My iPhone’s not Cheap, but my Apps are
July 13th, 2009
I was riding the subway on the weekend to go do something. I popped a token into the turnstiles and got on the subway. While I was on the train I started wondering why it is that I’ll spend $2.25 to ride the subway without blinking an eye, but I have an agonizing decision to make when a game is listed over $1.99 on the App Store.
Yes, I admit it: it drives me crazy that people won’t pay $1.99 for my game because it’s too expensive, but I’m guilty of it myself! I’ll stare at a game on the App Store thinking “is this really worth my $2?”
So I started to wonder why…why does the App Store, or the iPhone, encourage us to think this way? I don’t think there’s a simple answer, but I started thinking about some of the reasons that might be contributing.
All the major game consoles have downloadable games now. Xbox 360 has XBLA, PS3 has the PSN, Wii has WiiWare. Even the handhelds have online stores now: PSP has the PSN, and the new DSi has DSiWare. The iPhone is clearly not the only game platform that has an online store for purchasing games. However, its games are the cheapest.
According to 148apps.biz, the average cost of a game on the App Store is $1.39. The cheapest you can sell a game on XBLA is for about $5 USD and most games are priced at $10 and above.
As a developer I think about these kinds of things a lot, and I’ve started formulating some theories about why people aren’t will to pay more for iPhone games. Disclaimer: I am not a psychologist, I don’t have a psychology degree, and these hypotheses are not based on studies, they’re just my theories about why things are the way they are.
1) The Upper Limit
I’m sure that Sega is getting sick of people blaming them for setting the upper limit to game prices on the App Store, but the fact is that they had the title with the greatest brand recognition out at iPhone launch. When they set the price for Super Monkey Ball to $9.99 in the US, that set the standard and somehow became the upper limit for games pricing.
2) Virtual Insanity
I think one of the big problems in getting people to pay more for an iPhone game is one of tangibility. When you purchase something on the App Store, nothing physical ever changes hands. You click on a virtual button; your credit card (or gift card) information is stored on the system, so you don’t even have to hand it to someone; something is downloaded to your computer/iPhone; you can play it right away.
While this is very exciting for a developer, as it means no manufacturing costs, I believe that it devalues the game in the consumer’s mind. They didn’t have to hand money over to someone, and they were never handed a bag with their purchase in it. I think that in the consumer’s mind, because they didn’t buy something they can feel, it has minimal value to them.
I know that this isn’t always the case, that XBLA games are often able to charge $15 for a game. However, I just bought Battlefield 1943 from EA on XBLA for $15. The game is just as good as a Battlefield game you’d pay $60 for to get it on disk. So why can’t EA charge more for it? Is it just because it’s not tangible?
3) Size Does Matter
As humans, we have a built-in instinct that bigger is better. Most people want a bigger house, more land, louder stereo, bigger lawn mowers, faster, larger cars, bigger TVs. For some reason it seems to be ingrained in our brains bigger things are more valuable.
I suspect it has something to do with our understanding of how things are traditionally made. If I build a big house, the consumer understands that it took more work, that it used more materials, and that it probably required more people to construct it. However, this all breaks down with digital media. A game takes just as much work to build for the iPhone as it does to build the same game for the PC. However, the game is played on a much smaller device when played on the iPhone.
I believe that because the games are played on the tiny iPhone, it reduces the perceived value to the customer. Why else am I willing to spend $15 on a game that I play on my TV that I wouldn’t pay $5 for on the iPhone?
4) It’s How You Use It
As much as Apple is a fan of describing the iPhone as a gaming device, it is still primarily a phone and a media player. I’d be curious to know how many people list apps at the primary reason they buy an iPhone or iPod touch. I’d guess that it’s very low. I’d wager that people are looking for a phone or media player and then might think of apps as a secondary benefit.
