The App Store Price Wars – Will the iPhone App Economy Succumb Under Its Own Weight?

News | Monday October 12 2009 1:16 PM | Comments (0) Tags: , , , , , , , ,

Here are some pricing numbers: Zagat's premium To Go guides costs $48 a year on Windows Mobile. On the iPhone , it only costs $10. Another navigation app, CoPilot 7 was launched at $200 on Windows Mobile. On the iPhone it costs a measly $35. There are several examples like this where the
of software are being sold at a much lesser price than the original price elsewhere.
Why is this happening? There are primarily two causes. Firstly, the iPhones have amassed a high volume captive audience who are now known to be voracious app consumers. There are over 50 million iPhone users who have downloaded an average of 35 apps – approximately
. At such high levels of app consumption, the app developers are tempted to play the volumes game expecting a high rate of download that can offset their discounted price per software. It does make sense sometimes when $0.99 apps make much more overall revenue than the slower selling $30 iPhone apps.
A second reason behind the cheaper pricing is the way app developer get visibility. With close to 85,000 apps now on the
, it is not very easy to capture the iPhone users' eyeballs. Also, with Apple only ranking the iPhone apps based on the number of downloads rather than the overall revenue made, it is only the low priced apps playing on volumes that get to make it to the top ten list more frequently. It recently added the Top Crossing iPhone apps recently, but I would be surprised if users download an iPhone app based on that list when you already have the Top Paid Apps list.
All this has led the app developers to a point of no return where even those genuinely seeking a price rise due to improved features or higher production costs are vilified. Gokivo, an iPhone app that launched at $10 had higher range of features than its rival MotionX GPS Drive, which was priced at $3. Despite the additional features, the app faced huge criticism and was forced to bring down its prices to $5; which in his words has highly damaged the pricing for the entire segment.
So, what is the long term effect on the app economy? One possible eventuality is that iPhone app developers who cannot survive the price wars will have to eventually move out – a lesser competition could then drive the costs up by a little margin which can improve the situation. But that is unlikely to happen in a marketplace such as the App Store which is all but an unchartered territory. As developers leave, more developers shall join in with higher volumes of iPhones sold. This makes it plausible for the price wars to continue.
The problem does not stop with Apple .
for other manufacturers who have relatively lesser volumes to show as of now are trapped in a catch-22 situation. For instance, Palm users might expect the apps to be priced on the same lines as what is available on the iPhone . However, with lesser volumes at play, app developers might not get sufficient returns at low costs.
The future of the app economy does look hazy to an extent.Do you think it is time the industry sit up to take notice of this downward trend and take corrective measures or should iPhone app developers leave it to the marketplace to figure out the right price for their iPhone apps as it offers them a huge market, which is not available in any other mobile platform? What are your thoughts? Please let us know your thoughts in the comments section.

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