0:00:00Hello and welcome to Developing Perspective. Developing Perspective is a podcast discussing
0:00:04news of note and iOS development, Apple and the like. I'm your host, David Smith. I'm
0:00:08an independent iOS and Mac developer based in Virginia. This is show number 125 and today
0:00:13is Friday, May 17th. Developing Perspective is never longer than 15 minutes, so let's
0:00:17get started. First, I just want to apologize for my voice and potentially the sound quality
0:00:23of this. I have a cold and I'm at home rather than in my office. I'm recording this in a
0:00:27a slightly different microphone with a slightly coarse voice.
0:00:29So apologies, but hopefully you'll bear with me
0:00:32and we can have a good show.
0:00:34All right, so the topic I'm going to talk about today
0:00:36is really just about--
0:00:40it's like our semiannual discussion about pricing,
0:00:43about App Store, I guess, sales models and things,
0:00:48whether we should have trials, whether we
0:00:49should have update pricing.
0:00:52The prices are too low, too high.
0:00:54It seems like we have this sort of semiannual discussion.
0:00:56The thing that I was thinking about at this time that I thought was more interesting is
0:01:02I started wondering, kept thinking about why we keep having this discussion.
0:01:07I think that helped me think in some interesting and hopefully some useful sides to it that
0:01:12hopefully are picking up and be helpful to further the discussion, I suppose, or maybe
0:01:16put the discussion to bed.
0:01:20The first thing I wanted to say is that any discussion about pricing, about the way essentially
0:01:26the way that we make money in the App Store, at its core, is always going to have to start
0:01:31from a place of deciding who should win in some ways.
0:01:35And by that I mean, in order for, whenever you set up a store, whenever you set up a
0:01:41market, maybe is a better term for it in this case, you're always kind of trying to optimize
0:01:46for different things.
0:01:48And so, would you prefer for there to be, for example, a small number of very well paid
0:01:55developers, or would you rather have a large number of developers all making less money?
0:02:02And these are the kinds of questions that you kind of have to navigate as you think
0:02:05about how would you set up a store.
0:02:08And I think, generally speaking, the approach Apple is taking, which I think makes sense,
0:02:13is that they're generally trying to set up the store to distribute the income as fairly
0:02:21as possible.
0:02:22That's fairly, in some very vague sense of fairly, but in the sense that it's not creating
0:02:28monopolies or advantages for specific people as much as possible.
0:02:33Obviously there are things that aren't perfect about that, but generally speaking, that's
0:02:36what they're doing.
0:02:38The result of that, by having this broad, open, fair market in many ways, is that that
0:02:45has created tremendous competition.
0:02:48is the thing that most often drives pricing in any market.
0:02:53And I think software, there are some aspects of software pricing and some of the economics
0:02:57of making software applications that are unique to it, but for the most part they're the same
0:03:01as the economics of almost any commercial business, anything that you do.
0:03:07Your goal is to create a product and put it into the market and then sell it to recoup
0:03:14as much money as possible.
0:03:16the core of business is to create something for less money than you were able to bring
0:03:21in and the difference is the profit that you can live on.
0:03:25That's the core of business.
0:03:26And it's led to a market where in the app store specifically, on iOS, I think there's
0:03:31last time I checked, there was about 875,000 apps in that market.
0:03:38And competition is a funny thing because one of the more core, like this is where I started
0:03:42get into my economics, which I'm not an expert on by any means.
0:03:46But sometimes I try to wear that hat.
0:03:48It's the laws of supply and demand.
0:03:51That the more supply of something that there is for a constant demand, that the price will
0:03:59tend to fall.
0:04:00And I think that's part of why App Store prices go down, is that there's a tremendous amount
0:04:06of competition.
0:04:08If you make an app that does anything, it probably already exists in the App Store.
0:04:16There's probably more than one person who's already done almost the same thing in many
0:04:20ways.
0:04:21With that many apps, there's very few new ideas.
0:04:24I'm not saying that there aren't any, but there are a lot of things that are more just
0:04:28novel takes or remixes of existing ideas.
0:04:32The other economic principle that comes into this a lot is the concept of marginal utility,
0:04:37which I think I'm abusing slightly there, probably it's that for most competitive markets
0:04:43the price of a product will tend towards its cost of production for the most recent unit.
