10 is the new 10

I’ve just been reading David Barnard’s “5 is the new 10” post on App Store pricing and how he’s reduced all of the AppCubby apps from $10 to $5. I can see exactly why he did it, but I’m still a little bit disappointed. Not with David, I should hasten to add.

But the comment by Apple’s Tim Cook during the earnings call on Tuesday in response to a question on falling prices annoyed me somewhat:

Developer sets the price, so it’s up to them what to charge. They’re doing what any good business person would do, doing the elasticity analysis, and figuring out where to sell price. As install base grows, it makes more and more sense to have lower prices, but that’s totally up to developers.

PCalc, as you might know, is still $10. We just released a new 1.7 update this week – the tenth release of PCalc for the iPhone – which is getting some good press and positive feedback from users. Sales have been the best we’ve seen for a while, and so far, we’ve not had any complaints about the price from our users. But I think expectations on price are moving in the wrong direction, and statements like that from Apple don’t really help matters.

I still don’t think that lower than $10 price points are sustainable for more niche apps like PCalc, especially if you want to see continuous development.

A few months ago, I experimented with halving the price. We hadn’t done a release for a while as I’d been away the previous month and sales had slowly fallen since the 1.5 release. I didn’t have anything ready to go at that point as I was working away on a version for (the then unreleased) iPhone OS 3.0. So, a discount made sense to try to keep PCalc in the public eye in lieu of a actual release.

The theory is that reducing the price will improve unit sales. The catch is of course that you don’t get as much revenue per unit. When we cut the price, I sent out press releases, and we saw a sales spike very similar to that of a new release. Over the course of the next month, sales tapered off again. We then released version 1.6, put the price went back up to $10, and saw another spike and gradual tapering off in sales.

Compared to the month following the release of PCalc 1.5, for the month of the price cut we saw an 82% increase in unit sales. Which sounds good, until you look at the total revenue figure, and that’s actually a fall of around 10% overall. In all cases I’m looking at the 31 days from date of release.

Compared to the month following the release of PCalc 1.6, the sale month was only a 23% increase in unit sales, or 39% less in total revenue.

So, compared to the releases before and after, halving the price to $5 failed to increase our sales by the required amount. We might have made a little more money than we would have otherwise of course – if we didn’t do the promotion and didn’t get the resultant publicity, we wouldn’t have seen any sales spike at all.

But in any case, it wasn’t the significant boost in sales that I expected it to be, and it doesn’t suggest to me that halving the price on a permanent basis would do us much good in the long term. We would certainly get an initial spike, but the level of sales when that has tailed off wouldn’t be twice what it is now.

Really, I think it depends on who your customers are, and what your product is. The market for games seems to be extremely price sensitive for example. If you have a product which has very broad consumer appeal, I can see how a lower price can help, especially if it’s at a low enough point where you’ll get impulse buys. Even I bought Peggle when it was 99c.

But if your app is unlikely to ever be in the top 100 because it doesn’t have that broad appeal, reducing your price is more than likely just going to cut your revenue in the long term.

For the normal level of sales we get with PCalc, $10 is probably the lowest price we can charge that justifies the time we currently spend working on it. Even then, as a business, we’re only just breaking even.

And customers, if you want to see good quality software in the app store in the long term, you should really be asking developers to put their prices up.

Author: James Thomson

Indie iOS / Mac developer, maker of PCalc and DragThing. Occasional writer, conference speaker, and podcast pundit.

5 thoughts on “10 is the new 10”

  1. It would be interesting to see what would happen if you lowered the price of PCalc to 99¢ for a couple days or a week. This is dangerous territory, I know, because it has the potential to devalue your application to those that already bought it and those that were thinking about it. But I wonder if even a “limited-appeal” app like PCalc could see a huge boost in sales by “racing to the bottom.”

    1. That’s a good question – it does worry me that it would have the potential to really annoy people who had just paid $9.99. But, at 99c, you would still need to sell ten times as many copies to stay in the same place in terms of revenue.

  2. Thanks for explaining the pricing issue so well. That is one of the most frustrating things about being an independent developer. We are at the mercy of the big software vendors, who all seem to be taking bigger and bigger chunks every year! I’ve been in this game for nearly a decade now and it’s definitely a challenge to reach my target market.

    We just launched OnTimeRx for the BlackBerry – yesterday! It took nearly a year to bring it to market. In that period of time, we had also considered a price drop on our other versions of OnTimeRx for other platforms, but decided to stay the course.

    OnTimeRx is a great medication reminder solution that is literally in a class by itself (there wasn’t even a category for it at first! I had to request Personal Healthcare.) We have thousands of extremely loyal users around the world, but it will probably never be a Top 100 App, even though it literally saves lives every day.

    Quality programs don’t just happen! Your last sentence is right on the money. Some of my customers understand this and some have even paid me a few extra $$ for my support efforts and dedicated service, but it is tough to keep plugging away when everyone wants everything for FREE!

  3. Good piece, the whole pricing thing really intrigues that part of me that enjoyed my micro & macro economics classes. I think it’s important to remember as you’ve said, not all apps are created equal. Lessons learned from a game aren’t necessarily going to apply to a calculator, I think that is something that gets lost in the discussion sometimes.

    I have an app that is in a niche market and personally I’ve seen more revenue on average as I’ve stepped up in pricing tiers to what I think will net me the most revenue and I should have priced my application all along.

  4. Hello, I’m the developer of 42s, the Free42 iPhone port. We have given serious consideration to raising the price to $10, and will probably do so at version 2.2. As you say, I think most of the price wars are an effort to get on the main page where if you make it the low price probably is justified. However, we’ll never be in that arena.

    BTW, Very nice job on PCalc, certainly a great value at $10.

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