I have a product called Attic Manager (guacosoft.com/attic) which is a home inventory software with unique feature on the market - it is able to import database from all versions Quicken Home Inventory programs. Currently, it is only product on the market that does that (probably because it is not so easy to do, I spent months reverse engineering their custom file format).
I used to sell it for $19.99 and got about 30 orders per month consistently in the past 3 years. That's around $600 per month gross (my actuall earnings are lower, because of payment gateway cut, but that is irrelevant here because it's fixed percentage of gross price anyway).
After reading that "you should charge more", I upped the price to $29.99, a 50% increase. The experiment is still going on, but in the past 3 months I got only 42 orders. That's 14/month. 14*$30 is $420 per month, or 43% less than before.
So, all the "you should raise you prices" is just an idea to consider and maybe test, but I wouldn't trust it blindly.
They have data that is valuable and they are using software that really sucks. A better alternative has to be worth $30, but might need some marketing support or some bundling with other solutions that users who keep home inventories need.
Also, instead of raising your price, create add-ons that people have to pay for. It worked great for our software product.
I want to leave it like this until the end of month 4. And then I'll revert back to $19.99 to see if number of sales go back.
Although, I'm thinking I might offer two versions of the product, one for $19.99 and other for $29.99 as someone suggested.
As Lord Kelvin said, "If you can not measure it, you can not improve it."
Do you perhaps mean the marginal cost? I don't see any reason that the marginal value to the consumer of software would be near-zero.
In any case, I'm not sure I agree - the marginal cost of AAA video games is near-zero, but the market price is $40-$60.
If you look at the top 10 paid apps in the iOS app store, 9/10 are games. In a sufficiently large market, games are interchangeable; I might equally prefer hundreds of games. As long as at least one of those games is free, the marginal value of some particular game to me is zero.
Now this may not be true for example when considering applications used for business, that provide perhaps a lot of value. But these represent just a tiny fraction of the overall market, which is mostly games and other mass-market, interchangeable software. It is large in absolute terms of course; that is how a great many developers make their living. But it is very small relative to the overall ecosystem, so it is fair to characterize most purchases as having essentially no marginal value.
When I started out, accounting packages routinely sold for 20k or more. And they have been trending strongly toward zero ever since... As for the price of AAA video games, they do spend millions of dollars in production, so of course that will have to be recouped. Hard to compare that to an app that was created in 4 man months.
In short, after 5 years, the game makes more money through ads when it is free, in contrast to selling the game directly.
I suppose that's the secret hope of anybody making an app free, or very low cost. They suppose it's going to be better for everyone in the end, including them.
The ex-contractors I had a chance to talk to don't describe becoming a permanent employee as "going out of contracting business". The reasons they usually cite for ceasing consulting:
- anxiety about not being able to get a next contract
- additional paperwork, unpaid administrative overhead
- dwindling of contract work stream
- unpaid travel
They tend to underestimate the volatility and added overhead of contract work compared to permanent positions and they do not charge enough to cover the risks and extra expense. A lot of the newly born contractors stay in the business as long as the initial client keeps extending them and fail to build a business.
The nature of their business is opportunistic and the business dies once the first serious obstacle is met. In my opinion they fail to realise the importance of negotiating a thicker margin that serves as a tool and motivation to overcome many hurdles that are otherwise smoothed by employer. A thicker margin provides business continuity and a long-term win for the customers.
I can see clear parallels with selling apps. Sexy apps might be given away for free, as there are plenty of competing developers some of whom are attracted by vanity. However, charging more means getting higher quality customers who self-select based criteria you set and advertise and will help build a more stable, healthy business.
At $1 this doesn't really matter because I will also occasionally buy a $1 app which gives me way more than $1 in value. So really I may have paid $10 for that useful app, but the problem is that the person who wrote that useful app only gets 1/10 of the money. The other 9/10 is distributed among those who developed the useless (to me) apps.
The answer as you suggest is to demonstrate the value before purchase. I think the problem here is that the app store model is often not conductive to that, you often just get a couple of bad screenshots and 1 paragraph of text.
On the other hand I will usually do more research when buying desktop software, simply because doing research on a desktop computer is less painful (I have a big screen and a proper keyboard).
I am surprised this isn’t mentioned more often, but there likely is a strong correlation between the price and lack of trials.
