Here's the quote I posted to Twitter yesterday:

The downward spiral in app prices caused by the Top 100 list and Apple’s relatively hands off approach during the first year of the App Store has created completely unrealistic pricing expectations that may haunt the entire mobile software industry for years to come.

When the App Store first launched, iPhone users were blown away that they could buy games like Super Monkey Ball for a fraction of what it had been selling for on consoles and other handhelds. But excitement about the $10 price point was quickly eroded as developers slashed prices to get attention and take advantage of the App Store's unit based charts. The high end of the App Store gaming market quickly slid from $10 to $5, and within a year most great games were launched at 99¢, or quickly put on sale for 99¢. Today, only AAA games from EA and the like do well at $2.99 or more. And even those go on sale frequently to gain momentum in the charts.

In July 2009 the average price for games was $1.39 and all apps combined averaged $2.58. Today it’s $1.01 for games and $2.12 for all apps. Prices do tend to drop in a free market as competition, increased efficiency, economies of scale, and other factors come into play, but I still contend that Apple's policies and the design of the App Store itself initiated and even accelerated the race to the bottom. It’s clear to me in hindsight that this was either Apple’s intent, or at least something they didn’t actively discourage. To Apple, apps are merely complements to their highly profitable hardware sales. And as Joel Spolsky posited, “All else being equal, demand for a product increases when the prices of its complements decrease.”

To the average consumer, the value proposition of buying an iPhone is amazing given the plethora of free and low-cost apps. After spending $200 on the iPhone 4S, it takes just a few bucks to load it up with Angry Birds, Facebook, Twitter, Instagram, Camera+, Yelp, Pandora, and a host of other great apps. If each of those apps were $10 and it took several hundred dollars to load an iPhone with great apps, the value proposition would be completely different.

iOS development has done nothing but accelerate, even as the average price of apps has dropped through the floor, but in my view, the App Store is far from the healthy, vibrant market it could be. Just look at recent trends...

Words With Friends, the current top paid app in the App Store, was released in 2009 as a 99¢ app and had a free, ad-supported counterpart. The developer, Newtoy, was purchased by Zynga in 2010. The app now shows ads and annoys users in a variety of other ways even though users still pay 99¢ for the privilege. Zynga has made it clear they think the value of Words With Friends is much higher than the 99¢ Newtoy was charging, and I agree, but I wholeheartedly disagree with their approach to remedying the pricing gap.

Temple Run, the current top free app in the App Store, came out in August of 2011 as a 99¢ app with some relatively benign digital consumables available via In-App Purchase. After seeing limited success, the app went free and shot up the charts. Even though the app is completely free to play, and the paid consumables don't radically alter game play, Temple Run is currently the top grossing app in the App Store. The top grossing list is littered with similar free-to-play apps, and most of them are not nearly as generous as Temple Run with the mechanics of digital consumables.

Temple Run is a great success story and the developers, Keith and Natalia of Imangi Studios, are incredibly cool, thoughtful folks, but Temple Run and similar apps still concern me. Almost 10 million people are playing Temple Run daily and most are not paying anything for that entertainment. They’re not even paying with their attention by viewing ads. This may seem great for users, but I’m not sure it’s great for the long term viability of mobile app development.

The pool of time users spend on smartphones is staggering and growing rapidly, but it is not infinite. The more time people spend with useful/entertaining free apps, the less need they have to actually pay for apps. That doesn’t mean people will never pay for apps — the market for paid apps has continued to grow alongside free and freemium apps — but users have been conditioned to expect more and more for less and less.

The 99¢ price point works for mass-market apps that manage to gain momentum in the App Store, but those are few and far between. Many great apps languish even at 99¢ and few developers are able to charge much more than 99¢, even for high quality niche apps. I was reminded of that earlier this week when reading an App Store review of my app Gas Cubby: “The other downfall is the price. At $5 this is an extremely expensive app. But it does work well!” To most App Store shoppers, $5 is “extremely expensive” even for an app like Gas Cubby that “does work well” and helps users save time and money.

The two business models that seem to work best for free apps are freemium and “burn through VC cash until we figure out a business model or get bought.” In my experience, ads from iAd, Admob, etc. make very little money, even in a relatively popular app. Developers can work directly with larger companies to sponsor apps and/or direct sell more profitable ads, as I've done with Gas Cubby FREE, but it’s incredibly challenging to develop and maintain corporate sponsorships. At WWDC Steve Jobs positioned iAd as a way to help developers make money on free and low-cost apps, but iAd has thus far been a big disappointment. Stacking digital pennies is precarious work.

Eventually, paying for apps may be more the exception than the rule, much like the web, but the business models that are evolving to make that work are often user hostile. On the web we see Facebook's incessant push to dissolve privacy as they work on monetization. On the iPhone we've seen the rise of free-to-play, and other frequently abused attempts at monetization.

Ultimately, the users become the product, not the app. Selling users to advertisers and pushing in-app upgrades/consumables is a completely different game than carefully crafting apps to maximize user value/entertainment. It'd be a shame if the mobile software industry devolved into some horrific hybrid of Zynga and Facebook.

The evolution of the web does give me hope. Paying for software, services, and entertainment on the web is still the exception, but niche sites that deliver value are able to monetize through reoccurring subscriptions and other palatable means. App developers may eventually be able to charge for upgrades in the App Store and lots of great developers are desperately looking for amiable business models for survival in the world of free and low-cost apps, but the pricing expectations mobile app shoppers make it an uphill battle.

Opportunities are prevalent. Money is being made by the truckload. The gold rush is still in full swing. But as the industry matures, I hope we like what we’ve created. And I hope I’m still building apps. Neither is a given at this point.

david

To presume that any digital data is safe is foolish. You can take steps to make data more safe, but absolute digital security is a myth.

Take for example popular online backup providers like Dropbox. They do encrypt your data, but it was revealed earlier this year that certain employees have access to your data. No matter how strict the data access policies, a Google employee spying on user emails should remind us that humans will be humans.

After the Dropbox revelation, many security conscious users started using client-side encryption to further secure the data they back up. That’s a great step in the right direction, but ultimately it’s still not 100% secure. AES-256 bit encryption is presumed safe today, but it will likely be years — not decades — before today's most sophisticated encryption is easily hacked. I bet there are at least a few enterprising hackers and/or governments scouring the internet for publicly available encrypted files. When those files are eventually cracked, they will be a treasure trove for data mining.

This is all starting to sound a bit tin foil hat, but it’s already happening and will happen more and more as data storage and processing continues to get cheaper, faster, and more efficient. The NSA is currently building a $1.5 billion dollar data center to “gather and process information from different branches of the U.S. intelligence operations.” You may or may not feel safe knowing the NSA is storing and processing some of your personal data and online actions, but that data center will undoubtedly become a digital battle ground with hackers and rogue governments doing everything they can to penetrate its digital defenses.

The truth is, most of what we do online everyday would be quite boring to someone with nefarious intent, but data analysis tools are incredibly sophisticated and grow more capable every day. The proverbial needle in the haystack is orders of magnitude easier to find digitally. Passwords, social security numbers, bank account numbers, and other sensitive data can and will be extracted from the mountains of boring data.

This sort of thing has always been a concern for the security conscious, but the stakes have been raised further by our fancy new portable computers. Smartphones gather a staggering amount of personal data and that data is significantly less secure than most people presume. It’s still unclear exactly what data was actually logged by Carrier IQ, but the fact that it could log just about anything — from location data to every single keystroke — should be a digital security wake up call. If you want an even more detailed and scary wake up call, read this: WikiLeaks: The Spy Files.

Because of all this, I’ve decided to replace my iPhone with a “dumb phone” and keep all digital devices off the internet.

Yeah, right! Unless you’re actively engaged in criminal activity, completely avoiding digital devices and the internet is overkill. What I have done — and will continue to do with growing vigilance — is presume that anything I do on or with a digital device could be made public or used against me. Everything I type. Every photo I take. Everywhere I go. Everything. I live a relatively simple life, so thinking along those lines really doesn’t change much. I avoid visiting certain websites and storing certain things digitally, but overall I live a fairly normal digital life.

There is, however, one thing that has been haunting me. My wife and I have taken digital photos of our naked children. It’s really sad that just saying that sounds creepy, even scandalous, but that’s the reality of the world we live in. Sexual deviance has always been a problem, but photography and now digital photography and the internet has made the exploitation of children easier and more prevalent. The sad thing is, there are likely thousands — maybe millions — of innocent photos taken by family members that are now traded online as child porn. I’d be devastated to learn that a photo of my child was used in that way.

