Is Apple indirectly creating price inflation for apps?

[umdjb]

Does anyone think that with the 70/30 cut Apple takes from developers will be indirectly contributing to some artificial price inflation of the developer's apps?

For example, if I am a developer and I build an application, and determine the price to be $5.00 (enough to recover my expenses plus a little profit) then I will have to raise my price by roughly $2.15 (i.e. 5 divided by 0.7 ) to factor in Apple's share, a 43% increase over the original price.

 

[Nipz]

yea i never thought about it this way!

I guess your right really.

 

[72930]

Well devs do save the money and effort of selling apps (checkout system, Paypal etc take a share).

And if more people will get the apps because of the store, revenue will increase without a price increase.

 

[zap2]

Assuming devs never factored in cost of getting their app out there before, then they might up the cost, but its possible Apple saves them cash, because they need less ads, to promote their app.

There are negative and pluses to this system. The negative is that Apple is always taking a share of your profits, so you can't handle the advertising of your app on your own, so you'll always lose some cash of "ads"


The plus is that you get advertising, right on the platform. If its a good app, it will grow quickly, and lots of people will buy it, and you'll make more cash, even with Apple taking some of it.

Some people will win, some will lose. Although there is less control

 

[umdjb]

That is true that developer's may have a larger audience and be able to sell their applications more efficiently. However, these are intangible benefits that Apple is providing that will are very difficult to estimate when price setting. Therefore, I do not expect them to have any impact on the price and most developer's will simply factor in the cost of their labor plus a fee.

 

[diabolic]

I think you'll find most of the apps will settle in at just two or three price points.

One other benefit: a lot of people, myself included, would rather buy an app that is "officially approved" by Apple, even if it means paying a little bit more than I would getting it directly from a developer on a totally open platform.

 

[kdarling]

It'll be interesting to see if companies like Skype, who have their own websites, raise their prices for the iPhone. Otherwise they stand to lose millions in income.

Apple pretends that the fee is needed for hosting. If that's all it was for, then there would be a flat fee, not 30%... which is especially onerous for high-priced programs.

Google will host Android apps for free, up to a point, and then charge per number of downloads. This makes good sense.

 

[neven]

Regarding the percent cut rather than a flat per-app price:

Apple may argue that pricier apps will also be larger and more complicated, which would mean that the validation process (okaying them for the app store) would take longer etc.

This will definitely affect larger companies with pricier apps more than small-time developers. The price increase described in the original example probably won't result in markedly lower sales, and this will be the first time that Apple provides a way for developers to have their app one click away from an Apple-sanctioned purchase. To a small developer, this is very valuable.

 

[DiamondMac]

If the App prices are too high, don't buy them

I am sure Apple and the developers will get the idea quickly if people aren't paying for them

I am not going to buy anything unless I feel I really need it AND people on here enjoy/like the app

I am currently very happy with my iPhone and with the increase in space/3G capabilities, I can live without any apps if need be

 

[reverie]

Software prices will go down because with Apple's system it will be much harder to pirate software. This way a lot of people who were on the fence before will be convinced to buy the software instead of stealing it.

 

[kdarling]

Apple may argue that pricier apps will also be larger and more complicated, which would mean that the validation process (okaying them for the app store) would take longer etc.

I don't think Apple is going to validate anything. That's more work that they (or anyone) have the manpower to do. It's also nearly impossible to do, without vetting the source code and then compiling it themselves. (Read: not gonna happen.)

About all they're going to do is make sure an app doesn't conflict with any moneymaking plans of their own.

 

[neven]

About all they're going to do is make sure an app doesn't conflict with any moneymaking plans of their own.

Which would be a form of... validation, no? I'm not saying they're going to sit and go through the source code. But they will at the very least have someone attempt happy-trail use of the app, and check if it's doing anything that goes against their official policies. How would they know if they didn't check? Do you think they'd just trust the developer's app description? Even if they did, we don't know what all app behaviors will be verboten (much to the developers' frustration), so it's not a simple checklist that could be run against the app specs.

I'm not saying this process will be terribly taxing for Apple, but you bet that someone will be doing *some* form of checking. They even do that with iPhone web apps now.

I'm also not saying that it's a great reason for the 30% cut. That's what I worded it this way: "Apple may argue that..."

