Michael Zaletel's Blog

The business of iOS apps • Founder, CEO @ i4software.com

Tag: App Store

Free Beer and App P.E.D.

The price elasticity of demand for iOS Apps is extremely difficult to ascertain and differs by category.

Because Apps are “Experience Goods” (quality is difficult to determine prior to consumption), some apps even exhibit positive PED as consumers assume higher priced apps may be higher quality.

What amazes me most is the effect on demand between $0.99 and free. No other product or service in the history of the world has such a negative PED at that point on the curve except maybe beer. (Think all-you-can-drink FREE Beer today posted at the entrance to the Rose Bowl).

An ad-free, free app that is getting 1,000,000 downloads a day might easily drop to 1,000 downloads a day and visa versa.

Why would a MILLION people be willing to spend the five minutes it takes to read about, download, enter password and launch and play with an app yet only 1/10th of 1 percent of those people be willing to spend 99 cents for the same product and time investment?

I believe the correct price point for Camera+, for example, is $1.99 (PED exactly 1) but fear likely keeps them from raising it back up to that price. The danger is that at $0.99 they are much more likely to get dethroned every week by the next trendy Instagram Photo Editor. Eventually, there will be several at the same time perhaps even some smart enough to charge $1.99 and then it will be too late to change the price.

The key is not just to find the right price point at which PED is 1 but to think long term about whether that’s the most important factor for App Store longevity.

Disappearing Act

This past weekend, I put our award-winning VIDEO CAMERA app on sale for Free. This app has a solid sales history at $7.99, which is almost unheard of on the App Store and especially among Photo & Video apps. In fact, Video Camera is the 2nd highest grossing video app after iMovie in 2012 in a field full of intense competitors.

On Friday, the app was floating around #20-#30 Top Grossing in the Photo & Video Category. When I made it free, sales shot up immediately presumably due to our placement in the App Store search results for the term “Video Camera” and the obvious elasticity of price on demand at free vs. $7.99.

The first day, we received over 30,000 downloads, on Saturday over 50,000 as various sites picked up and reported the “deal” to their users. Normally, this would have been more than enough downloads to immediately place the app in the top free charts as has happened so many times before. (even just last week with our Math and Secret Sender Apps).

However, to my surprise, VIDEO CAMERA was nowhere to be found on any charts in the top 1,000 (Applyzer.com) except Top Grossing (even though it was now free). This concerned me because we were missing out on the compounding effects of showing up high in the free ranks.

Sunday night at about 11pm, the app suddenly showed up at #150 top free overall and #11 top free photo & video. Since then, it has been steadily climbing and is now at #122 top free overall with 55,000 downloads yesterday.

As I said earlier, I’ve done this “many” times before with substantial predictability. I realize Apple delay’s their results, I understand the alleged 4-day rolling average, I get that Apple changes their algorithms all the time. But I’ve never seen this before. If the results were simply delayed, why didn’t we slowly climb 9000, 765, 525, 221, etc? Why did the app completely disappear and then suddenly reappear at #11?

Maybe I’ll never know what happened. What I do know is that it is going to become increasingly more difficult to get even a great 5-star app like Video Camera into the top free results. If 150,000 downloads in 72-hours isn’t enough to show up in the top 1,000 free photo & video category and the apps already there are benefitting from that exposure, what chance does a great new app have at breaking through. When I made the app free for one week in March, it had about the same number of downloads and shot to #20 top free overall in 24 hours.

I’m glad we already have the necessary momentum, millions of users and a nearly perfect 5-star rating.
My recommendation to new mobile app startups and mobile app investors is to buy rather than build at this stage in the game. The barriers to entry are rising.

Tally Counter 3X is #4 on Top Free Business Apps

Tally Counter 3X is #4 on Top Free Business Apps