What’s even more alarming is that most of my photos are taken with an iPhone, which means they have GPS data embedded. I’ve always been leery of the cost and security implications of backing up photos online, so short of my computer having been hacked none of those photos have ever been exposed online. But now with iCloud and other automatic backup solutions, any photo I take is uploaded almost instantly. After thinking more about digital security over the past 24 hours, I went through my iPhoto library this morning and deleted every nude photo. Thankfully, my wife and I have apparently been quite careful in our photo composition — I only had to delete a few blurry bath time shots we won’t miss.

You may or may not decide to take similar action, but it’s important to understand the pitfalls of life in the digital age.

david

I’m pissed off because Bret, in his post about the future of interface design, denigrated the very thing I’m most passionate about and spend every day working on — Multi-Touch user interfaces on touch screen devices. Well, just iOS really. In his follow up post, Bret did clarify that he doesn’t think the iPhone and iPad are bad, for now anyway, but overall the follow-up was similarly dismissive.

I’ve already said enough about some of Bret’s arguments I think are flawed, but I want to talk more about the tone of his post. I think it was arrogant, distasteful, and ultimately counter productive.

“I call this technology Pictures Under Glass. Pictures Under Glass sacrifice all the tactile richness of working with our hands, offering instead a hokey visual facade.”

“Pictures Under Glass is an interaction paradigm of permanent numbness. It's a Novocaine drip to the wrist.”

“To me, claiming that Pictures Under Glass is the future of interaction is like claiming that black-and-white is the future of photography. It's obviously a transitional technology. And the sooner we transition, the better.”

“The next time you make a sandwich, pay attention to your hands... Then compare your experience to sliding around Pictures Under Glass. Are we really going to accept an Interface Of The Future that is less expressive than a sandwich?”

“This photo could very well could be our future. But why? Why choose that? It's a handheld device that ignores our hands.”

“Pictures Under Glass is old news.”

“With an entire body at your command, do you seriously think the Future Of Interaction should be a single finger?”

[There were a few other choice bits that Bret has now removed from his post. I’m not going to dig them up just to prove my point, I’m glad he was embarrassed enough to remove them.]

I’m not a luddite. I love thinking about and discussing the future, and Bret’s post did inspire me to think more deeply about the potential for more tactile human-computer interaction, but part of creating the future is understanding and building upon the past. In “Everything is a Remix”, Kirby Ferguson put it this way:

“The act of creation is surrounded by a fog of myths. Myths that creativity comes via inspiration. That original creations break the mold, that they’re the products of geniuses, and appear as quickly as electricity can heat a filament. But creativity isn’t magic: it happens by applying ordinary tools of thought to existing materials.

And the soil from which we grow our creations is something we scorn and misunderstand, even though it gives us so much... and that’s copying. Put simply, copying is how we learn. We can’t introduce anything new until we’re fluent in the language of our domain, and we do that through emulation.”

To think that denigrating the past will inspire the future is a fundamental misunderstanding of creation.

And in regard to Pictures Under Glass, it’s not even the past — it’s the present and the near-term future. We’re still in the infancy of this revolutionary technology. And we don’t even fully grasp why it’s so revolutionary.

Maybe this is a joke that just went way over my head, but I can’t believe Bret would say in his follow-up: “You know, I kind of wish Jean Piaget was still around to watch kids using touch screens and figure out what's really going on.” What’s really going on is that kids, people with learning disabilities, people with visual impairment, people who have never touched a computer in their lives are all interacting with computers in ways we never thought possible. It’s absolutely astonishing — we do need to study it! And what we learn will help inform the future of interaction design, not validate Bret’s dismissive attitude.

Let’s celebrate and strive to better understand the past as we create the future — it works much better that way.

david

To better understand Bret’s perspective in writing this post, I think it’s important to read an earlier post about his work at Apple: http://worrydream.com/Apple/

I’ll wait…

Here’s what stood out to me in that post: “I made many, many things. The ones I cared deeply about mostly didn't catch on.” Apple is focused on the next 5-10 years of marketable consumer technology, but dreams about and experiments with technology that’s even further out. Since Bret is bound by NDA we may never know what he worked on at Apple, and it may very well have been revolutionary, but the fact that it didn’t catch on at Apple means we likely wont see anything like it succeed in the market near term. At least not at the scale of the iPhone or iPad. As Horace Dediu pointed out, the iPhone has undoubtedly revolutionized the mobile phone industry, and there’s a good argument to made that its Multi-Touch user interface was the driving force.

Here’s what I think is the fundamental problem with Bret’s argument: as humans we depend heavily on both visual and tactile feedback to interact with the physical world, but touch only “does the driving” once sight has helped develop patterns and coordination. Learning to tie a shoelace is incredibly difficult for a person who has no visual feedback, and even for someone who learned with the aid of sight, it takes years for the pattern to be so ingrained that it can be done without looking. I have no idea at what age most kids would be able to tie their shoes without looking, but I bet it’s 7 or 8, maybe older. If you have a younger child, give it a try and let me know.

The thing is, we already have more tactile computer input devices and we’ve been experimenting with them for decades: mechanical keyboards, midi enabled musical instruments, the mouse, joysticks, game controllers, Wii Remotes, the Power Glove, etc. And they all require time and skill to master. My 2 year old son, Luke, is incredibly adept at using the iPad precisely because it doesn’t require tactile feedback to master, not in-spite of it.

There are certain cases in which more tactile feedback may be able to enhance human-computer interaction without adding to the learning curve — such as the pneumatic displays Bret links to in his post — but I can’t get over the hunch that tactile interaction, like Siri and other voice input technologies, will augment and enhance Pictures Under Glass interaction, not revolutionize human-computer interaction.

david

Elfred Pagan had been doing contract work for App Cubby and mentioned he was interested in doing his own apps at some point. So I pitched him the idea of working together on this Twitter app I was thinking about, Tweet Speaker. The terms: I front the money for art and other expenses, manage the project, and do all those other things I do. He does the coding. We payback the expenses then split the profit 50/50. The app sounded like a fun coding project and seemed like it had some market potential, so he agreed. The only problem was, he had just taken on a new client and ended up completely swamped until Spring 2011.

We set to work in late March with a plan to quickly knock out a simple, but polished app working part-time. The first deadline we set for ourselves was May 23rd, the deadline for apps to be considered for an Apple Design Award. That quickly flew by.

By the time WWDC rolled around in June, we had a decent Alpha version of the app to show off. I got some great feedback from fellow developers and a few friends in the Apple press. Late that week I scheduled a consult in the UI labs. I was pretty confident in the current design, and overall it did look quite good, but the Apple artist I sat down with tore it apart. With a relatively minor reorganization of the various features, he completely changed the feel of the app. Though only a few buttons moved, it meant that the entire UI had to be redesigned.

June passed in a flash, then July and August. By early September I was starting to get worried. If we didn’t get the app out immediately we might end up launching the week iOS 5 was released, or worse — the new iPhone.

Despite our best efforts, we didn’t get a 1.0 build to Apple for review until September 22nd. Then we found a show stopping bug and had to re-submit on the 24th. The app was approved on the 30th, but I decided to hold the release so we could get promo codes to friends in the press and get organized for the launch. So, I set the launch date for October 6th, hoping Apple might feature Tweet Speaker in the App Store that Thursday.

Then Steve Jobs died.

I was stunned. Though I never had the privilege of meeting him, his visionary work changed my life. As a full-time iOS app developer, the money that pays my mortgage and puts food on the family table comes from sales and advertising on those magical little devices designed in California. And as a user, my life is better for the joy and ease of using the various computing devices and accessories he and Apple had the taste and vision to create.

After just a few minutes of mourning and reading tributes on Twitter, it dawned on me that Tweet Speaker had already launched in New Zeland, Australia, and other Asia-Pacific countries. My first instinct was just to pull the app from the App Store and wait for a more appropriate time to launch. But reviews were already scheduled for the next day, and I had a good hunch Apple might be featuring the app. What would happen if I pulled the app? I had no idea. What would happen if I didn’t pull the app? I had no idea.

Somewhat encouraged by tweets like: “If you want to honor Steve, make something. Do something. Ship something. Now. Today. Everyday.” I decided to leave Tweet Speaker in the App Store.

