App Store: A New Hope a blog post by Veiled Games and How to Price Your iPhone App out of Existence by Andy Finnell are the start of a great discussion of how to price an iPhone application. Another great article by John Casasanta & Phill Ryu – How to prevent the App Store from becoming the Crap Store
Here is my 2 cents.
On iTunes you can buy Iron Man for $14.99. It cost over $100 million to make the movie. The problem is that we are conditioned to devalue media and software. Software and media all are trending to be free. Advertising revenue is drying up as we speak. So how to make money. I suggest narrow your sights to a niche. Which is better: sell 100,000 apps at $0.99 or 1,000 apps at $100 dollars. You make the same money, yet you only need 1,000 customers. If you are going after consumers than $100 is a tough sell. If you go after business, which so far the iPhone market is mostly ignoring, you can make a nice living finding a few thousand customers in the world who want to buy your app.
At Cosential, our main source of revenue is our subscription fees. So to drive traffic we are thinking about pricing the app low to get as many people as possible. BUT, we are aiming squarely at the business market, so we need to price the application high enough to discourage the proverbial 13 year old from trying our app, since it is not aimed at them. Being burdened by support calls and flames from people who should NOT buy your app is just as dangerous as over pricing your app. Customers want good support and for us to continue to support and improve our products.
So where is the magic number? Lets examine pricing more carefully. After talking to a bunch of developers who have apps in the iTunes store, if you are not in the top 100, the most you will be able to sell less than 100 apps a day. The really crazy sales numbers are for app in the top 25. So currently there are more than 5,000 app in the store now with 20-50 new apps a day being released. The likelihood of cracking the top 25 is low odds. For us with an enterprise focused app, it will never happen. So I am resigned to a potential sales number of >100. Now I think we have a good app, but until we release it, I do not know how good. So lets say we chug along at 20 apps a day, taking into account a fudge factor of 1/2 and than 1/2 again and then taking off a bit more. (Very scientific) Anyway, 20 apps a day equals about 600 apps a month, so lets round that down to 500 apps a month.
I did a small spreadsheet showing the gross and net of selling 500 apps a month at different prices. 
So far I am not taking into account price sensitivity to the number of sales. We will look at this next. As you can see the monthly revenue is nothing to write home about. It seems the minimum level to even think about is the $9.99 level. So at $3500 per month I pay less than 1/2 of a salary. So is this really interesting? Well if we can make additional revenue from our recurring monthly fees than yes this starts to add up. This spreadsheet is I think the reason why we are not seeing many enterprise application vendors building too many apps. So now lets look at price sensitivity.
Lets say I drop the price low enough to sell 100 apps a day or 3,000 per month. 
At $1.99 I will make a bit more than selling the app at $9.99. The assumption is that demand in the iTunes store is elastic to price. In talking to one CEO of a company selling an app in iTunes store, he was desperate to stay in the top 25 so he kept dropping the price to stay on the list. It becomes a zero sum game. The big question is how elastic is demand and price for business apps. I did notice that in the productivity category that a few todo applications are maintaining their $9.99 price level. The key issue is that the people who are making boat loads of money are keeping it quiet. Only Apple has a good idea on pricing, but they are not sharing. So what to do?
We price low initially to get on higher on lists and broader initial distribution and then raise the price and see what happens. Or price high first and then drop the price or have limited time sales. Use the high price for early adopters and then over time reduce the price. Or give the app away for free and make it up with subscription fees. I have seen other developers game the app store this way, making the price “free” for a few days and then begin charging.
The gold rush is over, we now all need to act like professionals here and figure out a way to make a decent profit. The climax of this story is that we will decide on the pricing of the app in the next few days. I will blog our reasoning behind the decision be it right or wrong.
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November 17, 2008 at 6:51 am
[...] Connected Data: “Which is better: sell 100,000 apps at $0.99 or 1,000 apps at $100 dollars. You make the ...