Bias ?  The app-store is a fairly polarizing topic and so I’m going to start by describing my experience with different platforms/companies. If any readers perceive a bias, it might be interesting for them to see how my experience might have contributed to the perceived bias.

We have shipped two #1 ranked iPhone apps and my primary phone is an iPhone. I wrote an Android app long before the first Android phone was launched and replaced my secondary phone with an Android G1 in 2008. I was a Principal at Microsoft for several years and some of those years were in the Windows Live Mobile team where (among other things) I led a great team and received Microsoft Gold Star awards.

Smartphone Market Share: As per Gartner Research’s Q1 2010 numbers, Symbian had 44.3% of global smartphone sales, RIM had 19.4% and the iPhone was 3rd with 15.4%. However, the iPhone pioneered today’s modern smartphone design (which Google, Microsoft,RIM etc. are attempting to emulate).

It was the launch of the iPhone and its app-store that led to a tipping point in the mobile app ecosystem and today, its strongest challenger is Google’s Android. Symbian, Windows Mobile and (Blackberry) RIM have been losing market share among consumers and they also haven’t generated a lot of new developer interest. However, I should add that Symbian is more popular outside the US, than it is in the US.

The first Symbian touchscreen device (Symbian 3) is expected to be released in October 2010 and it is also rumored (in a not-so-great 2009 movie) that James T Kirk used a Symbian (Nokia) touchscreen device. Microsoft’s new touchscreen-based Windows Phone 7 platform is also expected to launch in October 2010. Yesterday, a news report indicated that RIM may release a new touchscreen Blackberry device before October,2010. So the iPhone and Android may face more competition next year.

Language and ramp-up time:  iPhone (iOS) app development requires Objective-C expertise. For most developers, learning the iOS platform (with Objective-C) is likely to be a lot more challenging than learning the Android, Windows Phone 7 or Blackberry platforms.

Developers for Android and developers for the Blackberry platform use the Java programming language, and developers for Windows Phone 7 will use the C# programming language with Silverlight and XNA.

Note that Android and iOS support the (optional) usage of C/C++ for coding some (but not all) portions of the apps. Android apps can be developed on Windows, Mac and Linux. iPhone apps can only be developed on a Mac.

Language (Java) fragmentation and Android: Java was once advertised as a “write once, run anywhere” cross-platform solution, but that hasn’t been true in practice. Android uses a non-conformant implementation of Java and Google chose to create its own standards for new libraries and APIs. This means that an Android app will have to be rewritten for a Blackberry device, even though both platforms ostensibly support the Java programming language.

In the past, in the desktop world, Microsoft has taken a lot of heat for creating non-standard versions of Java, but the digerati doesn’t generally mention that Android created a new non-standard version of Java.

Developer Fees and App Prices: Apple charges an annual developer registration fee of $99, Google charges $25 and Blackberry charges $200. The Apple and Google registration fees let developers release an unlimited number of apps, while Blackberry limits the number of apps to 10 and charges additional fees for more app-submissions.

Unlike Apple, Google etc. which set a minimum price of $0.99, the minimum price for a Blackberry App World app is $2.99

Growth prospects, iPhone and Android: A recent Nielsen study indicated that 80% of iPhone users wanted their next device to be another iPhone. 70% of Android users wanted their next device to be another Android device. These numbers were in stark contrast to the low numbers of other platforms such as Blackberry and Windows Mobile. The Nielsen report also indicated that iPhone users are older, wealthier and more educated than their Android peers.

The biggest constraint to the iPhone’s growth in the US is the fact that its exclusive carrier is AT&T.  Android is available on the country’s four largest carriers. The iPhone’s current growth in market-share will be accelerated (at the expense of Android’s growth rate) if it is available with all four carriers next year.

Revenue prospects, iPhone wins: An old cliché says that the plural of anecdote is not data, but in the absence of variable-controlled, vetted data, it seems reasonable to consider app store anecdotal evidence. Many developers with apps on both platforms have suggested that the revenue generated from an Android app is generally 10-20% of the corresponding revenue of an identical iPhone app. This ratio is in spite of greater competition in the iPhone app store (which has roughly 3-4 times the number of apps as the Android market) and in spite of the large number of Android phones.