The morning of the 6th I tweeted a few times about Tweet Speaker having launched, but abandoned all other launch plans. As I said the next day on Twitter: “Life does go on, but the sorrow of losing a personal hero doesn’t mix well with the joy of unveiling a new creation. I’ve been a mess.”

Even though I stopped pitching the app, and it got significantly less press than it might have on any other Thursday, sales the first few days were quite strong. Being featured prominently in the App Store all but guarantees a few amazing days. But the speed and severity of the post launch fizzle has been shocking.

After paying Acapela a percentage of sales for the licensing of their text to speech technology, Tweet Speaker has now made $5039.90. Well, not actually “made”, that’s just the gross revenue to App Cubby, we spent $8,600 designing the icon and UI. At the current rate of sales, it will take 630 more days just to break even on the art.

Unfortunately, Elfred and I didn’t track the exact number of hours we spent building Tweet Speaker, but a conservative estimate would be that we each invested $25k worth of time into the app. I’m not even going to bother calculating the number of days it would take to payback our time. Are we stupid for having invested close to $60k on an app that reads tweets aloud? That’s a strong possibility.

But we’re not going to give up without a fight.

A while back I had a rather lively discussion with Daniel Jalkut and a few other developers on Twitter about the potential for an app to make a comeback after a lackluster launch. It was sparked by these Tweets by Mike Rundle: “Laughing at [Hacker News] commenters saying you should [be] embarrassed by your 1.0 release on the App Store. Pro tip: nobody cares about a polished v1.5.” and “If your v1.0 iPhone app isn’t successful, ditch the app and build something new. There’s a fundamental problem that v1.1 can’t fix.” I sided with Mike in the conversation that ensued, but I’m hoping to prove us both wrong.

I’m incredibly proud of what Elfred and I accomplished with Tweet Speaker 1.0 and really think it’s a great app, but we’re facing a huge marketing challenge. When first hearing about the app or reading the description, people seem to react with “meh”, but if they get past that and actually try the app, most find it surprisingly compelling. Matthew Panzarino of The Next Web said it best: “I never thought I would need a Twitter client that spoke my tweets, now I can’t live without it.”

So, how do we overcome that challenge? We’ve got a few ideas and are working on some newsworthy features that should launch before Christmas. And we’d love input/feedback from fellow developers and anyone else who was interested enough to read this entire post. Email david@appcubby.com, or mention @drbarnard or @elfredpagan on Twitter.

david

The average iPhone owner who never syncs to a computer and may not have even heard about the release of iOS 5 will now see this message when trying to install one of Apple’s new apps:

That is absolutely remarkable. At a time when most current Android devices — even the ones that will be sold over the holiday shopping season — wont ever have the option to install Android 4.0, Apple is specifically pushing the iOS install base forward. Apple wants all iOS users on iOS 5, not just the ones who buy a brand new device.

iOS 5 is a major turning point for the entire iOS ecosystem. Although Apple has always made it relatively easy — and most often free — to upgrade iOS, users will now be notified of available upgrades and be able to quickly install them right on the device. The 25 million downloads of iOS 5 in the first week of its release will pale in comparison to future upgrades when users won’t even have to plug their device into a computer.

I just can’t overstate what a big deal this is for the platform. Developers will more quickly be able to abandon support for older versions of iOS, which will save millions of man hours of coding and testing. Time will also be spent more efficiently as developers start using the iOS 5 SDK which streamlined development in many very fundamental ways. There’s iCloud backup and sync, Automatic Reference Counting (ARC), UI Storyboards, UIKit customization, Twitter integration, and so much more.

From the sidelines it may look like Android and Windows Phone 7 are quickly catching up — and they are making tremendous strides in the right direction — but the iOS platform is much further ahead than most people realize, and iOS 5 shows that Apple is pushing faster and looking further into the future than ever before.

Recent iPhone commercials have touted; “If you don’t have an iPhone... well, you don’t have an iPhone”. That’s been true since the iPhone was first launched in 2007 and here we are in 2011 with all other mobile platforms still playing from behind. The speed, efficiency, and innovation iOS 5 enables for developers — both 3rd party and Apple’s own software teams — will only widen the gap in 2012.

david

During today’s Google earnings call, CEO Larry Page shared some new stats on how the company is doing in new areas such as social and mobile. Google+ is now past 40 million registered users, and Google’s revenue run rate in mobile is now at $2.5 billion, which is up from a $1 billion run-rate about a year ago.

July 7th of this year Apple announced that it had paid iOS developers over $2.5 billion. Then on October 4th over $3 billion. That’s about half a billion dollars in 89 days, which is a run rate of over $2 billion a year. I’m assuming Apple’s numbers include iAd revenue paid to developers, but there’s no way to know how much developers are making through direct ad sales, Admob, Millennial Media, and other 3rd party ad networks. I think it’s safe to estimate that at well over $500 million a year.

What that means is that the iOS developer run rate is likely higher, maybe even significantly higher, than Google’s mobile run rate. Selling ads in the age of essentially infinite ad inventory is going to make it tough for Google to grow mobile revenue in significant ways without digging deeper and deeper into each user’s personal data [as we see Facebook trying to do].

Good luck!

david

However, an operating system is only as secure as the apps users run on it. Apple’s forced sandboxing of iOS apps (and soon Mac App Store apps) and review process thwart most would-be rogue apps and remote hacks, but it can’t prevent developers from making poor implementation decisions that compromise a user’s security.

The other day I was recovering some accidentally deleted photos from a recent iTunes backup and came across something rather disturbing. Quicklytics, a Google Analytics app, was storing my Google password in plain text in the documents folder of the app!

This isn’t the sort of security issue a remote hacker could exploit (at least not without first compromising iOS itself), none the less, I immediately changed my Google password and emailed both Apple and the developer. Turns out, Google Analytics used to require token authentication, which means the password had to be stored within the app, but it certainly didn’t have to be stored in plain text, in the documents folder!

Eduardo Scoz, the developer of Quicklyitcs emailed me back within hours and was already working on a fix. He requested an expedited review from Apple and the updated app is already live in the App Store. Unfortunately, there are quite a few other Google Analytics apps that have not been updated. If you use an iOS app to access Google Analytics, you may want to use the iPhone/iPod Touch Backup Extractor or PhoneView to check that your password isn’t being stored in the clear.

Fellow developers: please, please, please, take more care with user passwords and other exploitable data. The sense of security Apple has fostered with iOS benefits us all, but a few careless developers can quickly erode that trust.

david

Though I didn’t intend for the App Cubby blog to become such a personal revelation of the life and challenges of an independent iPhone developer, that’s what it’s become, and I’ve received lots of positive feedback for being so open. In the spirit of that openness, I have some very big news...

Mrs. App Cubby (Elizabeth) and I are expecting baby #2!

These kids don’t feed, clothe, and shelter themselves you know, so we’ve decided to hold an "App Cubby Jr" sale. This week only, you can buy any App Cubby app for twice the normal price! 100% of proceeds go toward diapers, food, our insurance deductible, and other baby related expenses.

If you think this is just a greedy publicity stunt, don’t buy any of my apps this week. But if you appreciate my attempts to humanize iPhone development, recognize all the hard work I’ve put into my apps, and want to see the ambitious apps currently in development, please consider purchasing one (or all) of my apps this week while they are "on sale."

david

I’ve always been transparent with how the sausage is made here at App Cubby, so I thought I’d take the time to explain an exciting new partnership between App Cubby and Honeywell and preempt some of the obvious speculation about the deal. I’m a bit long winded, so grab a cup of coffee and find a comfortable chair.

I’ve been thinking quite a bit about value lately. There are some things in life whose value is completely without measure; my wife and 10 month old son have been teaching me new lessons every day about those sorts of things. But what about the less important, but similarly abstract things in life: ideas, art, and other intellectual property? And even the tangible: food, water, shelter, and other physical goods? With so much social and political manipulation, money doesn’t seem to be a particularly good measure of value. I mean, a factory worker in China surely brings more real value into this world than someone manipulating stocks on Wall Street. Does a man who can swing a bat or throw a ball particularly well really create 1000x times the value of the janitor cleaning the toilets in our modern day colosseums? Certainly not, but I suppose this hinges on the value system with which we are measuring.

Selling digital goods in our complex global economy makes it difficult to measure the value of what I create each day when I go to work. The effort that goes into creating a digital asset is the same whether it sells 1 copy or 1 million copies. So, pricing my iPhone apps has been challenging on two unique fronts.

