I was reading a blog post regarding the Apple App Store pricing model and how it affected the pricing strategy for Hemisphere Games’s iPhone/iPad title Osmos, and felt compelled to reply to the company.
The App Store is experiencing a very unique combination of competitor-based pricing and value-based pricing, which has put tremendous pricing pressure on developers. Since the barrier to entry in the App Store is very low (only $99.00 per year to release an unlimited number of apps on the store) and the developer tools to create apps are free, the store has seen a tremendous volume of apps since it opened in 2008. As a result, the competition for visibility on the store is intense, and prices have been forced downwards to the point that many believe pricing an app at anything above $0.99 is suicide. This has caused the perceived value of apps by consumers to drop considerably, regardless of the fact that many apps require large teams and upwards of 6 months in development time. The top selling $0.99 apps on the App Store have seen sales of up to 20 million copies, and as a result the pricing structure of the market has been sustainable. However, this structure is dependent on volume, and companies without a top 100 app are starting to find it difficult to recoup costs and turn a profit with such low prices.
To complicate matters further, Apple released the iPad this year with an App Store that is only partially separated from the iPhone/iPod Touch store. Developers now need to decide whether they release a “universal” app that is purchased once and works on the iPhone, iPod, and iPad, or release separate versions for each platform.
On their blog, Hemisphere Games addressed this issue very well, and although I agree fully with their reasoning, I had some additional ideas for a strategy that they could pursue.
I could probably write an entire essay on this topic, but for the time being I have kept it brief and to the point. Here is their blog post, and here are my comments on their strategy.
