12 ms·

Stop selling your Software for Peanuts

98 points by irrlichthn 13y ago

RyanZAG 13y ago
Great point.. unfortunately, he's giving away his Darkness Springs games for literally nothing, completely destroying the market for indie games while also completely destroying his message. He seems to be very much part of the problem.
- irrlichthn 13y ago
  You are right there, but I blogged about why I made the game free here: http://www.irrlicht3d.org/pivot/entry.php?id=1367 http://www.irrlicht3d.org/pivot/entry.php?id=1367 I even posted the sales details: http://www.irrlicht3d.org/pivot/entry.php?id=1370 http://www.irrlicht3d.org/pivot/entry.php?id=1370 In short, after 5 years, the game makes more money through ads when it is free, in contrast to selling the game directly.
  - RyanZAG 13y ago
    While it might be better for you to just make it free, it's obviously worse for the market as a whole. The people you're complaining about on the app stores have the exact same excuses - they tried to sell it, few people bought it, so they just made it free. Now everyone expects it to be free. So their next app and your next app now need to be free, too. It's actually worse than that - it looks like your primary customers would be game developers (you're selling editors for 3D apps, javascript webgl, audio libraries, etc). This means that you are directly competing in your customers' market with a free product that you are supporting from the money your customers are giving you. You're de-valuing their market while using proceeds from them to de-value it further. Woops!
    - irrlichthn 13y ago
      Well, it's a 2D game (my products are usually for 3D), but you have a point there. I was primarily writing about the app stores, and it is a web game, but you are basically right. Never though about that.
  - chaz 13y ago
    The amount of money you make from the ads is irrelevant to the consumer. They still see the price as $0.
  - bsaul 13y ago
    "In short, after 5 years, the game makes more money through ads when it is free, in contrast to selling the game directly." I suppose that's the secret hope of anybody making an app free, or very low cost. They suppose it's going to be better for everyone in the end, including them.
- flexie 13y ago
  If you are selling products or services where the variable cost is close to zero then free or freemium is an option. Some people will always have the incentive to go free and it makes perfect sense for them. Google and Facebook would be little niche companies if they had charged users for their services: "Buy 100 searches for 3 dollars". Personally, I would have settled for Altavista.
tux1968 13y ago
Yelling into the abyss i fear. It's relatively well accepted economics that product pricing tends toward the marginal value, which for software is near zero. Either need to accept that mass marketing means low margin, or find an under serviced niche where margins can be higher.
- lenazegher 13y ago
  >It's relatively well accepted economics that product pricing tends toward the marginal value, which for software is near zero. Do you perhaps mean the marginal cost? I don't see any reason that the marginal value to the consumer of software would be near-zero. In any case, I'm not sure I agree - the marginal cost of AAA video games is near-zero, but the market price is $40-$60.
  - drewcrawford 13y ago
    > I don't see any reason that the marginal value to the consumer of software would be near-zero. If you look at the top 10 paid apps in the iOS app store, 9/10 are games. In a sufficiently large market, games are interchangeable; I might equally prefer hundreds of games. As long as at least one of those games is free, the marginal value of some particular game to me is zero. Now this may not be true for example when considering applications used for business, that provide perhaps a lot of value. But these represent just a tiny fraction of the overall market, which is mostly games and other mass-market, interchangeable software. It is large in absolute terms of course; that is how a great many developers make their living. But it is very small relative to the overall ecosystem, so it is fair to characterize most purchases as having essentially no marginal value.
    - coolsunglasses 13y ago
      The games on iOS are interchangeable because they're awful and barely register as 'games'.
      - Samuel_Michon 13y ago
chj 13y ago
Pricing is indeed a hard problem. Given the competitive nature of App Store, you can't raise price on your own. People have been used to cheap apps. One solution is paid update.
agilebyte 13y ago
Maybe a product can serve as an advertisement for your services/company? So instead of selling a product for its "proper" price one, trying to break into a market, saves on ads and "spends" it on making a product that is free/too cheap?
quackerhacker 13y ago
Pricing models need to be tailored to the target demographic, volume expectations, and market saturation. While some apps which provide great functionality (logmein, spashtop, ect.) these are targeted to adults and the competition is bleak, the pricing models can't be compared to certain games or apps (like angry birds, flashlight, ect.).
huhtenberg 13y ago
This should really be supplemented with demo/free versions so that people would have a chance to try things out before shelling out 10x the average AppStore price. When I am looking to download a new app, I can never tell from the description and screenshots if it's good or not, so the question is always - "What if it's crap". With an app that costs 0.99, the answer is simple - "Let's try it and see", so it's effectively a very cheap trial ... that just happens to come with a free full version. I would've readily paid more for latter, but I already got it and it was free, so what's not to like. This is why in-app upgrades would seem a natural way to convert people who like your app into paying customers. Let everyone kick the tires and let those who like it move on to a full version. tl;dr - Indeed start charging more, but through in-app upgrades.
- eugenesia 13y ago
  Yes that's true - in fact there are multiple strategies that can be employed when monetising an app, neatly summarised in this TechCrunch article: http://techcrunch.com/2012/08/26/how-free-apps-can-make-more-money-than-paid-apps/ http://techcrunch.com/2012/08/26/how-free-apps-can-make-more... The author seems bothered by the multitude of negative reviews and support requests generated by a cheap app. Not all of these are bad - in fact they are real-world user tests and are useful for debugging and improving the app. I propose having a free version for those who want to try out the app, with a caveat that users who need better support and more frequent upgrades should try out the paid app instead.
  - flyinRyan 13y ago
    That's a nice proposal but the reality is, those who get the app for free will be more likely to request support than those who pay for it.
- interpol_p 13y ago
  Apparently games with demos sell worse — seeing half the sales of their non-demo counterparts. http://www.eurogamer.net/articles/2013-02-11-games-without-demos-sell-better-on-xbox-360 http://www.eurogamer.net/articles/2013-02-11-games-without-d... (Though it only looks at xbox 360 games)
drdaeman 13y ago
