Good Advice On App Pricing

This reminds me of some other game... wait, don't tell me... 

There's nothing like some real-world data to inform your decisions. One app developer, Appy Entertainment, took to wondering how their app might do if they made it free, and relied on in-app purchases to bring in money. The story is told in an interview with Pocket Gamer, recounted in this article. Their app, Trucks and Skulls, normally sold for 99 cents. When they added a freemium store to the latest release,revenue jumped 150%. When they got a promotional opportunity from Free App A Day, they went for the free pricing... and downloads jumped 5,000 percent. The game was downloaded more than 100,000 times on July 3. They brought the price back to 99 cents to see what would happen, and basically revenue returned to the previous level.

The data have convinced them that straight pricing is the inferior business model. (Though they call 99 cents premium pricing, which sure doesn't sound premium to me.) They plan all their future titles for a freemium business model. They do understand, though, that the design of the game has to incorporate that idea from the start in order to be really successful. The game balance becomes critical between paid and unpaid players; you can't make it feel like the only way to succeed is to buy your way to success.

Half of iPhone's Revenue From In-App Purchases

This chart is very interesting if you're trying to see how apps are generating revenue for developers. You'll note that in-app purchases now account for half of all iPhone app revenues, up from about a third just six months ago. The iPad is not as dependent, perhaps because the average price points are higher. Also please notice that free apps are generating one-third of all the revenue from iPhone apps.

The rapid growth shows that advertising as a revenue generation model for the iPhone has not taken hold. I think Apple's iAd program can be fairly judged to be a flop so far. I think Apple's insistence on heavy involvement with the development of iAds has kept a lot of advertisers at bay. Without advertisers, there's not much reason for developers to sign up their apps to put ads in there. The relatively intrusive nature of iAds, especially on a small screen, may also be having an effect.

In any case, it's pretty clear that the monetization strategy for the iPhone app developer has to be either in-app purchases, or the price of your app. Advertising just isn't doing it. Primarily, the games are the place where in-app purchasing is having the biggest effect. I expect this trend to continue, and in-app purchasing will be providing an even bigger share of iPhone app revenue in a year. You can take that to the bank...