First (and this may be surprising to some), there are marginal costs associated with selling most iPhone apps. Building complex, data-centric apps means I get more tech support requests than most iPhone developers. And, since I host a free online backup/sync service for my apps, I spend money maintaining server infrastructure. The current cost to maintain the infrastructure is minimal, but the cost to scale or re-architect for improved scalability is high.

Second, pricing - even if that price is $0 - is a factor in the complex equation of estimating the value of what I create. As I said above, money isn’t always the best measure of value; however, selling something for money then exchanging that money for other goods and services does approximate some measure of value. Are my iPhone apps worth enough money to enough people to provide a decent life for me and my family?

Now the other side of the equation: the value created for others by using my apps. Price should be the best way to measure the value of my work; the more value I create for someone, the more they should be willing to pay. Unfortunately, the ambiguity of money and the unique psychology of digital goods obscure that seemingly obvious correlation. Most people don’t value an iPhone app for what it provides in terms of time or money saved or entertainment experienced, but in what they perceive to be a fair value for the work done by the developer in creating the app. Many App Store shoppers seem to believe all iPhone apps are easy to create, don’t have marginal costs, and sell in enough quantity that charging more than a few dollars would be greedy. That’s a bit of an overgeneralization, but the logic and psychology behind it impacts the App Store and most other forms of digital distribution.

Creating more value than I take has always been important to me; I don’t know whether I would classify it as morality, a personal goal, or just plain work ethic. Even at the exorbitant (for the App Store) price of $6.99, I feel quite strongly that my apps have generated more value than the money I received in exchange. In the 21 months since I quit my day job and 17 months since my first app hit the App Store, App Cubby has now made over $250k (after Apple’s 30%)! Those of you with 6th grade math skills have already calculated that I’m making over $125k per year. But, what you might not know is that I don’t actually code the apps, or create the artwork, or handle tech support. I just sit here in my PJs and let the money roll in. Well, not exactly. I do all those abstract things that make it even more difficult to measure the value of my work.

My particular creativity is in managing creativity. I come up with app ideas and work with very talented contractors to bring those apps to life in a way that delights and brings value to users. Most of the $250k has been spent paying the contractors and other business expenses (see Financial Realities of the App Store). Building great apps makes marketing much easier, but it’s still hard work and something I’m always striving to do better. I also do all the boring stuff like managing finances, talking to lawyers, working with accountants, and other administrative tasks.

So, how much value am I creating and how much money should I receive for my efforts? I don’t have an answer except to say "more, please!" I’d like to create more value in the lives of others and make more money for doing so. I absolutely love making iPhone apps and would be quite happy spending my time creating new apps and continually improving my existing apps. I’d also like to start a college fund for my son and save up for a down payment on a home (my wife and I own a small condo, but don’t have much equity in it).

Trying to grow App Cubby has been incredibly challenging. The $250k revenue hasn’t come at a steady pace. After Gas Cubby was selected by Apple as the "App Store Pick of the Week," App Cubby made over $30k in a single month. In the months prior, income was spiraling down under $10k/month. Wildly fluctuating income makes it tough to hire employees and manage cash flow with growth in mind. Plus, prior success in the App Store does not guarantee future success. The $60k I have invested in a new app (which should launch early next year) may or may not pay off. At some point, a new competitor could enter the market and quickly wipe out my existing income stream. That’s business cut-throat and unstable.

How do I grow App Cubby in a way that increases value AND income? That’s a question I’ve been asking myself since the day the company was founded. These past few months, I’ve been working on a solution I think makes a lot of sense. I’ve signed an exclusive sponsorship deal with Honeywell to advertise its consumer auto brands - FRAM, Prestone, and Autolite - in a rebranded version of Gas Cubby called Gas Cubby by FRAM.

For existing customers who may be getting worried at this point, don’t. Existing users of Gas Cubby can upgrade to 2.1 and continue to use the app without ads. And the paid version of Gas Cubby will continue to be available in the App Store for those who would prefer to use the app without ads.

I never knew much about Honeywell as a company and I certainly didn’t know they owned several consumer auto brands, but I’ve been quite impressed with the folks I’ve been working with inside the company. At the end of the day, their goal is to sell products and make money for their stock holders, but most of our conversations were about bringing value to users. We started with a simple advertising deal to get the ball rolling but have some great ideas to grow the app over time.

I’m also excited about the number of users who will get to use Gas Cubby. That alone will exponentially increase the value created by Gas Cubby. Had I given the app away for free without a partner like Honeywell, there’s no way I could have managed the marginal costs. The advertising will help pay for the excellent tech support App Cubby is known for, and we’ve temporarily removed the online backup/sync feature in Gas Cubby by FRAM to keep other costs under control. Once we get a sense for how many people start using the app now that it’s free, we’ll be working toward scaling and redesigning our current sync architecture to accommodate the load.

Since the advertising revenue is based on how many people use the app and how often they use it, it’s unclear what exactly this means for App Cubby’s bottom line. Still, I’m excited that thousands of new users will have the opportunity to use Gas Cubby.

david

"Opportunity is missed by most people because it is dressed in overalls and looks like work."
-Thomas Edison

Throughout history the lure of fame and fortune has sent many a would-be entrepreneur-writer-actor-musician to an early grave without a friend or penny to their name. People will take incredible risks and sacrifice everything—friends, family, and even health—in the hope of living happily ever after. Hard work, dedication, and a bit of luck can turn almost anyone into a success story, but it’s the get-rich-quick schemes and entitlement mentality that most often devastate a person’s life.

The App Store is an unparalleled opportunity in a burgeoning market, but it’s not an instant ticket to a carefree life sipping margaritas pool side on your own private island. The press has sensationalized the notion that anyone can come up with the next great idea (or gimmick) and make it big in the App Store. Way too many people in our hyper-materialistic society are blinded by the dollar signs and don’t take the time to do a bit of 3rd grade math and analyze the situation through the lens of a high school economics class—that’s the picture Tony Dokoupil was trying to paint in a recent Newsweek article. The success stories aren’t as sensational as the headlines (especially after taxes) and no one, even those with prior success, is guaranteed anything. The App Store is amazing, but comes with it’s own set of unique challenges.

When I founded App Cubby in March 2008, no one really knew what would happen with the App Store. The opportunity looked really good—a growing market of self-selected early adopters with disposable income—but NO ONE could have predicted 2 billion apps would be downloaded in less than 18 months. The App Store has been an incredible success, far exceeding the expectations of everyone, including Apple.

I didn’t found App Cubby with a gold rush mentality. I never presumed Apple owed me a living or I somehow deserved success. I’ll admit I’ve occasionally been blinded by dollar signs and hoped for millions, but that’s not why I founded App Cubby.

My Story

Here’s an excerpt from the introduction I wrote for a chapter in the forthcoming Apress book on iPhone UI:

"I came to the iPhone platform not as an experienced developer, seasoned entrepreneur, or even programming hobbyist but as a rabid fan. I happened to be traveling in China in January of 2007 and vividly remember sitting in a Beijing hotel lobby, paying way too much for subpar Internet access and trying desperately to get news on the Macworld keynote. Did Apple actually announce a phone? What does it look like? Is it a real Apple device, not like the terrible ROKR I bought, but quickly returned?

Fast-forward six months. I’d been watching and re-watching that keynote, reading every blog post, and listening to every podcast. I couldn’t wait to purchase an iPhone. My brother called me up late in the afternoon on June 28 and asked me to meet him at the Apple Store. We waited almost 24 hours in line, and I ended up being the first person in San Antonio, Texas to purchase an iPhone. After just a few minutes using the device, it became quite apparent to me that Apple had delivered on the promise of revolutionizing the mobile phone. Being an intellectually curious person, I started thinking quite a bit about this little touch screen device and what made it so compelling. Why was I grabbing it instead of my laptop for certain tasks? How in the world did my Baby Boomer father take to it like a duck to water when he had struggled for years with computers?

That curiosity and the successes of burgeoning jailbreak development community got me thinking about what I might want to create if I were to develop an app for the iPhone. Web apps for the iPhone were functional, but they lacked the power and finesse of Apple’s native apps. Rumors started floating around that Apple might actually be announcing an official SDK for native iPhone app development. My casual ideas about iPhone development slowly started forming into real thoughts of starting a business. I had just gotten married and was quickly realizing that my career as a recording engineer, working late into the night for weeks on end, wasn’t congruent with my desire to start a family.