So it seems reasonable to conclude that a typical Android user spends far less on apps than a typical iPhone user and that, for now, the revenue generated by most iPhone apps will be a big multiple of the revenue generated by their Android counterparts. At WWDC,2010, Apple announced that they had paid more than $1 Billion to app-store developers.

On a more cautionary note, my assessment is that on any given day, *most* paid apps make zero or close to zero dollars.

Ideology and First-mover advantage? : I’ve heard bloggers suggest and retweet that “Apple developers” should “Code for Android first, and iPhone/iPad second”. This is a classic case of non-developers providing developer-advice based on ideology. The reasoning used was that Android offers “first mover advantage”. However, the Android market was launched within months after the iPhone app store and there have been tens of thousands of Android apps since 2008. So I think developers should evaluate the Android market based on its past track record and future prospects, not on a bogus “first mover advantage”.

Of course, if “first mover advantage” was really important, the recommendation might have gone to Windows Phone 7, but Microsoft has never been popular with the digerati.

Openness – App submission and Review process: Android offers the most developer-friendly app-submission and review process and that makes it a fairly attractive choice for developers who don’t want to deal with the uncertainty of whether and when their apps might be approved.

iPhone apps go through a review-process before getting into the app store. Microsoft also plans to create a review/certification process for its Windows Phone MarketPlace.

Some iPhone apps get rejected in Apple’s review process, some others spend weeks in review purgatory. Unfortunately, these apps aren’t limited to the ones alluded to, by Steve Jobs, when he famously said that “folks who want porn can buy an Android phone”. Apple has conceded mistakes and reversed course on some app rejections, but the problems go beyond the few high-profile cases where Apple reviewers did a U-turn on app-rejections  

To be clear, I’m not suggesting a preference for any specific app-publishing model. The (“open”) Android model of instantly publishing apps (without Google’s review) has obvious benefits, but it also has risks. For instance, the 12/22/2009 report from First Technology Credit Union notes that a “rogue Android” app launched a “phishing attack” to get users’ banking passwords. In a reactive move, the app was later removed from the Android market. Apple’s review process attempts to be proactive in rejecting such apps.

My perspective is that there are several tradeoffs in choosing between an open app-submission process and a review-based app-approval process. However, a review process (like the one for the iPhone app store) that lacks transparency, clear guidelines and consistency isn’t helpful to developers and doesn’t help users either.

More openness, Adobe Flash: Apple requires all app-store apps to be built with Objective-C and explicitly prohibits the use of cross-platform tools such as Adobe’s Flash-to-iPhone compiler. Google has no such prohibitions and permits cross-platform tools.

However, it should be noted that Adobe’s “cross-platform” tools only work for the iPhone and they haven’t yet created a Flash-to-Android compiler (presumably because they believed that the iPhone platform was more important than Android)

More openness, open-source: Android scores points with several people because it is open-source. Symbian is also open-source. The iPhone and Windows Phone platforms are closed source. Note that several Google Android apps (such as the Market, Google Maps, Gmail etc.) are closed-source apps.

Openness and Platform Fragmentation: When Twitter released their official iPhone app, every iPhone owner could have downloaded the app. Every iPhone owner can also download iPhone OS 3.1.3 (the latest OS)

However, when Twitter released their official Android app, only 27.3% of Android owners could even consider downloading the app. The other 72.7% users didn’t have the ability to download Android 2.1 and therefore couldn’t download the app. In this case, the “open-source” nature of Android and Google’s carrier-friendly-policy make it possible for carriers to create their own version of Android and deny users the ability to download later versions of Android.

As illustrated by the Twitter example, Android fragmentation problem makes life difficult for developers and consumers. In addition, the carriers and Google generally don’t attempt to backport bug-fixes into earlier versions of Android. This means that apps that run on both old and new versions of Android may need to implement different code for different Android versions. While fragmentation is not non-existent in the iPhone world, its impact in the iPhone world is tiny in comparison to Android.

Managing different devices, hybrid approach for Windows Phone 7: When I was at Microsoft, one of the biggest challenges we saw with mobile web apps (a decade ago) was the fact that we dealt with hundreds of different devices from different carriers around the world. These devices followed different specs (for instance, some supported cookies, come didn’t), implemented the same spec inconsistently and sometimes had bugs.