 

[mkrishnan]

One other benefit: a lot of people, myself included, would rather buy an app that is "officially approved" by Apple, even if it means paying a little bit more than I would getting it directly from a developer on a totally open platform.

Another benefit is the flipside of this; the quality of the large sea of free software will put pressure on the non-free software. This'll be interesting because it's relatively rare that a new platform comes into existence, goes through a year of having only free (albeit black-market) software available, and suddenly non-free apps are competing with the pre-existing free apps. (In contrast, e.g., to the situation on desktops -- OpenOffice, AFAIK, has always been a free alternative to pre-existing commercial software; GAIM and Adium and the like primarily came into existence to provide alternatives to preexisting commercial products, etc).

I comply with the law, but I'm not interested in Apple's blessing until the point where I'm convinced that it will make my phone work better. Since I already make use of unlocking, I already have the infrastructure (Installer.app) to use contraband software.

So on the flipside, my expectations of SDK software are high. If it's mediocre, I won't even think about paying for it, much less paying a premium.

EDIT: BTW, are developers under complete NDA in terms of talking about the SDK software they're developing? How does that work? It seems to me I have seen little if anything about what to expect from SDK software, except the reviews of the development environment itself that basically pointed out all the things the software would not be able to do.

 

[Eraserhead]

EDIT: BTW, are developers under complete NDA in terms of talking about the SDK software they're developing? How does that work? It seems to me I have seen little if anything about what to expect from SDK software, except the reviews of the development environment itself that basically pointed out all the things the software would not be able to do.

I think people aren't saying much as there is no point, you can't buy any applications yet. I have seen some applications and they do look excellent.

I haven't jailbroken my iPod Touch though, so I don't really know what the quality of those applications is like so they may be just as good...

Btw: How many applications can you install with Installer.app?

 

[mkrishnan]

I think people aren't saying much as there is no point, you can't buy any applications yet.

By firmly endorsing that logic, can I please magically make every thread about the 3G iPhone disappear?

To the extent that I pretend to care about the welfare of iPhone 3rd Party developers (in honesty, I don't right now, pending one actually making or promising an app I might want), it would seem to me that creating some pre-launch buzz would be good for them.... And for Apple.

 

[Eraserhead]

^^ I'll reply if you can tell me how many applications there are already on Installer.app as then maybe I can say something interesting .

(I want to know how it compares to the other mobile platforms in terms of applications launched)

EDIT: As mentioned here.

 

[neven]

To the extent that I pretend to care about the welfare of iPhone 3rd Party developers (in honesty, I don't right now, pending one actually making or promising an app I might want), it would seem to me that creating some pre-launch buzz would be good for them.... And for Apple.

Some reason why developers might be staying silent:

1. They don't want to reveal what they're working on. There will be a big gold rush in June, and it will be possible to make money even on a not-so-great app if it's the first one of its sort to hit the market. No sense in sharing your idea for someone else with more resources to quickly grab.

2. They don't want to promise what they can't deliver. Remember Adobe's quick announcement that they would make a Flash player for iPhone, when the SDK came out? Yeaaaah turns out, not so much. They would've been smarter to actually see what's possible, how and when. Most developers I know are battling restrictions of time, resources, and Apple guidelines (and the SDK itself) daily, not to mention the fact that this is a whole new platform. Few are overconfident in their ability to ship in June what they promise today.

3. They might be under Apple NDAs (or others) outside of the standard SDK one. Apple will surely want to promote some apps the way they showed those quick demos of Spore and others. Developers who would be contacted about a partnership like that would be under a much stricter NDA.

Just some thoughts on possible reasons. It's a brave new world and little is known for sure - I think we'll see some people with egg on their faces once they've announced something they can't actually ship.

 

[Sun Baked]

Apple is looking at things and doesn't want to miss out on a potentially large revenue stream.

Though I'd be surprised if MS stays away from selling something for it.

 

[Small White Car]

Software prices will go down because with Apple's system it will be much harder to pirate software. This way a lot of people who were on the fence before will be convinced to buy the software instead of stealing it.

This is the big one.

I, too, am thinking that piracy of iPhone apps is going to be difficult and not worth the trouble. The people who would normally do that will simply continue using jail-broken phones with non-apple-approved apps. They'll continue to exist.