0:04:51So that's to say, you know, if I'm making t-shirts and maybe the first t-shirt cost
0:04:57a lot of money to make because I had to get the machines and all the stuff, but after
0:05:00I've been doing this for a long time and I have all these economies of scale, you know,
0:05:04my last t-shirt will cost, is costing me $2 to make, then the price of that t-shirt is
0:05:09probably going to be heading towards $2.
0:05:11And this gets particularly interesting with digital products, software being included
0:05:16or ebooks or music, where the marginal cost becomes zero, essentially.
0:05:22Once I've built something and put it in the store, I have no additional costs in sort
0:05:26of to create and maintain that product, with the obvious exceptions of a few things like
0:05:31support and those types of things. But those are generally, the price gets low to a point that it
0:05:37becomes a kind of rounding error per unit. And so those two things together are making it that
0:05:43the price is always going to be pulled down. There is these external factors that are pushing
0:05:50on prices to make them as low as possible. And I think that's just the reality. I think that's,
0:05:55And it's driven by the fact that the marginal cost is zero and it's an incredibly competitive
0:06:02market.
0:06:03But it's also probably fair to say it's a competitive market on a global scale too.
0:06:07This is actually something that I ran into a couple of years ago.
0:06:11I was working on an app that was very similar to someone else in the store and we were working
0:06:16and we were both doing pretty well.
0:06:17We were kind of jockey back and forth for position, but we were sort of really very
0:06:23comparable revenues, very comparable positions in the store.
0:06:27I believe he was based in Hungary, if I remember the author of the competitive competing app.
0:06:36For the similar revenue that we were getting, I was supporting myself, one person in Virginia
0:06:40in the United States, a pretty expensive place to live.
0:06:43I believe he was supporting a team of four or five people.
0:06:47That is a complicated thing where you can say an app that makes whatever x dollars is
0:06:55unsustainable for you, for someone living in the US or in Western Europe or whatever.
0:07:01That may not be the case for someone who's living somewhere else in the world.
0:07:06They may look at an app that makes $5,000 a year and say that's great because they're
0:07:12able to take advantage and leverage lower cost of living, lower cost of variety of tax
0:07:17rates, whatever it is.
0:07:19And so it's just understanding that all these external factors are pushing on prices and
0:07:24pulling them down.
0:07:26So what do you do?
0:07:27And I think the first thing to understand is that if that's the case, there are very
0:07:33few things that Apple or anybody else could do that would raise the price of software
0:07:39in the store.
0:07:40And this is something a lot of people have been talking about recently with things like
0:07:43trials, where the trials would raise the price of apps in the store, make it easier to sell
0:07:47more expensive software.
0:07:48And I think maybe the latter, definitely not the first.
0:07:52I don't think trials would—what would increase the amount of revenue that most software developers
0:08:00make, if anything—and this is something I think Marco Armit was talking about in his
0:08:04His blog post about trials is that you'd lose a lot of money from the people who are trying
0:08:11an app and are willing to pay for that trial, for the experience of exploring it and consuming
0:08:18it.
0:08:19That can get into an interesting question of whether that's a good thing, if it's good
0:08:23to take money from people who don't ultimately use your software.
0:08:25That's more like an ethical question.
0:08:27But generally, I think for a lot of applications, you'd end up with actually a lot less revenue
0:08:31coming back from this.
0:08:33even just look at the Google Play Store, which has a trial system as well as I think the
0:08:37Windows Phone Store.
0:08:39They're not known for huge amounts of paid, high-cost software.
0:08:44There are certainly instances of that.
0:08:45I don't think it's trials that's driving that.
0:08:49Trials may help for very expensive software, things where you're spending $50, $60, $100,
0:08:55$200, $300, $500.
0:08:57Using those types of things without a trial becomes much more intimidating.
0:09:01But generally speaking, I don't think trials would address that, because now all of a sudden
0:09:05you just have the same external factors pushing on prices in a context where customers can
0:09:10essentially spend less money for the same experience.
0:09:16And so, if anything, it would potentially reduce the amount of revenue that you'd get,
0:09:21because if you lose the experiential sales, the people who are just trying it out, without
0:09:29being able to raise prices, which I really don't think you can because of all the things
0:09:32I was just talking about, you'd have less money available.
0:09:37So one thing that is tricky about that is the App Store as it is right now is doing
0:09:41very well.
0:09:42And I think anybody who says that it isn't is kind of, you know, like I think they celebrated
0:09:49their 50 billionth app download and it's a market that's growing well.
0:09:54There's a lot of people who are making their living from it.
0:09:56generating a solid amount of revenue for developers.
