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[In his new column, writer and designer Ian Bogost looks at Apple's iPhone App Store -- and one of his game purchasers' demands to get his 99c back -- to discuss digital purchases, value, price point, and the 'race to the bottom' for iPhone games.]
Last month I took an early Sunday morning flight from Atlanta to Orlando. I wandered into a newsstand and picked up the May 2009 issue of Popular Science, which featured a cover story about space planes that intrigued me.
The story turned out to be less interesting than the cover suggested, but I rather enjoyed another article about the discomfort of airplane seats. Overall I found the issue to be pretty good, but not good enough to carry along with me, so I left it in the seat pocket. Price paid: $4.99.
Last week I stopped on the way home at the local Krispy Kreme to pick up some doughnuts and grab a coffee. It was the first time this season that the heavy humidity characteristic of Atlanta wafted over the city, so I opted to take my joe on ice.
Once back in the car I realized that the iced coffee was sweetened -- not how I like it. I was disappointed but also thirsty. I managed to enjoy the beverage somewhat. Price paid: $1.49.
A few days ago, I released a new game on the iTunes App Store. It's a bit high concept (a port of an Atari VCS game I made), but I had worked on it carefully and knew it had been polished. I offered a good deal of context and charged the lowest price allowed by the service. Numerous trade and consumer rags picked up the story and said positive things about my effort.
Later in the day of release, I got a disgruntled email from one of my customers: "I want my 99 cents back," he wrote.
Cognitive Dissonance
This made me start to think about small-scale digital purchases in general and the iTunes App Store in particular. When someone spends a dollar on a coffee or drops a fiver on a magazine, certain expectations are set.
The goods to be purchased at such rates are consumables, things that can and will be used up, and quickly. Sure, I could have gone back in and complained about my iced coffee, but sometimes it's not worth sweating the small stuff.
To be honest, I appreciated getting the email; I was able to respond to the private email and talk to the player, I think to his satisfaction. It's harder, if not impossible, to respond to anonymous negative reviews and ratings on the App Store. Indeed, developers have noticed that average app ratings have been dropping since OS 2.2 provided a "rate on delete" feature, inviting users to star a program after having deleted it.
 Part of this problem is related to platform design. An ordinary computer has a big hard drive for storing applications and documents and the like.
Programs can sit front and center on the desktop, in the Windows quick launch bar, or on the Apple Dock, or they can be hidden away in the Program Files folder or Applications directory.
Part of the problem is related to expectations. Apple has set up a convoluted application approval process to insure that programs do what they say, but the individual treatment any one app gets varies greatly. The App Store is noisy and many products don't work as promised.
But I'm convinced that a large part of customer and developer dissatisfaction with iPhone games and apps comes from a cognitive dissonance.
Games aren't generally like cups of coffee; they don't get used up. They don't provide immediate gratification, but ongoing challenge and reward. This is part of what Frank Lantz means when he claims that games are not media.
Yet, when we buy something for a very low price, we are conditioned to see it as expendable. What costs a dollar these days? Hardly anything. A cup of coffee. A pack of sticky notes. A Jr. Bacon Cheeseburger. A lottery ticket. Stuff we use up and discard.
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Unfortunately, the author is missing the point: there is a fundamental perceived value difference between physical goods and software.
Physical goods are sold to us by human beings, and in some cases we actually get to witness their creation. If we're served a cup of coffee that has too much sweetener in it, we can turn around before we leave the store and ask for a replacement, or refund. If we read a magazine and are finished with it, we can leave it for someone else's enjoyment, whether that means tossing it on our coffee table or leaving it in a public place.
Now take an iPhone app from the App Store. What does my 99 cents get me if I don't end up using or enjoying the app? I can't give it away to a friend or stranger. I can't walk back into the store to return it, or ask for something that suits me better. I can't be sure that my review will ever be seen, or cared about, by the creator. Sure, there was no doubt a lot of work and creativity put into the creation of that app, but when it just isn't worthwhile to me for whatever reason, I have effectively thrown away money and have nothing to show for it after I've deleted the app from my phone.
This is the case with most software, and to a large extent, intangible electronic goods of many types (music, video, etc.). By virtue of digital format, these goods are perceived as less valuable than physical products, even if they are much more sophisticated, or higher quality, than their physical counterparts.
It's erroneous to compare a 99-cent cup of coffee to a 99-cent piece of software, even though the latter is a product far more complex than the other. We should instead compare oranges to oranges, and Apples to Apples.
