Dollars and Sense: The App Store Pricing Puzzle

With the App Store entering its second year, everyone is looking for a slice of the pie. Developers are hungrier for your dollars more than ever. But developing a great game simply isn't enough, and the low cost of many apps and games is rapidly changing the accepted norms for pricing models.

With so many games priced at $0.99, it often seems like games don't sell if they aren't budget priced. The proof is in the App Store Top 10 paid apps chart, with 9 out of 10 apps priced at $1.99 or less, and 7 out of 10 priced at $0.99, as of publish time.

Perhaps the most glaring example of pricing affecting the charts comes from PopCap's wildly popular Peggle, which skyrocketed to No. 1 from No. 60 after dropping its price to $0.99 from $4.99 for four days earlier this month.

"We never said we were trying to hack the App Store or anything of that sort," PopCap spokesman Garth Chouteau wrote to us in an e-mail, addressing the concerns of some Internet bloggers. But regardless of PopCap's intentions, the effect of price on sales speaks volumes.

Bigger games like ngmoco's Rolando and Gameloft's Hero of Sparta have followed suit, dropping from their $9.99 perches to a more mass-market $4.99 price tag. Hero of Sparta recently lowered its price further to a bargain-bin $0.99 and now sits at No. 4 on the App Store rankings, which raises questions about the viability of a higher price point.

Some developers say this lack of a disciplined price structure leads to the public perception that an inexpensive game translates to subpar quality.

"Customers’ expectations change quickly and are overwhelmingly influenced by any specific app’s peers," Freeverse president Ian Lynch Smith wrote to us in an e-mail. "In this case, quality game dev is being price-compared to $0.99 fart apps and tons of free stuff."

Yet games like Firemint's Flight Control and Freeverse's Flick Sport Fishing have shown that $0.99 can buy a lot of entertainment, and free game updates continue to keep these games fresh. But these really are the exception to the rule.

"We would get murdered for selling a $10 game today, even if that was a good value," Smith said.

These elements create a conundrum for game companies, and it's a contributing factor to why there seems to be no rhyme or reason to app pricing.

Developers and publishers must ask whether they can recoup their initial investment at $0.99 per download. With Apple taking a 30-percent cut from every sale, companies earn $0.69 on the dollar. A publisher may expect a nice return on its investment if costs are kept low, but this is still a gamble.

"PopCap has some control over some pricing of its games, but far from complete control," Chouteau said. "We work closely with our partners to determine the pricing of each adaptation of our games."

iPhone OS 3.0's ability to charge micropayments or subscriptions for additional game content adds another wrinkle to the pricing puzzle. This pricing model is still in its infancy, though, and it remains to be seen if it has the legs publishers are hoping for.

The pressure will no doubt be on developers to recoup costs through in-app purchases. And considering the resources required to keep gamers' attention these days, it's a challenge Smith said he is approaching with caution.

Freeverse is testing the waters with Flick Sports Fishing by adding a tropical beach location. Smith said about 10 percent of current owners have bought the location, "but that may be skewed given our large install base."

"Certainly, there are a significant number of serious fans of the game in the early data we're currently looking at," he said. "[We're] trying not to form very strong opinions — we keep ourselves flexible."

The potential for microtransactions is still immense, and it could help create stability in a pricing structure that is all over the map. Whatever pricing model eventually becomes the norm, it will be because gamers have supported it with their cash.