Which market's destruction he's talking about? Overall software market? Mobile app market? Game market? Indie game market? From a consumer point of view, I fail to see any signs of destruction on any of them. It's exactly the opposite, they seem to me as growing and constantly expanding.
zokier 13y ago
This somehow reminds me of the notorious "Open Letter to Hobbyists" by Bill Gates http://en.wikipedia.org/wiki/Open_Letter_to_Hobbyists http://en.wikipedia.org/wiki/Open_Letter_to_Hobbyists
dylangs1030 13y ago
The author has a really good point here, but it's not realistic advice for a lot of mobile developers. As much as I'd love to agree on principle, I don't think it'll happen with the app stores' current incarnations. There are several problems that prevent this from being actionable for most devs: 1. The barrier to entry is consistently getting lower, not higher. It's no longer particularly difficult to deploy an app - either learn to design and build it, or pay people to do that for you. It's never been easier to put yourself out there as a mobile developer. 2. This isn't marketing enterprise software to employees with spending access to sizable company budgets. This is marketing small applications of limited practical value (i.e. almost every mobile game) to people with limited wealth without much in the way of customer support. People are shrewd about their software nowadays - yes, they are more willing to spend their money on a Starbucks coffee than an app, and you can argue the existential implications and idiocy of this all you want, it's still what they're willing to do with their money. 3. The markets are too large. They're saturated with crap and quality alike and it's insanely difficult to get noticed. If you are making a game, weather, networking, camera, utility or entertainment app, you've got the deck stacked against you. These are released en masse every single day by teams of developers. Because of this, it's a race to the bottom and quality becomes undervalued. This is, as always, supply and demand. 4. A lot of the app store is an old boys' club, and the way to get in front of a wide range of users is broken. If you have a reputable team behind you, a large company's backing and you do a lot of marketing, this will not be an issue for you. But that's not most developers. Most developers will struggle to swim upstream in vain just to get noticed in one of the "Top ___" lists. They might get a faint spotlight at #25 before being thrown back into the depths of the app store like a rejected fish on a line. It gives the term "starving artist" a new meaning. I mean, I don't want to be cynical. I'm all in favor of developers not underselling themselves. But I think you have to do a lot more than just tell people to adjust their prices when you have all the aforementioned forces working against them. I can see that in some cases selling your mobile software for more leads to nice benefits, like less of a customer support headache, requiring fewer purchases, etc. But that's not possible for most devs because most apps couldn't reasonably be priced at 30 euros. A really high quality audio or business app could be, sure. But that indie game house? No, that advice doesn't help them.
- rlpb 13y ago
CitizenKane 13y ago
I think it's very simple, you should probably simply charge more. See http://www.kalzumeus.com/2013/04/24/marketing-for-people-who-would-rather-be-building-stuff/ http://www.kalzumeus.com/2013/04/24/marketing-for-people-who... under "The Most Important Pricing Advice Ever: Charge. More."
- dylangs1030 13y ago
  It's never going to be simple because the market isn't an ideally functioning organism. 'patio11 makes great points, but his advice is mostly actionable for desktop software and web applications, which are a completely different beast than mobile apps. Mobile applications won't sell at high prices unless they have a real core competency that solves a real need that doesn't exist yet - indie games and to-do list apps have little hope of achieving that kind of benefit. Aside from that, there is such a low barrier to entry that they need that kind of incredible edge over the competition to survive at high prices. Take a look at the high-priced apps and you'll notice a trend - they're typically not games/entertainment/weather/"fun" apps. They're real tools that can be used in production or they're productivity suites.
fhd2 13y ago
I fully agree with this, although I'm more pessimistic: I don't believe that we can force our way out of this. It might work, for a while, for small teams that already have a community and sufficient loyal customers. (I'll specifically talk about games, for which this is in my opinion most severe.) Developers have jumped right into a downwards spiral: Everyone really just tries to make money - when all else fails by being cheaper then the competition. That's rather natural and happens on all markets. However, games do not have any intrinsic value, so they can go all the way down to 0. At some point, games won't have any value left in the eyes of consumers - something we're awfully close to. But the bills still need paying. So customers are increasingly being tricked into spending money ("free to play", "micro transactions" etc). As someone who makes and enjoys games, this makes me sad. Unless we manage to revert that spiral, making a living from games will soon mean to build some kind of more-addictive-than-pleasant things more akin to market places and chat platforms than games. And as a gamer, I don't want to touch these things. I don't want to whine, I want to see the positive side. I just can't find it lately.
- dylangs1030 13y ago
  The race to the bottom is everywhere, but you're right in that it's most apparent in games. As always, developers are not necessarily savvy in business. Common sense suggests that undercutting competition with lowered prices will drive market share upwards, eventually beating them out. This is a desperation move, and one that only ever works in the short term, if it does at all. The truth is the race to the bottom exists because this kind of tactic is deployed by everyone in response to everyone else. But it will only work as a calculated move that crunches the numbers to find a sweet spot. Reducing your game from $5 to $1 might get a lot more customers, but you'll need to increase your user base fivefold just to match your previous revenue. That's not realistic in most cases. It's the same logic that people without a real edge mistakenly employ when they say they'll disrupt an industry by taking something really valuable and making it both better and free. It's not sustainable, but everyone does it.
  - fhd2 13y ago
    Yes, this behaviour is certainly not limited to games. However, other software makers seem to cope by moving to SaaS and ads somewhat successfully. Ads in games haven't really proven themselves, and I'd personally hate it.
nemesisj 13y ago
This is a non-businessman's response to a non-businessman's problem. Pricing should be based on the value a customer receives for your product, regardless if it "feels" or "seems" expensive. Instead of asking everyone else to raise their prices, why not demonstrate more value to your users or educate them on why the pricing is the way it is? Or maybe, the value being experienced by his users just isn't worth the price he's charging.
- fhd2 13y ago