Of course, there are plenty of apps that have 'free' or 'lite' versions in the Android or iOS marketplace, but they suffer from a critical flaw: data doesn't transfer between the 'free' app to the 'pro' or paid one because of sandboxing unless they implement some kind of cloud sync.
15 minutes might be ok for a $1 app, but it should scale with price. If I'm going to pay $100 I probably want a month trial.
I think that google probably prefers that there be thousands of cheap apps rather than a small number of good ones.
Though I don't think 15 minutes is enough time to convince me that anything's worth buying. Even shareware gave you more to go on.
Users and customers don't care how long it took to build an app - it's replaceable and they can afford to pass it up. Developers can't afford to have users pass their software up.
The market is dictated by customers, not the other way around. Like it or not, the app economy (in its current state) rewards those who deal with this reality and break out of it somehow. It's ugly and not ideal, but accepting this is the first step to finding success.
On the other hand, encouraging people to charge more for a beautifully designed, but otherwise replicable game is useless. The highest grossing apps consistently are the first in their niche, do something none of the competitors can, or have incredible financial and engineering endeavors to get noticed.
So I'd argue there's only a perceived value. And large parts of the industry are working hard to drive that perceived value down. What he does is charge more, so that he has fewer, more pleasant customers paying more. And it works out for him financially. Seems like a businessman to me.
If that were true, a large part of the marketing profession wouldn't exist.
Marketing is mostly about figuring out what has actual value to the market so you can build something valuable, and then presenting that something to the market such that hopefully the perceived value does reflect the actual value so they go ahead with a purchase.
The second part is much harder if you're in a crowded market and your competition are pitching low than it is if you can get your potential customers to focus on your own offer in isolation.
In the case of selling professional or high-end software via mobile app stores, we concluded a long time ago that the WarGames principle usually applies. Alternative business models, such as giving away free mobile apps used to access resources that are purchased independently, or going Web-based rather than mobile-based, seem to be much more reasonable bets commercially in the current environment.
(I'll specifically talk about games, for which this is in my opinion most severe.)
Developers have jumped right into a downwards spiral: Everyone really just tries to make money - when all else fails by being cheaper then the competition. That's rather natural and happens on all markets. However, games do not have any intrinsic value, so they can go all the way down to 0. At some point, games won't have any value left in the eyes of consumers - something we're awfully close to.
But the bills still need paying. So customers are increasingly being tricked into spending money ("free to play", "micro transactions" etc).
As someone who makes and enjoys games, this makes me sad. Unless we manage to revert that spiral, making a living from games will soon mean to build some kind of more-addictive-than-pleasant things more akin to market places and chat platforms than games. And as a gamer, I don't want to touch these things.
I don't want to whine, I want to see the positive side. I just can't find it lately.
As always, developers are not necessarily savvy in business. Common sense suggests that undercutting competition with lowered prices will drive market share upwards, eventually beating them out. This is a desperation move, and one that only ever works in the short term, if it does at all.
The truth is the race to the bottom exists because this kind of tactic is deployed by everyone in response to everyone else. But it will only work as a calculated move that crunches the numbers to find a sweet spot. Reducing your game from $5 to $1 might get a lot more customers, but you'll need to increase your user base fivefold just to match your previous revenue. That's not realistic in most cases.
It's the same logic that people without a real edge mistakenly employ when they say they'll disrupt an industry by taking something really valuable and making it both better and free. It's not sustainable, but everyone does it.
By adding barriers to entry they are increasing the value of each game by firstly adding scarcity and secondly reducing the lemon market effect by implementing strict quality controls so that gamers don't have to worry about forking over $50 for a barely functional product.
1. Two of the authors arguments for higher prices is "more intelligent users" and "less support queries". Those strike me as incredibly snobby reasons to set a price tag. In the case of the latter, if you're selling software then you have to be expected to support it (I know customer support is an absolute pain - I hate it as much as the next person. But think about things from the consumers perspective. You'd be pretty pissed off if you've paid for a product that doesn't appear to work for you and you're clueless about how to fix it). As for the "more intelligent users" remark - I think that level of selective pricing is just disgusting.
2. The article neglects to mention that there's room for two different business models: free versions subsidised by ads and non-free but without adverts. While it sounds like the author does have an ad subsided free app on the market despite his arguments about the merits of premium versions, quite a few publishers seem happy to release against both business models concurrently (ie they'll have both a free and a premium version available). I don't have figures about how successful that strategy is (if anyone else does, I'd be interested to read them), but I think the theory of that works rather well as you're combating the piracy / freeloader issue with the ad subsidised versions and have a premium version available for the aforementioned snobs and those who just hate adverts.