To a great extent, similar problems exist for Android apps – as devices from different manufactures (or even the same manufacture) may have different screen resolutions, different device sizes, different hardware features, different bugs etc.

The iPhone eliminates most (though not all) of these problems as all devices come from Apple. From a developer perspective, the impact of different device capabilities (e.g. iPhone camera apps can’t work on iPod Touch) is fairly small in comparison with Android.

Interestingly, Windows Phone 7 plans to follow a hybrid approach. Like Android phones, Windows Phone 7 devices will be created by several different manufacturers. However, all manufactures will be required to follow the same spec (e.g. 400×800 screen resolution, 4-point touch etc.) So UI design and implementation for Windows Phone 7 should be easier than corresponding work for Android devices.

App store Revenue share: Apple created/pioneered the 70-30 revenue split model (with Apple getting 30% and the developer getting 70% of app sales). Other smartphone app stores have followed suit with a 70-30 model and Amazon has also adopted the 70-30 model for its Kindle content.

While Android also uses the 70-30 model, Google doesn’t get the 30% revenue-share from app sales. Instead the carriers (e.g. Verizon) get the 30% revenue share. It appears that Google signs advertisement-revenue sharing deals with carriers who pre-install Google apps (like Search, Maps etc.) on the phone. This model seems to conform to Google’s overall strategy of focusing on search and advertising which are its primary money-makers

Refunds: The Android market lets users get a full refund for apps that they return within 24 hours. One complaint I’ve heard is that the refund feature leads to app piracy (with some users saving a copy of the app, returning it for a refund and then reinstalling the saved copy)

However, a revenue perspective, my sense is that Android’s refund policy is good for developers, because the refund policy makes it more likely that users will try out a paid app.

Apple doesn’t have a refund policy, though a determined user may be able to get a refund in some circumstances.

Microsoft plans to support a refund policy for the Windows Phone 7 marketplace and I’ve heard that they’re considering whether to go with a fixed 24-hour refund policy (like Android) or let developers configure/set a different refund policy (e.g. one based on how many times the user has launched the app)

App store – More comparisons: The iPhone platform lets developers sell additional features from inside an iPhone app. For instance, a $0.99 app could offer 10 features and a user of that app may have the option of purchasing 5 additional functionalities for an additional $0.99. Android and other mobile app platforms don’t seem to offer the in-app-purchase functionality

Many consumers suggest that the Android market is fairly primitive in comparison to the iPhone app store. For instance, app prices are displayed in currencies of the developers who published the app and not in the local currency of the Android phone. So a Canadian consumer would see a British app-developer’s apps priced in British pounds instead of the Canadian dollar.

Developers can sell Android apps through the Android marketplace and other channel they choose and this gives developers more options to monetize their apps. However, iPhone apps can only be purchased through the app store (with a narrow exception for large enterprises). Microsoft’s current plan is to limit app sales to the Windows Phone marketplace.

iPhone app developers benefit from being able to develop iPad apps with very little effort and most reports indicate that iPad apps sell fairly well. When/if other tablets (with app stores) become popular, developers can expect to make money from other platforms as well.  

I haven’t compared advertising-revenue options for apps on different platforms, but a discussion on advertising-revenues probably belongs in a separate post.

Overall, the mobile app landscape has gone through a lot of exciting changes and it should be very interesting to follow this over the next few years.

Two of our four iPhone apps went on to become #1 paid apps within their categories and it is hard to say whether these apps would have hit the #1 spot if they weren’t priced at $0.99. All of our four apps are ‘civic software’ apps, but news/civic oriented apps aren’t big revenue generators. These two caveats need to be kept in mind even though the post isn’t specific to pricing principles used for our apps.

1. Capital Efficiency:  The pricing of the app is not going to be proportional to the investment made into the app(e.g. our Economy app is priced at $0.99 even though the dev-investment for the app far exceeds that of more expensive apps).  However, it is a good idea to think of the total investment required to build an app. For example, if you expect to spend 100 hours on developing a product and value your time (or your team’s time) at $100/hr, you should consider the fact that you expect to invest $10,000 to develop the product.