What this means is that a developer on the iTunes store might only be getting 70% of the price, but they'll be selling a LOT more copies than if the iTunes store didn't exist.

It should work out just fine for them.

 

[mkrishnan]

^^ I'll reply if you can tell me how many applications there are already on Installer.app as then maybe I can say something interesting .

If I knew a way to contort it to give this information, I would. Offhand, I'll say there are tons of apps. I feel subjectively like there's a much broader variety than there is in the RIM 3rd party scene, but the RIM scene has better established apps in the handful of top categories people want -- e.g. one or two best, more carefully developed and tested IM apps, etc.

(P.S. with respect to the RIM comments on that other page, I installed several apps on my Blackberry; there were a couple I considered paying for but most of them were free. I installed a smaller number on my Symbian phone a few years earlier, but they actually did include one paid app).

Some reason why developers might be staying silent:

I think that all makes sense, Neven. Good points. Although, I think that what you're saying also secondarily casts a kind of cloudy picture. All your statements make perfect sense, and they all point to the silence as being indicative of low quality of the available apps that will come through the SDK/Store process.

 

[Eraserhead]

If I knew a way to contort it to give this information, I would.

I thought it gave counts in each category.

Offhand, I'll say there are tons of apps.

So over, say 1000?

and they all point to the silence as being indicative of low quality of the available apps that will come through the SDK/Store process.

The SDK announcement applications looked pretty good...

EDIT:

And this video shows what Metasyntactic from Ars did in about 2 weeks of spare time. Though he seems to have stability issues as discussed here.

 

[mkrishnan]

I thought it gave counts in each category.

So over, say 1000?

No counts that I can see; as for the over 1000, I'm not sure. I would guess there aren't quite 1000 separate user / GUI applications (i.e. individual applications that you can install with installer.app, that have an icon on the home screen, and that do something interactively with the user), but there are definitely more than 1000 packages (some of which are libraries, support files, or more background / low level apps).

I'd be interested to find a source on more info on this question, but I haven't been able to google anything up.

 

[Eraserhead]

No counts that I can see; as for the over 1000, I'm not sure. I would guess there aren't quite 1000 separate user / GUI applications (i.e. individual applications that you can install with installer.app, that have an icon on the home screen, and that do something interactively with the user),

So it doesn't do badly against the other mobile platforms especially given you have to jailbreak, the applications have to be free and there is no SDK.

 

[goosnarrggh]

Does anyone think that with the 70/30 cut Apple takes from developers will be indirectly contributing to some artificial price inflation of the developer's apps?

For example, if I am a developer and I build an application, and determine the price to be $5.00 (enough to recover my expenses plus a little profit) then I will have to raise my price by roughly $2.15 (i.e. 5 divided by 0.7 ) to factor in Apple's share, a 43% increase over the original price.

It seems to me that this is simply extending the same paradigm that has existed forever in the retail world. It you sold your software off the shelf at a traditional brick and mortar store, wouldn't that store also take a cut?

The major difference is, with traditional retail the supplier cannot generally choose the retail price, but rather can only set the wholesale price at which product is sold to the retailer. It is then up to the retailer to make its own decision regarding what sort of mark-up to apply and what the ultimate retail price is going to be.

With the App Store, the ultimate decision about the final retail price is left entirely up to the developer, with foreknowledge of how that revene is going to be split up between the developer and the retailer. It seems to me that it actually puts more control in the hands of the developer.

Apple pretends that the fee is needed for hosting. If that's all it was for, then there would be a flat fee, not 30%... which is especially onerous for high-priced programs.

Apple has gone on record as saying that they will happily host apps whose retail price has been set at $0.00, and their 30% cut would work out to... (drum roll, please) $0.00.

IMO, given the possibility of selling free apps, Apple's baseline revenue stream for hosting and quality control must be built in to the flat-rate $99 Developper's Program enrollment fee. Everything else, no matter how Apple dresses it up, is just general revenue which may be redistributed within the organization however Apple sees fit.

 

[DreamPod]

One thing to keep in mind is that 30% is actually pretty cheap. I think Handango, the biggest site for Windows Mobile and Palm apps, charges 45%.