What can iPhone apps teach us about price, perceived value and customer satisfaction?

Posted: June 1, 2009 in Branding, Business, CRM, Marketing, Value for Value
Tags: , , , , , , ,

Hi there, everybody. My name is Jeffrey Lee Simons, and I don’t have an iPhone. You see, my fingers are the wrong temperature or something and touch screens only work for me about 20% of the time. You’ve probably seen me at an ATM, stabbing my useless digits at the screen and cursing a blue streak until I remember to use the keypads.

(What uber-phone do I use? LG Voyager… it’s got a touch screen, but flip it open and you’ve got a full keypad.)

So I’ve missed out on the whole iPhone App feeding frenzy. Although I’m not sure exactly what I’ve been missing. After all, the average iPhone app only gets used about 19.9 times in its lifetime according to this article on marketingcharts.com.  “The study also found that 46% of users play their games/apps five times or more, while 10.2% play 25 times or more.”

I just read a detailed discussion about the economics of iPhone game apps in Gamasutra, the gaming business enewsletter, written by iPhone-appmaker Ian Bogost.  Game apps are among the most popular of all iPhone apps. (12 of the top 25 apps in Feb 2009 were games according to a recent Comscore report.)

Bogost tells a woeful tale of plunging sales (down 8% in April alone) and a race to the bottom for both pricing ($0.99 seems to be the target)and quality. The average net profit on an iPhone app is $1771, and for a game app that figure is closer to $900. That’s average. The difference between the hits and the not-hits is so wide that the median may be much lower, though Bogost admits this is hard to determine.

$900 or less. (Apple doesn’t even distribute royalties until you hit $250 in each region, so for many game developers, there’s no profit at all.)

Now while I haven’t ever produced an Apple iPhone Game App, I have produced a variety of games in my life, from advergames that took a minimum amount of time to historical simulations that took a tremendous amount of time. But at no time would I have looked at $900 or less profit as a sustainable business model.

Hoping and praying to be the breakout game among the multitudes is fun, to be sure, but makes for a harsh, ridiculously competitive and ultimately indefensible business strategy. (Although it sounds a bit like blogging. Or publishing. Or the music industry. Or…)

But the most insightful aspect of Bogost’s article concerned perceived value and customer satisfaction. People who are willing to shrug off a bad cup of $0.99 coffee hold a $0.99 game app to much higher standards. One is clearly disposable, and for $0.99 who really cares enough to complain. The other is not, and is far more likely to garner complaints (especially now that Apple lets people “comment after deleting” an app).

All this really comes down to value.

How much value can an app developer deliver for $999 or less? How much value does a customer deserve for $0.99 these days? Does using a product 19 times make it disposable or not? After all, you probably use a razor blade that many times before throwing it away.

And the answers, it seems, comes from where they always do. The customer. If a customer feels a product isn’t worth the money, they buy the lower priced versions. More people buy Toyotas than Rolls Royces, although to be sure, there is a market for both.

It looks like, in Apple-land, $0.99 is the acceptable price for everything from games to songs. Regardless of their cost to produce, you’re expected to make it up in volume.

But can someone please explain to me how consumers can ever expect to get value out of a system that refuses to return value to the producers?

Comments
  1. Marrus says:

    Heh – I’ve done shows where a $999 profit was a wonder & a joy:) I STILL have those shows, come to think of it. It’s a matter of scale & overhead.

    Does this post mean your shoulder’s feeling better?

    • jlsimons says:

      Marrus: I get what you’re saying. It all comes down to how many hours you have to work to get that $999, as well as any related costs. And in both cases, one would hope that you’re turning a profit and building a customer base at the same time. If your customers have a lifetime value that makes it worthwhile, go for it.
      And yes, my arm is starting to be better. Doctor said I could even drive soon. Thanks for asking.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s