Huh...?
Yes, what you pay for an app may soon depend on what device you use, what plan you have, your quality or value to the provider as a customer - or a host of other factors that developers, device manufacturers and service providers determine are drivers of profit and growth for them. Just as the person sitting next to you on a flight from London to Singapore may have paid a lot less - or a lot more than you did - so, too will app economics affect prices. Welcome to your world.
This is but one of the many ways in which apps are evolving as all of those involved in what is estimated to be a $25 billion business. The issues are fraught with strategic considerations. For instance, it is currently common for those buying a 'premium' app package to receive a guarantee of no advertising as an inducement to buy. Short term the value of the money in hand for the offerer may be enticing. But long term this could be a financial disaster, particularly as mobile advertising grows.
The challenge is how to optimize returns without alienating finicky customers who are well aware of their many options. In addition, the key to mobility is convenience, so if sellers are too focused on locking in and squeezing hard at the expense of amenity and comfort they risk failure.
The business models are still evolving but there is money to be made and those involved are determined to figure out how to make it. It is not hard to imagine that in the near future, the days of great free apps will be regarded with nostalgia rather than anticipation. JL
Greg Bensinger reports in the Wall Street Journal:
Using a wealth of data from mobile devices, developers of apps ranging from children's games to fitness trackers are increasingly testing an array of price points and business models.
Music search application SoundHound is a bargain on Microsoft Corp.'s Windows Phone store: It is free.
But for iPhone users, one version of SoundHound costs $6.99. And on Google Inc. Android devices, a version of the mobile app costs $5.99. The price on Nokia Corp.'s app store: $4.99.
SoundHound isn't the only app with uneven prices.
They are drawing some conclusions: Free remains king, though users on iPhones and iPads generally have a greater tolerance to pay the price to download apps and shut off advertising than those on Android devices. Users of apps in Amazon's app store, meanwhile, tend to make more purchases within the apps.
But overall, the economics of the apps business remains in flux as people upgrade smartphones and manufacturers introduce higher-end devices.
"There's nothing settled yet, this is an evolving business," said Katie McMahon, vice president for SoundHound, Santa Clara, Calif., whose app has been downloaded about 130 million times.
As of the end of 2012, the average price for a paid app in the Apple app store was $3.18 on an iPhone and $4.44 on an iPad, according to research firm Distimo. That compares with an average $3.06 in the Google Play store and $2.84 on Amazon.com Inc.'s AMZN +2.77%app store. App stores generally take a 30% cut of the sale.The average price for a paid app in the Apple app store on an iPhone.
An Apple spokesman said, "We continue to invest in providing them [developers] with the best ecosystem so they can create the most innovative apps in the world." A Google spokesman declined to comment. The variable pricing trend may soon extend to in-app purchases as well. Amazon, for instance, is allowing developers to test different pricing schemes within an app to understand customer behavior, said Aaron Rubenson, director of the Amazon app store. So one app user could be prompted to upgrade or buy virtual goods at different points than another, helping developers determine when customers are most likely to open their wallets and how much they are willing to pay.
Developers currently focus their efforts on the Google Play store and Apple app store because together they represent about 87% of U.S. smartphone users, according to research firm comScore Inc. Apple boasts 800,000 apps in its app store, compared with 700,000 on Google Play, 125,000 on Windows and 70,000 for Amazon.
Most of these apps are given away. Market researcher Gartner estimates about half of all apps in the Apple store are free, compared with nearly three-quarters in Google Play.
Many developers said they have found different price sensitivities for purchasers on the different app stores which has influenced how they price the apps for particular outlets. In general, Android device owners are less likely than iOS users to spend money on apps, including for downloads as well as in-app purchases, developers say. That is due in part to the greater availability of low-end Android smartphones and tablets, which tend to attract lower-income people compared with iPhone and iPad users.
James Vaughan, chief executive of Ndemic Creations, which offers the "Plague Inc." strategy game, in October introduced the Android version of Plague and considered charging 99 cents for it like he does for the iPhone. But since "Google Play users are less likely to pay for an app upfront," he said he instead offered the app free.
Mr. Vaughan said he benefits with a free app by getting more downloads from users who may be encouraged to pay later to upgrade the app. About five million Google Android users have downloaded the app so far, about what he said he expected. He didn't say how many have converted to the paid version, beyond saying the rate is "extremely high."
Meanwhile, Mr. Vaughan has offered Plague Inc. for 99 cents on iPhones since May, knowing that Apple users are more inclined to pay for an app initially. He said the app has been downloaded about four million times on Apple devices. Ndemic's revenue totals in the "high millions," he added, declining to be specific.
Many developers continue to change prices for their apps after they launch. Scott Lahman, CEO of textPlus Inc. in Marina del Rey, Calif., said he experimented with textPlus' prices after launching a $4.99 version on Apple in December 2009.
Mr. Lahman, whose app offers discounted texting and calling rates, said he lowered the premium app's price every few weeks to as low as 99 cents, before settling on $1.99 after finding margins were about the same on those two versions. "It was very predictable: As the price went down, downloads went up," he said.
TextPlus brings in more than $12 million in revenue annually and the app has been downloaded over 40 million times, primarily through free versions supported by advertising.
Advertising plays a role in how developers price their apps. Typically, so-called premium apps come without advertising, meaning it may be more difficult to make money off a user once they've upgraded. SoundHound's Ms. McMahon said the company has devoted more resources to developing its free versions because advertising "is infinitely monetizable."
For Toronto-based Game Hive Corp., which developed the "Kick the Boss" revenge fantasy game for Apple and Android devices, advertising associated with free versions of its apps account for about half the company's revenue, said marketing director Mark Wang.
"The pay[ing] user is more valuable, but that turns off advertising forever," said Mr. Wang, who has versions of his apps at 99 cents on Apple and Android devices and is developing another for Amazon, as well as more-limited free versions on those stores. "You want to extract the maximum willingness to pay from your users."
Developers said users on Amazon's app store on average spend more freely within apps—in part because those customers are accustomed to buying a variety of items from Amazon—followed by iOS and Android users. The app stores declined to comment on users' average spending.
The dissimilar pricing of apps can be risky. Sarah Rotman Epps, a Forrester Research analyst, said developers may confuse or anger customers with too many pricing options, particularly as people branch out into owning several mobile devices. "There needs to be as much transparency as possible," she said.
But developers said pricing is likely to change even further as they learn more about users' spending habits. In the future, developers said they may be able to differently price their apps, advertising rates or even in-app purchases—such as a song or virtual sword—based upon which gadget a customer is carrying. Developers said, however, it remains a difficult technical challenge and risks upsetting customers who may think they are being punished for buying the wrong device.
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