How to price your app

To matter on the App Store, your app needs to be priced at 99¢, right? Or does it?

Making money from your app is really difficult. Pricing is intuitively an important part of the potential of any app. Price too high, and you price yourself out of the market, but price too low, and you’re leaving preciously needed money on the table.

Michael Jurewitz comes to the rescue! In a five part blog post series, the Apple veteran explains the ins and outs of app pricing, tackling crucial issues like differentiation, pricing power, price elasticity and a practical plan to optimise prices based on your app’s data. Our favorite take-away? Solve a difficult and important problem. Then charge what your software is worth. A must read for every developer who seeks to rise above the app poverty line.

The posts are based on a talk  from the Çingleton and NSConference events.

Michael Jurewitz – Çingleton 2012 from Çingleton on Vimeo.


How Price Changes Can Improve Revenues

Distimo recently published an interesting report (free, registration required) on how app price changes affect revenue for iPhone & iPad apps. They give a breakdown on the scale of price changes but only give the really interesting results – the download and revenue impacts – averaged across all price changes. The key result is that download volumes and revenues are significantly positively impacted by price drops and negatively impacted to a lesser degree when the price rises again.

Although not specified by Distimo it’s likely that the vast majority of price rises are simply prices returning to normal after an offer ends. In this context it’s worth bearing in mind that e.g. an app with 1000 downloads/day increases on average to 9710 downloads/day after 5 days following a price drop. When the price goes back up again, the downloads fall by 57% of the increased total, e.g. back to 4175.

Demand at zero price

A factor that is not accounted for in the Distimo analysis is the discontinuity in demand at zero price. Ideally the effects of price changes that make an app free should be analysed separately from those which do not. In the former case, demand at zero price is typically multiples of demand at any non-zero price; a free promotion also relies on generating revenue from in-app purchases, advertising or subsequent increased demand after the promotion ends. On the other hand, price changes which do not make an app free are trading off price against volume. Developers can experiment with these changes to find the price point which generates maximum revenue. For most apps the marginal cost of serving additional users is close to zero and certainly dwarfed by the cost of creating the app. In this scenario, maximum revenue equals maximum profit. The zero price effect also suggests that any price drop intended to increase downloads for the purposes of increased visibility in the store should be a free promotion for maximum impact.

Longer term impact

The Distimo report shows revenue growth (purely from downloads and in-app purchases) continues for at least seven days from a price drop, reaching an average of 71% increase for the iPad and 159% for the iPhone. Beyond seven days we have a much smaller dataset from the App Rewards Club (and their analysis of Free App A Day) which suggests an initial revenue spike follows the end of a free promotion but the longer term increase in revenues is only minor, questioning the fees charged by some free promotion services.

Beware frequent sales

If a key component of your revenue model is paid downloads and temporary price drops create spikes in revenue, along with slightly increased revenue in the long run, it’s tempting to think that frequent sales will ratchet up your earnings bit by bit. The truth is likely the opposite since there are multiple services that allow consumers to check the price history of a premium app; if there are regular sales many users will simply wait for the next one. There was a good review of the issues with sales on the app store last year, however, ignore any claims that it’s impossible to succeed with premium pricing – even in the most competitive category, games, one of the most successful apps is MineCraft, priced consistently at $6.99. Most of the other top ranked premium apps either don’t have sales at all, or only do so around significant events (new major versions, holidays, new device launches).

All of this data was for iOS. According to Distimo, Google Play also shows similar effects on price changes but of a smaller magnitude due to the greater difficulty of reaching top rankings. However, the subject of price promotion on Android is much less relevant, since paid downloads make up such a tiny fraction of overall revenues.

Business Platforms

The Darker Side of App Store Optimization

As long as there are algorithms impacting revenues there will be people trying to game them. In the world of mobile apps there are two sorts of algorithm that can be routes to success, chart rankings and search rankings. Chart rankings are very simple and typically just use some time-weighted download volume. Search rankings are much more complex, involving keywords, reviews and other social or similarity-based data as well as downloads. Developers can use a range of tactics to improve their ranking in these algorithms, some of them much more legitimate than others.

There’s no such thing as a bad download

Whilst there are very good practices for optimising search ranking, such as using tools that monitor competitors and analyse their keyword usage to suggest improvements to your own, the single most effective way to improve all rankings is to increase downloads. For paid apps, all downloads generate revenue, whether the app gets used or not – temporarily reducing the price or making the app free is an effective technique for boosting downloads, which boosts rankings and subsequent revenue when the price is returned to normal. For apps that are free anyway, it can similarly be worth spending some of the revenue earned through advertising or in-app purchases to increase downloads. On one level this is obvious, it’s worth spending money to market the app and try to reach new users. However, the winner takes all nature of app store discovery at present makes it worthwhile for some developers to chase downloads purely to enhance their rankings. Even users who will never open the app are worth attracting if they can be acquired for a low enough cost.

