DevExpress Newsletter 34: Message from the CTO

22 September 2010

A quick thought about the economics of the Apple App Store (and essentially about the other mobile App Stores too):

Set the plentiful free, charge for the scarce

A month or so ago, I was doing some research into the ecosystem of the Apple App Store. I'm sure you've seen the same kinds of analyses where the top hundred paid apps are making something like 99% of the revenues and the other hundreds of thousands of apps are not even breaking even for their developers. A hockey stick graph, they're called.

In essence, the way the store has evolved, people now expect apps to cost way less than five bucks. I even read a review where a $3.99 price was described as "comparatively expensive".

The upshot is: if you're a developer writing paid apps for the App Store you aren't going to make a living at it. Success is like the lottery: some people make big, the vast majority lose.

Now, assuming that you do want to make a living writing apps for smartphones and since it's extremely unlikely that you'll do so (make a living, that is), what can you do to improve your revenues?

My thought is this: make your money on the periphery of your app, not the app itself. Examples? Take Evernote, the note-taking app for your smartphones and PCs. Totally free, until you start to require more bandwidth and storage and then you have to pay for it. Ditto Dropbox, the file storage app. In fact, if you can design your app to have or sync to a PC or Mac component, you could charge for this portion -- people are more used to paying more for PC or Mac applications. If your app is highly visual in a quirky sense -- think of Angry Birds as an example -- you may be able to sell physical representations of the quirkiness, like T-shirts, coffee mugs, etc.

In other words, get your basic idea out for free. The more exposure the better. Provide the plentiful. And then you have a ready-made market where you can charge for the scarce.

See the video here.

Of course, this is merely a reimagining of a technique known as loss leader, adapted for the Web 2.0 and mobile app age. However, for a market such as the App Store where unless you win the lottery you won’t make a living, it’s vital.

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Matthew Jones
Matthew Jones

This is the "Freemium" model, and well documented. The key is you need critical mass of millions to use your app, and the few who really get into it will pay enough to run the whole show. You are spot on though - you have to be making money some other way than the app itself.

22 September 2010

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