In March 2008, Steve Jobs took the stage and laid out a very compelling opportunity. For a very small fee, anyone could start developing iPhone apps and soon sell those apps to a rapidly growing install base. I was sold. My last scheduled project had just wrapped up in the recording studio, so there was no better time to jump head first into iPhone development.

Having spent the better part of a year casually studying the iPhone and thinking about potential apps, I knew that I would need to start working on this full time if I were going to build anything polished enough to match Apple’s default apps. It didn’t take much to convince my father and uncle, who are partners in a small business, to help me finance this new venture.

With bootstrap-level funding in the bank and my schedule completely open, I dove in..."

Happily Ever After

Storybook endings never quite play out in real life the way they do in our collective imagination. Pop sensations with all the fame and money in the world often end up living tormented, drug-fueled lives and die at a tragically young age. Billionaires are often as empty and insecure as the high school kid flipping burgers at McDonalds. It’s impossible to attach a specific dollar amount or milestone to happiness or success and those who do end up chasing their tail, endlessly hoping their next big achievement will satisfy.

App Cubby has not made me rich, but it has provided an opportunity for me to live my life richly.

My wife and I were blessed with our first child earlier this year and working from home has enabled me to spend tons of time with my wife and son. I got to see (and grab a video clip on my iPhone) his first attempt at crawling and I’ll probably be in the room when he takes his first steps. You can’t put a price on that kind of involvement in your child’s life.

Beyond the joy App Cubby has provided through having a flexible schedule, it’s also been fun to see my name and apps mentioned all over the web and in print. The following is a small portion of the positive press App Cubby has garnered:

Gas Cubby was even mentioned in the June 2009 issue of GQ:

As an Apple Fanboy who’s been reading most of those sites for years now, it blows my mind that I’ve managed to create something interesting enough to warrant coverage in so many notable places, online and off.

Though App Cubby’s bank account isn’t currently flush with cash and I still have quite a bit of financial stress day to day, I feel confident about the long term prospects. My apps have continued to sell well and should have a great holiday season. In the next month or so the chapter I wrote for Apress will be published, adding to my credibility for any future writing, speaking, collaboration, consulting, etc. I’m currently in talks with a Fortune 500 company about leveraging my apps and experience to help them build a solid mobile strategy. I’m also working on another app that has been completely funded by App Cubby profits. Anything I make on this new app is pure gravy.

I’m not an iPhone millionaire, but I’m doing quite well, all things considered. App Cubby has been a TON of work and caused quite a few sleepless nights, but these last 18 months have been some of the more fulfilling times in my life, both personally and professionally, and I can’t wait to see what the next 18 hold.

Thank you Apple, fellow developers, tech press, and App Store customers for helping to provide for my family and helping me build something fun, worthwhile, and profitable.

Clearing the Air

There is a fine line between constructive criticism and offering so much critique that it comes across as incessant complaining. While quite a few developers, several contacts at Apple, and even a few people in the tech press have told me that my writing has been some of the more thoughtful and constructive critique regarding the challenges of the App Store, I’ll admit to having crossed the line into complaining on more than one occasion and it saddens me that I’ve been labeled by some as a whiner. I’d like to clear the air and have another shot at being a positive AND honest voice in the iPhone developer community. The challenges of the App Store are real, but that doesn’t negate the fact it’s an incredible opportunity and a heck of a lot of fun.

david

With the average price in the App Store now at $1.39 for games and $2.58 for all apps, the App Store is killing the value perception of mobile software shoppers. Some would argue that this is just market economics at work, but I think there is a very strong case to be made for Apple being directly responsible for this trend. Whether they did so deliberately or inadvertently is still up for debate, but either way, the future of iPhone platform and of the entire mobile software industry hinges on the direction Apple takes with App Store 2.0. The downward spiral in app prices caused by the Top 100 list and Apple’s relatively hands off approach during the first year of the App Store has created completely unrealistic pricing expectations that may haunt the entire mobile software industry for years to come.

Here are a couple choice quotes from recent Gas Cubby reviews:

“This is the best app I’ve purchased by far... the only down fall is the $10 purchase price. I highly recommend this app...”

“Real good app. Does everything I wanted and then some. The only reason I am giving it 4 stars is because of the price....$10 is a bit excessive, although I think this will help me save money in the long run, so it could pay for itself.”

I really don’t blame App Store shoppers for this perspective. When all sorts of amazing apps fly up the charts at $0.99, charging $10 *seems* completely unreasonable. “That’s why games are having trouble maintaining their price points. Human psychology makes value judgements based on peer groups, which is one of the reasons the competitive landscape is driving prices so low." - Ian Lynch Smith of Freeverse

Apps with a strong brand name can launch at $10 to maximize revenue, but most successful $10 apps eventually end up at $5 (or less). Here are a few examples of apps currently in the top 100 after giving up on the $10 price point:

• Brothers in Arms - http://appshopper.com/games/brothers-in-arms®-hour-of-heroes
• Scrabble - http://appshopper.com/games/scrabble
• Hero of Sparta - http://appshopper.com/games/hero-of-sparta
• Tetris - http://appshopper.com/games/tetris
• Assassin’s Creed - http://appshopper.com/games/assassins-creed-altairs-chronicles
• Fleet Air Superiority Training - http://appshopper.com/games/fast-fleet-air-superiority-training

And here are a couple price drops that are a bit nearer to my heart:

• After being one of the most vocal critics of the rush to $0.99, Craig Hockenberry seems to have found the $10 price point unsustainable - http://appshopper.com/social-networking/twitterrific-premium

• After writing an incredibly inspiring blog post about value and premium pricing in the App Store, Marco Arment has also succumb: http://appshopper.com/utilities/instapaper-pro

I’m not going to rehash the entire argument about App Store pricing, but here are a few rather poignant quotes from recent articles:

"If [iPhone] games could have a reasonable shelf life at $9.99, you will start seeing multi-million dollar development budgets as the market continues to grow. But if it turns out the only way you end up being successful on the iPhone is games that cost a couple dollars, you’re never going to achieve that parity with the other handhelds." - John Carmack of id Software

"The collapse of the initial pricing model of $10 and $5 games to 99-cent and $3 games has made everyone very cautious. We’re trying to keep our developments to three or four months at most." Ian Lynch Smith of Freeverse

“A casual observer surfing through the offerings on iTunes today could easily mistake it for a digital dollar store. Though the place is crowded with options, the app store bestseller list is dominated by 99-cent games like the Moron Test and Sally’s Spa -- hardly the foundation of a new mobile economy.” - Jon Fortt of Fortune

Lots of cheap apps may seem good for the average App Store shopper, but it’s ultimately bad for the iPhone platform and the future of all mobile software development. Though the platform appears healthy and vibrant from a distance, the poor business opportunity of the App Store is not lost on those who actually have skin in the game. Most iPhone developers I spoke with at WWDC view the App Store more as a casino than a business. You can play all your cards just right and still walk away with nothing. Or you can get lucky on a single hand and walk away flush with cash. That’s true of many businesses, but is even more apparent with the hit driven nature of the App Store. Because of this, most developers I spoke with at WWDC (even the VERY successful ones) were looking to spread risk among several small apps rather than creating one amazing app.

So, instead of rehashing all the same issues in the same old way, I decided to offer some solutions based on Apple’s own sales strategies. At the end of the day, what iPhone developers really want is the same shot at success that Apple has with its own products.

1. Unit sales are seldom a good measure of quality. In fact, high volume products are often compromised in order to lower the price for mass appeal. Not Apple products. Mac hardware is the best in the business, but still only represents a small portion of the overall computer market. iPhone developers need opportunities to compete on merits other than sheer volume. The Top 100 list has and will continue to artificially incentivize lower prices rather than support value based business models.

2. People like to "kick the tires." Apple Retail stores are designed to help shoppers fully experience Apple’s products. The computers are fully loaded with full versions of software. The iPhones have apps pre-installed for shoppers to play with. Most everything is spaced out in a way that encourages shoppers to spend a few minutes kicking the tires. Even with software and services Apple recognizes the value of offering demos. MobileMe, Aperture, and iWork all have full featured, timed demoes. Developers need a way to let shoppers fully kick the tires. "Lite" apps are woefully inadequate and introduce all sorts of problems of their own. A timed (5 days?) or triggered (by completing a certain number of levels, etc.) trial period would be best.