Paid placement

There are lots of advertising options available that drive users to your app in the store. The vast majority of them are pay-per-click and thus cannot be used cost effectively to inflate downloads of an app that doesn’t generate significant revenue per user anyway. Most of these are clearly advertising products, others look like app discovery tools to end users. Hooked is a good example of an app that blurs the line between discovery and advertising. They have a popular social discovery app for Android games where developers can pay to generate installs. For developers this is a very logical option because they have a fixed cost for installs which they can compare against average revenue per user. On the other hand, users may believe they’re getting a recommendation when in reality they are seeing an advert. It’s the same argument that surrounded paid placement for search results in the days before Google launched AdWords.

Cross Promotion

Another way to reach users is through similar apps. Apps promoting one another is a great way to reach a common user base. There are several cross-promotion networks with a variety of business models. Ironically the one with the name most suggestive of ranking manipulation, Chartboost, is at the most ethical end; they provide completely free technology for developers to organize their own cross-promotions and also a marketplace to connect developers where they take a cut of the transactions. At the same time, the most popular cross-promotion network (according to our latest survey), Tapjoy, plays much closer to the lines of acceptable conduct. One (and in fairness it should be emphasised only one of several) of Tapjoy’s services is incentivised downloads, a practice that Apple have repeatedly cracked down on – they pay users (in virtual rewards such as in-game currency) to download apps which have paid for that service (in cash). Clearly a large fraction of people who will download other apps to earn a bit of virtual currency are those unable or unwilling to pay for the same. These users almost by definition are unlikely to monetize, so the only obvious reason to seek them out is to increase rankings in order to be discovered by other paying users that would be more expensive to reach directly.


At the extreme end of ranking manipulation, with no pretence of being anything else, is Shaubang. This manipulation is primarily practiced on Apple’s App Store, made possible by the fact that a credit card is not required for an iTunes account in China. Companies with millions of accounts make use of extremely cheap local labour to pay people to download and review apps. These services often guarantee to boost an app to a desired category ranking for a fixed fee. This practice is heavily frowned upon by store owners but also extremely hard to police, since it involves real users (sometimes bot-assisted for efficiency) with real accounts.

Where’s the harm?

Users are mostly getting what they want out of these deals and so are the developers involved. Store owners have higher download stats to boast about. Even at the extreme end we have job creation in China. The main people losing out are the developers not taking advantage of these strategies. However, if ranking manipulation becomes the norm rather than a fringe behaviour then two problems become very serious. First, the top ranked apps are simply the ones that paid the most to be there, rather than the best ones – this makes discovery of genuinely great apps harder and reduces the overall perception of app quality. Second, a feedback cycle further concentrates revenue at the top of rankings – only those who pay to be at the top can afford sufficient manipulation to stay there and the rankings will begin to stagnate. App store owners need to ensure their markets are as honest and fair as possible, or users and honest developers will suffer in the long run.


Different Ways of Winning on the App Stores

A recent report from Canalys highlighted the extreme concentration of income distribution across the iOS and Android stores in the US. The top 25 publishers make 50% of the revenues. 24 out of 25 of those are games publishers (the 1 exception is the Pandora music streaming service). During the first 20 days of November these 25 publishers made $60m from paid downloads and in-app purchases in the US alone. Is there still room left for smaller publishers? How can smaller companies succeed and start winning on the app stores?

Business Platforms Tools

Is the Era of Microtransactions in Free Mobile Games Over?

W3i, the in-app offer exchange provider, released a report on December 6th showcasing recent trends in mobile app monetization. The W3iNSIDER Report breaks down data from its hundreds of game developer partners and 66 million monthly active users across iOS and Android.The data shows that smaller microtransactions ($0.99-$1.99), long thought to be the backbone of the freemium model, actually contribute significantly less revenue to mobile games than more expensive in-app purchases that range from $9.99 to $19.99.

When surveying the in-app purchase price points and how they contribute to the overall revenue of a sample of games, W3i found that, on average, 47 percent of total revenue comes from purchases costing $9.99 to $19.99. Smaller purchases from $0.99 to $1.99 only contribute an average of six percent to total game revenue.

The freemium model emerged as the foremost business model in mobile gaming with premium and subscription business models declining. The freemium model is built on the back of microtransactions with gamers spending a dollar or two to unlock virtual goods.

W3i is also reporting in-app purchasing trends from around the world:

  • The highest-spending region in the world is the United Arab Emirates- with 77 percent of revenue of revenue coming from $19.99 (55 percent) and $9.99 (22 percent) IAPs (as of Oct 2012)
  • The UK has the highest number of whale spenders- with eight percent of revenue coming from $49.99 IAPs sizes as of Oct 2012
  • $.99 IAPs sell the largest volume in China and Canada where they each make up about three percent of purchases

“Although the U.S. learned about freemium gaming from Asia, it’s apparent that Americans are taking their own approach to it,” says Robert Weber, co-founder of W3i. “Where mobile games in Asia still depend on microtransactions, U.S. gamers play more like whales- spending larger amounts of money in mobile games.”