We’ve all seen the joke. Those of us in app development love to talk about how ridiculous it is that people will drop $4 every other day on a cup of coffee but will not “waste” 99 cents on our hot new app.
I hope by now we’ve learned something: This comparison doesn’t work.
Josh Lehman offers 6 reasons why he thinks that’s the case:
- Starbucks is a trustable experience
- your $1 app is a total gamble
- Starbucks has no free alternative
- free apps are often a great alternative
- Starbucks craftsmanship is on display
- app craftsmanship is hidden away
The last two, I think, are bogus. Starbucks is not known for its craftsmanship. But even if you were to substitute “Starbucks” with “your local artisanal coffee shop”, the point doesn’t stand because #6 is incorrect. You do get a very good sense of craftsmanship in the form of app reviews.
The first 4 points are really just two economic points: Starbucks is consistent, thus your app’s price has a risk premium, and apps can be offered at a marginal cost of zero, whereas coffee can not.
The consistency vs risk premium point is interesting, but it unfortunately fails with other examples. Think movies — the variance in quality of movies is quite large, so by Lehman’s logic, movies should be priced very cheaply. Also, $4 is not exactly a “huge gamble”.
The free alternative point is good. It’s very hard to compete with someone who’s willing to sell his product at its marginal cost. I’m not quite sure how to counter here, but I’d say that in aggregate the total cost of these apps should be somewhere in the ballpark of competitive salaries for the people producing them. If the true market price for an app is near zero, then I would expect developers would simply stop making apps. In fact, maybe that’s exactly what’s happening.
Perhaps we’ll start seeing app development as a sort of interview tactic to get into more prestigious companies. Maybe there’s a vicious cycle here of developers abandoning products because they can’t make money, thus customers not wanting to pay for apps, because the developers will just abandon them. There’s some hope for developers in this scenario, and I think it’d revolve around curation and reputation. If Marco Arment says an app is good, I’m willing to pay for it.
Finally, Lehman is missing a substantial part of the argument, which is that people who pay $1 believe they’re entitled to infinite support, but people who pay $4 for a cup of coffee are perfectly willing to toss it if it’s bad without complaining to the cafe.
At any rate, I’m optimistic about the bigger trend. I do think, though I have no data to back it, that consumers these days are much more willing to pay for a product than in the early days of the Internet. I’m very interested in seeing how Instapaper and Pinboard’s pricing models play out, for instance.