iPhone-app price deflation

I’m seeing a disturbing trend in the App Store: many independent developers are reacting to the dysfunctional price-commenters by significantly dropping the prices of their non-free apps.

Many popular apps that launched at $10 are now $5-7. Some have been cut down to $3.


The iPhone is a big market, but we’re talking total sales for a decent paid app in the thousands or low tens of thousands, not hundreds of thousands. Hypothetically:

  • An app sells 5,000 copies.
  • It took one developer 4 months to make, followed by 4 months of updates and support.

After Apple’s commission and an approximate 28% income tax rate, that’s worth $25,174, or $3,146 per developer-month in after-tax profits. That’s a decent living for an individual. But that’s if the developer charges $9.99, the seemingly de-facto price for high-quality paid apps when the App Store opened.

But if the app’s price drops to $5.99, the total take is $15,094 ($1,886 per month). Not bad, but not able to replace your day job. Any good developers capable of coding a good iPhone app (that people are willing to pay for) can probably earn at least twice that in the job market.

At $1.99, the take is $5,014 ($626 per month). That might give you a nice rainy-day fund, but at this price, app development looks a lot less worthwhile to good developers. Making, maintaining, and supporting an app takes a lot of time. When you already have a day job, it’s hard to justify spending your little remaining time so you can maybe make $626 per month (if your app actually sells that well).

If app developers can’t make a competitive living selling high-quality apps, they’re not going to just accept less money — there just won’t be many high-quality apps.


I’d guess that demand is fairly inelastic, and the difference between paid and free probably doesn’t matter much whether the app is $5.99 or $9.99. As discussed in The Penny Gap, the hard part is getting people to pay at all:

Most entrepreneurs fall into the trap of assuming that there is a consistent elasticity in price [….] The truth is, scaling from $5 to $50 million is not the toughest part of a new venture - it’s getting your users to pay you anything at all. The biggest gap in any venture is that between a service that is free and one that costs a penny.

Once you’ve convinced people to pay for your app, are that many people going to decline to buy it because they want to save $2-5?

I really hope that this deflation is a temporary fad: an ill-guided response to the price-commenters in the App Store who are unlikely to stop complaining until the price reaches $0.