Under the Radar

Under the Radar 18: Choosing a Pricing Model

 

  welcome to under the radar a show about

  independent iOS app development I'm

  Marco Arment and I'm David Smith under

  the radar is never longer than 30

  minutes so let's get started so I am in

  the process of wrapping up development

  on my next app you I'm yes yes another

  one it's it's truly shocking and you

  know a revelation that I'd be working on

  a new app but I am and I'm at the point

  now where the app is mostly finished

  it's like functionally complete I'm

  getting ready to start sort of more

  broad testing and that kind of thing and

  it's an app that's geared in sort of in

  the health and fitness area that I've

  been doing recently to sort of join the

  ranks of pedometer plus plus and C++

  this one's about displaying the activity

  and fitness data collected by Apple

  watches you know hopefully a more useful

  way so I've come through like the part

  that I have a lot of comfort with in

  terms of sitting down and just building

  an app like the actual opening Xcode and

  coding that part I always feel good

  about but now I'm hitting an interesting

  a more challenging part of it at least

  for me that I thought it would be

  interesting to talk about and that's the

  process of working out the business

  model that I'm going to ultimately

  launch the app with and maybe some

  people would think that it would be a

  better idea to have the business model

  in mind before I make the app but that's

  just not the way I work I have an idea I

  start building it a few weeks later I

  have the app that's just how my process

  works so now I hit the point that I have

  to decide what am I going to do with

  this and you'd think at this point like

  I've been doing this for long enough and

  I've launched enough apps that I would

  just like immediately know what it isn't

  going to do but I kind of awkward

  reality as I looked at it and I'm like I

  don't really know what I want to do for

  this app like I could make it do do so

  many different things like the number of

  options available to app developers

  these days is kind of wild in terms of

  it's not just like an older sort of like

  the old days where it's like you could

  have a paid app or a free app or like

  push it free with ads and then like the

  introduced you know purchase and

  originally in a purchases were only in

  paid apps and so you could have like

  extra what they call like pay mia maps

  and

  then they added in a purchase for free

  apps we can do that now and this

  recently been a whole big wave of

  fitness apps being purchased by big

  companies and so that's even like this

  other kind of vague not like a business

  plan but they sort of like a concept of

  people are making fitness apps and

  eventually being purchased by bigger

  companies and making their money that

  way and so that leaves me in kind of a

  crazy thing and so I what I wanted to do

  this week is to sort of think out loud

  and get your your your thoughts Marco

  about how to proceed and kind of the

  considerations and the thoughts that go

  into this because I imagine anybody who

  is making an app a product something

  like that you have to go through this

  kind of mentality

  to think you know what's ultimately

  going to be best for you and the answer

  is probably different for everybody

  so thinking you know rather than just

  giving an answer explaining how I'm

  going to hopefully end up with an answer

  is probably more helpful so for me I

  think that one of the ways to look at

  this first off is if you have any any

  previous apps that you've made

  especially anything you've made in

  recent years you know since the economy

  always changes in the App Store any

  parallels you could draw from other apps

  of like what might be the best pricing

  model for like you know a similar app

  that you've made and how that's done

  sure and probably the closest have to

  this is it's really it's out of all my

  apps it's certainly going to be

  pedometer plus plus or sleep plus plus

  which are fitness apps and probably in

  many ways sleep plus plus is the actual

  a pedometer plus plus or in the early

  days have the same thing where like

  because it's an app that's tied to a

  particular platform like in when

  pedometer plus plus launched it was tied

  to the iPhone 5s and if you didn't have

  a 5s it was worthless to you and in you

  asleep plus plus if you don't give an

  Apple watch it's useless to you and we

  had this new app if you don't have an

  Apple watch it's not really gonna be

  able to show you anything useful so

  those are probably like the closest to

  the way I do now and those are both free

  with ads and an in-app purchase to

  remove the ads and in the case of

  pedometer plus plus the in-app purchase

  is structured as a consumable tip jar

  type of thing and in sleep us+ it's just

  like a one-time rake

  like any net purchase to remove ads with

  a nice little message saying thank you

  so much and pedometer plus plus does not

  have ads at all right it does okay I

