A $5 App Isn’t Expensive

Lex Friedman revisits the well-worn territory of the “race to the bottom” in App Store pricing:

I’m neither an economist nor a psychologist, but it strikes me that too many iOS device owners fail to act in their own best interests—both in the immediate near term and in the long term—when they scoff at the thought of spending money in the App Store. Here’s how customers who spend lavishly on iOS hardware punish themselves by skimping on apps.

Customers aren’t to blame for low App Store prices. They’re simply responding to basic supply and demand economics. There are over 700,000 apps in the App Store. There is just no way most people are going to pay $5 for an app when there are tens, and possibly hundreds, of acceptable free or very cheap alternatives. And Apple wants it this way.

The reality of the App Store is that it’s a hit-driven marketplace, and in that way closely resembles the mainstream music or movie markets. For every Lady Gaga, there are hundreds of struggling indie bands. For every Angry Birds, there are thousands of games priced just as cheaply as Angry Birds that go nowhere.

Steve Jobs himself addressed this topic broadly at the D8 conference in 2010. When asked about the pricing of ebooks, he discussed Apple’s general strategy for pricing digital content this way: “Price it aggressively and go for volume.” He went on to say that whenever Apple hasn’t followed that approach, they’ve seen more “attenuated success.”

Further, when iAd was launched, Jobs pitched it as a way to help developers make money despite the realities of selling mostly free or extremely cheap apps:

A lot of those apps are free, and the rest of them are really reasonably priced. We’ve got apps for free, for $.99, for $1.99. And we like that. Users like that. But these developers have to find a way to make some money, and we’d like to help them.

Doesn’t get much more explicit than that.

Given the extraordinary supply of iOS apps, and given that Apple prefers that the vast majority of apps be free or extremely cheap, no amount of complaining is going to drive prices up. Low prices are here to stay.