Digging the Gold from the Apple App Store

It’s really hard to make a living in the Apple App Store. It’s not impossible but neither is winning the lottery. People who aren’t developers don’t understand how hard software is to create and because of the Apple-influenced ecosystem, they expect software will be cheap or free.

I have been thinking about how to be profitable in the App Store or better to avoid it altogether. I’ve discussed this with developer friends and it seems to be a challenge we all face today. Times are changing and in order to thrive we need to adapt.

Oh the Choices We Have

Today we have mainly 3 ways to make money in the app store:

  1. Conventional purchase, typically starting at $0.99 and ranging up to $4.99. Users seem to hate to spend even $0.99 when there is an acceptable, free, alternative.
  2. Advertising – display ads in your software and get paid when a user clicks on the ad. If your sales are small, there aren’t many people to look at these ads and less to click.
  3. In-App Purchase (IAP) – this seems to be a valid alternative to asking users for upgrades. IAP allows developers to bundle features and offer users these features for a fee.

IAP is an approach I am considering for my current apps and future ones. The idea would be to give the basic software away and charge for “Pro” features.  These pro features need to be real value to the user, no just take a crippled lite version of the app and enabling features users expect.

I have experimented pricing for my apps. My main app is Palette Pro, started out for $1.99 and did fine at release. I later changed the price to free for a short period of time to test the results, which were astonishing. Downloads for the free app was 1000x that of paid. This is pretty powerful and says a lot. Just like most developers, I can’t work for free.

Joel Spolsky from Hacker News:

The only business models I want to work on any more have some mass-market component that is absolutely free, and a niche companion product that makes money off of the exhaust fumes of the mass-market component.

The last two businesses I started are Stack Overflow, which is free, where the careers business on the side makes money on the small fraction of Stack Overflow users who are looking to get better jobs, and Trello, which is free, but the business of providing administrative tools to large organizations using Trello can sustain the whole business.

This is more than just “freemium” or “advertising-supported.” Freemium and Ad-supported business models are special cases of this general model. The real insight is that the free product has a chance to reach an enormous audience which provides distribution/advertising/marketing making it trivial to go to market with your paid product.

What Marco is reporting here is that the old-fashioned “make something and get people to pay for it” business is much harder to pull off and likely to always be left in the dust by someone making the same thing for free, getting 100x the user base, and getting 1% of them to pay for some value added feature.

Upgrades

Apple has so far refused to listen to the developer community for app upgrades. Today, when a developer releases a new version of their app they are not compensated. Small updates are fine and expected, but full an upgrade that takes developers weeks or months are hard to justify spending the precious development time and see no immediate return. If a user purchases an app, they receive free-for-life upgrades. 

The only way today to get paid for upgrades is to create an entirely new app in the app store. People have to pay the full-price for the mew features. This is great for developers but not appreciated by users. Realmac Software, developers of the Clear to-do app for iOS and the Mac, attempted this recently and it was not well-accepted. So, Realmac back peddled on their decision.

David Smith has a great episode of Developing Perspective where he talks with a Clear user (his wife) about her thoughts on the Clear upgrade attempt. If her thoughts represent how most users view software on their mobile device; upgrades are not worth pursuing.

Personally, I think this is a great way to get paid for upgrades. Users don’t have to buy, if their current version does what they need then just keep using what you have. This is how software has been sold over the years; you have version, here’s an upgrade, don’t buy it if you don’t want it. Users don’t favor this approach.

Marco Arment recently discussed his new podcasting app, Overcast, on his blog and thoughts on pricing. He’s right:

I’ve gone back and forth on what Overcast’s business model should be. I’m definitely charging customers directly (rather than venture-capital or ads), but I’m still debating where, how, and for what.

I’m sure of one thing, though: the market for paid-up-front apps appealing to mass consumers is gone. If you have paid apps in the store, you’ve probably seen the writing on the wall for a while.

That model made sense when there were fewer apps available, but now that there are plenty of free and good-enough versions of almost anything, it’s a different game. Apps targeting niche markets can still find enough paying customers to stay alive if they’re much better than any free alternatives, but the number of apps in that situation is always shrinking.

I don’t think we will see an upgrading pricing structure any time soon from Apple.  The company wants apps to be free and let developers figure out how to run the business side of things.

The Gold at the End of the App Rainbow

The art of pricing combined with making a living with mobile apps has been on my mind for a long time.  Recently my thoughts have become a bit more tangible. The reality is, most apps will be free.  Most people with make money giving their applications away, while getting the most attention,  then offer premium services with In-App Purchase.  

One aspect I haven’t mentioned but believe is probably the best way to realize the value of mobile applications is to offer applications for free but consume a paid backend.  A Software-as-a-Service (SaaS) backend is offered for some monthly fee and the mobile application is simply a client of the SaaS app, just like a web browser.  The beauty and simplicity of this approach is that it works for apps in the Apple app store but also on Google Play and the Windows Store.

It’s interesting where this is going but things are pretty clear; developers need to change their approach to how they earn their living in mobile.