  didn't it didn't initially launch with

  them initially it just launched with the

  tip jar but that I introduced ads a

  while after a while because the tip jar

  while conceptually I liked from a

  performance perspective didn't do that

  as well at least until I added advert

  ads to it and once I added ads like once

  there was both the carrot like hey

  support me this is great and the stick

  of I'm going to show ads in the app

  unless you pay like the combination of

  those two it led to a much more robust

  adoption of the tip jar and so I had it

  ads and it's been working much better

  since then because otherwise I'd find

  sort of the I launched it or I launched

  a big update and I'll get this kind of

  like this little wave of goodwill and

  then it drops to almost nothing and so

  that didn't really work in the long run

  that makes sense so now it seems like

  the the most logical conclusion then if

  you say that the new app is most similar

  to pedometer plus plus and apps like

  this and the pedometer plus plus and

  sleep plus plus both have this kind of

  you know ads with paid options to remove

  them models and they both work pretty

  well it seems on the surface that would

  be the best choice but with I ad

  shutting down this summer then obviously

  that there's a wrench into everything

  right exactly yeah and like I look at

  this and it's it's more complicated both

  because of that and also because in a

  weird way I also want like I kind of

  want diversity in my in my income stream

  and so like having everything be the

  same model sometimes it makes me wonder

  if that's problematic like if all of my

  money is coming from ads I mean it's

  sort of in the same way that like fair

  enough I can move to another advertising

  platform but you know if a there was

  some App Store policy change for example

  that changed the types of advertising

  that was that were allowed and it led to

  you know essentially meant that

  advertising rates collapsed like if all

  my income is coming from advertising

  then it's probably problematic or if the

  types of ads that are available you know

  become more and more skeezy and crumby

  then I can like and if my entire like

  business is based on that like that's

  not a great position either and so I end

  up with this weird thing if it's like

  there's a lot of things that I could do

  and when I was taking a step back and

  thinking in preparing for this episode I

  kept finally coming back to is it's like

  ultimately I have to decide and this is

  like really I think that like you can

  build and a business models to do what

  like one of four things you can either

  like maximize the money that you get now

  you can maximize the reliability of

  income you'll get later you can maximize

  the overall money the app will ever

  receive in its lifetime or you can try

  and maximize your user base which one of

  those things will vary dramatically

  dependent like will then decide which

  business model makes most sense for you

  because okay if I want the most money

  now well I should probably do like a

  paid app just like charge money up front

  hope for a little bit of press when the

  app launches you know kind of get a big

  big push have a couple of days with nice

  big sales and then it'll likely fall off

  pretty dramatically least that's my

  experience is that you end up with this

  very steep drop-off afterwards but you

  know in that first couple in that first

  cut in the first week or so you can

  actually make quite a lot more than you

  would probably be able to make from any

  of the other models and so you can make

  it now and like if I want reliable

  income something like advertising is

  great because it's there's no not there

  isn't kind of like this one time

  purchase nature to it where people just

  keep every time they open the app I make

  you know a fraction of a penny and so

  the more if people keep using the app

  there continues to be money coming in

  like overall revenue is probably going

  to be some combination of them like

  where it's like I'm gonna do everything

  I'm gonna have ads I'm gonna have in-app

  purchases to remove ads I may have NF

  purchases to do features like do

  everything you could possibly do to try

  and maximize things and then if I wanted

  to like Matt just maximize the user base

  well then kind of take the VC model and

  say you know

  just make it free like in hope that

  you'll work something out down the road

  like if once you have you know hundreds

  of thousands of customers using the app

  all the time then hey that's got to be

  worth something to someone right yeah I

  mean so I think so you know with

  overcast I obviously chose the pretty

  much the latter option but you know

  pretty much make it free at first I had

  like you know free with unlock to get

  all features now it's pretty much

  everything's free and and you you know

  you you pay if you feel like it which is

  almost like everything's free and the

  reason I did that was because I've

  wanted to maximize the user base really

  you know I have I have like political

