Anchored to the Bottom: Hypothesizing the Root Cause of Low App Store Pricing

There’s a race to the bottom for prices on the App Store, and many developers (myself included) don’t like it. Some developers wonder if Apple could have stopped it. Others think the free and paid apps are different markets. Despite my respect for Charles, Daniel and Joe (with whom I’ve been arguing about this on twitter) I don’t think so.

The cause (I believe) of the race to the bottom is the existence of so many popular, quality, free apps, built largely with VC money. When users are given, free of charge, quality apps that took hundreds of thousands (or millions) of dollars to develop, it skews their perceptions of what apps should cost, and that in turn pushes down the price the market will bear.

For example, consider Apple’s iWork Suite for iOS. Each of these apps (Pages, Numbers and Keynote) ostensibly cost $9.99, but are given away with any iPhone, iPad or Mac purchase, so they’re effectively free.

Why did Apple decide to start giving these apps away? I have no inside knowledge, but I would guess they wanted more iOS device owners to use them. If true, and if too few iOS users had iWork, why would that be? My guess is that the ubiquitous availability of free Google Docs. If Google Docs are free, and integrate with GMail, and are “good enough” to be useful on an iOS device, why would the average user feel the need to pay an extra $29.97 to buy Apple’s version? And if users are using Google Docs for their work, they could get the same experience on an Android device. So (I’m guessing) giving away those apps was an ecosystem differentiator for Apple in a way that selling them wasn’t.

Apple’s choice to give away iWork has consequences to the rest of the App Store. Consider Joe Cieplinski’s app Teleprompt+ 3. It’s a great app, and works well, but someone could decide to make an auto-advancing Keynote presentation as a poor alternative. Such a Keynote-based set up would have less functionality, and would take more effort, but it would be free. This (I argue) affects how much money Teleprompt+ can cost. If the cost is perceived as too high, then a user might switch to the inferior (but free) alternative. If the alternatives like auto-advancing Keynote all started at $10, Teleprompt+ could probably get away with charging a lot more.

Not every paid app has such a close free alternative, of course. But users seemingly only use a few apps each, which means every app can be thought of as being in competition with every other app for the attention (and home screen location) of the user. The presence of so many high-quality, free apps that aren’t trying to generate direct revenue makes life harder for those developers who need to make money from their apps directly.

Regardless, I think Apple did the right thing here. I, as both an app developer and app user, want more users of mobile apps, and I want users to expect high standards for mobile app development. Having people settling for inferior web-based user experiences doesn’t help me (or Apple) at all. If making iWork free is what it takes for that to happen, then I’ll deal with the fallout.