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Are iTunes App Store Prices Too Low?

I just read an article asking a question I’ve been wondering about myself. It asks if iTunes App store prices are too low. App Developer Craig Hockenberry is worried that customers are being trained to want it all for $0.99 or less. To a degree this is a legitimate problem, but only to a very small degree. People want things are cheap as they can get them, this is always true. If you sell something for $100 people will say it should be $90 you can sell the same thing for $90 and people will say it should be $70. That is life.

What I don’t like seeing is developers whining:

We have a lot of great ideas for iPhone applications. Unfortunately, we’re not working on the cooler (and more complex) ideas. Instead, we’re working on 99¢ titles that have a limited lifespan and broad appeal. Market conditions make ringtone apps most appealing.

Before commencing any new iPhone development, we look at the numbers and evaluate the risk of recouping our investment on a new project. Both developers and designers cost somewhere between $150-200 per hour. For a three man month project, let’s say that’s about $80K in development costs. To break even, we have to sell over 115K units. Not impossible with a good concept and few of weeks of prominent placement in iTunes.

But what happens when we start talking about bigger projects: something that takes 6 or even 9 man months? That’s either $150K or $225K in development costs with a break even at 215K or 322K units. Unless you have a white hot title, selling 10-15K units a day for a few weeks isn’t going to happen. There’s too much risk.

Don’t make excuses. Produce apps that are worth more than $0.99 and people will buy them. Not as many people, of course, but that is just simple supply and demand. At $1 people who may not have any need for an application will buy it anyway, just to check it out or “just in case I need it one day.” But at $4 dollars you’ll lose nearly all of those folks.

I would hope that a developer would understand that they can’t sell the same quantity at higher prices. How many people own the free application Firefox? Everyone needs a browser and it is free. It gets downloaded like like it is porn, as of July 2nd Firefox 3 was downloaded 28,340,281 times. How many units of Adobe’s $1,800 Design Premium do you think have sold? Is ten percent of Firefox’s downloads (2,234,028) too optimistic? I think so. How many people need a full design suite? How many need it badly enough that paying almost $2000 is necessary? If the price was $20 I bet you a Zune that Design Premium would be sitting (unused) on way more computers.

But this is old news. What’s the real problem? The answer is simple. Most of the apps in the iTunes store are crap. People are hesitant to pay $10 or more for an application that has only screen shots and a few shoddy reviews after seeing so much garbage. Applications are not mature on the iPhone / iPod Touch yet. Worse is that developers don’t seem to have many worries about releasing (and often charging for) applications that are still in beta stages. Worse still is that many of these stay in beta stage.

I finally purchased my first game for my iPod Touch. At $8 I Love Katamari seemed like a steal. However after downloading it I discovered the game has bugs that make it unplayable and now I see that it is the developers who were stealing, not me. On the other hand, even though it has its flaws I feel that the $20 I spent on the Japanese dictionary called (you guessed it) Japanese was worth it. Though even that application is not to the standard that I would ask of a desktop app. I bought it because it was the best option and has the potential to be worth the price I paid.

My challenge to developers like Craig Hockenberry, put up or shut up. Don’t give us excuses why you are putting out crap. Don’t blame users and talk about us like we are pets that need to be trained. Put out something that is compelling enough to buy.

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Please Ignore iPhone 3G Component Cost Reports

I’ve been seeing an increase in the number of “reports” [1] [2] about the new iPhone component cost. People seem to think this is some sort of useful information. It isn’t. Having only component costs is pointless. But what’s worse is that these reports are just an imaginary breakdown with a guess at the components and their prices. This makes it completely silly. Even if you had all that information it would still be pointless until products begin to magically do the following all by themselves:

  • research and develop
  • license technologies used in it
  • assemble
  • package
  • ship
  • store
  • promote
  • sell

component cost is just a fraction of a significantly bigger number. It might be useful if you have a good idea about the costs for the above, but considering no one has actually broken down an iPhone yet these reports are a bit hasty and most likely misinformation.

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Apple's World-Wide Pricing

Will Green has created a listing of word-wide prices for a few Apple products and a comparison on their cost to US Customers. I was wondering about this myself recently. So it was nice to see. Of course, the reason for these differences is that Apple is an America company and the prices for the rest of the world try to account for what they would like to get for their products in US dollars and the fluxuation in the exchange rate. I’m interested in how well they account for it. I’d assume that the American price is what they’d like to get on average so a history of how close they’ve come would show how effective their economists are at guessing prices for the products. To see that you’d probably need a full year at minimum of the highs and lows of the dollar versus each currency plus the average. Even then that might not be enough, I don’t know enough about the stores in the rest of the world, do they prices change yearly even? Or is it every few years or is it more sporadic? That could make a difference.

For instance looking at a Mac Pro on the site:
$2499 USD
¥304,571
$2,529.75 USD – Cost based on 6 month average exchange rate for yen in Japan

But it gets interesting to me when more statistics get added in. From what I can tell using Google Finance:
$2,688.14 USD – Current price for Japan (based on the exchange rate at the end of the day 2007.Sep.11)
$2,456 USD – Year’s low price for Japan (approx.)
$2,695 USD – Year’s high price for Japan (approx.)

I’d really like to see a whole history and analysis of their world wide pricing.

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