  goals with with how I feel about how

  podcasting apps should and shouldn't be

  designed and I you know I want to like

  keep podcasting open and and you know

  reduce the influence of proprietary

  gatekeepers and everything and so for me

  it was important to maximize the user

  base first and then figure out money

  with that in mind like you know not

  necessarily later because I didn't delay

  making money but just like figure out a

  way to make money while also giving away

  as much as possible for free and so you

  know that that's the model I chose that

  though you know that was in the context

  of this entire ecosystem that had these

  other factors that I was playing to in

  in your situation here with this app you

  know with every app certain models will

  work better than others you know and and

  it depends so much on what the app is

  what the competition is how your market

  timing is you know what you know what

  the market is itself so something like

  pedometer plus plus that was that

  initially a paid app or was it always

  free upfront it's always free cuz it's

  because of in especially it was free

  because it required an iPhone 5s and

  there was no way that I could require

  you to have one before you purchased it

  and so I made it free because I was

  afraid that there would be lots of

  people who would pay for it and then

  immediately discover that it's worthless

  and go and get a refund or leave a

  one-star review and so it just never

  seemed like paid would be a viable

  option right and so therefore the same

  thing applies to this then because this

  requires an Apple watch so you know it's

  or what does it officially require it

  isn't you know basically it basically

  requires it right it basically record

  everybody it would be fairly useless

  that one right exactly so it seems like

  paid is right out the window which is

  unfortunate because actually something

  like this where you're saying like you

  know it's taking advantage of something

  new it's something that is a that is a

  small market there's probably going to

  be very little competition out there at

  least at first so that kind of condition

  usually is a really good fit for paid

  where you have people who are going to

  be motivated to get it and very little

  competition really and and especially it

  being new well that combination usually

  means go paid upfront because you kind

  of have to be free up front because we

  don't have real trials this would be a

  man this would be a great case for a

  trial but but those don't exist so

  instead you have to be free somewhat so

  the only question now is whether you

  lock some features whether you use ads

  or whether you just don't think about

  money with this app and use it for other

  purposes like promoting your other stuff

  or giving back to the world or whatever

  so going through those one by one I

  guess free with unlock is tricky certain

  apps there just really isn't a good

  place to put that locking barrier so

  like one of the examples I know I think

  James Thompson talked about this a while

  ago with P calc is you know where do you

  if you have a calculator that you want

  to be free upfront with a paid app

  purchase to unlock something what do you

  unlock like the nine button like it's

  it's hard it's like certain apps are

  just hard to figure out where to place

  that barrier in a way that the app isn't

  totally useless without it but that

  enough people will hit that barrier and

  be motivated to pay and certain apps the

  answer is just this doesn't fit well and

  there isn't a good place for it and

  certain apps you know there are plenty

  of places for it and the question is

  where do you put it and so in this case

  do you think there's a good spot to have

  a paid unlock like there's a good

  feature or set of features or limit that

  can be removed where enough people will

  hit that and want to pay but they won't

  hate you because it's so annoying every

  time they hit it the only one that comes

  to mind for an app like this is to do

  with some type of kind of artificial

  limit

  the amount of data that it will display

  so you'd have something you know it's

  sort of like being the same with like

  pedometer plus balls like it shows you

  historical data it would be like you can

  only see the current week unlock to see

  all kind of a thing

  is the only thing that I could sort of

  see because partitioning the feature set

  or the functionality in other ways like

  it feels so contrived like feels much

  more like the yeah like you don't use

  like you can do multiplication but you

  can't do division like that right

  exactly

  it completely kind of removes the point

  of the app if you start partitioning the

  features and so the only way I could

  ever really I could have a kind of

  imagine is to say like hey I'm only

  going to show you this amount of data

  you know if you scroll beyond that

  there'll be a little box that says hey

  would you like to see the rest of your

  data you know I'm holding it hostage for

  $2 at the bottom

