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