Keep in mind that total expenses will exceed the initial capital expenditure of $10,000. For instance, you may have expenses related to recurring server operating costs, time spent on customer support, promoting the app, creating website content etc. I haven’t set revenue targets for any of our apps, but in general, I think that is a good idea to think of the total investment/expenses and a target number for revenue/returns.

There are tens of thousands of paid apps in the app store and my estimate is that on any given day, the revenue returned by most of these apps is either zero or close to zero. This should be kept in mind when setting capital efficiency (i.e. revenue/expense) targets.

2. Value to the customer: Benefits/Value delivered to the customer should be a key pricing consideration for the app. Users may consider a crude entertainment app as worth $0.99 even though the app may have been developed very cheaply. Several top-paid apps have proved this point over the past year. Users may also consider frequently crashing apps as worth $99.99 and $89.99. This is proved by the fact that the top-revenue/grossing list has consistently included $99.99 and $89.99 apps that “crashed several times” in a New York Times review.  

In contrast, our Economy app cannot be crashed and it required a lot of dev-investment and offers great value to a segment of the market. Yet, that –in itself – wouldn’t justify increasing its price, because (for most users), the value of the expensive(but crashing) apps and the value of the crude entertainment apps is much more than the value of an app that retrieves the latest numbers for key economic indicators and draws graphs based on current and past values of economic indicators.

3. Perceived value and competition: The (customer/user) perceived value of the product may be different from the true value of the product for many reasons. If a product’s benefits aren’t apparent to the potential customer, the perceived value is going to be lesser than the real value.  

In some cases, the perceived value of the product may become higher if the app is priced at a higher price and a lower-priced product may signal lower-quality to some users (even though the product itself may be a very high-quality product)

The perceived value is also impacted by the value of competing products. As an example, last year, I had originally thought of pricing our Election app at $1.99 and there were no other election-related apps at this time.  However, by the time, our Election app was released, there were five other election-related apps at $0.99. In many ways, (as demonstrated by the fact that it became the #1 paid news app), our Election app was better than the other apps. Yet, we priced it at $0.99 because of competing products (and also partly because the October release date meant that the product would have a shorter shelf life than what it would have had with a September release date)

4. Market fit for the price: While value to the customer is a very important consideration, the price ceiling should be guided by the market fit for the price. For instance, the product may have a high economic value for a few people, but a lower value for other people. The market fit is going to be based on the perceived value among different segments of the market and how big each segment is.

5. Market segmentation and in-app-purchases: Our Economy app follows a penetration pricing strategy and the $0.99 price helped it attain high market penetration. Yet, the $0.99 price also meant that we were leaving a fair amount of money on the table with some customers, because these customers would have recognized the app as a high-value app and been willing to pay a higher price that reflected the true value of the app (for them).

One way to offset the “money on the table” problem is to create a new higher-priced version of the app with “premium” features that appeal to higher-paying customers. A second option is to use in-app-purchases for “premium” features. The v2 version of the Economy app has in-app-purchase features (one priced at $0.99 and another one priced at $1.99).

Until the v2 release (which introduced in-app-purchase, two weeks ago), I was sure that in-app-purchase was the best way to manage market segmentation. In retrospect, it looks like the in-app-purchase option may not have been the best approach, but I’ll write more about this topic in a separate post.

6. Questionable gimmicks: We wouldn’t use any of these gimmicks, but I’ve seen developers successfully use “sale price” gimmicks. A few months ago, the #1 paid app in one of the categories said that its $0.99 price was an ‘only today’ sale price. They’ve been selling at that price for several months now. Some other apps have used the “on sale today” line to advertise a $0.99 price for several months.

The “only today” line is clearly false. Though one may argue that “on sale today” is not false, it is somewhat misleading to use the line to describe an app that sells at $0.99 for several months. A more innocuous tactic has been to list a sale price of $0.99. At least one app (that was #1 in a category) used this approach, even though that app has never been sold at any other price. Overall, it does appear that the market looks favorably on these gimmicks.

7. Top Paid List versus Top Grossing List: Many developers have suggested that Apple’s Top-Paid list ranking criterion (number of purchases/downloads) encourages a race to the bottom because $0.99 apps are likely to get downloaded at a higher rate than higher priced apps and developers would price their apps at $0.99 in order to get a placement in the top-paid app list. As discussed in the App-Store-Evolution post, a few months ago, Apple introduced a new Top-Grossing list (where apps are ranked on net revenue) and this should mitigate some (though not all) concerns about the race to the bottom.