  yeah and that's that's so tricky to do

  while also balancing like the users will

  to pay you because it's so easy to just

  appear really stingy or annoying or

  cheap with what you give them for free

  and what you don't and if they don't

  feel good about your app they usually

  won't pay to get past that barrier some

  people still will and they will hate you

  for it I've done that before with some

  apps like sometimes for like I really

  needed it to get my job done and they

  offered a free trial and I kept hitting

  walls and I just eventually I did pay in

  a lot of these cases and I but I just

  felt terrible I felt like I hated them

  for it and that kind of soured me on the

  whole company and on you know like their

  future products or my experience with

  the app or my willingness to recommend

  it to others so it's always a hard

  balance when you whenever you have these

  barriers but that being said if you have

  an app where a barrier like this makes

  sense and where you where you can find a

  good place for it and you implement that

  well it usually is a really good way to

  make a reasonable living like it you can

  usually get decent income that way

  without a lot of the problems of things

  like ads or paid upfront so usually that

  that is great when it works but it is

  really hard to make it work yeah and I

  think one thing that I always struggle

  with and I'm trying to think of this

  it's like

  it's what am i communicating to my

  customer because like the hardest part I

  think like that you have to get over and

  a little bit I think you're alluding to

  it for like it makes you feel bad is

  when you say like this part of the app

  is free like the the initial part like

  in typically it's like the core part

  like the main purpose of the app is free

  and then there's these extra things that

  are are like cost more like the weird

  thing that you have to keep in mind is

  in some ways what you're communicating

  to your customer is like the core part

  of the app is free or in some ways you

  could like it's not a great word but

  it's more helpful for this analogy it's

  like this part of the app is worthless

  and this other part somehow I'm saying

  is worth full but if you look at those

  as a customer

  they may look functionally identical

  right it's you're saying like if you

  know the ability to do this XY and Z

  shouldn't cost you anything and I'm

  telling you that it shouldn't cost you

  anything to do these things because I

  just gave you an app that you downloaded

  for free that does those things so I've

  communicated to you this is worthless

  but you know but this other thing

  that is essentially probably very

  similar to the other thing and is in

  many ways a contrived barrier like

  somehow it should be valuable and like

  there's a dissonance there that I feel

  like is is where it gets really hard

  like you can only really make the case

  for unlocking something when the thing

  that you're paying is like paying for

  feels different and like completely

  orthogonal to the thing that you the

  core part of the thing that you gave

  away for free you know so often you'll

  have something where there's a physical

  cost associated with it like you're

  paying for storage or for a sink you

  know to access sink or something where

  it's not the thing that I gave you for

  free just you know like I it's something

  totally different in a team's of a

  tangible way because when you do that I

  think maybe that's where you can get

  around that feeling of like I feel bad

  about this because I feel like they're

  just kind of you know like being cheap

  by you know creating this artificial

  limit

  it's tough too because when you put up a

  limit like that people who will hit it

  and they will they will try to

  rationalize not going past it so though

  if you put up a limit and you say well

  you can only see the last week of data

  or whatever you know whatever limit you

  put up yeah people are gonna hit that

  and they're first going to think well I

  guess I don't need that right like

  they're gonna try to convince themselves

  they don't need that because they don't

  really want to pay so we're gonna try to

  say well you know what I can get along

  fine without that and even if they would

  enjoy the app more with that even if

  they would get their $2.00 or whatever

  worth of enjoyment or value out of

  having gone past that barrier they will

  try very hard to convince themselves

  even if it's subconscious not to go past

  that barrier and so you'll have so many

  people who really could use the app who

  really could enjoy it a lot more if they

  would pay the two bucks but who have

  convinced themselves they don't need to

  because they would rather not and and

  like that's the issue I favor the

  overcast that's one of the reasons I

  want patron eggs eventually it's just

  very hard but I don't know and then we

  have we have a lot more better options

  or different options at least including

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  so there's also ad supported apps to me

