Pricing in the Apple App Store

As many of you know, when I'm not blogging here I run a software company, Movaya. We provide a platform that essentially enables anyone to become a merchant of digital content for mobile devices.

In layman's terms, we provide the technology infrastructure that makes things like Apple's AppStore work. (Note: Movaya has no commercial relationship with Apple.) You can see our technology in action if you go to Capcom's website and download one of their games to your phone.

Recently we have extended our services to the mobile application development space and are about to launch our first iPhone App through a partnership with one of our customers. We submitted the game on Monday and are eagerly awaiting approvals from Apple. I'm not ready to disclose the app but as soon as we're live, we'll be telling the world.

In the process of submitting the app one of the critical decisions is pricing. I have talked to over a dozen App developers who have products in the App Store to try to figure out what the "right" price is for our forthcoming application.

What I've learned through these conversations is that price elasticity in the App Store is high. If you're not familiar with the term, price elasticity is a fancy name for how the demand of a product changes with the price. If the demand changes little with the price, then the price elasticity is low (or inelastic); if it changes a lot, price elasticity is high (elastic).

There are a bunch of reasons why this is the case, the most glaring is the fact that there is a ton of free products and a bunch of good games and apps priced at $.99 and $1.99. Because of the glut of products at zero cost or low cost, it makes it pretty tough as a consumer today to justify spending $4, $5 or $10 on a game. I certainly hope this changes over time because I am skeptical that developers can stay in business giving away their products or selling them at a buck or two.

Pricing is so critical in the App Store because the #1 driver to get more sales volume is to be listed in the Top Sellers list. And the Top Sellers list is based on volume, and to get volume, you need a low price.

If you're not in the Top 25 list, it is pretty tough to get consumers to find your games. People simply won't spend lots of time browsing deep into the depths of the App Store - they look at "What's Hot", "What's New" and "What's Selling". If you can get in those slots, you will sell a lot of product, regardless of the price.

There have been a few companies that have tried to create a premium level of game content within the App Store. One that I have been watching is ngmoco. They are a San Francisco Bay Area firm that is focused on building games for the iPhone. They have five games in the AppStore currently.

Their "flagship" game is called Rolando and if you're an iPhone gamer, you've probably heard about it. IGN called it "simply brilliant" in their review last month and lots of other reviewers have sung it's praises as well. I haven't played it yet but I'm sure I will eventually.

ngmoco priced the game at $9.99 which I thought was great based on the quality, etc. and most of the reviewers said the game was well worth the $10. The game launched in mid-December and got a lot of support from Apple (featured placements) and was in the top sellers list for awhile. BUT, over the last few weeks the game has slipped down the charts and now sits at #45 on the paid apps list.

Well, if you look today, ngmoco has dropped the price on Rolando to $5.99. The only logical explanation as to why they dropped the price almost in half only one month after its release is that the sales numbers are dropping quickly and they hope to move back up the charts.

Does this mean that $9.99 is not a sustainable price point in the App Store today for games? I think so. I'll keep an eye on the charts to see if Rolando can move back into the Top 25 or if they will need to drop the price even further to get there.

As far as our iPhone app, we are going out at $1.99. Is that the right price for our app? Who knows - some have suggested that we price higher, others think we should sell it at $.99. It will be fun watching the data and I'll try to be as open as we can on our results in order to help other developers in the future.