For iOS app producer David Barnard, making money from paid applications in Apple's App Store is becoming more difficult. Barnard is the founder of Contrast (previously App Cubby), which makes apps such as Launch Center Pro [iTunes link] and Perfect Weather [iTunes link].
Perfect Weather, Contrast's latest app, was timed around the release of iOS 7. The app was featured in a number of iOS 7 app lists (including ours) and managed to reach #6 on the Paid Apps rank in the U.S. App Store, quite a feat in the competitive world of app rankings.
See also: 20 Apps That Look Great on iOS 7
When it came to revenues for the app, however, Barnard was shocked. Perfect Weather launched at $2.99, the same price as his last app, Launch Center Pro. Both apps managed to hit #6 on the paid apps chart in the U.S. Perfect Weather got an added bump by being featured in iTunes's "Designed for iOS 7" section.
Yet when it came time to compare numbers for first day sales, it turns out that Launch Center Pro grossed four times what Perfect Weather grossed in the U.S. App Store.
Hitting the paid app charts, in other words, doesn't mean what it used to.
Barnard isn't alone. Mashable has spoken with half a dozen high-profile iOS developers who have all reported seeing lower sales from their paid applications — regardless of how well the app ranks on the charts.
Some, including Tapity's Jeremy Olson, are going as far as saying that paid apps (as opposed to free apps that generate revenue through in-app purchase) are dead.
Barnard, who often writes about his experiences in the indie app development space on his blog, isn't ready to go that far. But he does see that the market surrounding paid apps is shifting.
"Last year the strategy was to build up to a big launch, spike high in the charts, and make most of your money in the first month or so," Barnard told Mashable. "That's exactly what happened with Launch Center Pro. Launch Center Pro made as much in its first month as it did in its subsequent 10 months."
Are users spending less money on applications? According to the latest statistics from analytics companies such as App Annie and Distimo, app revenues for Apple's App Store and Google Play continue to be on the rise.
So what's going on? Chalk it up to a shift in consumer behavior, thanks in part to the rise of in-app purchases in games and other applications.
Rise of the In-App Purchase
Distimo Report March 2013
When Apple introduced in-app purchases to the App Store alongside iOS 3.0 back in 2009, it opened up a new revenue source for developers.
Rather than forcing users to buy an app upfront, developers could create a free-to-download app that could then be expanded or enhanced with an in-app purchase, or IAP. That could be anything from unlocking features or extra levels, to removing ads, to adding additional stylistic themes.
This model — often called freemium — has quickly become the standard for many of the most successful mobile games.
In March, app analytics company Distimo released a report [PDF] that looked at how the most successful apps monetize their user base.
One of the stunning data points from that report was that in Feb. 2013, 76% of all Apple App Store revenue in the U.S. was generated using in-app purchases. The figure was even higher in Asian markets (which include South Korea, China, Japan and Hong Kong), with over 90% of revenues coming from IAP.
Distimo Report March 2013
App Annie's list of the top 100 grossing iPhone apps in the United States as of Oct. 8, 2013, shows that only 9 out of 100 apps exist purely as paid apps. That means 91 of the top grossing top 100 apps are free to download and then make money using IAP.
App Annie provided us with a breakdown of indexed apps (games and non-games) with IAP and without between Sept. 2012 and June 2013.
App Annie
Although free apps with IAP isn't as dominant in non-game categories, even utility and finance apps are seeing success with the IAP model.
MoneyWell for iPad [iTunes link] is a finance app that was recently released by No Thirst Software.
No Thirst's Kevin Hoctor wrote about the early results from making MoneyWell for iPad free with an IAP on his blog. MoneyWell for iPad was designed for MoneyWell for Mac users and for users who are using the iPad as their primary computer.
It's also important to recognize that the IAP for MoneyWell for iPad is $39.99 — many times the iPad price average.
MoneyWell For iPad Conversion Rate
In the first ten days of release, No Thirst managed a staggering 25% conversion rate. One in four downloaders converted to becoming a $20 customer (MoneyWell for iPad's IAP was 50% off its first two weeks of release). Hoctor doesn't expect to see that conversion rate remain so high. Still, three weeks into launch, even after the end of the sale, MoneyWell for iPad ranks as the 15th highest grossing iPad app in the Finance category.
Increasingly we're seeing developers look at shifting, or at the very least, considering a move to an IAP focused model. Marco Arment has written about this shift in regards to his own upcoming app, Overcast.
Arment writes:
I've gone back and forth on what Overcast's business model should be. I'm definitely charging customers directly (rather than venture-capital or ads), but I'm still debating where, how, and for what.
...I'm going to have a hard time justifying an up-front purchase for Overcast — that's the fastest way to ensure that nobody outside of our upscale-geek world ever uses it.
Not everyone agrees that the paid upfront model is dead. Joe Cieplinski, who does UX and Graphics for Bombing Brain Interactive, thinks that paid apps — even expensive ones — can still exist within certain categories.
On his blog, Cieplinski wrote two posts responding to Arment's assertion, using the experiences with his own app, Teleprompt+ for iPad [iTunes link] as a counterpoint.
Despite having lots of free and paid competition, Cieplinski says that Teleprompt+ outpaces its competitors in revenue and downloads. Cieplinski argues that for the type of user that rely on a professional teleprompter app, the $14.99 price point is of no concern. What matters more is support, frequent updates and reliability.
The same is true for James Thomson, developer of the fantastic PCalc [iTunes link]. Thomson says that PCalc is doing better than ever, even with its $10 price tag. In fact, he says the vast majority of his income is from purchases of the full version of the app — even though he has a free version available with a $9.99 IAP.
The Future of App Pricing
David Barnard thinks it important not to get too stuck on a specific type of app model. "I think too many people are holding up IAP as a panacea," he says. "While using IAP might work for some, it's going to be a miserable failure for others."
"The problem is, you have to have just the right combination of crazy download numbers, high prices, high conversion rates, and/or recurring revenue to make a freemium strategy payoff in the App Store," he explains, citing Candy Crush Saga as the type of app that achieves all four points perfectly.
When Barnard launches Launch Center Pro 2, a free upgrade for existing owners, he's going to do so while also raising the price on the app. Launch Center Pro has sold for $2.99 for the last year. When the new version appears, it will sell for $4.99.
"I figure the people who are going to care about Launch Center Pro will buy it for $4.99," he says. The price increase also comes with a host of new features and a brand-new design. "We thought about making it a new app, but it really boiled down to not having a great way to transition users from the old app to the new one," Barnard explained.
However, Barnard hasn't ruled out the idea of making Perfect Weather freemium. Since Apple now lets developers access App Store receipts, if he does decide to shift to a freemium option with Perfect Weather 2, he can do so while giving early adopters a good deal.
It's no longer enough for developers to make the top 10 the first week of release. Now they need to stay in the top 10 for weeks on end if they want to make the same amount of revenue. As a result, developers of paid apps are going to have to look at freemium and other IAP models to supplement their costs.
For anyone that makes a living selling apps, staying on top of these trends is paramount to making the the financial model work out.
Do you find yourself buying fewer paid apps and being more willing to spend money on an in-app purchase? Developers, are you seeing a decline in paid downloads? Let us know in the comments.
Image by Mashable, Christina Ascani; Screenshots by of Distimo, App Annie and Kevin Hoctor
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