee analogy is in response to this complaining.

Anyone who argues that because it costs $0.99 it should just be free isn't worth debating with.

On the other hand there are documented cases where charging more like $9.99 instead of $0.99 increase sales because the higher costs increases it's perceived value. People are familiar with the saying: "you get what you pay for."

additionally, a large part of the problem stems from economic scarcity. digital goods are infinite while the cup of coffee at [insert your local non-starbucks coffee shop here] is a finite good.

when the average marginal cost drops to zero (due to all the usual bootstrapping-style content here on hn), so does the average price -- artificial scarcity won't alter that fact in the consumer's mind. so, it's really the value you perceive as coming from your infinite good that actually drives things like app pricing.

if the average price of an app is free and people are willing to pay $0.99 for your app, well, that's what it's worth. if you're not happy with that, push up the price and test out what the market will actually bear.


The operative difference between buying cups of coffee and paid apps is actually this:

If you try to spend $50 on cups of coffee you'll quickly become twitchy and have to stop, but if you keep pressing the Buy button in the app store you can easily get the thing done.

Nice argument. I hadn't thought of it like that before but I think it makes a lot of sense.

It was kind of obvious, really.

Oh, and I hate $tarbucks.

Yeah, it is very obvious in hindsight.

Starbucks was once a "new experience" for people who enjoy their coffee now. You paid to try it for the first time whenever you did....unless of course, you tried it via some free Starbucks promotion, liked it and then became a paid customer.

Paid software just has a bad emotional association. People are usually goaded into paying for Windows/Office and antivirus software, not exactly rewarding. Games are an exception but people don't think of them in the same category.

There are a few more stumbling blocks to purchase as well:

- What of my billing information / what billing hassles am I opening myself up for? Considering that app purchases are frequently tied to both credit cards and your comms/telco vendor (and often other integrated services), you're putting a lot at risk.

- What respect (or lack) does this app have for my privacy? I'm very conscious of what closed-source resources I use, and even the fact that every time I'm inputting a PIN on a purchase screen (rarely, preferring cash) I'm opening myself to identity theft / fraud risk.

- What effect is this app going to have on my device stability/integrity? Again, phones, tablets, and laptops are complex devices with extensive user state. Losing this is a real PITA.

- What learning investment must I make for this tool? Will it be worth it?

Coffee, or food, or other concrete, discrete, simple, tangible goods offer a vastly simpler experience and generally (food poisoning aside) pretty minimal downside risk potential.

To throw in a contrasting physical-goods analogy: I'm adverse to trying out new wines. Why?

- I'm very aware that much of the perceived difference in wines is highly subjective, and largely market-driven.

- I don't get all that much from the experience myself. Really, Two Buck Chuck is pretty decent, though there are a few others I occasionally buy.

- The unit-cost is relatively expensive compared with alternatives (forgoing consumption, cheaper sufficing alternatives) -- $15-$25 for a moderately priced bottle, and up into the tens or hundreds if you like.

- Option overload. Too many brands and varieties, far more than I can keep track of. Even if I find something I like, odds are I'm not going to remember what it was next time I'm shopping (not just conjecture, this happens routinely).

- And a bad choice can be ... if not toxic, just really unappealing.

Upshot: I'm not swayed by the hype, I'm risk averse, the good is expensive for the utility provided. I purchase rarely, and conservatively when I do so.

I viewed the one-off small app market for PCs as pretty limiting, in the 1990s and 2000s. I see the market for PDA / mobile apps as similarly limiting.

On the computer side, Free Software utilities and a modicum of scripting / application engineering provide me with virtually all of my needs. In large part because the FS utilities aren't silos, but (often) nodes on a processing pipeline. The extensibility tools aren't yet present on mobile, though Free Software is beginning to make inroads.

While I don't think it will eliminate the paid app market, and for a large portion of the population may not (as was the case with the PC market), I suspect FS will supplant a fairly large share of paid-app opportunities. Perhaps moreso than in the PC market of the past couple of decades as FS has garnered far wider acceptance (it was freaky even in the late 1990s, it's mainstream today).

Edit: wine analog.

Yes, the point here: the actual non-monetary "cost" of a purchase to many end users is much higher than 99c. I would say personally that the cost of any app I have to purchase is $2-3 at least. Therefore all that pricing the app at 99c has done is brought the cost down to the floor imposed by other factors.