0:10:00Every time, I'm sure in a couple weeks at WWDC they'll have a big check that says, "Hey,
0:10:04since the App Store just launched, we've given whatever, n billion dollars to developers."
0:10:10It's doing well.
0:10:11And any time you change fundamentally that model, you have no idea exactly how that's
0:10:16going to happen.
0:10:17There's going to be all kinds of unintended consequences.
0:10:18There are going to be all kinds of strange things that come out of that that we may not
0:10:23be able to predict or may not like.
0:10:25It could be good, but generally speaking, as somebody who makes my living, who is paying
0:10:30my mortgage based on making a living in the store, generally I'd rather not change it.
0:10:36I'm able to adapt and coordinate my efforts based on a market that is fairly well understood
0:10:43at this point.
0:10:44It's something that's fairly mature, fairly established, it's been going for four or five
0:10:50years now, and I can plan around that and give. If Apple comes out and starts radically
0:10:55changing the way that store works, it could be good or it could be terrible, and that
0:11:01makes me nervous.
0:11:02And so then lastly, I just had kind of the LeBron-a-thon, it's like, so what do you do
0:11:06then if you, for whatever reason, want to charge more for your software? If that's something
0:11:13that's important to you. And I'm saying that not necessarily in wanting to raise your revenue,
0:11:17In that, if for whatever reason you don't like making a living on 99 cents at a time.
0:11:23If there are people who just rather make their living on smaller sales of bigger numbers.
0:11:29That's totally cool.
0:11:31It's just a difference in how you approach it.
0:11:33What I tend to actually have done is I try and go for all sides of everything.
0:11:38I have some products that are expensive, some products that are cheap, some products that
0:11:41are free, and in aggregate it creates a sustainable and dependable income.
0:11:46But if you're not, if that's important to you, the only thing that I could think of
0:11:49is that the only way you can charge a premium in a competitive market with a lot of interchangeable
0:11:56products is to be viewed as a premium brand.
0:12:00And you can see this in a lot of areas where, in other markets, where there are clothes,
0:12:06cars, jewelry, whatever it is.
0:12:09There are brands who people pay more for, not necessarily because they're getting their
0:12:18money's worth extra, but because they enjoy or trust or like the brand that they are supporting.
0:12:29People who are buying an expensive car aren't necessarily getting something that gets them
0:12:35from A to B better.
0:12:36In some ways it does, but it gets very difficult to start justifying all of the increasing
0:12:42costs where what you're really buying is that experience, is the external parts of that.
0:12:49And so in order to do that, that's how you have to position yourself.
0:12:53I think the reality is if it's important for you to charge a lot of money, then that's
0:12:57the only way that you can really go at it is you have to be a premium brand, which means
0:13:00you need to be incredibly high quality, you need to be incredibly polished and refined
0:13:06in terms of messaging, in terms of support, in terms of customer experience, in terms
0:13:09of all the things that go around with that.
0:13:13Your design has to be 100 percent.
0:13:15You've got to have rock solid everything.
0:13:18And that's good, I suppose.
0:13:21But it's also not necessarily for everybody.
0:13:24There's a lot of effort and time that it takes, and the risk you take in doing that is also
0:13:28much higher.
0:13:30In order to create a premium product, it takes a premium amount of time, energy, and effort,
0:13:35which if you have the resources to do is great, but if you are someone who is independent,
0:13:40if you're someone who's smaller and starting out, that may not be a great or a sustainable
0:13:47path for you necessarily.
0:13:48You may pull out of time and effort into something and have it fall flat, which you fear too.
0:13:53So that's just kind of some rambling thoughts I had about pricing and about the economics
0:13:56of being in the store.
0:13:57And generally, like I think I've said many times, my approach right now, and the thing
0:14:02that I think is the most sustainable and dependable way to make a living in the app store right
0:14:07now is through diversity.
0:14:08Is to make your living on averages.
0:14:11That you have a variety of things that are solid products that you put out that aggregate
0:14:16can make a solid living for you.
0:14:18That's what I do and that's what I've been doing for years and it seems to work pretty
0:14:21well.
0:14:22Alright that's it for today's show.
0:14:23As always if you have questions, comments, concerns or complaints I'm on Twitter @_davidsmith,
0:14:28I'm on AppNet @davidsmith.
0:14:29And otherwise, we'll be happy to have you guys, have a great weekend, happy coding,
0:14:32and I will talk to you next week.