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Appstore developers: All our charts are pointing down and to the right
The price of apps is racing to the bottom. Apple could have turned that around, but it makes no sense for them to do so. Google and RIM tries to keep the prices up but throws the baby out with the bathwater.
What is the mental model?
There are two dominant mental models for the iPhone. The consumers and Steve Jobs agree that the iPhone is a consumer gadget. The early adopter/geek and programmer is that the iPhone is a computing device.
This is not specific to the iPhone, it applies to all of the new large-screen smartphones coming to market these days. And entertainment outsells productivity tools 10 to 1.
The people who buys them do so because they want a hip and cool "must-have" gadget. In case of the iPhone, they quickly discover that it allows them to take much of their behaviour mobile. Some of the things they did on a PC can now be experienced acceptably on a mobile phone.
And regardless of all the web 2.0 hype from the digerati, the primary behaviour of mainstream consumers is still media consumption. The iPhone is designed as a media consumption device, and it excels at that.
When mainstream iPhone owners enters the App Store, they do it as media consumers. They come to browse, to be amused and entertained. The iPhone Apps compete with spending time browsing the web, or reading a newspaper or a magazine. Spending $0.99 seems to be below a treshold where people don't have to think about the price.
Most apps bought from the App Store is used 3 times or less. How many laughs do you get out of a fart app? One or two? That's ok for $0.99.
In light of this, the recent decisions by Google and RIM to discourage low cost apps is hard to understand. Don't they want the same success as the App Store? The lowest price for an app in the RIM store is $2.49. That's too high for fart apps. RIMs customers has clearly said that they want more and better multimedia features from their Blackberries. But RIM is cutting out the main portion of Apps from their store.
Android has decided on a 48 hour free return policy. That means customers can return any app within 48 hours for a full refund. Consumers can basically download and use as many light entertainment apps they want without paying. Anecdotal evidence suggests return rates between 30 and 60%. If developers have problems making money on the iPhone Apps Store, making money from the Applications Market seems doubly hard. Its like selling a movie with a 48 hour return policy. Simple entertainment may not have a place on the Android device.
Where are the yachts of the Apps developers?
These policies are probably attempts to establish a higher price point. Whether this leads to more revenue for developers remains to be seen. But from a pure handset manufacturer perspective it does not make sense at all. Having 25.000 - practically free - apps in your App Store is an invaluable asset. Whether the average developer makes money does not matter as long as one developer in a thousand hits the jackpot. Yeah it's cold. But that is the mechanics of the current iPhone Apps Store.