  like it sounds like it'd be a decent

  idea because it sounds like you get

  money for when the app is being used and

  no one has to decide whether to pay you

  or not because the ad is paying you

  automatically effectively if they use

  the app and they can maybe pay to remove

  it or something that's you know that's a

  separate discussion which I'm sure we'll

  have but at the heart of it you kind of

  automatically just get money slowly with

  usage of course there's downsides in

  practice things like you know privacy

  concerns annoyance concerns image

  concerns what do you think about after

  that yeah it's a it's an uncomfortable

  it's like it's like if you may have

  noticed that was an uncomfortable intake

  of breath yeah because I don't read I

  don't like using apps that have ads in

  them but I make a substantial amount of

  my revenue from ads and like there's a

  little bit of cognitive dissidence about

  that like it's like the ultimately the

  pragmatic part of like this is the

  practical way to make revenue but the

  reality is I never really like I don't

  my app is never made better by having an

  ad in it like it's not like oh wow well

  it's like people will love it when they

  can see ads for other you know for for a

  game of war or clash of clans or

  whatever like the like the latest

  creative play game is like which is

  essentially what most online ads seem or

  mobile ads seems to be these days

  therefore like I don't know those games

  or they're for a big brand like audible

  or Google or something like that

  and so putting those into my apps like

  always feels a little bit's not great

  but the reality is like like you said

  like it works well and I like

  conceptually the fact that I'm getting

  paid for use in a way that like it's a

  really nice virtuous cycle like I want

  to make an app that's really engaging

  and you wanna you know you want to keep

  opening up and looking at you know from

  showing you you know health and fitness

  data like hopefully it's motivating

  hopefully it's something that you want

  to go and check on a regular basis and

  so aligning a business model with that

  where it is something that the more you

  use it the more money I make like is

  great and in some ways it reminds me

  think of the way that like I almost kind

  of wish that there were was a mechanism

  kind of like quote musicians have with

  streaming services oh you don't want

  that conceptually I do I don't

  necessarily like it breaks down in

  certain ways obviously like all these

  things do but like conceptually you just

  add a bunch of zeros to the number

  basically then we want that version of

  it that version that version B so is so

  great right for the conceptually like

  every time someone listens to the song

  they get a bit of money and like if

  every time someone opens my app I got a

  bit of money that would be great

  like if the if such a thing sort of

  existed like if there was like a breath

  and Apple music there was like Apple app

  and people paid a certain amount of

  money and it was distributed around

  people based on what they used or

  something right like you could imagine a

  system that would sort of work in that

  way like it's hugely problematic and I'm

  not really advocating for that but like

  conceptually a version it would be like

  the business model that adds create but

  without the potential for kind of like

  not desirable aesthetics in my apps so

  like that would be great that doesn't

  exist and so you end up with ads and you

  ultimately I like I end up like most

  likely than not that's ultimately what

  I'll probably have to do is I look at

  and it's like you know if I have ads in

  this app I will if it's successful if

  it's just downloaded wildly then I will

  likely you know make a reasonable amount

  of semi reliable income from it

  and if P if it's sticky and people

  really like it and keep coming back to

  it like my revenue will continue to if

  not grow at least to stay stable in long

  term which is great like see our episode

  about work-life balance that we just did

  where I talked about like the more you

  can make your income kind of like

  passive and not related to what you're

  doing like the better and so ads are

  great for that because it's all based on

  work you've done in the past like

  continuing to pay you in the future I

  just wish it didn't make me feel so kind

  of like mmm whenever I do it yeah and it

  seemed like with ads like you could do

  something crazy like direct sales of ads

  but that's a lot of work it's the best

  for like privacy maximization really and

  it might be the classiest but that's a

  ton of work and as you go like kind of

  down the rabbit hole I'm like well I

  could join a network and then you know a

  small app network if that existed which

  I don't even know if it does but you

  know assuming that existed up then then

  we pool resources selling ads is a