  "The value a customer receives from a product" is somewhat hard to define for games. So I'd argue there's only a perceived value. And large parts of the industry are working hard to drive that perceived value down. What he does is charge more, so that he has fewer, more pleasant customers paying more. And it works out for him financially. Seems like a businessman to me.
  - nemesisj 13y ago
    There is really no difference between perceived value and value. I'd bet that his sales of his app follow a supply demand curve almost perfectly. I'm not sure if that makes him a businessman, but what certainly won't work is advocating some kind of "minimum price cartel" that agrees that "higher prices are deserved".
    - Silhouette 13y ago
      There is really no difference between perceived value and value. If that were true, a large part of the marketing profession wouldn't exist. Marketing is mostly about figuring out what has actual value to the market so you can build something valuable, and then presenting that something to the market such that hopefully the perceived value does reflect the actual value so they go ahead with a purchase. The second part is much harder if you're in a crowded market and your competition are pitching low than it is if you can get your potential customers to focus on your own offer in isolation. In the case of selling professional or high-end software via mobile app stores, we concluded a long time ago that the WarGames principle usually applies. Alternative business models, such as giving away free mobile apps used to access resources that are purchased independently, or going Web-based rather than mobile-based, seem to be much more reasonable bets commercially in the current environment.
motters 13y ago
It's a valid point. Putting months of engineering effort into something which sells for 1-3 dollars is economically illiterate unless you expect to sell thousands of copies. Considering the very niche nature of many apps, selling in large volumes is not something which could typically be expected to happen. Of course if you then expect to be able to sell ancillary services around your $1-3 app, as a sort of loss leader, then it's a different matter.
sirwitti 13y ago
I guess this is a "normal" reaction of a crowded market. Everybody wants to earn money and tries what works best. Many musicians have quite similar problems: They can play for free or some other band which is even more desperate to get a gig will play. I personally try to keep away from priceless markets (though being a musician too). The only way I know to handle this is delivering the best quality I can and finding customers who want/appreciate this.
laumars 13y ago
I have a few problems with the article: 1. Two of the authors arguments for higher prices is "more intelligent users" and "less support queries". Those strike me as incredibly snobby reasons to set a price tag. In the case of the latter, if you're selling software then you have to be expected to support it (I know customer support is an absolute pain - I hate it as much as the next person. But think about things from the consumers perspective. You'd be pretty pissed off if you've paid for a product that doesn't appear to work for you and you're clueless about how to fix it). As for the "more intelligent users" remark - I think that level of selective pricing is just disgusting. 2. The article neglects to mention that there's room for two different business models: free versions subsidised by ads and non-free but without adverts. While it sounds like the author does have an ad subsided free app on the market despite his arguments about the merits of premium versions, quite a few publishers seem happy to release against both business models concurrently (ie they'll have both a free and a premium version available). I don't have figures about how successful that strategy is (if anyone else does, I'd be interested to read them), but I think the theory of that works rather well as you're combating the piracy / freeloader issue with the ad subsidised versions and have a premium version available for the aforementioned snobs and those who just hate adverts. 3. The whole article amounts to little more than price fixing and arguments against a free market. The very reason prices are so low is because the market is saturated so developers undercut each other to get sales. If the author doesn't like that, then perhaps he should switch to a market that isn't saturated rather than demanding that everyone is owed financial reward for their work - even if their product is unoriginal and available "ten to the dozen". This might sound harsh, but it's little different to any other industry. eg if everyone became window washers tomorrow, there would be more people washing windows than there would be houses with windows needing washing - so the whole market would collapse. And it's a similar case in mobile app industry, the market is far to saturated to guarantee every developer a decent wage. I hate being negative like this, but I'm so sick and tired about hearing people moan that they're not earning as much as they think they should be while working in a saturated market. And the remarks about tailoring his prices to the "intelligent" was just unnecessary in my opinion.
- deleted 13y ago
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babuskov 13y ago
I read a similar article about 3 months ago and decided to give it a try. Raising price gave me less total income. Here are the details: I have a product called Attic Manager (guacosoft.com/attic) which is a home inventory software with unique feature on the market - it is able to import database from all versions Quicken Home Inventory programs. Currently, it is only product on the market that does that (probably because it is not so easy to do, I spent months reverse engineering their custom file format). I used to sell it for $19.99 and got about 30 orders per month consistently in the past 3 years. That's around $600 per month gross (my actuall earnings are lower, because of payment gateway cut, but that is irrelevant here because it's fixed percentage of gross price anyway). After reading that "you should charge more", I upped the price to $29.99, a 50% increase. The experiment is still going on, but in the past 3 months I got only 42 orders. That's 14/month. 14*$30 is $420 per month, or 43% less than before. So, all the "you should raise you prices" is just an idea to consider and maybe test, but I wouldn't trust it blindly.
- Ma8ee 13y ago
  I don't think your example contradicts this article vey much. Your program already had a relatively high price (compared with most items in the app stores), and it will obviously always be point where an increased price will hurt sales. The article was directed to those that priced their software peanuts, like $2, and should raise their price to $10 or $20.
- Spooky23 13y ago
  I'm not an expert in this area, but I think you have a different opportunity than most. People who are maintaining Quicken Home Inventory data to the point that they need to keep the data are hardcore users. They have data that is valuable and they are using software that really sucks. A better alternative has to be worth $30, but might need some marketing support or some bundling with other solutions that users who keep home inventories need.
- wikwocket 13y ago
  Kudos to you for trying the experiment, and reporting some findings. As Lord Kelvin said, "If you can not measure it, you can not improve it."
