1. “Crapware” – cheap to make in terms of time and resources.  Targeted by both experienced and inexperienced developers.  Business model is either ad supported or sell for $0.99.
2. Full fledged apps by amateur developers – more elaborate design and execution by part time developers.  Attempting to create a full game experience with iShoot and Trism being good examples.  Business model is pay model with prices between the $1 and $5 range.
3. Full apps by funded start-ups – professional developers focused on higher quality games.  Here we have iBowl by the Social Gaming Network for example.  Quality of applications is high, business model is anything under the sun (to see one of the more creative examples check out Toy Bot’s $10k giveaway marketing strategy)
4. Professionally produced games – major studios like Sega or EA using teams of developers to leverage the iPhone platform.  Business model is selling games for $5+, probably closer to $10.  A good example is Spore.
5. Specialty “niche” apps – made by professional iPhone development companies for specialized purposes.  Usually sell for $10+ or have a lite version that functions as an extension of existing brand.

I know from personal experience that by the time I am paying $5 I expect something pretty damn good.  And not because it is a lot of money but because there are THOUSANDS of apps that cost much less, if anything at all that I could have chosen instead.  Barry Schwartz calls this the paradox of choice, and describes how our consumptive experiences can be poisoned by our awareness of the fact that so many other options exist.  Maybe this is why there are so many angry reviews of the more expensive apps; not only are users spoiled by the free apps in the store but they are pissed off when they make what they perceive to be the wrong choice.  So where does this leave us?

While I understand the current strategy of using price as the sole tool to spur demand, the ideal solution would be to create a more efficient discovery process for the user where they can try before they buy – thus allowing a larger purchase to be less of a gamble.  For now I plan to focus on the middle pricing range, making sure to deliver good value to my users while resisting the temptation to fall to the lowest pricing point to spur demand.

iPhone Usage Patterns by Pinch Media

Techcrunch is out with a new post today addressing the pricing dilemma, where they offer Pinch Media’s data on application usage over time as evidence that free apps are not the way to go.  According to Erick Schonfeld “for all but the most successful apps, the free route does not make much sense because there is not enough time to recoup the costs of developing the app from advertising.”  This is because the data suggests that only 20% of users return the SECOND day after downloading and only 5% of users return by day 30.  So it is easy to see why even with high online CPM rates you would still not have much time to recoup your investment.  Of course if you can create the application in an hour then maybe it still makes sense but current trends suggest that the market for simple apps is also getting more competitive.  If there are 20 free versions of a level in the app store then odds are it is not going to be that easy to rise above the noise.  See some great slides from Pinch Media’s CEO Greg Yardley below:

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The question “crapware” apps raise for the app store are obvious, why would developers and businesses spend weeks and months and maybe tens of thousands of dollars to build an application that is competing with one trick apps that sell for free?  Surely pricing pressure and excess supply will send the entire app store to the ad supported or near free pricing points.  Well I disagree and am not too concerned that this will happen.  There may be 75 versions of flatulence apps and I already found about 10 copying Sound Grenade but I don’t think that this will last for very long.

The main reason I don’t think “crapware” will make too much sense going forward is that these apps are just too easy to replicate and will eventually become commoditized.  Let’s say you are the first to create a lighter effect on the iPhone and you are lucky enough to hit the viral level, odds are your revenue will be cannibalized by copycats (for a hilarious example of what can happen see iFart versus Pull My Finger lawsuit documents here).  And because the application market is still young and inefficient there is plenty of room for “crapware.”  I know there will always be gimmicky apps and maybe even an equivalent to user generated content on the app store but I don’t think it will become the rule.  These simple apps will form the long tail of sales and will pose little threat to the more elaborate apps in the App store once there is enough quality app inventory.  The rush to just put something out there and enter the iPhone lottery will disappear once more players enter the market and drive this quality standard higher.  Then the cost of getting your “crapware” application over the noise will be so great that it won’t be cost efficient to do it for several apps as is the case today.

Just a theory, but would love to hear some thoughts on the topic…

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