A study of the two lists shows that (on most days), around half the apps in the top 100 paid list are $0.99 apps and that less than 20% of the top 100 grossing apps are priced at $0.99.

At the moment, the highest grossing $0.99 app is ranked 20^th in the top-grossing list. While 28 of the (current) top 100 grossing apps are priced at $4.99, only 15 of the top 100 grossing apps are priced at $0.99.

The $0.99 price isn’t going to be sustainable for most good-quality apps, but for some apps, it does have a couple of benefits in terms of market penetration and also in terms of increased visibility for apps that are in the top-paid lists of each category. A $1.99 price may increase the revenue of most good $0.99 apps (for example instead of 100 users willing to pay $0.99, the $1.99 price may find 65 buyers). However, the increased revenue will be accompanied by reduced volume and the reduced volume will mean a lower rank in the top-paid list. A lower rank will then lead to reduced visibility for the app and this may reduce sales further.

8. Each pricing decision is unique: We launched four apps in the first year of the app store and two of these apps (Election and Economy) went on to become the #1 paid apps in their categories. Both have always been priced at $0.99 (though the Economy app now includes premium in-app purchase features and premium features increase the price of the app). It is unclear whether these two apps would have become #1 apps if they hadn’t been priced at $0.99.

All our apps have been “civic software” apps and one of the key goals of these apps was to contribute to the civic good and provide useful information to the people. So these apps have not primarily been about maximizing revenue for the company. However, revenues are important for any business to survive and this post talks primarily about right pricing strategies that are applicable to many different types of apps.

I haven’t discussed experimenting with different prices, but pricing experiments may also be worth considering.

It is also a good idea to keep in mind that each app needs to evolve its own pricing strategy and that, not all the pricing principles (discussed in the post) are going to be applicable for every single app.

I’m not sure how effectively the proposed plan will help News Corp’s goal of creating a “market place for digital journalism”. However, some of the reactions to this news were over the top. As an example, there was a call to boycott Bing and News Corp (I found out about it through a retweet that went to more than a 100,000 people). Several others have been critical of the plan and suggested that News Corp’s move goes against the “share with each other” culture of the internet and that News Corp is trying to control the flow of news and that it is wrong for News Corp and Microsoft to negotiate a pact that restricts access to news.

While the marginal costs of distributing news over the internet to an individual user are low (and somewhat close to zero), the costs of setting up and running a news organization are not zero (especially if you’re going to investigate corruption in Washington or report on atrocities in Congo or the war in Afghanisthan). So it seems fair to stipulate that journalists and publishers should be compensated for their work and that producers aren’t required to provide “free” services to consumers.

Then the question becomes one of how the news industry should make money online. Many critics would say that the news should be available “free” to consumers and that a third party (“advertisers”) should pay the producers. I think this is a good business model for many news websites. As an example, one of our company‘s proposed product plans is to build a mobile-news platform that newspapers can use to publish their news on the iPhone (and other mobile devices). The free-with-ads model will be best suited for most newspapers who wish to use our platform.

However, the critics are wrong in asserting that free-with-ads should be the only revenue model for news publishers. From a business standpoint, Christoper Kimball (in a recent op-ed ) made the case for a 100% subscriber-financed model by pointing to the demise of Gourmet and the success of Cook’s. It is perfectly legitimate for news publishers to offer services with a paywall through a website. It is equally legitimate for a news publisher to choose one particular search engine as their search-distribution-channel  and get payments through that distribution channel.  

Critics can still make the argument that (because of the abundance of news content) a NewsCorp/Bing partnership will harm News Corp by reducing its page-views and its ad-revenues. However, News Corp is obviously better placed to decide whether or not increased revenues from the Bing partnership outweigh the impact of reduced ad revenues. They can also consider whether or not a paid-website (getting money directly from users) is better than both the free-with-ads model and the exclusive-search-engine model. Attempting to coerce news organizations into adopting a ad-based revenue model by calling for a boycott isn’t right.

Critics can also question how effective the “de-indexing” will be and whether search engines will find other ways to link to this content (e.g. though a third party website that links to individual WSJ news items).