The other thing that I want to say is that I think people largely already do view video games as consumable items, and I think that's a real problem for the game industry. The biggest problem with used games isn't that publishers don't make any money off of them, it's the fact that so many people perceive games as having no long term value. Many games are made to be played once and then discarded. When you have a physical disc or cartridge that you can then sell on to someone else to consume, you might not feel the need to ask for a refund - you just trade the game in to Gamestop and use the money to fund your purchase of another consumable game. But in the case of downloadable games, there isn't the chance to do that. So the player has consumed the game, decided it isn't worth it to hang on to . . . and now they're stuck with it. I think the obstacle here is in convincing players that games are not intended to be consumable, that they have the same kind of lasting, repeat-usage value that other art forms like CDs or books have.
Also, it doesn't take into account advertising revenues. While not as substantial as the total store sales, they can (and do) add up.
Was that 40,298 PAID apps? I had read somewhere that Apple hit $100 Million in gross revenue quite some time ago when there were far less apps available as well. I think the figures you provide here are low (especially because the $45-$95 million is Apple's 30% cut not the gross revenue), however for the sake of argument let's accept them for now.
The average app makes $1,550 according to you which is enough to break even but the average developer has probably made 3 or more apps which means the App Store is profitable overall for developers. Trying to make that kind of money on a PC/Mac shareware or Flash game is much more challenging. That's not to mention the old statistic that 90% of games developed lose money. Considering that used to be par for the course, breaking even is great.
Now let's have a look at it with some different math but still using the information provided in the link above. If there are 40,000 apps and 1 in 15 of them are free then there are about 37,300 paid apps. The GROSS revenue according to the linked report is $70 - $160 million. If we play to the high side then each app grosses about $4,290 on average. Factor in the royalty split and the average app earns $3,003 for the developer and $1,287 for Apple. Multiply $1,287 by 37,300 paid apps and you get Apple's share of $48 million (the high side of the estimate in the link you provided) after the royalty split. If we take the low side ($70 million Gross instead of $160 million) then we get numbers that look more like your originals.
Another thing to look at from the metrics page today is that there are about 43,000 apps and about 12,225 publishers. This means that there are about 3.5 apps on average for every publisher. My guestimate of 3 apps per developer/publisher was a little low. But take your $1,550 and multiply it by 3.5 and you get $5,425 on average for each entity selling apps. I think you'd be hard pressed to find an average figure this high for desktop shareware or Flash games.
Even without the glorified success stories I think the App Store is providing a more fertile environment for developers than similar alternatives.
Actually, we also added a note that is more important still - I think average is a very poor demonstrator for the App Store vs. median, because of the success curve. It's like taking the average of 10 people's lottery winnings when one of them got the jackpot. Anyhow, here's the corrected section - we THINK the math is right now, please chime in if you think otherwise:
"Consider this: recent estimates suggest that Apple has only taken in $20-$45 million in revenue from App Store sales. If we cross-reference the more generous end of that figure with metrics on total application sales, we can draw more grounded conclusions about the reality of the App Store gold rush.
Some 40,298 apps have been released for the iPhone as of May 18. Presuming revenue somewhere between those two numbers, with total revenues of $108.3 million (if Apple takes 30%), average gross revenue of $2,688 per app. Apple takes 30% of that, leaving the developer $1,881. Deducting the $100 fee Apple charges developers for the right to sell apps in the store annually yields an average net profit of $1,771 per App.
That's just about enough to pay for the iPhone and Mac laptop or desktop you'll need to develop for the platform in the first place. Put more plainly, for the average developer the App Store is a financial wash.
Things get worse if we look more closely at games specifically. Even though almost 20% of the apps available on iTunes are games, the average price of a game is 50% less than that of other apps ($1.44 for games, compared to $2.79 for everything else).
That means that dollar for dollar, games are making 50% less than other applications in the store.
By that logic, an average game developer might be lucky to clear $900 through sales of a single title. Of course, if the $20 million gross sales figure is accurate, then you can reduce things further.
(On the other hand, some sources think the revenue to Apple could be as high as $90 million. And for the average App Store developer, it may also be that it's median revenue, rather than average, that is actually important - and with sales tending to cluster around the top titles, median may be startlingly lower than average.) "
LSVP (the main source) said: "[the data] suggests that the cumulative revenue from iphone apps is around $70-$160m. Apple gets 30% of this[...]".
That would mean $49-$112m for us developers, and $21-$48m for Apple. This will give a figure in the same ballpark as the author's (and well within the margin of error of these data, to be certain!), but slightly higher average revenue per app/developer.
The $250 minimum limit to get paid per region is quite probably the result of Apple execs doing this kind of math on estimates before launching the app store, and figuring out that this limit would indeed be a nice way to increase the effective revenue share quite a bit higher than 30%.
