Many of you are starting to realize that a ringtone price point does not sustain a business. I’m with you.
Lately, I’ve been thinking about ways to make higher prices more palatable to customers. Several discussions at Macworld kicked off these thoughts, and a recent tweet by Justin Williams made me realize that a lot of you could benefit from these ideas. Hopefully, this short essay will help us all make it through the App Store gold rush.
The first thing to do is think about a “Lite” or ad-supported version of your application. Let customers find out how great your work is by giving them a free copy.
Based on our dealings with Apple Developer Relations, there are two basic rules you need to follow when making a Lite version of your product:
- The product must be fully functional. The application must stand on its own and be useful.
- The user should not be inundated with “up-sell” reminders. Showing BUY NOW every 5 minutes is the quickest way I know to get rejected by the App Store.
The hard part, of course, is how to limit functionality. For many games, it’s pretty easy: you just limit the number of levels the user gets to play for free. A similar technique can be used for applications that track data by limiting the number of records that can be added.
But there are many applications that don’t fall into these neat categories. One such application is our own Frenzic. Due to the game’s open-ended nature, there’s not much we can do to set “levels.” Until there is some kind of demo mechanism on the App Store, we’re stuck with advertising, good reviews and word-of-mouth.
Free applications that are supported by ads are also a viable alternative. We’ve seen a steady stream of sales with Twitterrific because customers that use the free version know exactly what they are going to get for their $10. The main consideration with this approach is thoughtful integration of the ads into the user’s activities. Annoying a user with ads is a good way to get deleted from the home screen.
Using this model, some people will never buy your application. And that’s OK, and maybe even better, because you’ll make your money back over the long term. I was not surprised when Shazam started showing ads. They spent a lot of time and money developing their application and back-end infrastructure. When millions of people are using your product and seeing ads every day, that revenue can be substantial and easily pay for development costs.
Another thing I’ve noticed is that iPhone applications that have a tie-in to a Mac desktop product can command a higher price. If you have group of users who already love what you do on the desktop, selling those users mobile functionality is easy. Take a look at Things and OmniFocus as examples: the desktop versions of these apps sell for $50 and $80, respectively.
The iPhone version of these products sell for $10 and $20. From a customer’s point-of-view, that’s not 10 times more expensive than the typical ringtone app. Instead, it’s a small price to pay for mobile access to their desktop data. Conceptually, the 20-25% fee is just another upgrade cost.
Finally, you should take a look at vertical markets. I love the prices for Medical applications in the App Store. There are a lot of apps with price tags over $10 (some are even over $100.) Again, the customer for these apps is not thinking so much about cost, but rather of the value provided.
When businesses start to see the capabilities that an iPhone applications gives a distributed workforce, vertical markets could become quite lucrative. You may only have hundreds or thousands of customers, but if you’re earning hundreds of dollars from each of them, that’s a viable business.
In closing, I’ll pass on a small reminder that an Apple employee gave me during Macworld: the App Store has only been live for a little over six months. Last month’s 25 year anniversary of the Mac should also remind us that this new market for our products is still in its infancy. Yes, it’s a wild ride at the moment, but if you think about your costs, customers and revenue streams, I think you’ll enjoy a very long journey.