Because the device’s primary functions are those of the person on-the-go, I think the games are thought of as momentary diversions for the player. It’s something to do in line waiting for a coffee, or something to play on the subway. I think it’s rare that someone would sit down with the expressed purpose of playing iPhone games. That’s what people turn to their other game consoles for.
5) Developer Perception
I think a lot of it comes down to trust. The reason I’m willing to spend $10-$15 on an XBLA game is that I know that the developer had to jump through a lot of hoops to get their game published on XBLA. Developers go through a much more rigorous and stringent approval process to release a game. That approval process means that games, on average, are required to be of higher quality than on the iPhone. Only companies who are really serious about making a game can afford to publish a game through the system.
I’m not sure that it’s the best way to do things, but I think it’s clear that having almost no barrier to entry isn’t helping anyone either. One of the reasons I’m so hesitant to lay down $1.99 on a game I know nothing about is that it could be absolute garbage. That’s why I spend more time reading reviews and forums for $0.99 iPhone games than I do for a $60 console game.
This problem isn’t limited to the iPhone; the same kind of thing is being seen with the Xbox 360′s Xbox Community Games system. XBCG games doesn’t go through the same approval process as XBLA games do. When you remove the quality bar from games published on your system, you lose the trust of the consumer community.
I’m not saying that all games on the iPhone are garbage, because that’s clearly not the case. However, there are a lot of sub-par games available for the device. Once people have been bitten downloading a few duds, they’re going to be hesitant about all their future purchases.
6) The App Store
Finally, let’s not finish talking about this without talking about the App Store itself. For all that is wonderful about the App Store, it does do things that drive the price of the apps down. This has been talked about in a lot of other places, so I won’t go into a lot of detail.
One of things most talked about by developers is that the rankings are all determined by number of units sold, not revenue. The result of this kind of ranking system is that cheaper games end up higher in the rankings. If I sell a game for $10 and make one sale, I’ve made just as much revenue as someone selling their $1 game ten times. However, that $1 game is going to rank significantly higher than the $10 game because it’s purchased more frequently.
The problem this creates is that developers know that they need to drop their price to $0.99 at some point if they have any hope of getting into a top 100 list. While this is great for the consumer in the short-term (Hell, I bought Peggle when it went on sale for $0.99 even though I already bought it for both PC and XBLA), it will only hurt them in the long-term. If developers can’t afford to sell a game at $10, they won’t make a game with the production values that would require them to sell it at $10. You’ll see a trend towards simpler games with less time invested by the developers, as investing time and money becomes too risky.
Conclusion
As I said, these are just my thoughts and hypotheses about why prices on the App Store are what they are. I don’t pretend to know how to fix any of the problems, or know what strategy is best for dealing with the current situation. However, I do think that by considering these things, it can only help me to improve at making games for the iPhone platform. What I’m try to do is look at the App Store as a whole in order to make intelligent decisions about what kinds of games to build in the future.
Owen
Great article, some very valid points there – many of which I am guilty of myself!
I don’t agree with no#4
I own every console out at the moment but play games on my iPhone and iPod the most simply down to the style of games that are on it and the limited time I have to play the games. I don’t mind paying 1-2 dollars for a game that I will play for a couple of hours and then leave, I’m afraid I do the same thing on the main consoles and due to the size of the games on the main consoles of the games, you really need to spend a constant amount of time on them or else you are going to forget the plot.
You also have to keep in mind that you are still dealing with a hand held and that also dictates to a certain degree the style of game that will work on the device. So it comes down to instant, fun little games that you don’t have to think to hard about that work best. I also think the customer base is different to the console user base.
Thats my take on it at least and that’s the route I’m taking for my iPhone / iPod games.
Cheers,
Mike
Good article, Owen.
A couple of points (not in the order of your article):
1. Markup, markup, markup and more markup
A physical game is marked up several times before it reaches its final MSRP. My guess is around 15-25 for each channel is goes through (publisher, distributor, retailer). With downloadable games, the supply chains cuts at least two links (distributor and retailer), which is a big win in terms of the final. That’s also why you see a company like Wal-mart being cheaper than the competition for new video games, because they can buy insane quantities and thereby buy directly from the publisher.