wisty 13y ago
http://gigaom.com/2011/04/21/the-average-ios-app-publisher-isnt-making-much-money/ http://gigaom.com/2011/04/21/the-average-ios-app-publisher-i... So, the magic numbers seem to be $5.99, and $8.99 for games, and $5.99 or $6.99 for non-games. That's old data from 2011; but it makes sense. "A few bucks" has a similar transaction cost (is it worth actually paying for?) as a $0.99 game, when you compare them to "free". Though I bet if you charge any money (even 0.99) for a game with IAP, you've already convinced them to open their wallets. I'd love to see more recent data, but I can't see how "undercutting" the competition is worth it. Unless there's a network effect (spamming friends) ... why would you want 3X the sales, and half the revenue?
anuraj 13y ago
Price discovery is an outcome of demand-supply situation and information asymmetry. Optimum price x can be derived by optimizing function f(x*n) where x is the price and n is the number of users willing to pay that price. So the approaches are: 1) Experiment with a sample population to determine 'x' 2) Use heuristics about existing similar software to reach a price point The point is many developers are just not looking at maximizing their earning potential.
stefantalpalaru 13y ago
Maybe copies of a generic piece of software are really worth 1-3 euro in this market. Why inflate the prices artificially?
Unosolo 13y ago
I regularly see developers going out of business because they are not charging enough. I have been doing software consulting for the past six years and I charge higher rate than anyone else I met in the niche. The ex-contractors I had a chance to talk to don't describe becoming a permanent employee as "going out of contracting business". The reasons they usually cite for ceasing consulting: - anxiety about not being able to get a next contract - additional paperwork, unpaid administrative overhead - dwindling of contract work stream - unpaid travel They tend to underestimate the volatility and added overhead of contract work compared to permanent positions and they do not charge enough to cover the risks and extra expense. A lot of the newly born contractors stay in the business as long as the initial client keeps extending them and fail to build a business. The nature of their business is opportunistic and the business dies once the first serious obstacle is met. In my opinion they fail to realise the importance of negotiating a thicker margin that serves as a tool and motivation to overcome many hurdles that are otherwise smoothed by employer. A thicker margin provides business continuity and a long-term win for the customers. I can see clear parallels with selling apps. Sexy apps might be given away for free, as there are plenty of competing developers some of whom are attracted by vanity. However, charging more means getting higher quality customers who self-select based criteria you set and advertise and will help build a more stable, healthy business.
Nursie 13y ago
I'd quite like it if my fellow developers in the UK would stop charging so damn little for their services too, salaries in this country are comparatively depressed compared to North America or Australia, yet we still have the constant bleating from business about lack of available talent. You would think that this would result in higher salaries as engineers are in high demand, but no...
- flyinRyan 13y ago
  Much of that bleating is just posturing. They know they could get plenty of talent if they paid for it, but they'd rather outsource. For outsourcing you usually have to show that you can't find talent in-country so companies do all kinds of tricks to make sure they can't fill the positions and can outsource the job.
mmcnickle 13y ago
Meanwhile, on another HN thread, you have developers baulking at paying $70 for a very good text editor.
- ruswick 13y ago
  This is because the market standard was and is $50. It's of no surprise that developers are reticent to pay inflated prices that aren't in line with comparable products. If everyone else in town is selling coffee for $4 per cup, even the rich people won't patronize a store selling it for $5.
- snuxoll 13y ago
  It's all about perceived value, which is ironically the point the post is trying to discuss. People seem to not think they are getting $70 from their text editor, that they use on a daily basis, often for commercial purposes.
belorn 13y ago
A large reason why software prices are so low is because software developers are not legal liable when they push out products that breaks, destroy information, spy/steals information, or might simply not even start up. In almost any other market, producing such product would land you in jail, or at least sued to the point of bankruptcy. Imagine a car dealer which sells car that are nearly without bugs, but occasionally you loose steering or breaks. Or what about a children toy that crumble to dust once the box is opened because the manufacture process had some "bugs" in them. Cheap or expensive, people expect physical objects to work and not be broken at the point when bought from the store. Apps and software on other hand... is regarded as an risky item. The consumer is liable for the purchase decision when the app is broken, steals information, or simply won't start up. The cheaper the price, and even fewer will try to ask for a refund. Add some liability risk for the developer, and the market saturation will decrease, prices will go up, and developers who spends actually effort and time into their work will be paid.
dkrich 13y ago
What he's talking about is cost-based pricing and it is usually a bad idea. For those who don't know, it essentially involves taking the costs associated with producing a product (in his case, his time) and marking up the cost to some amount above that to ensure sufficient margins. The fact is that when people buy a product they don't really care about what it cost you to produce, they care about what value they can extract from it. A classic example of this is the fragrance market, where people routinely pay $80 for a 2.5 ounce bottle of cologne that cost less than two dollars to produce. They do this because they imagine it will make them more attractive, so to them, $80 is a small price to pay and don't really care about the markup. Some businesses can mark software up higher and higher and increase sales and profits because they are providing a large value proposition in the form of huge time savings, more sales, etc. Because he only mentioned the time he invested and the existing bottom-of-the-barrel pricing as the reasons all software shops should raise prices, I have to say his logic is mostly flawed.
segmondy 13y ago
The price has nothing to do with it. Sell your calculator app for $20, and some kid in a third world country will gladly sell his for 99cents. His 99cents has the equivalent buying power of your $20. How can you compete with that? You can't compete on price, you have to compete on being different and value. That way, even if you sold for peanuts, you will have so many users that you can still make a lot of money. I rather sell millions of apps at 99cents each than 100 at $100 each.
- badclient 13y ago
  I rather sell millions of apps at 99cents each than 100 at $100 each. Talk about a false dichotomy.
- babuskov 13y ago
  I'd rather sell millions of apps for $100 each. - Bill Gates ;)

