iPhone app pricing

There's been an ongoing discussion on the Apple-iPhone mailing list for a while. The two "sides" are, speaking very generally, debating these two simplified points:

• High prices are only good for the developer (i.e., the user gets screwed)
• Low prices are only good for the user (i.e., the developer gets nothing but ego-boo)

Of course, any debate sounds simplistic when you try to boil it down too much. Marc Tassin, of Ilium Software, posted a full blog response to the discussion, which nicely rounds out the arguments:

$.99 Apps Make $500K!!!!!
Yep, and a kid playing guitar at his high school can become a rock star. These stories (like the Trism Tale) make fantastic press, but just like the music industry, professional sports, and Hollywood, those are the exceptions, not the rules. The majority of folks will never sell enough of their 99 cent app to even turn a profit, much less make it to the "big time."

Unfortunately, people start to think that these big money makers are how the store works, since these stories make better news for Wired and better commercials for Apple. There are tons of amazing apps that never sell well because they just didn’t have that lucky combo of good app/good timing/lucky placement in an Apple ad/etc. etc. So, yes. Some applications get lucky, but for the rest of them, a 99 cent price tag will put them out of business.

Lower Prices = More Profit
This just isn't true. Lower prices typically DO mean more sales, but it doesn't necessarily mean more profit. The math is pretty simple. You need to sell enough additional copies to make up for the lost revenue of the lower price. Sometimes this works — usually it doesn't. Often you make less than you did before, even though you are making a lot more sales. And this cost is multiplied by the fact that more customers = more overhead (support/sales database work/etc.), so now you’re making the same amount of money and have twice as many customers! When the final tally comes in, you've actually lost money! There is always a sweet spot but finding it is tough. Just going cheaper isn't the answer.

That last point is best summed up by the GM business model of recent years: "Sure, we lose $2,500 per car, but we make it up in volume!"