2. Comparative pricing in the minds of the consumer:
Xbox/PS3/etc. usually cost $60-$70 in retail stores (side note: video game prices have remained stagnant for two decades, despite increase in inflation). When you buy Battlefield 1943 on XBLA you think “Holy crap, $15 for a full game that’s usually $60!?” and then you buy it. You’ve read reviews and maybe tried Bad Company, so there’s no way you’re going to pass on such a ‘cheap’ game. With the iPhone/iPod touch games/apps, it’s still early, so there’s nothing to compare with in the same way. You can just compare to what else is there, and most of the time everything is priced incredibly low.
3. Competition:
Far less games are released on the three console systems. This makes it easier for the press to cover/review and easier for people to keep track of. On the iPhone, there are sooooooo many games and apps and as a regular consumer, you have NO clue what’s out there unless it hits one of the top lists or gets featured.
4. The target market:
The hardcore gamer, the one who would pay a higher price for games, they wouldn’t necessarily play many games on their iPhone. The ones that do are more casual gamer, and will also not be willing to spend as much money on games.
4. ‘Blame’ early developers:
I think if apps and games had been priced higher when the App Store first opened, it may not have lead to such a demand for everything to be 0.99. This goes back to my second point. We’re used to paying cents (literally) for apps and games, so why should we be forced to pay more? Especially when the next game is enough entertain for the bus ride, or there are 5 other apps that do the exact same thing.
Also, as you compare to Battlefield 1943.. It’s not entirely a new game. Although I haven’t played the series myself, I assume the engine is the same as Bad Company and A LOT of the code has been resused. The development costs were probably 1/10 for Battlefield 1943 than Bad Company.
Just my 2 cents.
great post, Owen. some random thoughts:
#5 is pretty astute. the $2.25 for a bus ride or the $3+ for a coffee is pretty predictable: you know what you’re going to get. an app from an unknown developer? not so much.
it’s hard to argue #3 when the DS and the PSP aren’t very big devices either. and i used to buy games (and productivity apps) on palm OS for $7-$15 a pop…
Great post. I really enjoyed it. One comment is that this is along the lines of consumer behavior more than psychology. Psychology is one of the levers in consumer behavior though (cue venn diagram!).
Your point about ranking by units got me thinking… If developers could submit their sales figures*, then a proper top grossing list of apps could be created.
[*] Yes, the figures would be self-reported, but they could be verfied with simple checks. If the #2 position sold X units, then #1 would be > X, and #3 < X.
Two other big issues:
1) There’s no N-day trial support. Given the huge quantity of junk out there, unless it’s a branded, major-title game, you just don’t know what the full version of the game will be like. Free limited versions are perceived as killing sales, so many developers ignore them.
2) If the game flat-out doesn’t work – which many do, despite the reviewers’ best efforts – there’s not much recourse. Getting a refund from Apple is like pulling teeth from dentures.
To Jason: it’s actually a little tough to report sales and rank numbers. Apple only gives “accurate” numbers weekly, and positions update ~5x daily. When one of my apps was moving between #5 and #15 paid, up and down, accuracy on unit sales per rank was really bad. The daily numbers are usually low by about 10%, but it’s not uniform.
You forgot one important point: competition. The iPhone has by far the most apps of any service out there, around 60,000. Competition drives down prices. Plus, there are no arbitrary limits to pricing like there are for XBLA, PSN, etc.
The App Store also has free apps. People can keep themselves entertained by free apps all day. To compete with free apps, the paid apps have to be really great quality.
Lots more excellent points! Thanks for the discussion everyone. I’m glad to see the post generating lots of ideas.