98 points by irrlichthn 13y ago

Great point.. unfortunately, he's giving away his Darkness Springs games for literally nothing, completely destroying the market for indie games while also completely destroying his message. He seems to be very much part of the problem.

irrlichthn 13y ago
You are right there, but I blogged about why I made the game free here: http://www.irrlicht3d.org/pivot/entry.php?id=1367 http://www.irrlicht3d.org/pivot/entry.php?id=1367 I even posted the sales details: http://www.irrlicht3d.org/pivot/entry.php?id=1370 http://www.irrlicht3d.org/pivot/entry.php?id=1370 In short, after 5 years, the game makes more money through ads when it is free, in contrast to selling the game directly.
- RyanZAG 13y ago
  While it might be better for you to just make it free, it's obviously worse for the market as a whole. The people you're complaining about on the app stores have the exact same excuses - they tried to sell it, few people bought it, so they just made it free. Now everyone expects it to be free. So their next app and your next app now need to be free, too. It's actually worse than that - it looks like your primary customers would be game developers (you're selling editors for 3D apps, javascript webgl, audio libraries, etc). This means that you are directly competing in your customers' market with a free product that you are supporting from the money your customers are giving you. You're de-valuing their market while using proceeds from them to de-value it further. Woops!
  - irrlichthn 13y ago
    Well, it's a 2D game (my products are usually for 3D), but you have a point there. I was primarily writing about the app stores, and it is a web game, but you are basically right. Never though about that.
- chaz 13y ago
  The amount of money you make from the ads is irrelevant to the consumer. They still see the price as $0.
- bsaul 13y ago
  "In short, after 5 years, the game makes more money through ads when it is free, in contrast to selling the game directly." I suppose that's the secret hope of anybody making an app free, or very low cost. They suppose it's going to be better for everyone in the end, including them.
flexie 13y ago
If you are selling products or services where the variable cost is close to zero then free or freemium is an option. Some people will always have the incentive to go free and it makes perfect sense for them. Google and Facebook would be little niche companies if they had charged users for their services: "Buy 100 searches for 3 dollars". Personally, I would have settled for Altavista.

tux1968 13y ago

Yelling into the abyss i fear. It's relatively well accepted economics that product pricing tends toward the marginal value, which for software is near zero. Either need to accept that mass marketing means low margin, or find an under serviced niche where margins can be higher.

lenazegher 13y ago
>It's relatively well accepted economics that product pricing tends toward the marginal value, which for software is near zero. Do you perhaps mean the marginal cost? I don't see any reason that the marginal value to the consumer of software would be near-zero. In any case, I'm not sure I agree - the marginal cost of AAA video games is near-zero, but the market price is $40-$60.
- drewcrawford 13y ago
  > I don't see any reason that the marginal value to the consumer of software would be near-zero. If you look at the top 10 paid apps in the iOS app store, 9/10 are games. In a sufficiently large market, games are interchangeable; I might equally prefer hundreds of games. As long as at least one of those games is free, the marginal value of some particular game to me is zero. Now this may not be true for example when considering applications used for business, that provide perhaps a lot of value. But these represent just a tiny fraction of the overall market, which is mostly games and other mass-market, interchangeable software. It is large in absolute terms of course; that is how a great many developers make their living. But it is very small relative to the overall ecosystem, so it is fair to characterize most purchases as having essentially no marginal value.
  - coolsunglasses 13y ago
    The games on iOS are interchangeable because they're awful and barely register as 'games'.
    - Samuel_Michon 13y ago

chj 13y ago

Pricing is indeed a hard problem. Given the competitive nature of App Store, you can't raise price on your own. People have been used to cheap apps. One solution is paid update.

agilebyte 13y ago

Maybe a product can serve as an advertisement for your services/company? So instead of selling a product for its "proper" price one, trying to break into a market, saves on ads and "spends" it on making a product that is free/too cheap?

quackerhacker 13y ago

Pricing models need to be tailored to the target demographic, volume expectations, and market saturation. While some apps which provide great functionality (logmein, spashtop, ect.) these are targeted to adults and the competition is bleak, the pricing models can't be compared to certain games or apps (like angry birds, flashlight, ect.).

huhtenberg 13y ago

This should really be supplemented with demo/free versions so that people would have a chance to try things out before shelling out 10x the average AppStore price. When I am looking to download a new app, I can never tell from the description and screenshots if it's good or not, so the question is always - "What if it's crap". With an app that costs 0.99, the answer is simple - "Let's try it and see", so it's effectively a very cheap trial ... that just happens to come with a free full version. I would've readily paid more for latter, but I already got it and it was free, so what's not to like. This is why in-app upgrades would seem a natural way to convert people who like your app into paying customers. Let everyone kick the tires and let those who like it move on to a full version. tl;dr - Indeed start charging more, but through in-app upgrades.

eugenesia 13y ago
Yes that's true - in fact there are multiple strategies that can be employed when monetising an app, neatly summarised in this TechCrunch article: http://techcrunch.com/2012/08/26/how-free-apps-can-make-more-money-than-paid-apps/ http://techcrunch.com/2012/08/26/how-free-apps-can-make-more... The author seems bothered by the multitude of negative reviews and support requests generated by a cheap app. Not all of these are bad - in fact they are real-world user tests and are useful for debugging and improving the app. I propose having a free version for those who want to try out the app, with a caveat that users who need better support and more frequent upgrades should try out the paid app instead.
- flyinRyan 13y ago
  That's a nice proposal but the reality is, those who get the app for free will be more likely to request support than those who pay for it.
interpol_p 13y ago
Apparently games with demos sell worse — seeing half the sales of their non-demo counterparts. http://www.eurogamer.net/articles/2013-02-11-games-without-demos-sell-better-on-xbox-360 http://www.eurogamer.net/articles/2013-02-11-games-without-d... (Though it only looks at xbox 360 games)

drdaeman 13y ago

Which market's destruction he's talking about? Overall software market? Mobile app market? Game market? Indie game market? From a consumer point of view, I fail to see any signs of destruction on any of them. It's exactly the opposite, they seem to me as growing and constantly expanding.