Apart from that, interesting feature piece, and it argues a valid point, I think. One issue that has not been directly touched here, are alternative revenue schemes for iPhone app developers, especially from in-app (/in-game) advertising, or getting paid to develop advergames or other promotional or branded material. Does anyone have any insight to share regarding the perceived value of those, and/or how this affects the long-term value of the AppStore?
1. The revenue numbers are for all apps, but the majority of revenues are from games, while the other categories (combined) dominate the quantity of apps. This would skew the revenues more favorably towards games. Your (revised) comment about games making 50% less because the average price is less doesn't take into account the much more massive volume that causes the games category to make more revenue than apps.
2. The 40,298 apps number includes free downloads, while the revenues are for paid apps only. This means the average per paid app is actually quite a bit higher.
3. The revenues don't take advertising into account, which you can ignore if you resolve #2 above.
4. The median vs average thing is very true, and also the most difficult thing to factor in. When you have individual games making well over $10m, and many games making in the millions, it definitely skews the results. Certainly the vast majority of the games are doing low hundreds in revenues. But then, the vast majority of them are shovelware that no one expects to make money ;)
5. The life cycle of these games hasn't ended yet. The vast majority of them were released in the last few months, and they'll have revenues coming in for the next year or two.
There are also other issues like category, etc that factor in. But really, there just isn't enough information out there to come up with any kind of reasonably accurate number. It's all estimates of estimates of estimates, and by the time you get to the end the accumulation of error means you're not much better off than guessing.
My best guess puts the average revenue per game (over a two year life cycle) at around $15k, but the typical number being much smaller than that, likely closer to $2k. Of course neither of those numbers are anything to get excited about ;)
Beyond the numbers the article was food for thought as well. Thanks for the effort!
Investing $2000 for tools and equipment -- or less, if you already have the hardware -- sounds a whole lot better than investing in dev kits and shopping around for investors/publishers. When you also consider that an iPhone owner is more likely to part with $.99 than an average person on the street, it makes the prospect much more probable.
I'm not familiar with Apple's refund policy, but I assume there's some review system set up to find out if the complaint is legitimate. It couldn't possibly be as easy as saying, "I want my money back," right?
First, if you ask the fella behind the McDonalds counter I’m sure he’d tell you that people complain about the coffee all of the time. Some people will ask for a new cup, others will ask for their money back, and most will just move on and not worry about their dissatisfaction. There are different types of customers and the game industry serves them all.
Second, in addition to the 99cents there is an investment of time into the product. So while a cup of coffee and a game may cost the same, the time investment in each is significantly different. When I see a really bad movie, I don’t complain about the $10 I spent… I complain about the 2 hours of my life I wasted. And if I were to play an unsatisfying game, I would complain about the time wasted there as well. A bad cup of coffee is just 99cents.
Jason Powell
http://www.channelgee.com
The more important question is why is everyone commoditizing their work? There's a bit too much in the way of desperation, I think, in pricing. Part of it might be that you're dealing with small development teams for a lot of apps and games. The great thing about this platform is it's a lot like the indie film segment of the larger film industry. Similar to what online downloads and distribution platforms like Steam started, here's a platform where you can have a single developer or a couple of them hammer out an app and release it to the world without having to find a publisher and deal with all of the business aspects of application development that most developers would rather avoid. The downside is you've got people deploying apps that see few hits while other developers are trying to low-ball everyone to get their app numbers up. It's a classic price-taker scenario where you the developer no longer control your price...the market does.
The real question here is, is that justified? Like others have mentioned, people think games are disposable and that since the ride ends at some point, they're losing in the transaction. Sure there are bad games out there that suck down your $30-50 (or higher for consoles) and deliver a whopping 2 hours of game play because they're so bad. Of course, that's what reviews are for. Even if you ignore the patently bad games out there (anyone waste money on Turning Point? I sure did...), a solid game can deliver a lot of hours of entertainment. I know it's been done before but if you consider your hourly cost for entertainment, while games aren't necessarily a bargain they aren't the most expensive things out there. Movies are $5+ per hour...and deliver an short-lived experience. A lot of performing arts and concerts will net you worse rates. Television and movie rentals give you some of the best rates but the one metric that's missing is the engagement. Games engage. Movies, TV, and the like don't...or at least rarely do. Sorry, but Michael Bay's latest is not engaging you...it's spoon-feeding you CG'd destructive goodness.
