App Pricing and the Freemium Trend

rob Written by Rob on November 28th, 2012 in Business

Pricing is always an emotive subject, whether we’re buying a car, a coffee or an app. We all love a freebie and a great deal, however in our disposable world we can be prone to forgetting the true value of what we are buying. We all want the latest and greatest, but now more than ever we’re looking to pay as little as possible.

Beer Strategy

Like most of us, when it comes to parting with my hard-earned money I’m an advocate for being prudent. To help decide on the value of something, I tend to use a “beer strategy”. While trying to decide if I really wanted something I would work out how many pints I could get with the same money, then by missing 1 night out I’d make a guilt and hangover free purchase. By applying this strategy to our latest release of Clear for Mac for example, £6.99 could just about get you 2 pints. So for a piece of software that will increase my productivity, that I’ll use every day skipping those two pints is an easy decision.

Now how about those Hiut Jeans I’ve been thinking about for a while? 40 pints. That’s a few nights out, so I best start saving! I’ve chosen both our app Clear and Hiut Jeans for a reason. Both have a story, have had many months of development, and been built by people with a passion for what they do.

Clear for Mac

Clear for iPhone was a hugely successful iPhone app, hailed for its revolutionary take on UI. We made the decision to develop a desktop client to help people to be even more productive. Simple right? We have the graphics, just port it? If only it were that simple! With Clear for Mac we literally had to start again, every element was rebuilt and reconsidered over the course of the app’s 8 months in development. We are really happy with the way it turned out and in testing we found ourselves thinking about the true value of what it’s worth.

We thought long and hard about the pricing for Clear. We wanted to make sure it was priced at a level that everyone could access. We also wanted to make sure we can cover the costs of development, and what’s more, we wanted to ensure that Clear is a profitable product so we can continue to support and enhance it in the future. Everyone at Realmac HQ uses Clear to track work and personal tasks - do we think it’s worth a couple of pints, or a few coffees? We think so. But what about those outside the office? They’re our most important critics.

There are other todo list apps available which are cheaper, free even. There are apps which have way more features, and those that cost much, much more. So how does that change our perception of value? In our opinion, it doesn’t. You won’t find the same user experience with any other apps. The use of gestures is unique, and the simple approach to task management is unparalleled. The care we put into making sure the user experience is the best it can be is evident in every element of the app.

Now lets apply that thought process to the Hiut Jeans, why would I spend £130 on a pair of Jeans when I can pick up a pair for £20 on the high street? Because of the fit and finish. Because they were made by a “Grand Master” seamstress, using a sewing machine in Cardigan Bay, Wales. Because of the story. Because of the way they would make me feel. Because of sustainability. Just because software is a less tangible product, doesn’t mean that the making behind the scenes differs in any way.

A Different Approach?

There’s one word on many people’s minds as the way to go: “Freemium”. Take Letterpress, the word search game from atebits as a great example. When it burst onto the scene everyone was able to download and have a game against 1 opponent. Did you love it? Want to play against multiple opponents or unlock new themes? Sure you did, we did too! Judging by the number of Letterpress games we’ve played, plenty of people were more than happy to pay to unlock those extra pieces. It’s the evolution of downloading a free trial and takes away the fear of paying for something you are not going to use.

So does this approach work for an independent software developer trying to make a living? Loren Brichter, the developer of Letterpress recently told me, “the conversion rate [for purchase of the paid version of Letterpress] was way higher than I expected, and revenue has already more than covered my time invested in the app” so it looks like this is a viable direction. There’s further evidence to suggest this way of pricing is successful too, 9 out of 10 apps in the UK App Store’s Top Grossing list are freemium, with differing types of In-App Purchase. The games industry has been doing this for years and it’s worth noting that 8 of the 10 apps on that list are games. Can this approach work for apps that aren’t games? We think so, given the right product.

If you’re going to go the route of freemium, there’s a fine line to tread: balancing the needs of the business - ensuring the product is generating revenue and hopefully profit; and ensuring that there’s an awesome app that people can use for free in order to gain the critical mass necessary to make the low conversion rate for In-App Purchases work.

The Future

So what does this mean for us and the future of apps? Given the right product, a freemium model is something that we may have to consider. To throw in some business speak, the right product matched to the right target market is critically important here, and when done properly going freemium could be a massively successful strategy. That said, how it affects the perceived value of our craft remains to be seen.

Pricing’s a topic we all love to talk about and I’d love to hear your thoughts. Catch me @curlyrobert on Twitter, or leave a comment below!