App Pricing – Race To The Bottom Berserk Hippo February 8, 2013 Technology Personal computing and the world wide web are still in their adolescent years, relative to most things. Farming has been around for thousands of year. The food service industry has been around for centuries. Mass production of goods over a hundred years. But personal computing and the world wide web have really come into the mainstream in the last 20 years. Things will change over the next 20 years, but for the time being there are some things people need to accept. For people under the age of 20, these two parts of the technological world are life. For people under 40, they are a necessity to function at what they perceive is a minimum level. People in their 40s probably have varying opinions depending on the industry they work in. People in their 50s and 60s likely use technology when they “have” to, and people 70 and above probably prefer to leave computers to the “youngins”. But there is a sentiment that all of these age groups likely share, things should be cheap or free and I don’t want to see ads! As someone who grew up with a computer in the house since I was like 5 (I am 29 now), I have seen the evolution of the personal computer firsthand. I recall the transition from floppy disks to CD-ROM. I recall the first time we got a hard drive over 1 GB, and the first computer with over 100 MB of RAM. I witnessed the drastic drop in prices that occurred in the early 2000s when high end consumer machines dropped from $2000 to $1000 in some cases. I knew from a young age that I wanted to get into some aspect of computers as an adult, and was always stung by the fact that I was barely in high school when the dot com boom hit. One thing I wouldn’t have predicted 10 years ago, as I was studying software engineering in college, was the dramatic race to the bottom that would take place with regards to software. Spend any significant amount of time reading reviews in the iTunes store or Mac App Store and you will be inundated with people complaining that a particular piece of software is too expensive, whether it be $2 or $50. A plethora of free and cheap apps that accompanied the release of the App Store for iOS has caused people to expect cheap and complain otherwise. Never mind the fact that 6 years ago, software for the then popular Palm Treo cost $50 in some cases. Never mind the fact that a decade ago most personal computer software cost $40-$60 at a minimum. Almost no other industry in the country experiences such outrage over prices. Read through restaurant reviews and the complaints on price are much more rare. No one writes a book review on Amazon and say that “the book was OK, but it was overpriced.” No one complains that a particular piece of music costs too much. Never mind that the price of a Rolling Stones album/song is virtually the same as LFO (or at least was at one point). Albums aren’t reviewed based on price. Reviews don’t say, “this new Britney Spears song is great, but it’s only 2 minutes and 45 seconds so it should cost $1, not $1.30”. So why does this happen so much with software? The biggest issue is that people don’t at all understand how software is created. Most software takes hundreds of hours to write, and a lot takes thousands. That work doesn’t come free. When you include design, marketing and support the cost only goes up. Because there is no physical good being created and transported, it’s difficult for the average person to identify how complex something is. I personally know nothing about cars. Not a thing. I literally don’t know what a carburetor does. I couldn’t look at a car internals and understand what makes a KIA cost less than a BMW. And I don’t pretend to. But many people pretend to know what software should cost to make and complain about how much it actually does. The worst part about this is that in most cases people are complaining over a few dollars. If an app is $3, it should have be $1, if an app is $10, it should have been $5, and so on. Many of these people are likely the kind of people who spend a few bucks a day on Starbucks, or will go out to dinner for $30 a person without thinking about it, but ask them to pay $3 for an iOS app and that’s just going too far. Like many other industries in this country, the “race to the bottom” has commenced. It’s a very large reason that air travel is such a horrible experience. Airlines did everything they could to make things as cheap as they could. More seats on planes. Overbooking flights. No meal service. And that eventually allowed for cheaper tickets. Then came baggage fees. And all the other nickel and diming that goes on, and now there is no turning back. Once the expected price of something has been set so low, it’s impossible to get people to go back to paying more without offering a lot more. The best hope in the airline industry is that significantly faster travel will come along at some point and restart the game. But what about software? The effects are nowhere near as obvious, but they weren’t in the airline industry early on either. There are unquestionably great pieces of software that have never seen the light of day because they can’t be profitable at low enough prices to move volume. There are plenty of apps that have come out and not been improved or maintained because the developer was either doing a cash grab or doesn’t have the resources to continue development. When apps are free, there is always a catch. In the case of games like Farmville and the like, the goal is to bring in money on in-app/game purchases that help advance the player’s progression. When it’s an app like Chipotle’s, it’s because the only thing the app is good for is ordering food from the restaurant. When it’s an app like Path or Foursquare, at some point they have to find a way to make money. Is it analyzing your data and using it to serve you ads? Is it just going to be flat off selling off your data at some point? The long term effect is far less obvious. These kids creating $1 apps in their dorm rooms are learning, and making a relative ton of money for doing it. But when they get out of college, and have a family and fiscal responsibilities outside of beer, Takis and video games, they will realize they can’t just throw an app together and sell it for $1. Will apps become so disposable that most are just written by college kids and discarded for something new ever year? Will it lead to more outsourcing or commoditizing that leads to a cheaper, more distributed workforce? Software developers will always be needed, because as more and more parts of people’s lives become automated and computerized, someone has to do that work. But if the race to the bottom for consumer apps actually hit bottom in the next couple of years thinks will be a lot different. And I am terrified it will. The genius behind BerserkHippo.com has been blogging for over a decade. Covering a range of topics like tech, sports and TV, the Berserk Hippo tends to get fired up, living up to his name. Hippo also hosts the Hippo Podamus podcast.