I’ve been looking through the App Store for the iPhone (somebody…stop me…), trying to get a sense of the various business models behind the apps I’ve found there. There is a wide, wide range in how much an iPhone app costs, and behind those costs a business model is implied.
First of all, there are a bunch of free apps which are clearly just for fun. Either made by individual developers in their spare time, or just released to get some attention, these apps tend to be simple and straightforward. There’s no real business model here, other than perhaps some attempt at publicity.
Secondly, there is a category of free apps which are kind of specialized front-ends to a pre-existing web service. The New York Times app delivers Times content along with advertising, and therefore has basically the same business model as their main website. Apps like Evernote are front ends to subscription web services, and simply provide another access point to that service. As long as these apps pick up some significant adoption, they’re as good as the pre-existing business models they support. Of course, one could argue in some cases they should just be iPhone-friendly web sites.
After that come the “ultra-cheap” apps. I picked up ZenGarden for $0.99, and with it I can tend my very own Zen rock garden. Actually it’s kind of like an Etch-A-Sketch. I balked at paying three bucks for the virtual simulated glass of milk, however (iMilk). Developers are going to need a lot of volume at this price range to make a decent income.
Somewhere past that is a territory I think of as Real Applications. These apps are in the $10 to $30 range, and are priced high enough that it’s clear that they are intended to make real money. Of course, for people people to buy at this price level, these apps can’t be be toys – they actually have to do something pretty useful. I’ve purchased one app in this range so far – OmniFocus. It’s definitely worth it to me, because I use OmniFocus on the desktop and I want to sync. However, its also the only app in that class that appeals to me. The concern at this range is that there will be too much resistance to the pricing from consumers for an app that, you know, runs on your phone.
Finally, there’s an interesting Enterprise Road Warrior range, with price tags for apps has high as $400. At this level it’s pretty clear the app is used for work, that it integrates with a larger system, such as Great Plains, and is being paid for by someone’s employer, not a private individual. Businesses are, at least in theory, not as price sensitive as individuals, as long as they can justify their purchases.
Well, this is certainly a wild, wild west of a software market. It’s not clear where the sweet spot in the overall range lies (and in fact there may be more than one sweet spot). Is there really a market for the apps in the $10 to $30 range? Or will iPhone apps shake out down in the sub $3 level?
If they do, the business model becomes more difficult. Basically then iPhone apps become loss-leader development for Software as a Service (SaaS) models. But the additional development and support costs mean that it becomes more expensive for the SaaS companies to operate.
Without a lot of data or experience it’s difficult to tell how this is going to shake out. But I have a feeling that unless developers can make a go of it at the $10-$30 level, it’s going to be difficult to make much money in the iPhone app market. You would have to sell an awful lot of $0.99 Apps to make any serious money.