I know I don’t just go around buying every $2-3 game I see is because there are just so many games. I think people see that since there are so many games and apps available, buying one after another would be very costly very quickly. So I tend to wait for price drops when the games are on sale for $0.99. It seems like $3 isn’t a lot (and it isn’t) but when you buy 10 games/apps for $3 apiece you spend $30, yet if you buy 10 cheaper games for $.99 apiece, you only spend $10. Small prices add up quickly.
And then there’s the great point you made about not knowing whether a game/app will be good. Just a few days ago I saw a review for some new battery indicator apps that said the developer was giving out free gift cards or redeemable codes for the game or something for good reviews. It comes to the point that many positive reviews can’t even be trusted, which in turn makes the consumer even more hesitant to purchase a game even if the reviews are glowing.
I never thought about some of these. A great read
[...] iPhone apps are so cheap: http://www.streamingcolour.com/blog/2009/07/13/my-iphones-not-cheap-but-my-apps-are/ [...]
To me it boils down to the app store currently being a “dollar store”. Picture walking through the aisles at a dollar store where everything is of questionable quality and finding a few items that cost way more but look roughly the same at first glance. I doubt you would pay the extra money in that context.
I think the majority of people and the majority of software on the app store IS dollar store quality. But there is another problem: lots of premium product is at dollar store prices. So now the expectation is higher. Good old supply and demand.
The economy of app store games is somewhat skewed as people are willing to spend a great deal of time making games for free and others will do it cheaply. Combine that with an almost unregulated store and you have a very interesting free market developer economy that really favors the buyer!
For me personally the reason I don’t want to spend more than a $1 isn’t about the money at all. It is about the time I know I will spend with it. At $1 if I play it once I’m happy, anything after that I want the back up of other people playing it and loving it as well. That is why I’m addicted to the top 25 lists when I buy.
[...] Streaming Colour Studios » Blog Archive » My iPhone’s not Cheap, but my Apps are (tags: iphone viapssteam) [...]
I think you hit the nail on the head it speaking the trust factor. There are just so many apps that are half-baked that you really do start to feel ripped off. At least when I drop my token in, I have a reasonable expectation of getting across town (although that’s failed more than a few times).
Can Apple build the trust factor back into the App Store without setting up lots of barriers for developers to push through? How can the system be better designed to promote the professional apps while not slamming the door on the amateur stuff?
What if Apple offered a ‘top shelf’ section that developers would have to pay for up front? Would this help separate the serious folks from the dabblers? Or would it just ruin the party?
Two things that are top of my wish-list for the App Store is a mechanism for trial version and/or a mechanism to post game play videos right inside the App Store. Both would go a long way toward helping building that confidence.
[...] Streaming Colour Studios » Blog Archive » My iPhone’s not Cheap, but my Apps are "Why it is that I’ll spend $2.25 to ride the subway without blinking an eye, but I have an agonizing decision to make when a game is listed over $1.99 on the App Store." (tags: iphone appstore pricing business goldrush) [...]
Just had the time to read all of the comments…
I think that some of them are right on, especially what Jay said about people offering to make games for free. My first game, for instance, will be free with in-app purchasing. But a lot of people are putting some relatively fun games for nothing. On the PC and Mac that’s not as feasible simply because the competition is so much higher. There are a lot of people writing games (and I wrote MUSEs and MUSHs back in the day that were free), but the visibility isn’t there – it’s a wild and wooly world.
. The expectation is that developers need to move beyond niche games (which I think a lot of them are) and into broader-based appeal. That’s if you want to duplicate the anecdotal successes of others. I think it will get harder and harder to be very successful on iPhone moving forward. Like many things, I think you can make a living. A fortune? Different story.
With the App Store, though, it’s a closed market with captive consumers. I think Sega actually hit the right price point on Super Monkey Ball. I bought it at $10 but probably wouldn’t have at $15 (no matter how much my daughter whined
[...] have, I thank you), then you may recall I post I wrote about a year and a half ago called “My iPhone’s Not Cheap, but my Apps Are“. At the time, I was trying to find reasons why we were seeing a race to $0.99 on the App [...]