zokier 13y ago

This somehow reminds me of the notorious "Open Letter to Hobbyists" by Bill Gates http://en.wikipedia.org/wiki/Open_Letter_to_Hobbyists http://en.wikipedia.org/wiki/Open_Letter_to_Hobbyists

dylangs1030 13y ago

The author has a really good point here, but it's not realistic advice for a lot of mobile developers. As much as I'd love to agree on principle, I don't think it'll happen with the app stores' current incarnations. There are several problems that prevent this from being actionable for most devs: 1. The barrier to entry is consistently getting lower, not higher. It's no longer particularly difficult to deploy an app - either learn to design and build it, or pay people to do that for you. It's never been easier to put yourself out there as a mobile developer. 2. This isn't marketing enterprise software to employees with spending access to sizable company budgets. This is marketing small applications of limited practical value (i.e. almost every mobile game) to people with limited wealth without much in the way of customer support. People are shrewd about their software nowadays - yes, they are more willing to spend their money on a Starbucks coffee than an app, and you can argue the existential implications and idiocy of this all you want, it's still what they're willing to do with their money. 3. The markets are too large. They're saturated with crap and quality alike and it's insanely difficult to get noticed. If you are making a game, weather, networking, camera, utility or entertainment app, you've got the deck stacked against you. These are released en masse every single day by teams of developers. Because of this, it's a race to the bottom and quality becomes undervalued. This is, as always, supply and demand. 4. A lot of the app store is an old boys' club, and the way to get in front of a wide range of users is broken. If you have a reputable team behind you, a large company's backing and you do a lot of marketing, this will not be an issue for you. But that's not most developers. Most developers will struggle to swim upstream in vain just to get noticed in one of the "Top ___" lists. They might get a faint spotlight at #25 before being thrown back into the depths of the app store like a rejected fish on a line. It gives the term "starving artist" a new meaning. I mean, I don't want to be cynical. I'm all in favor of developers not underselling themselves. But I think you have to do a lot more than just tell people to adjust their prices when you have all the aforementioned forces working against them. I can see that in some cases selling your mobile software for more leads to nice benefits, like less of a customer support headache, requiring fewer purchases, etc. But that's not possible for most devs because most apps couldn't reasonably be priced at 30 euros. A really high quality audio or business app could be, sure. But that indie game house? No, that advice doesn't help them.

rlpb 13y ago

CitizenKane 13y ago

I think it's very simple, you should probably simply charge more. See http://www.kalzumeus.com/2013/04/24/marketing-for-people-who-would-rather-be-building-stuff/ http://www.kalzumeus.com/2013/04/24/marketing-for-people-who... under "The Most Important Pricing Advice Ever: Charge. More."

dylangs1030 13y ago
It's never going to be simple because the market isn't an ideally functioning organism. 'patio11 makes great points, but his advice is mostly actionable for desktop software and web applications, which are a completely different beast than mobile apps. Mobile applications won't sell at high prices unless they have a real core competency that solves a real need that doesn't exist yet - indie games and to-do list apps have little hope of achieving that kind of benefit. Aside from that, there is such a low barrier to entry that they need that kind of incredible edge over the competition to survive at high prices. Take a look at the high-priced apps and you'll notice a trend - they're typically not games/entertainment/weather/"fun" apps. They're real tools that can be used in production or they're productivity suites.

fhd2 13y ago

I fully agree with this, although I'm more pessimistic: I don't believe that we can force our way out of this. It might work, for a while, for small teams that already have a community and sufficient loyal customers. (I'll specifically talk about games, for which this is in my opinion most severe.) Developers have jumped right into a downwards spiral: Everyone really just tries to make money - when all else fails by being cheaper then the competition. That's rather natural and happens on all markets. However, games do not have any intrinsic value, so they can go all the way down to 0. At some point, games won't have any value left in the eyes of consumers - something we're awfully close to. But the bills still need paying. So customers are increasingly being tricked into spending money ("free to play", "micro transactions" etc). As someone who makes and enjoys games, this makes me sad. Unless we manage to revert that spiral, making a living from games will soon mean to build some kind of more-addictive-than-pleasant things more akin to market places and chat platforms than games. And as a gamer, I don't want to touch these things. I don't want to whine, I want to see the positive side. I just can't find it lately.

dylangs1030 13y ago
The race to the bottom is everywhere, but you're right in that it's most apparent in games. As always, developers are not necessarily savvy in business. Common sense suggests that undercutting competition with lowered prices will drive market share upwards, eventually beating them out. This is a desperation move, and one that only ever works in the short term, if it does at all. The truth is the race to the bottom exists because this kind of tactic is deployed by everyone in response to everyone else. But it will only work as a calculated move that crunches the numbers to find a sweet spot. Reducing your game from $5 to $1 might get a lot more customers, but you'll need to increase your user base fivefold just to match your previous revenue. That's not realistic in most cases. It's the same logic that people without a real edge mistakenly employ when they say they'll disrupt an industry by taking something really valuable and making it both better and free. It's not sustainable, but everyone does it.
- fhd2 13y ago
  Yes, this behaviour is certainly not limited to games. However, other software makers seem to cope by moving to SaaS and ads somewhat successfully. Ads in games haven't really proven themselves, and I'd personally hate it.