Critics can make the argument that a Bing/NewsCorp partnership may set a precendent and that other news organizations may also close their content to some search engines. I’m sympathetic to this argument and believe that news consumers will be inconvenienced by not having a single index or search engine for the web. However, I also recognize that there is no such thing as a free lunch and I would rather have quality newspapers survive than have a single web index without quality newspapers. If critics believe in the abundance of content and see news as a commodity, they shouldn’t really be concerned about the inability to find some of this content through a search engine.

There are far more serious issues around search engines and around search news organizations. As an example, major search engines (Google, Bing. Yahoo etc.) have all agreed to obey the Chinese government and censor search results on a wide range of topics ranging from Tibet to Tiannamen Square. A few years ago, they all defended it on the grounds that obeying the Chinese government was the only way for them to operate in China and that operating in China was more important than principles against censoring news. Very few people hold the search engines to account on the censoring. A few months ago, the Washington Post got into trouble over its plan to sell access to its journalists and to administration officials for $25K-$250K. Ironically, a health-care lobbyist felt that it was incorrect for the Washington Post to sell access to its “Health-care reporting and editorial staff members” and reported it to other media outlets. Shortly thereafter, Marcus Brauchli (executive editor at the Post) released a memo stating that their news-division was unaware of the dinner “flyer” and that the language in the Post’s flyer precluded their participation because “Our independence from advertisers or sponsors is inviolable”. Ultimately, the Washington Post had to cancel that particular dinner, but questions around conflict-of-interests exist for many news organizations.

There are real issues around ethics that we need to watch for in search engines and in news organizations. Search-engine exclusivity isn’t in the same league as those issues. I recognize that this is an unpopular position, but I’ll say that that it is a legitimate business plan for news organizations (though I’m not sure how effective it will be). The news industry and its consumers will be better off if we focus on real,critical issues and not on issuing calls to boycott news organizations because of revenue-plans around search-engine exclusivity.

However, Apple has now decided to allow “in app purchases” for free iPhone apps. So “free” iPhone apps can now become “freemium” apps  and developers can sell additional content or functionality/services from within their free apps. We’ll have to wait for a few weeks or months to see the impact of this change. For now, here are my thoughts on the new policy.[Warning: Long post]

1. Piracy: Apple’s announcement explictly mentioned that the new policy will “help combat some of the problems of software piracy by allowing you to verify In App Purchases.” I agree with this assessment and think that the new policy is going to help combat piracy. In-app-purchases don’t introduce any downside with regard to combating piracy, so it is easier to call a win for the new policy on this particular issue (the other issues are more complex)

Piracy is not a problem for us (Cascade Software Corporation) because the demographic profile of our users is likely to be different from that of those who pirate apps. However, piracy is a problem for many other developers (especially games developers) and so the new policy can help increase app store revenues for developers who are hurt by piracy today.  

2. App Store clutter: Apple’s announcement also states that in-app-purchases in free apps eliminates “the need to create Lite versions of your app.” Today, many developers create a free/lite  version and a paid version of the same app. With the new policy, developers may not need to release two separate versions of their apps. So some of the clutter may be reduced. However, see below for reasons why some developers may want to continue releasing two separate versions (Incidentally, so far, Cascade Software Corporation hasn’t released any free/lite apps. All our apps are paid apps.).

The “lite” apps contribute to a fairly small fraction of the total “clutter”. Most of the clutter is caused by poor-quality, cheap-to-implement apps and by the fact that many companies release 10-100 copies of the same app with the same code-base, but different content. So I don’t expect the new policy to have a big impact on app store clutter.

3. App Review ratings: I haven’t done a rigorous study of the numbers, however, from what I’ve seen over the past year, free apps have a much lower review rating than paid apps. Lower  priced apps often tend to have a lower review rating than higher priced apps.

