Thursday, June 11, 2009

App Store pricing model defies logic

In his column dated June 11, 2009, David Pogue detailed the pricing of Mac OS X "Snow Leopard" and suggests that Apple may be taking a page from the App Store playbook.
What do you suppose is the difference between the pricing model of the App Store and more traditional pricing models?
I recall reading an interview with an Apple ][ developer from the 1980s. I'm afraid in ten minutes of searching Google I can't find the article anymore.
His company was developing one of the first spell-checkers for the Apple -- it was a revolutionary product at the time. There were other competitors in the market, but his software was faster and fit into less memory: thousands of English words stored in just a few kilobytes. (Back then an Apple computer had only 64K of memory.) His product was also cheaper than the others. They sold very few copies.
So they raised the price of the software and sold more copies! Astonished, they raised the price again -- now more in line with their competitors -- and sold even more!
Price is a reflection of perceived value and quality. With no other quantifiable measures of quality available to consumers (remember, they're just reading ad copy or a box cover), an estimation of a product's value and quality is based on price. All other things being apparently equal, something that costs more than another must be of higher quality.
How does this play out in the App Store, where something that costs less than another sells better?

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