nemesisj 13y ago

This is a non-businessman's response to a non-businessman's problem. Pricing should be based on the value a customer receives for your product, regardless if it "feels" or "seems" expensive. Instead of asking everyone else to raise their prices, why not demonstrate more value to your users or educate them on why the pricing is the way it is? Or maybe, the value being experienced by his users just isn't worth the price he's charging.

fhd2 13y ago
"The value a customer receives from a product" is somewhat hard to define for games. So I'd argue there's only a perceived value. And large parts of the industry are working hard to drive that perceived value down. What he does is charge more, so that he has fewer, more pleasant customers paying more. And it works out for him financially. Seems like a businessman to me.
- nemesisj 13y ago
  There is really no difference between perceived value and value. I'd bet that his sales of his app follow a supply demand curve almost perfectly. I'm not sure if that makes him a businessman, but what certainly won't work is advocating some kind of "minimum price cartel" that agrees that "higher prices are deserved".
  - Silhouette 13y ago
    There is really no difference between perceived value and value. If that were true, a large part of the marketing profession wouldn't exist. Marketing is mostly about figuring out what has actual value to the market so you can build something valuable, and then presenting that something to the market such that hopefully the perceived value does reflect the actual value so they go ahead with a purchase. The second part is much harder if you're in a crowded market and your competition are pitching low than it is if you can get your potential customers to focus on your own offer in isolation. In the case of selling professional or high-end software via mobile app stores, we concluded a long time ago that the WarGames principle usually applies. Alternative business models, such as giving away free mobile apps used to access resources that are purchased independently, or going Web-based rather than mobile-based, seem to be much more reasonable bets commercially in the current environment.

motters 13y ago

It's a valid point. Putting months of engineering effort into something which sells for 1-3 dollars is economically illiterate unless you expect to sell thousands of copies. Considering the very niche nature of many apps, selling in large volumes is not something which could typically be expected to happen. Of course if you then expect to be able to sell ancillary services around your $1-3 app, as a sort of loss leader, then it's a different matter.

sirwitti 13y ago

I guess this is a "normal" reaction of a crowded market. Everybody wants to earn money and tries what works best. Many musicians have quite similar problems: They can play for free or some other band which is even more desperate to get a gig will play. I personally try to keep away from priceless markets (though being a musician too). The only way I know to handle this is delivering the best quality I can and finding customers who want/appreciate this.

laumars 13y ago

I have a few problems with the article: 1. Two of the authors arguments for higher prices is "more intelligent users" and "less support queries". Those strike me as incredibly snobby reasons to set a price tag. In the case of the latter, if you're selling software then you have to be expected to support it (I know customer support is an absolute pain - I hate it as much as the next person. But think about things from the consumers perspective. You'd be pretty pissed off if you've paid for a product that doesn't appear to work for you and you're clueless about how to fix it). As for the "more intelligent users" remark - I think that level of selective pricing is just disgusting. 2. The article neglects to mention that there's room for two different business models: free versions subsidised by ads and non-free but without adverts. While it sounds like the author does have an ad subsided free app on the market despite his arguments about the merits of premium versions, quite a few publishers seem happy to release against both business models concurrently (ie they'll have both a free and a premium version available). I don't have figures about how successful that strategy is (if anyone else does, I'd be interested to read them), but I think the theory of that works rather well as you're combating the piracy / freeloader issue with the ad subsidised versions and have a premium version available for the aforementioned snobs and those who just hate adverts. 3. The whole article amounts to little more than price fixing and arguments against a free market. The very reason prices are so low is because the market is saturated so developers undercut each other to get sales. If the author doesn't like that, then perhaps he should switch to a market that isn't saturated rather than demanding that everyone is owed financial reward for their work - even if their product is unoriginal and available "ten to the dozen". This might sound harsh, but it's little different to any other industry. eg if everyone became window washers tomorrow, there would be more people washing windows than there would be houses with windows needing washing - so the whole market would collapse. And it's a similar case in mobile app industry, the market is far to saturated to guarantee every developer a decent wage. I hate being negative like this, but I'm so sick and tired about hearing people moan that they're not earning as much as they think they should be while working in a saturated market. And the remarks about tailoring his prices to the "intelligent" was just unnecessary in my opinion.

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babuskov 13y ago

I read a similar article about 3 months ago and decided to give it a try. Raising price gave me less total income. Here are the details: I have a product called Attic Manager (guacosoft.com/attic) which is a home inventory software with unique feature on the market - it is able to import database from all versions Quicken Home Inventory programs. Currently, it is only product on the market that does that (probably because it is not so easy to do, I spent months reverse engineering their custom file format). I used to sell it for $19.99 and got about 30 orders per month consistently in the past 3 years. That's around $600 per month gross (my actuall earnings are lower, because of payment gateway cut, but that is irrelevant here because it's fixed percentage of gross price anyway). After reading that "you should charge more", I upped the price to $29.99, a 50% increase. The experiment is still going on, but in the past 3 months I got only 42 orders. That's 14/month. 14*$30 is $420 per month, or 43% less than before. So, all the "you should raise you prices" is just an idea to consider and maybe test, but I wouldn't trust it blindly.