3. App Store analytics. Though not to the extent of someone like Amazon, Apple does monitor and make decisions based on shopping data and analytics. Developers need at least a little peek into the black box that is the App Store. Allowing click tracking all the way through to purchase is a minimum, but any additional data would be helpful (such as where shoppers are coming from: direct links, search, top lists, featured pages, etc.).

4. Shopping experience. Apple’s retail stores are finely tuned sales machines. The current iteration of the App Store was sufficient when there were only 1k apps, but with 60k apps it now feels a lot more like a Sam’s Club than an Apple Store. I’d like to see better separation from the music store with improved searching, sorting and filtering. There’s quite a bit more that could be done, but I wont bother creating a long list here. Shopping experience is something that is a priority to Apple, so I expect that they are already working on some significant changes in this area.

6. Pricing flexibility. Walk into any Apple Store today looking for a laptop and you’ll probably end up with a laptop, Apple Care, a printer, an iPod touch, and a few accessories because of various promotions and the hard sell Apple Store employees are trained to give. Bundles, rebates, other incentives work. Developer’s need similar opportunities to maximize revenue. I’d love to be able to offer coupons, bundles, and other promotions to maximize the cross selling among my apps.

7. Customer data. I recently got an email from Apple’s online store after setting up and saving a cart, but not purchasing it. When someone buys something online, signs up for the iTunes Store, or any number of other actions, Apple stores their email for various marketing purposes. This could get very sticky, but it would be really nice is developers had some way of communicating directly with our customers. In addition to marketing, it would be really helpful for notifying customers of bugs or explaining new features (people don’t seem to read the update descriptions, I know I generally just hit "Update All").

Not surprisingly, I could go on...

Until Apple takes some major steps to curb the price deterioration in the App Store, I’ve decided to put all the App Cubby apps on sale.

Gas Cubby - $4.99    •    Trip Cubby - $4.99    •    Health Cubby - $4.99

david

Additional reading:
http://www.pocketgamer.biz/r/PG.Biz/Gameloft+news/news.asp?c=14077
http://www.macworld.com/article/138384/2009/01/appstore_prices.html
http://www.polarbearfarm.com/blog/?p=79
http://www.polarbearfarm.com/blog/?p=21
http://www.polarbearfarm.com/blog/?p=48
http://furbo.org/2009/07/10/year-two/
http://furbo.org/2008/12/09/ring-tone-apps/
http://furbo.org/2009/02/16/raising-prices/
http://blogs.oreilly.com/iphone/2008/12/the-app-store-effect.html
http://blogs.oreilly.com/iphone/2008/11/iphone-pricing-revisted.html
http://blogs.oreilly.com/iphone/2008/12/app-store-glitches.html
http://blogs.oreilly.com/iphone/2008/10/refunds-and-trials-in-the-app.html
http://www.pocketgamer.biz/r/Various/iPhone/feature.asp?c=9936
http://www.macuser.co.uk/news/242325/iphone-app-store-favours-ldquosimple-and-cheap-instead-of-complex-and-expensiverdquo.html
http://arstechnica.com/apple/news/2008/12/iphone-dev-cheap-apps-dont-necessarily-make-a-hit-platform.ars
http://daringfireball.net/linked/2008/12/09/ring-tone-apps
http://www.atomicwang.org/motherfucker/Index/93E914B5-89ED-4D46-8EFD-9AACC6BAE818.html
http://www.taptaptap.com/blog/how-to-prevent-the-app-store-from-becoming-the-crap-store/
http://daringfireball.net/linked/2008/07/29/app-count
http://www.dragthing.com/blog/?p=30
http://www.losingfight.com/blog/2008/11/07/can-you-make-a-living-off-an-iphone-app/
http://blog.cosential.com/?p=80
http://blog.iliumsoft.com/2009/03/19/appstore-prices-is-cheaper-really-better/
http://www.gamasutra.com/view/feature/4038/persuasive_games_i_want_my_99_.php
http://www.slidetoplay.com/story/app-store-pricing-puzzle
http://brainstormtech.blogs.fortune.cnn.com/2008/12/10/trouble-in-the-99-cent-app-store/
http://dealrange.typepad.com/deal_range/2009/01/the-apple-app-store-and-pricing-power.html

With App Store shoppers seemingly hesitant to risk $5+ on a new app, I decided to do a pricing experiment. For a limited time, App Store shoppers were able to purchase any App Cubby app for $0.99. I asked that if they felt the app was worth more than the $0.99 they paid, they make a donation to fund future development.

During the 7 days of the experiment, we received $75 in donations, and sales volume shot up enough to make the 7 day experiment essentially revenue neutral compared to the prior 7 days. During the first few days of the sale I was starting to think the $0.99 price point might actually be sustainable given the increase in volume. The thing is, our apps got a TON of press from news about the "experiment." As the press attention waned, volume began to slide. It quickly became apparent that the $0.99 price point wasn’t going to work long term. There was a bit of a bump at the end, but that’s typical of anything that goes on sale; people rush to buy it just before the sale ends.

Mike Schramm in a post on TUAW said: “If someone can sell 100,000 copies of an app for a buck apiece (walking away with $70,000 after Apple’s cut), why are the talented developers leaving? Surely you can make a quality app for less than $70,000, right?” Yes, quality apps can be developed for less than $70k (all three App Cubby apps together cost less than $70k to develop), but the real question is: how many apps actually sell 100k copies? The answer: very few.

People seem to think that there is unlimited demand for iPhone apps, but that’s just not true. The time, attention, and discretionary income of iPhone and iPod Touch users ARE finite. They can only download and use so many apps in a single day. The published download numbers for the App Store are off the charts, but as I’ve pointed out before, those numbers are spread quite disproportionately among free apps and the top 50 paid apps. The harsh reality is that very few apps can "make it up on volume."

All over the web, on TV news, and even in print, there have been stories about people cashing in on the App Store gold rush, but very few developers have been willing to share sales stats for apps that have performed poorly or even moderately well. A bit of logic and some simple math reveals that only a few independent developers are making crazy money... some are making decent money... but most are making VERY LITTLE MONEY.

Here’s a great example: Veiled Games’ really cool Payday Roulette has sold only 8329 copies to date. The $0.99 price minus Apple’s 30% comes to $5830 in net income. They don’t reveal what it took to create the game, in terms of hard costs and/or time, but I doubt it proved worth their time to create (at least financially). It took their second app, Up There, getting featured by Apple to give the company any hope of financial viability (very similar to my own experience with App Cubby).

Great software can and will be made by enthusiasts who work nights and weekends in a labor of love, but the iPhone will never reach its full potential as a platform until there is some semblance of sanity in the App Store. Most of the talented developers I’ve spoken with recently are planning easy to develop, gimmicky apps that aren’t much more than a roll of the dice. Here are a couple quotes from Duncan Wilcox that sum it up nicely: "I have a few really awesome iPhone app ideas (if I say so), but the current state of the appstore deters me from starting to design/code... you’re either in the top100 or you’re invisible; getting there is a gamble that has relatively little business sense"

So, I’ve been thinking an awful lot about what direction to head with App Cubby. Should I crank out a bunch of low cost apps and roll the dice? Should I spend precious resources updating existing apps, or just keep churning? Should I join the gimmick bandwagon and brainstorm the next iFart? Should I stop creating new App Cubby apps and focus on contract work? Should I get a day job and just squeeze every last dollar from my existing apps? Should I play the pricing game, putting my apps "on sale" every few weeks? Should I maximize short term sales and just sell the whole business? Those are just a few of the questions I’ve been asking myself over the last few weeks. Here’s what I’ve decided:

Quite a few developers, myself included, have posited more than a few concrete steps Apple could take to improve the App Store, but since they don’t seem so inclined, I’m going to do my best to find a sustainable strategy in the current iteration of the App Store. The thing is, I created App Cubby as a fan of the iPhone platform. My goal was to create great apps that people would enjoy and build a business that could provide for my family. If I manage to create the next big App Store hit, that would obviously be quite welcomed, but I’d like to do so with a meaningful application not a gimmick. I may never become an App Store millionaire, but I think I’ll have more fun and be doing something more worthwhile.

This experiment has helped me realize that App Cubby apps are just niche products. Trying to turn a niche product into a volume leader is picking a losing fight with the market. The App Store is definitely slanted toward high volume apps and there will continue to be gimmicky apps that fly up the charts and make tons of money, but I’d rather build a sustainable business than try and win the App Store lottery. I’ve decided to embrace what I am; a developer of very high quality niche products. My strategy moving forward will be to charge a fair price for my apps and focus on delighting my customers with the best apps possible and the most responsive support and development.

