Every now and then, something pops up on my favorite tech news site that just makes me scratch my head and want to sound off about it. This is one of those items:
iPhone App Pricing Limits Developers - HardYakka writes "According to this post in the Fortune blog, the iTunes app store has been a boon for users but some developers are saying the number of free and 99 cent apps make it difficult for developers to create complex, higher priced apps. Craig Hockenberry of Iconfactory says the iPhone may never get its killer app like the spreadsheet was for the Mac. If Apple does not do something, the store will be left with only ring tones and simple games. Some are suggesting that overpaid developers are the problem and the recession will soon lower the wages and costs for complex apps."
Read more of this story at Slashdot.
[Slashdot. News for Nerds. Stuff that Matters]
As an aspiring iPhone developer, this piqued my curiosity. After reading the linked story, the real title of the submission should have been iPhone App Pricing Limits Software Development Houses. Evidently these companies who are springing up to develop Applications for the iPhone are having problems competing with the little guys who are also springing up to develop Applications for the iPhone.
A decade ago, as Linux was just coming into its prime, I imagine I could picture similar headlines regarding Open Source software. After all, why pay several hundred or perhaps even thousand dollars for an operating system, when there's another operating system that can be had for free, and how can anyone make money on a product they're giving away for free? As it turns out, several bright entrepreneurs figured out, just as video game console manufacturers did, that loss leaders are good for business. In the video game arena, consoles are often sold at a loss, with the real profits being in the games sold for the console. In the Open Source Software arena, the software itself is the loss-leader and the cream is the support contracts that the vendors sell.
Open Source projects are frequently labors of live by their creators, written solely for the purpose of scratching an itch of the developer's. Sure, the developer may have some ads on their web site that pays a few bucks back on the effort they expended, but they'll never make a fortune doing that. Thanks to open source, the barrier to entry of an Open Source project is virtually non-existent. The operating system, development tools, compilers, web servers, bug-tracking systems, source control systems, etc., are all there and available to anyone who can download them. All you need is a computer and an internet connection. That's part of the beauty of it. A developer can scratch his own itch, and release a program for free that might just scratch someone else's itch as well.
Just like with creating an open source application, there are marginal barriers to entry into the iPhone market. Yes, you need a Mac, but capable Mac's can be had for a few hundred bucks on eBay, the toolchain is free, and it only costs $99 to be able to upload Apps to the iTunes store. That's not much worse than the open-source route. Here's the kicker. You get to put a price tag on your App and receive 70% of that price tag everytime someone downloads it. In an age where video games sell for around $50 a piece, and office applications sell in the hundreds, its hard to imagine being able to make a decent living selling software for $0.99 a copy.
That doesn't mean its impossible, though. All you have to do is search for Trism. It made a quarter of a million dollars in its first two months in the store. Did I mention that he was selling it for $4.99 a copy? I could find something to do with an extra $250,000, even after paying Internal Revenue its share. I work with a guy who's got five Apps in the store right now, and he was telling me that on slow days he's making about $185 per day. If every day is a slow day, folks, that works out to an extra $67,525 per year. As a professional software engineer, $67k is a nice side job to have. And that's if every day is a slow day.
So, what's the problem with the article. The writer has a business model where he pays people to design and develop software, which, being a software engineer, is arguably not a cheap proposition. Somewhere, someone has to make a profit, and there are two ways to do that: sell a lot of copies cheap, or sell a few copies expensively. When it first opened, there was an application in the store that was probably as simple as it can get. It simply displayed the words "I am rich" on the screen. Apple pulled the application, but not before the developer sold 8 copies of it, at the maximum allowed price of $999.99, yielding the developer a net profit of $5,599.94. Not bad for what probably took ten minutes worth of coding time.
The writer argues that because of the plethora of "crapware" out there its hard to get positioning in order to compete. There's a part of me that doesn't have a whole lot of sympathy for this guy. Someone went through the trouble of designing, developing, and releasing a program to a market which they hadn't studied well enough to know what they were competing with; they may or may not be able to recoup the money they spent on it. That's just a bad business plan, and it tells me that they are lacking something else in their organization: marketing skills or personnel.
For the average individual developer, this is great. If I can spend a few hours putting together an app to sell in the iTunes store, I don't have to sell a whole lot of copies to recoup my initial expenses: $99 for the access to the store, a few hundred for a computer, perhaps a couple hundred more for LLC papers. After that, Apple takes care of the distribution, and to a certain extent, the marketing. I don't need a massive distribution network, or a warehouse to store boxed copies of my software, or even pre-made software. I don't need a massive internet connection to handle the downloads I expect to receive as a result of my software magnum opus. All I have to do as a developer is do what I do best: write good code.
Is this model going to produce crapware? Absolutely! People will come in with their get rich schemes and marginal product ideas, implement them themselves, and maybe sell a few copies before they get reviewed down to a point where no one will buy them and they won't show up on the top of the lists. Essentially, the market will drive the crapware out of business (although it will probably be replaced with more crapware). My wife has already seen this trend happening with her own iPhone (I can't get one until my 18 months is up in February). The App Store has been around for a while, and after the shell-shock from the purchase price, people are looking to upgrade from free lo quality apps to slightly more expensive, but higher quality apps.
If you're a commercial software house, you ought to know one of the golden rules of business: Produce what will sell. Yes, you have a right to make money off of your own work as do I. No, you do not have the right to force people to buy your product. If you haven't done your homework and figured out what you can sell, and how much you can sell it for before you start developing it, I have no sympathy for you if you can't recoup your development costs. Marketing is a crucial component of selling products!
Walk down any software aisle at any office supply store or discount store and you'll see a rack loaded with $9.99 software. Some of it is games, some of it is clip art, some of it is cheap utility software. All of it is placed right next to the bigger, more expensive, more feature-rich products, many of which do the same things as the cheap ones. Yet, the stores seem to carry both types. Somehow everything manages to sell; if it didn't the retailer wouldn't carry it. While the App Store doesn't have the concept of the retailer not carrying unsuccessful products, the concept is implicit in the form of user reviews and download rank. The former provides potential customers with a quick review of a potential purchase while the latter ensures that unsuccessful apps (by the number of downloads they receive) will appear far lower in the list of applications presented to customers than more successful ones).
So, to the writer of the original article, I understand your frustration with not recouping your expenses. However, I cannot sympathize with you over it. Clearly you didn't understand the market you were entering, otherwise you would have known in advance what the going price for applications tended to be in the store. As a result you developed a product which was above what the market would bear. The problem is not the market, the problem is not Apple's store. The problem is the producer of the content not following good business practices.
And for that, I have no sympathy.
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