So app developers need to judge and price their apps comensurate with the real "effective" cost the user is going to pay anyway to install their app. Pricing less than that, or at least deluding yourself that pricing less than that gives you a competitive advantage, is pointless and sometimes counterproductive (in the absence of other information I will judge the quality of your app partly by how it is priced).

You're understating the personal cost of a purchase by a couple of orders of magnitude. How much time does it take for you to make an assessment of product quality? What's the cost of your time? What are the available alternatives (where "failure to purchase" is in fact an option, and the default mode)?

In order for you to sell your app like Starbucks, you have to have Dunkin Donuts, ..... (add the rest of the coffee shops) as well.

You can't be a stand alone Starbucks in the market. It wouldn't work.

This article went off the rails pretty quickly. The core argument is "Your app might be totally shit and I might not find out until I buy it," which can also be true of coffee.

I think another barrier that growing is how broken app mgmt is on iPhone and even more so on Android. I don't download free apps because I don't want the clutter.

I don't even drink coffee. It's always strange when people say that I should spend my $4 on their app instead because that $4 doesn't even exist.

if the grownups could hide all of the comments here about your feelings towards Starbucks, your insightful coffee preferences, and other inanities.. this could have been an interesting thread to participate in.

Great article. I would have spent 99 cents to read it.

Says the hipster from Portland?

Agreed! Way too overused!

one more point: your coffee doesn't get free update. app does.

I'm having a hard time finding a part of this post that I agree with. I understand and also think there is a problem making an apples to apples comparison of digital and real goods, but let me step through these arguments:

"Fact: Starbucks Coffee is a Trustable Experience"

So the argument here is that brand weight translates into actual value. While this is true across the consumerist landscape, there now also exists these things called reviews. They enable people with no knowledge of something to make a reasonable decision based on the experience of others. For example, I would be willing to pay more at a well reviewed coffee shop than at a Starbucks. For me, reviews always trump brand value.

"Fact: Your $1 App is a Total Gamble" First problem: the logic that x was bad so y must be bad as well is flawed. No one would have Starbucks, hate it, and hate Peet's Coffee by association. Now, it would be reasonable to assume that someone could be turned off by Apps in general the same way someone could dislike coffee, but that makes this whole argument comparison anyway. Second: you're making the same mistake arrogant people make when they write off buying a lotto ticket before a big drawing. Yes, odds of winning might be low (staggeringly low in the lottery, much less so in buying an app), but the potential gain far outweighs it and the barrier to entry is also next to nothing. You might buy a $1 app and have it be worthless, but it also might give you 30 hours of playtime or speed up your tasks by 10 min a day or something wonderful. If it's worthless, you're out a dollar. I'll miss that single dollar... I could have travelled back in time to the 80s and bought a candy bar.

"Fact: Starbucks Has No Free Alternative" Yes they do. Taste tests. But this is harder to argue against, and deserves another debate altogether. If someone provides a better service/app for free, by all means use it. It works for open source, less so for people trying to turn a profit. Expect a paid version to come along that trumps it.

"Fact: The Starbucks Craftsmanship Is On Full Display" Seriously wtf. "The feeling says “lots of work went into this magical liquid pick-me-up”." And apps grow on trees? What an ignorant statement. What do you consider the screenshots and YouTube videos of applications? Whether you meant to or not, you have managed to say that you think it takes far more work to make the same cup of coffee your home coffee pot makes than it does to build an application. "How often have you heard people say “I could have made that app, if only I’d thought of it first”. Or “that’s so simple, I can’t believe its been so successful”." I don't think I've heard anyone say "I could have made that," it's far more likely to hear "I thought of that first." To that I say, "If you guys were the inventors of Facebook you'd have invented Facebook."

Yes, perhaps there is a problem with comparing a cup of coffee with a $1 app. But the problem is not that Starbucks is more valuable than some individual or that a single app developer is to blame for the quality of all software. The problem is that we have allowed computer science to become a black box in our society. It's far worse than even math's "I don't need to know this because I'll never use it." The only people who have any idea of the time and effort involved in software creation are the people who create software. You call it "showing craftsmanship," but I call it changing our damn society to stop trivializing things that take massive amounts of effort while glorifying the ones that take little. The solution is simple: make computer science a mainstay of primary and secondary education. Reading, writing, arithmetic, and computers.

TL;DR: The trivialization of the effort involved with software development is the fault of society and not the fault of software developers.

> Is There Hope for the Paid App?

Yes, there is. But not on a market where $2 is a premium price. If you want to make a living from software products you should stay away from mobile.

At least it plays out well for Apple who wanted to commoditize software for a long time.

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