3. The whole article amounts to little more than price fixing and arguments against a free market. The very reason prices are so low is because the market is saturated so developers undercut each other to get sales. If the author doesn't like that, then perhaps he should switch to a market that isn't saturated rather than demanding that everyone is owed financial reward for their work - even if their product is unoriginal and available "ten to the dozen". This might sound harsh, but it's little different to any other industry. eg if everyone became window washers tomorrow, there would be more people washing windows than there would be houses with windows needing washing - so the whole market would collapse. And it's a similar case in mobile app industry, the market is far to saturated to guarantee every developer a decent wage.
I hate being negative like this, but I'm so sick and tired about hearing people moan that they're not earning as much as they think they should be while working in a saturated market. And the remarks about tailoring his prices to the "intelligent" was just unnecessary in my opinion.
And as for less support queries, this isn't snobby...this is just straight economics. Any developer with business sense should be looking to minimize support queries by any profitable means necessary.
So, the magic numbers seem to be $5.99, and $8.99 for games, and $5.99 or $6.99 for non-games.
That's old data from 2011; but it makes sense. "A few bucks" has a similar transaction cost (is it worth actually paying for?) as a $0.99 game, when you compare them to "free". Though I bet if you charge any money (even 0.99) for a game with IAP, you've already convinced them to open their wallets.
I'd love to see more recent data, but I can't see how "undercutting" the competition is worth it.
Unless there's a network effect (spamming friends) ... why would you want 3X the sales, and half the revenue?
Of course if you then expect to be able to sell ancillary services around your $1-3 app, as a sort of loss leader, then it's a different matter.
In almost any other market, producing such product would land you in jail, or at least sued to the point of bankruptcy. Imagine a car dealer which sells car that are nearly without bugs, but occasionally you loose steering or breaks. Or what about a children toy that crumble to dust once the box is opened because the manufacture process had some "bugs" in them. Cheap or expensive, people expect physical objects to work and not be broken at the point when bought from the store. Apps and software on other hand... is regarded as an risky item. The consumer is liable for the purchase decision when the app is broken, steals information, or simply won't start up. The cheaper the price, and even fewer will try to ask for a refund.
Add some liability risk for the developer, and the market saturation will decrease, prices will go up, and developers who spends actually effort and time into their work will be paid.
The fact is that when people buy a product they don't really care about what it cost you to produce, they care about what value they can extract from it. A classic example of this is the fragrance market, where people routinely pay $80 for a 2.5 ounce bottle of cologne that cost less than two dollars to produce. They do this because they imagine it will make them more attractive, so to them, $80 is a small price to pay and don't really care about the markup.
Some businesses can mark software up higher and higher and increase sales and profits because they are providing a large value proposition in the form of huge time savings, more sales, etc.
Because he only mentioned the time he invested and the existing bottom-of-the-barrel pricing as the reasons all software shops should raise prices, I have to say his logic is mostly flawed.
When I am looking to download a new app, I can never tell from the description and screenshots if it's good or not, so the question is always - "What if it's crap". With an app that costs 0.99, the answer is simple - "Let's try it and see", so it's effectively a very cheap trial ... that just happens to come with a free full version. I would've readily paid more for latter, but I already got it and it was free, so what's not to like. This is why in-app upgrades would seem a natural way to convert people who like your app into paying customers. Let everyone kick the tires and let those who like it move on to a full version.
tl;dr - Indeed start charging more, but through in-app upgrades.
(Though it only looks at xbox 360 games)
You could just as easily rewrite the conclusion to be "companies who knows their game is crap often choose to make a demo". Without a more sophisticated statistical analysis, it's every bit as valid.
Personally, if I play a game and see how its core game mechanics work then I am much less likely to purchase it.
A lot of my game purchases are impulsive — I see something cool in the trailer and want to try it. Once I've tried it I lose interest. Demos give me the opportunity to lose interest without purchasing the game.
When I know I really want to play a game all the way through I will always purchase it without trying the demo (if available). So in my limited gaming experience demos have never been a step to a sale.
Any number of things you could take into account.
You can see this in practice by watching MMOs after the first month many of them will lose tons of customers because now everyone knows the game is bad and not living to the hype.