It is tempting to assume that there always is a correlation between the price of the app and the quality of the app, but that isn’t necessarily true and it doesn’t always explain the differences in review ratings. I’ve seen lite/free versions of apps get lower ratings than paid versions of the same app and I’ve seen apps (with higher ratings) get lower ratings after price reductions. Today, all top five grossing apps have 4-star (3 apps) or 4.5-star ratings (2 apps), four of the top 5 paid apps have 4-star (3 apps) or 4.5 star ratings (1 app), while only one of the top five free apps has 4-star rating and none have a 4.5 star rating. The #1 free app (Photoshop.com) has a 3.5 average rating, meanwhile, the #4 top grossing app (as of today) is priced at $89.99 and has an average 4-star rating (out of more than 2000 ratings). Yet a recent review in the New York Times mentioned that this app and similar high-priced apps ”crashed several times”.

My sense is that some users are more likely to download a free app without reading the description of the app. Partly, because of this, they are more likely to be unhappy with the app once they try it out (and these users are more likely to rate the app, compared to happy users). Users are also more likely to delete free apps from the iPhones and this is more likely to lead to a low review rating. On the other hand, the user of a paid app (and especially a higher-priced paid app) is more likely to have read the app description and is more likely to be someone in the app’s target market. So paid apps (and particularly higher-priced apps) are likely to get higher ratings. Freemium apps are likely to get lower ratings than they would have gotten as paid apps.

4. App Rankings: It is unclear on whether Apple will tweak its app rankings as a result of the new policy. Until now, the “top free apps” rankings and “top paid apps” rankings were both easy to understand. However, now the “free apps” listings will include freemium apps as well. A couple of months ago, our Economy app was #1 paid app in the “Finance” category. However, the Economy app has a niche audience and if it had been a freemium app, I’m not sure if the app could have become the #1 free Finance app.

I’m also guessing that some users look more closely at the “paid apps” listings because of the perception that ”free apps” aren’t good quality apps. This may be another reason for some developers to release their apps in the “paid apps” section. (Note that I’m mentioning the “perception”, but -in this post-, I’m neither agreeing nor disagreeing with that perception)

Ultimately, unless Apple changes the current ranking system or introduces a new ranking system for freemium apps, it is possible that many developers may prefer to keep their apps in the “paid” category and release a seperate lite/free version of their app.

5. The old “race to the bottom”: Over the past year,a number of developers have talked about the race to the bottom and how most developers go with the $0.99 price for their apps because of (real or imagined) competitive pressures.

It is unclear on as to how the new policy will impact the race to the bottom. On one hand, “free” could become the new “$0.99″ and many developers may release free(mium) apps instead of paid apps . On the other hand, some developers may feel liberated to charge a higher (and fair) price (through in-app- purchase) if users have already previewed the free portion of their app. (Note that I’m talking about pricing trends, but not discussing whether the $0.99 pricing strategy is good or bad. )  

6. Value to users: The most important impact may be the value that users get (or lose) because of the new policy. 

I’d like to believe that users will get more value out of the new policy because they’ll be able to preview the free portion of the app, gauge its quality and then decide whether to pay more for additional functionality. If that happens, it will be good for users and also for developers (because developers will get more downloads and it will also be easier to set a fair price for their apps without the concern that users may not consider buying an expensive app). On the other hand, some of the potential negatives – discussed earlier - (and the fact that users may expect free apps to be truly free) may result in confused users and lower app sales.

With the old policy, free apps could include links to their corresponding ”paid apps”. So one can make the case that the new policy will not have a big impact on upsell possibilities. However, I think that more developers will use the upsell approach because of the new policy and users may prefer to make a purchase without exiting the app. Overall, I’m slightly leaning towards the thought that the new policy may have a neutral or slightly positive impact. 

For me, the introduction of in-app-purchases was one of the most interesting things about the 3.0 OS.  (V2 of the Economy app – which will be released to Apple this month – includes some new “free” features and it also includes “in-app purchasable” premium features. I’ll write about this in a new post after the release). So it will be interesting to see how the new policy of in-app-purchases-for-free-apps impacts the app store.

[UPDATE: Dec 21, 2009] It is now more than two months since Apple introduced in-app-purchases for free iPhone apps. At the moment, only one of the top 100 grossing apps is a free(mium) app. That app/game is ranked 91st. When I checked a few times last month, there was only free(mium) app in the top 100 grossing apps. I think that app/game got into the top 10 grossing-apps list and stayed there briefly.

However, overall, for now, current data does seem to indicate that my original assessment (about the new freemium policy not having a big impact) was correct. Just around 1% of the top 100 grossing apps seem to be free/freemium apps.