Economics of App Pricing as Explained by the Wall Street Journal

Posted By Trending Topics In Digital Strategy 03/4/2013

App prices may seem like they’re all over the place lately - and that’s largely because they are. As a relatively new frontier, app economics are still being defined. Luckily for us, the Wall Street Journal’s Greg Bensinger has been tracking the trends as reported in a recent article.

According to Bensinger, variable pricing trends are the norm in the app economy. “As of the end of 2012, the average price for a paid app in the Apple app store was $3.18 on an iPhone and $4.44 on an iPad, according to research firm Distimo. That compares with an average $3.06 in the Google Play store and $2.84 on Amazon’s app store. App stores generally take a 30% cut of the sale.”

Bensinger points to the music search application SoundHound as an example of the disparity between prices. Visitors to Microsoft’s Windows Phone store can find the application for free, while iPhone users can pay as much as $6.99, Android users as much as $5.99 and a price of $4.99 for Nokia users.

In trying to understand current market behavior, Bensinger reports, “Free remains king, though users on iPhones and iPads generally have a greater tolerance to pay the price to download apps and shut off advertising than those on Android devices. Users of apps in Amazon's app store, meanwhile, tend to make more purchases within the apps.”

The pricing disparity has had an effect on mobile app developers. Bensinger writes, “Many developers said they have found different price sensitivities for purchasers on the different app stores which has influenced how they price the apps for particular outlets. In general, Android device owners are less likely than iOS users to spend money on apps, including for downloads as well as in-app purchases, developers say. That is due in part to the greater availability of low-end Android smartphones and tablets, which tend to attract lower-income people compared with iPhone and iPad users.”

Another common trend in current digital strategy is to fluctuate prices for an app until a developer is able to find the best return on investment. Bensinger’s article explains, “Many developers continue to change prices for their apps after they launch. Scott Lahman, CEO of textPlus Inc. in Marina del Rey, Calif., said he experimented with textPlus' prices after launching a $4.99 version on Apple in December 2009. Mr. Lahman, whose app offers discounted texting and calling rates, said he lowered the premium app's price every few weeks to as low as 99 cents, before settling on $1.99 after finding margins were about the same on those two versions. ‘It was very predictable: As the price went down, downloads went up,’ he said.”

Don’t expect prices to stabilize anytime soon. Bensinger ends his article by predicting, “But developers said pricing is likely to change even further as they learn more about users' spending habits. In the future, developers said they may be able to differently price their apps, advertising rates or even in-app purchases—such as a song or virtual sword—based upon which gadget a customer is carrying. Developers said, however, it remains a difficult technical challenge and risks upsetting customers who may think they are being punished for buying the wrong device.”

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