Whereabouts you can see good ones such as WoW (or even Diablo 3) which will keep adding more users.
And the article also states that marketing budgets are not taken into account in the research. High-profile games are marketed more widely, and don't need demos, leading to the result that games without demos sell better.
The author seems bothered by the multitude of negative reviews and support requests generated by a cheap app. Not all of these are bad - in fact they are real-world user tests and are useful for debugging and improving the app.
I propose having a free version for those who want to try out the app, with a caveat that users who need better support and more frequent upgrades should try out the paid app instead.
If everyone else in town is selling coffee for $4 per cup, even the rich people won't patronize a store selling it for $5.
There are several problems that prevent this from being actionable for most devs:
1. The barrier to entry is consistently getting lower, not higher. It's no longer particularly difficult to deploy an app - either learn to design and build it, or pay people to do that for you. It's never been easier to put yourself out there as a mobile developer.
2. This isn't marketing enterprise software to employees with spending access to sizable company budgets. This is marketing small applications of limited practical value (i.e. almost every mobile game) to people with limited wealth without much in the way of customer support. People are shrewd about their software nowadays - yes, they are more willing to spend their money on a Starbucks coffee than an app, and you can argue the existential implications and idiocy of this all you want, it's still what they're willing to do with their money.
3. The markets are too large. They're saturated with crap and quality alike and it's insanely difficult to get noticed. If you are making a game, weather, networking, camera, utility or entertainment app, you've got the deck stacked against you. These are released en masse every single day by teams of developers. Because of this, it's a race to the bottom and quality becomes undervalued. This is, as always, supply and demand.
4. A lot of the app store is an old boys' club, and the way to get in front of a wide range of users is broken. If you have a reputable team behind you, a large company's backing and you do a lot of marketing, this will not be an issue for you. But that's not most developers. Most developers will struggle to swim upstream in vain just to get noticed in one of the "Top ___" lists. They might get a faint spotlight at #25 before being thrown back into the depths of the app store like a rejected fish on a line. It gives the term "starving artist" a new meaning.
I mean, I don't want to be cynical. I'm all in favor of developers not underselling themselves. But I think you have to do a lot more than just tell people to adjust their prices when you have all the aforementioned forces working against them.
I can see that in some cases selling your mobile software for more leads to nice benefits, like less of a customer support headache, requiring fewer purchases, etc. But that's not possible for most devs because most apps couldn't reasonably be priced at 30 euros. A really high quality audio or business app could be, sure. But that indie game house? No, that advice doesn't help them.
Maybe so, but the difficulty in creating quality apps remains the same. Perhaps the authors of quality apps are doing themselves a disservice by hiding amongst the dregs.
I get that the Top X reaches the widest audience, but there are plenty of users that want a more personalized experience, or want to play games that might not be in the Top X of a market.
I guess this would be similar to the Humble Bundle and other offerings, but less of a bulk purchase and more of a continuing stream of interesting offers.
You can't compete on price, you have to compete on being different and value. That way, even if you sold for peanuts, you will have so many users that you can still make a lot of money. I rather sell millions of apps at 99cents each than 100 at $100 each.
Talk about a false dichotomy.
1) Experiment with a sample population to determine 'x'
2) Use heuristics about existing similar software to reach a price point
The point is many developers are just not looking at maximizing their earning potential.
Many musicians have quite similar problems:
They can play for free or some other band which is even more desperate to get a gig will play.
I personally try to keep away from priceless markets (though being a musician too).
The only way I know to handle this is delivering the best quality I can and finding customers who want/appreciate this.
You would think that this would result in higher salaries as engineers are in high demand, but no...
Overall software market? Mobile app market? Game market? Indie game market? From a consumer point of view, I fail to see any signs of destruction on any of them. It's exactly the opposite, they seem to me as growing and constantly expanding.
'patio11 makes great points, but his advice is mostly actionable for desktop software and web applications, which are a completely different beast than mobile apps.
Mobile applications won't sell at high prices unless they have a real core competency that solves a real need that doesn't exist yet - indie games and to-do list apps have little hope of achieving that kind of benefit.
Aside from that, there is such a low barrier to entry that they need that kind of incredible edge over the competition to survive at high prices.
Take a look at the high-priced apps and you'll notice a trend - they're typically not games/entertainment/weather/"fun" apps. They're real tools that can be used in production or they're productivity suites.