Ma8ee 13y ago
I don't think your example contradicts this article vey much. Your program already had a relatively high price (compared with most items in the app stores), and it will obviously always be point where an increased price will hurt sales. The article was directed to those that priced their software peanuts, like $2, and should raise their price to $10 or $20.
Spooky23 13y ago
I'm not an expert in this area, but I think you have a different opportunity than most. People who are maintaining Quicken Home Inventory data to the point that they need to keep the data are hardcore users. They have data that is valuable and they are using software that really sucks. A better alternative has to be worth $30, but might need some marketing support or some bundling with other solutions that users who keep home inventories need.
wikwocket 13y ago
Kudos to you for trying the experiment, and reporting some findings. As Lord Kelvin said, "If you can not measure it, you can not improve it."

wisty 13y ago

http://gigaom.com/2011/04/21/the-average-ios-app-publisher-isnt-making-much-money/ http://gigaom.com/2011/04/21/the-average-ios-app-publisher-i... So, the magic numbers seem to be $5.99, and $8.99 for games, and $5.99 or $6.99 for non-games. That's old data from 2011; but it makes sense. "A few bucks" has a similar transaction cost (is it worth actually paying for?) as a $0.99 game, when you compare them to "free". Though I bet if you charge any money (even 0.99) for a game with IAP, you've already convinced them to open their wallets. I'd love to see more recent data, but I can't see how "undercutting" the competition is worth it. Unless there's a network effect (spamming friends) ... why would you want 3X the sales, and half the revenue?

anuraj 13y ago

Price discovery is an outcome of demand-supply situation and information asymmetry. Optimum price x can be derived by optimizing function f(x*n) where x is the price and n is the number of users willing to pay that price. So the approaches are: 1) Experiment with a sample population to determine 'x' 2) Use heuristics about existing similar software to reach a price point The point is many developers are just not looking at maximizing their earning potential.

stefantalpalaru 13y ago

Maybe copies of a generic piece of software are really worth 1-3 euro in this market. Why inflate the prices artificially?

Unosolo 13y ago

I regularly see developers going out of business because they are not charging enough. I have been doing software consulting for the past six years and I charge higher rate than anyone else I met in the niche. The ex-contractors I had a chance to talk to don't describe becoming a permanent employee as "going out of contracting business". The reasons they usually cite for ceasing consulting: - anxiety about not being able to get a next contract - additional paperwork, unpaid administrative overhead - dwindling of contract work stream - unpaid travel They tend to underestimate the volatility and added overhead of contract work compared to permanent positions and they do not charge enough to cover the risks and extra expense. A lot of the newly born contractors stay in the business as long as the initial client keeps extending them and fail to build a business. The nature of their business is opportunistic and the business dies once the first serious obstacle is met. In my opinion they fail to realise the importance of negotiating a thicker margin that serves as a tool and motivation to overcome many hurdles that are otherwise smoothed by employer. A thicker margin provides business continuity and a long-term win for the customers. I can see clear parallels with selling apps. Sexy apps might be given away for free, as there are plenty of competing developers some of whom are attracted by vanity. However, charging more means getting higher quality customers who self-select based criteria you set and advertise and will help build a more stable, healthy business.

Nursie 13y ago

I'd quite like it if my fellow developers in the UK would stop charging so damn little for their services too, salaries in this country are comparatively depressed compared to North America or Australia, yet we still have the constant bleating from business about lack of available talent. You would think that this would result in higher salaries as engineers are in high demand, but no...

flyinRyan 13y ago
Much of that bleating is just posturing. They know they could get plenty of talent if they paid for it, but they'd rather outsource. For outsourcing you usually have to show that you can't find talent in-country so companies do all kinds of tricks to make sure they can't fill the positions and can outsource the job.

mmcnickle 13y ago

Meanwhile, on another HN thread, you have developers baulking at paying $70 for a very good text editor.

ruswick 13y ago
This is because the market standard was and is $50. It's of no surprise that developers are reticent to pay inflated prices that aren't in line with comparable products. If everyone else in town is selling coffee for $4 per cup, even the rich people won't patronize a store selling it for $5.
snuxoll 13y ago
It's all about perceived value, which is ironically the point the post is trying to discuss. People seem to not think they are getting $70 from their text editor, that they use on a daily basis, often for commercial purposes.

belorn 13y ago

A large reason why software prices are so low is because software developers are not legal liable when they push out products that breaks, destroy information, spy/steals information, or might simply not even start up. In almost any other market, producing such product would land you in jail, or at least sued to the point of bankruptcy. Imagine a car dealer which sells car that are nearly without bugs, but occasionally you loose steering or breaks. Or what about a children toy that crumble to dust once the box is opened because the manufacture process had some "bugs" in them. Cheap or expensive, people expect physical objects to work and not be broken at the point when bought from the store. Apps and software on other hand... is regarded as an risky item. The consumer is liable for the purchase decision when the app is broken, steals information, or simply won't start up. The cheaper the price, and even fewer will try to ask for a refund. Add some liability risk for the developer, and the market saturation will decrease, prices will go up, and developers who spends actually effort and time into their work will be paid.

dkrich 13y ago

What he's talking about is cost-based pricing and it is usually a bad idea. For those who don't know, it essentially involves taking the costs associated with producing a product (in his case, his time) and marking up the cost to some amount above that to ensure sufficient margins. The fact is that when people buy a product they don't really care about what it cost you to produce, they care about what value they can extract from it. A classic example of this is the fragrance market, where people routinely pay $80 for a 2.5 ounce bottle of cologne that cost less than two dollars to produce. They do this because they imagine it will make them more attractive, so to them, $80 is a small price to pay and don't really care about the markup. Some businesses can mark software up higher and higher and increase sales and profits because they are providing a large value proposition in the form of huge time savings, more sales, etc. Because he only mentioned the time he invested and the existing bottom-of-the-barrel pricing as the reasons all software shops should raise prices, I have to say his logic is mostly flawed.

segmondy 13y ago

The price has nothing to do with it. Sell your calculator app for $20, and some kid in a third world country will gladly sell his for 99cents. His 99cents has the equivalent buying power of your $20. How can you compete with that? You can't compete on price, you have to compete on being different and value. That way, even if you sold for peanuts, you will have so many users that you can still make a lot of money. I rather sell millions of apps at 99cents each than 100 at $100 each.

badclient 13y ago
I rather sell millions of apps at 99cents each than 100 at $100 each. Talk about a false dichotomy.
babuskov 13y ago
I'd rather sell millions of apps for $100 each. - Bill Gates ;)