To have people say that my products are an absolute steal at $0.99 and that I SHOULD be charging more was a wake up call. As the saying goes, if no one is complaining about your price you’re charging too little. The thing is, the more I’ve thought about the App Store and my goals as a developer, I’ve realized that I would rather have small community of delighted customers than a gaggle of customers who don’t value what I’m doing. Health Cubby helped me figure out that the people I built it for absolutely love it and are willing to pay a premium, but those who didn’t even bother to read the description won’t be happy no matter how many features I add. Rather than chasing my tail trying to build apps that please every iPhone user, it makes much more sense to focus on the people who get what I’m doing and delight them with just the right combination of features (ie. not every feature ever requested) and great user experience.

Here are the first three steps I’m taking in light of this new strategy:

1) Raise the price of all the App Cubby apps to $10

2) Release Lite versions of each app so that users can "try before they buy"

3) Release substantial updates to each app in the next 60 days (including online backup/sync to ease the Lite to Paid app transition)

david

A tweet from Steven Frank, the co-founder of Panic, challenged me to think more about App Store pricing and describe in more detail the issues with the App Store as an economic market.

"99c apps don’t preclude expensive apps any more than Hyundai precludes the existence of Lexus."

That is quite true, but we need to look at the market forces that influence app pricing to better understand the motivation of developers in setting the price of an app.

Many developers are not pricing their apps at a sustainable price, or even a fair value for their app, they are using price as a marketing tool. In a competitive free market, price is one of the ways to compete, and heavy competition generally leads to lower prices, but price isn’t the only way to compete. Apple itself proves that a premium product can be wildly successful.

But, the App Store is not a free market!

If you walk into any major grocery store in the world, you may not notice, but you’re walking into a very specially designed maze of marketing. Manufacturers pay for end caps, prominent shelf space (floor level for children’s products, eye level for adult products), and other subtle tricks that move more product. General Mills spends millions of dollars marketing Cheerios, but they still pay for prominent placement so that a child will grab a box on impulse and beg their parent to purchase it.

As opposed to what many have suggested, the App Store is not just a giant warehouse where everything gets relatively equal exposure. Apple’s design of the distribution channel is actually one of the strongest market forces.

"Despite what others say about marketing, iTunes placement is KING."
—Layton Duncan of Polar Bear Farm

I haven’t been able to determine this conclusively, and no one at Apple will comment, but it seems as though app rankings (and therefore placement in the App Store) are determined almost exclusively by sales volume. Volume drives ranking and ranking drives more volume. This cycle creates momentum that is hard to stop, and developers are using price as a means to feed this cycle. As volume starts to drop, a quick price adjustment will spur demand and cause an uptick in volume, which then pushes it back up in the rankings and gives the app even more exposure.

That sounds like market economics at work, what’s the problem? Using price as a marketing tool really only works for the top 50 apps. From everything I’ve been told by other developers, publicly and privately, the top 50 list generates it’s own buzz. The top 50 is the place where people make those impulse purchases. Most developers are lowering their price hoping to get more attention, but end up shooting themselves in the foot. If they bet on volume and fail to make it to the top 50, it’s unlikely that they will make a return on their investment of time and/or money.

The makers of Ocarina recently revealed that it sold close to 400,000 copies in a single month, which equates to over 13,000 copies per day. Ocarina is one of the most viral apps so far, and may be a unique case, but I’ve seen other numbers that confirm that the top apps in the App Store are selling around 10,000 a day. I’ve heard from other developers that app #50 sells between 500-1000 copies per day, and from my own experience I know that app #100 sells 200-300 copies per day. Here’s what that looks like:

I don’t have sales data to back it up, but I’m pretty sure the numbers don’t drop as rapidly after the top 200, but any way you look at it, that’s an incredibly steep curve! If you stretched that graph to include all 10,000 apps, you’ll see that most apps are making VERY little money.

Ranking apps by volume incentivises cheap gimmicky apps, and makes it difficult for developers to charge a fair price for quality apps. Sure EA and other game developers have been able to sustain higher prices and hold strong in the top 50, but most apps in the top 50 are games from big name developers, priced at $0.99, or both!

If Apple changed the rankings to use a combination of volume, price, and maybe even star rating, the App Store would take a dramatic turn in the right direction.

david

UPDATE: More great reading on this subject from Layton Duncan at Polar Bear Farm : The Hack Store

Many of the responses to Craig’s post focus on the need for marketing vs. depending on the App Store for sales. While I agree with the need for marketing, the only methods of marketing I’ve found to be measurably cost effective are working with the press and getting featured by Apple, both of which are essentially free, but incredibly hard to guarantee.

As opposed to what many have assumed, blogging about the App Store is not actually a good marketing strategy. Craig may see a bump in sales (though it doesn’t look like it from the iTunes rankings), but in my experience of having tens of thousands of people flood to the App Cubby blog last week, very few spent time elsewhere on my site, and even fewer actually purchased one of my apps. Craig’s motivation (and mine in writing this response) was to talk honestly about the App Store in a way that spurs thought and moves the iPhone development community in a positive direction.

The closest thing I’ve seen to a "business model" for marketing iPhone apps is to advertise like crazy until you get into the top 50 and once you’re there, the top 50 list will start generating it’s own buzz. Then, just throttle the advertising to keep it in the top 50. But that’s not a business model, that’s like rolling the dice at a casino. I could spend tens of thousands of dollars on marketing and end up losing my shirt. Tap Tap Tap made it work, but I’d argue that they are a very unique case. Where To? was in the App Store on day one and Tap Tap Tap was able to use the first month’s sales to experiment with a $56,000 advertising budget. They’ve used those early lessons and another big wad of cash to help make the launch of Classics an incredible success. But with all that money, experience, and a great app, it still took a price of $0.99 to get Classics back into the top 50 once sales started dropping.

Well then, why shouldn’t every developer just drop their price to $0.99 and make it up on volume? If every developer dropped their price, volume would definitely go up, but it would just be spread across the top 200 rather than the top 50, and it would still take a top 50 app to justify months of development. That scenario doesn’t pose any less risk for developers than the current system and once the price expectation is set at $0.99, niche apps will never have a shot at profitability. You may only think 20 of the 10,000 apps are actually useful and/or fun, but each of the 20 million iPhone/iPod Touch owners is going to have a different list of 20, so the App Store should be able to sustain several thousand great apps, not a couple hundred.

Let me put it another way. Wouldn’t you rather pay $10 each for 20 AMAZING applications than pay $0.99 for 200 gimmicky applications with a few good ones mixed in. If the App Store landscape doesn’t change, developers like Craig Hockenberry aren’t going to take the time and spend the money necessary to create some of those amazing apps. Sure, the big game companies, VC funded developers, and big brands like Target will continue throwing money at the App Store, but some of my favorite apps so far have come from independent developers, and I would love to see what amazing apps are currently stifled by the need to hold down a day job.

So, back to marketing... one real business model for efficiently selling low cost goods on the internet is to have a laser focused marketing strategy developed through trial and error by obsessively tracking results. Well, Apple doesn’t allow developers to track sales from link to purchase. Until there is a way to track and optimize marketing dollars, it’s incredibly hard for me to warrant going in the hole on an advertising spree or dropping my prices to $0.99 hoping that it will pay off once an app hits the top 50.

Instead I’ve chosen a more methodical approach, dipping my toes in various marketing strategies and measuring the results as best I can.

Macworld: I’ll start with the earliest marketing attempt, a banner ad on Macworld.com. I knew that App Cubby’s first app, Trip Cubby, was a very niche app, so I worked with Macworld on targeting my $600 ad buy. I bought 30,000 impressions that would be triggered by a combination of iPhone AND business. Those 30,000 impressions netted about 120 clicks (%0.39 CTR, bad, but not terrible for such a niche product). If EVERY SINGLE person who clicked on the ad actually bought Trip Cubby ($10), our income after Apple’s split would have been $840. Without click tracking there is no way to know exactly how many clicks turned into sales, but I doubt it was anywhere near the number needed to break even, much less turn a profit on this endeavor. To be fair, I don’t think that this is the fault of Macworld’s ad inventory. The numbers make a lot more sense for businesses selling iPhone cases, desktop software, and maybe even broad market iPhone apps.

