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GPS obsessed

18 May 2013

Is Apple’s iPhone Application Pricing Structure Fair?

MacRumors has pointed out the intense debate that’s been ongoing between iPhone application developers regarding Apple’s pricing structure.  The article points out an open letter from Craig Hockenberry, developer of Frenzic and Twitterrific, arguing that Apple’s pricing structure is stifling innovation.  Some select quotes to give you the jist of things:

As an iPhone developer who’s been in the App Store since its launch, I’m starting to see a trend that concerns me: developers are lowering prices to the lowest possible level in order to get favorable placement in iTunes. This proliferation of 99¢ “ringtone apps” is affecting our product development.

Both developers and designers cost somewhere between $150-200 per hour. For a three man month project, let’s say that’s about $80K in development costs. To break even, we have to sell over 115K units. Not impossible with a good concept and few of weeks of prominent placement in iTunes.

But what happens when we start talking about bigger projects: something that takes 6 or even 9 man months? That’s either $150K or $225K in development costs with a break even at 215K or 322K units. Unless you have a white hot title, selling 10-15K units a day for a few weeks isn’t going to happen. There’s too much risk.

Raising your price to help cover these costs makes it hard to get to the top of the charts.

Fair enough. At first glance I would argue that the iPhone application market dictates that “crapware”, as Hockenberry calls it, rules. If Ocarina is hot, that’s what people want. I mean, after all, a $2.99 or $9.99 price tag for an iPhone application wouldn’t really effect sales, would it?

But then I realized that just yesterday-bad memory and all-I forecast poor sales for a perfectly useful navigational app from Navizon because of its $9.99 price point. Here’s where the challenge lies.

With what could be easily called a recession ongoing recently, there has been a fair amount of debate regarding government intervention in free markets. Just look at the heated discussion the auto industry bailout has generated.

While some developers opposed to Hockenberry’s stance conclude that the iTune’s app store is a distribution channel, and rather than bitch Hockenberry should work on marketing his apps elsewhere, the underlying debate lays in the economics of it all.

By imposing maximum and minimum prices on iPhone applications, Apple serves as a government authority and is steadfastly refusing to allow the consumer market to dictate the iPhone application industry. This surprises me really. Because Apple is such an innovative company, Steve Jobs and his investors have been duly rewarded by the stock markets. Yet he refuses to allow innovative application developers to be rewarded in a similar way.

The app store is not a free, or laissez-faire, market economy and it needs to be. With the current price fixing imposed by Apple, it ranks lower than a communist Chinese market.

I’m opposed to an auto industry bailout. I understand the negative macro-effects a collapsed auto industry could have on not only the American, but global economy. But I’m a firm believer in economics that are free of government intervention. I know it’s not that simple, but remember that the app store really is a tiny market. If a hands-off approach didn’t end up working, we wouldn’t all end up starving and homeless.  I think Apple is in fact stifling innovation.

What do you think? Am I missing some greater point here?

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