iPhone Apps Aren't iPod Songs
The post of the day comes from Andy Finnell who writes that iPhone app developers must abandon the $0.99 price that many apps are selling for these days.
Andy calculates that a developer who wants to make a living off an iPhone app (at $40k/year) must sell 196 apps per day to do that. He also calculates that at $9.99 per app, you'd need to sell 16 apps per day to do that.
But Andy's best point is this one:
Competing with another application solely on price is a sure fire way to go out of business. Your product should have a selling point other than the price, whether it be more features, better usability, a unique approach to the problem or all of the above.
There will always be students and hobbyists in the market who can sell a competing product for way less than you. They don’t need to make a living off the app, so they’re not trying to. This happens all the time in the Mac market. If you charge enough for your app that you can make living off it, then you can spend all your time improving it. With that extra time you should be able to make a superior product to your lower priced competitors.
People are willing to pay more for superior products. Unfortunately, with the App Store developers haven’t given them the opportunity to do so.
I personally think that the best approach is to have a free and paid app with the free app being enough of a teaser that it gets the loyal users to pay up for the premium product. That is, by the way, the strategy our portfolio company Zynga is taking with their Live Poker app.
A developer would be much better off with 196 apps per day being downloaded with 180 of them free and 16 of them paid than 196 of them at $0.99 because there is no "decision cost" on the free apps.
Josh Kopelman wrote a great post on this a while back called The Penny Gap. Getting someone to pay anything is hard. Once they've made the decision to pay, the difference between $0.99 and $9.99 isn't as big as many think it is.
But the bottom line in all of this is you have to build something really useful to get someone to pay for it. Free apps outsell paid apps in the iTunes store by something like a 10 to 1 ratio. And Andy is right, make something unique and useful and charge real money for it and you'll have a better chance at making a living that way. It's good advice.