  little bit easier I've maybe I don't

  have to do it anymore or I can I can you

  know share a salesperson with somebody

  else and as you get further down it's

  like well all these things are a lot of

  work until you get down to the well I

  can just plug in a module from a big ad

  provider where I might not have even

  beat I might not have even dealt with a

  human at all to be part of this thing

  you're getting who knows what ads from

  who knows where and they're doing who

  knows what with your customers private

  privacy and data but that's also the

  easiest for you I like that and so like

  with ads you like the the incentives are

  all towards getting creepier and

  creepier because the the easiest ways to

  get into ads and the most accessible

  ways against ads happen to also be the

  worst about privacy and customer data in

  most cases whereas you know anything

  better than that tends to take more work

  than most people can really devote to it

  exactly and that guy in my first ever

  foray into ads I did actually sell them

  direct like this was like way back early

  days of the app store because like ad

  networks didn't exist and like I would

  sell ads to you typically was to other

  app developers at very small very small

  amounts of money but it's like that was

  the best you could do back then but now

  yeah like you would just you install

  I add for the next couple of months or

  you know AdMob from Google or any of the

  million things like see our previous

  episode about ads where there's like so

  many networks and all kinds of things

  and you just kind of put it in and like

  in theory like and then money will start

  flowing and like that's great it's like

  in some ways this is an area though with

  like some you know the last version of

  like business model that I probably

  doesn't really fit from what I do but is

  interesting nevertheless is I am kind of

  envious of venture funded companies in

  this regard because they don't have a

  business model like they don't need well

  they have a different business model

  therapist this model is get really huge

  and worry about it later even though

  that usually means probably get bought

  before we have to worry about it exactly

  which is a business model it's just

  different for what we do yeah and like I

  look at that and I'm like in some ways

  that's actually kind of cool like to be

  able to just say like you know what I'm

  just gonna focus on making something

  cool and getting as many people as I can

  to use it and I don't need to worry

  about the financial part of that and in

  some ways like that's kind of

  interesting like I've definitely had the

  thought for some something like this of

  saying like you know what if I just went

  to like took that tack and like hope you

  know it's like MyFitnessPal got bought

  by Under Armour RunKeeper got bought by

  a6 like at some point is good COO you

  know if I was able to make some make a

  like a wildly successful health and

  fitness app that could it be picked up

  by some other company for you know it's

  probably in some ways more money than I

  could ever make from you know running

  AdMob ads in an application like that

  sounds kind of interesting it's like the

  risk dynamic on that just like goes

  through the roof where it's like or I

  could end up with having made this cool

  thing that ends up making me no money

  ever and that's kind of terrifying as

  well yeah all right well what do you

  think you're gonna do I have um have you

  come to any conclusions or you still

  gotta think about it I'm still gonna

  think about it I'm probably gonna do at

  like I think my default is gonna be ads

  like I don't think paid works

  I don't think unlocking features really

  works like I don't like the thought of

  right and to clarify it really works for

  this app on both exactly the whole point

  of this discussion is like whether it

  works in this particular case and like

  the reason we're going through it step

  by step

  that every app is different this is why

  this may or may not make sense for this

  app ads are like the easy thing I don't

  feel great about them but I think they

  are sort of like the obvious and

  straightforward choice I'll most

  certainly have an option to remove the

  ads I'm just in terms of that's often

  just it makes me feel better maybe it's

  like it's just like cleansing my

  conscience a little bit about not having

  ads to say like so you know like if you

  don't like them that's fine then it's

  just a paid app and you can give me

  money and we'll go away and if I'm

  feeling particularly daring or a little

  bit reckless in wild then maybe I just

  make it free but being a one-person shop

  who pays my mortgage with the revenue

  from my apps not having any revenue does

  not seem particularly wise yeah all

  right well that's all the time we have

  for today thanks a lot to our sponsor

  hover and we will talk to everybody next

  week bye