AdMob: The lack of click tracking was still a challenge, but with $5,000 in free advertising I was able to take a more aggressive approach with my experimentation on AdMob. There was a 3 day window where the initial sales boost was slowing down, and no major press hit the web. During that time I scaled my AdMob budget up and down to see how it affected sales:

The AdMob experiment deserves a bit more explanation. When I was first notified about getting $5,000 in free advertising I was blown away. I spent hours crafting the perfect sales pitch and started buying ads the moment the money hit my AdMob account. I spent over $500 (2224 clicks) the first day and couldn’t wait to check my sales the next morning. Well, sales barely moved, and I had spent 3 times more on advertising than I saw in gross sales. So, since the ads were paid by the click and not the impression, I decided that it would be my goal to actually deter people from clicking on my ad. I created ads like: “Trip Cubby • Business trip log $10” and “Business mileage log. Buy now! $10” Surely people wouldn’t click on my ad unless they knew what there were getting into and would be more likely to actually purchase Trip Cubby. Still, no noticeable bump in sales.

I decided to stop advertising Trip Cubby and save the rest of my free advertising for Gas Cubby, which is a bit less of a niche product. After spending the last $3,000 buying ads for Gas Cubby, I still haven’t seen a pattern that would confirm AdMob to be a cost effective marketing solution for my apps. This is by no means a conclusive test of the overall effectiveness of AdMob, but the numbers are pretty telling. The most compelling thing about AdMob is that you can bid as low as $0.10 per click to send iPhone owners directly to the point of sale. It’s possible that AdMob will be more effective if Apple allows app trials. The 42,000 people who clicked on my ads could have download the app with no risk, and purchased it later if they enjoyed using it.

AdWords: I’m admittedly not an AdWords ninja, so I took a very conservative approach, bidding low on highly targeted ads. The ads have throttled up and down as cheap ad space comes and goes, but have added up to almost $600 in 4 months. Without a way to track which clicks turn into sales, it seems foolish to throw money into a black hole bound by competitive placement and fraught with click fraud. Not being able to make AdMob work at $0.10/click makes me even more pessimistic about AdWords. Big companies have driven click rates for iPhone related words through the roof. Even my conservative approach ended up averaging $0.37/click!

Freemium: Many developer’s have chosen to offer an “Lite” version of their app. There are two main freemium strategies: 1. Put ads in the Lite version to make some money, then try and convert users to the premium version 2. Limit the features of the Lite version and use it as a free trial for the premium version. As opposed to what most people think, this strategy doesn’t seem to be paying off for most developers. Robert Marini, a developer for Pinch Media, posted a tweet yesterday saying: “There are apps that benefit from free ad-supported versions, but not nearly as many as people think. Most just shoot themselves...” He ran out of room to type on twitter, but I have a feeling he may have said heart or crotch rather than foot. Since Robert works at an iPhone analytics and advertising company, I’m going to take his word on this one. I’ve been tempted to release Lite versions of my products, but am holding out hope that Apple will allow free trials at some point in the near future.

Press: Having great apps, decent communication skills, and a bit of luck has gotten App Cubby more free press than most iPhone developers. We’ve been featured on: daringfireball.net, macworld.com, zdnet.com, tuaw.com, appleinsider.com, theappleblog.com, gizmodo.com, appcraver.com, edmunds.com, appvee.com, macnn.com, and many more blogs and app review sites. All these articles have helped sales and will continue to send customers our way over time, but the Gizmodo post hit at just the right time to be able to see it’s direct affect on sales:

Spikes are nice, and quite welcomed, but I’m trying to build a business, not a roller coaster! With enough good press spread across a few weeks, an app can build a base, and gain some traction, but a single article is often not enough to propel an app into stardom. As with much of my efforts at marketing, things would probably be a bit different if I weren’t selling niche apps. A game that gets a link from Gizmodo probably does much better than Gas Cubby did.

Help from Apple: Apple does a very good job of insulating developers from the people who actually run the App Store, so I have no idea who makes the final decisions (Steve himself?) and why some apps get featured and others don’t, but I’m forever grateful that Gas Cubby was somehow selected as a “Staff Pick.” The graph doesn’t need much explanation:

Where do we go from here? Since Apple pays monthly (and December sales won’t be paid until late January) I have a pretty close estimation of App Cubby’s year end numbers. Here is a basic breakdown of where App Cubby will be at the first of the year after all the bills are paid:

Total Income: $65,000

• $24,000 - startup funds borrowed from family members
• $32,000 - income from App Store sales
• $5,000 - free advertising from AdMob
• $4,000 - 1997 Honda Accord - my wife and I sold one of our cars to keep the business going

Total Expenses: $65,000

• $29,000 - Programmers: I’m not going to be specific, but I definitely paid less than $150/hr.
• $15,000 - Personal Salary: 80 hours a week since March 6th puts me at around $5/hr.
• $7,000 - Marketing: AdMob, Macworld, AdWords, etc.
• $5,000 - Legal, administrative, equipment, webhosting, etc.
• $4,000 - Artists: Described in an earlier blog post
• $3,200 - Charity: Sent to China for earthquake relief and humanitarian work
• $1800 - Investor Repayment: $360/mo. since August 1st. as per the promissory note I signed with my family

We’re in a great place right now, having already made enough money in the first couple weeks of December to cover my salary and administrative expenses for February (the December check will cover January). Sales have been trending downward and could drop like a rock at any moment if a solid competitor moves into my niche, but whether sales go up or down, there is still a bit of a chicken and egg problem; with the December check already spent, I won’t see my next influx of cash until late January. So, dear readers, should I follow the path of most US businesses and borrow against future earnings to do more marketing? Should I slow down development and do a marketing blitz the moment my January check rolls in?

I’m no marketing guru, but I’ve done as much marketing as I could afford (startup funds ran out in July), and have learned some interesting lessons along the way. If I can find a cost effective way to market my apps, I would be willing to borrow money for marketing, but so far the strategy that has made the most fiscal sense is to spend money on development and hope for good placement with Apple and the press. With our next app scheduled for launch before Christmas, January could be the month App Cubby really breaks lose, but in February the dilemmas will remain; where’s the sweet spot between marketing and development? Is there a truly cost effective way to market $5 iPhone apps?

And this whole post leads to questions I hope are being discussed within Apple. Would free trials help raise the quality and price of iPhone apps? Would providing click tracking to developers spur cost effective marketing? Is the top 100 list in its current iteration good for the platform? How can the App Store be improved to help users with search and browsing?

david

My first task was to find an artist to bring this plan to fruition. Well, being the insanely compulsive person I am, I ended up finding three artists, and they graciously agreed to cooperate and bounce ideas back and forth until we had things nailed down [Being paid by the hour probably helped a bit with the graciousness!]. In the end, Chris did the website art, Johnny did the logo, and Jordan did the icons, but each had input in the concepts and creation of all the App Cubby artwork. Group think tends to get in the way of progress, but there are times when the creativity of a considerate group of people blows away anything an individual could create.

Chris and I started the whole process back in April, brainstorming an icon that could also function as the company logo. Here are some of the early sketches:

Those early sketches turned into some interesting concepts:

Here are some logo ideas based on those concepts:

As cool as those concepts were, they just didn’t feel like a brand. Back to the drawing board:

Then I created a few quick mockups in photoshop:

Here’s where I’d like to take a bit of credit. First, I recognized that I’m not an artist and sent my mockups back to the team for further iteration. Second, I finally decided that the icon is what would create the brand. At this point Apple was far enough along in creating the App Store that some screenshots had been leaked, and it became apparent that the icon would take center stage in the App Store, not a company logo. This gave quite a bit more freedom in both the icon and logo design process.

After a few more ideas were tossed back and forth, Johnny hit the conceptual home run:

We passed that concept back to Jordan (who specializes in icon design), and he started toying with it:

After lots of work, and some brilliant artistry, here are the final icons:

For the average hobbyist iPhone developer, the icon and other artwork is important, but it’s difficult to spend much time and money on artwork when there’s no guarantee that an app will make any money. More and more stories are surfacing across the web that show Trism (making $250k in 2 months) to be the exception and not the rule. With such a tough market, many hobbyists and independent developers have decided to find cheap or free alternatives for artwork. Some do better at this than others, but most apps in the App Store still leave quite a bit to be desired.

Total cost of the App Cubby artwork: $4,000. It was worth every penny! We’re not yet in the black, but our apps have been incredibly well received, and we have lots of great things in the works...

To see Trip Cubby in the App Store: click here

To see Gas Cubby in the App Store: click here

Cash Cubby is still in development.

david