Back to the cup of non-Starbucks coffee, here's another miss. The assumption is that you're evaluating the experience right away and you have the option to get a refund or replacement. And, honestly, human or not, you are not driving back to the McD's you bought that cup from to demand another cup of $0.99 coffee. It's a commodity but it's also just a buck. Sure there are people out there who would probably go back but those don't represent the majority. The App Store represents a virtual market with real dollars changing hands via an abstract interface. It's designed specifically so you don't feel the pain...so your funds trickle out of your accounts until you realize you've spent a lot. Be that as it may, can you honestly tell me that, unless you were going to go back to your local Apple Store (retail store) because you just like going anyway, after you'd taken your purchase home (just like you'd do a physical software box) and tried it out, you'd get up and go back to the store for a $0.99 refund? Stop making up reasons why (you're not running for political office). Face facts, it's disposable at that price. Sure, if you're irate enough or whatever you'd make it a point but then it's not about the cost or value but about the principle of exchanging money for an inferior product...
What then if the product is free? Someone hands you a free pen. You try it out a minute later to find out it doesn't work. Are you really going to go back and ask for a new one? Or are you going to consider not accepting a free pen from some random person in the future?
All in all, I think the real issue is the ridiculous pricing of some apps. I'm not talking high prices, I'm talking low prices. Like Ian mentioned, people are devaluing their products. While I can't say I'll buy them, but have you ever noticed that EA's games are all around the $4.99 price point? Do you think they're worth $4.99? Like Ian's examples, here are games you can probably pay $19.99 or more for the PC/Mac versions which are largely the same game. Yet, you're getting it, albeit for a smaller screen, for 25% of the original price.
People need to get realistic about pricing. Sure, it doesn't mean you're going to be able to sell your game you spent 12 months developing exclusively for the iPhone for $30. But, you can't bank on the idea that at $0.99 you're going to get more sales and thus cover the difference. You won't. There are whole theories on pricing and I'm sure an analysis will show you're leaving money on the table. Not to mention the fact that you're making the price the most important factor in choosing your game. It's not because it's friggin awesome. It's not because it'll deliver hours of entertainment. It's because you want to sell 2k copies so you can prove that your average revenue calculations are correct.
One last thing. There are two big factors that are contributing to this commodity market beyond the aforementioned: 1) you're selling on a platform $0.99 is a common price (music), and 2) Apple owns the platform. You could jump out of a window and it won't mean you'll sell more copies. But, if Apple decides to spotlight your game or maybe if word gets out that your game exists and is actually worth the download, BAM all sorts of exposure. It's a chicken and the egg sort of problem combined with a holy committee of App reviewers and content managers that make or break the 20-30 apps that hit the front page of the App Store or the respective category page in the store. Meanwhile, people have been used to a low price point with music (sure, there are TV episodes and movies but they're also priced relatively low). It's like trying to place your product in a $0.99 store. What do you expect? The customers coming through that store are going to expect low priced products. If Apple set music prices at $4.99 per download, you think games would be at $0.99 right now?
Right now, it's a mad rush to get products on the App Store because it's the new hip and happening market. The blue ocean that's already red even though people still see blue. It might take a long time but I have a feeling that prices will eventually rise...but they'll never skyrocket. This will become yet another platform and will be dominated by those that can thrive within its ecosystem. Everyone else (much like what happened during the Tech boom) will eventually go back to something else or some other ecosystem...until some other new hot platform comes out to attract the masses.
1) The market *always* controls the price. You simply can't make people pay more than they're willing to pay. Best you can do is change what they're willing to pay. That's hard, though.
2) Please don't tell others what's engaging them or not, just speak for yourself. I get the point you're making, but it came off... off.
3) I can't tell if you think games are disposable or not. Paragragh 3 sounds like a yes, but the end of paragraph 4 conveys the opposite.
4) Returning an inferior product is *all* about the value being out of line with the cost. When Cost > Value, consumers feel cheated to some degree.
5) I would *totally* ask for a new free pen if I was trying it out only a minute later. Some people are more sensitive to Cost/Value disparities than others. Free is not the opposite of Cost, it's just the zero point on the scale. Here, I'll illustrate what I mean: come on over and I'll give you ten free punches to the gut. It's free, right?
But, you say, it costs money to make games (hardware, Apple tax, license, art contracting, sound licensing, etc.), not to mention the developer's time (salary). Guess what? Physical products have all those design/development costs (and more) as well.
As others have pointed out, I don't think its the disposability factor that divides coffee from games. It's the physical goods factor.
This is certainly a bigger conversation, but the marginal cost of manufacturing goods has decreased very significantly. It's true that digital copies cost very little (not quite nothing -- bandwidth has a cost for example, as do the infrastructures for delivering digital goods, even if those costs are practically negligible on a per-unit basis). But physical goods like a cup of coffee or a DVD have marginal costs approaching zero. The physical product cost really is trivial, but the margins are much higher.
More to the point, the physical goods factor doesn't explain phenomena like Airport Mania, which is digital in all its incarnations. However, in one context it's worth 10x that of another.
"Mark Johnson recently published sales data for his game Hit Tennis, which has netted around $10k since its release six months ago. Not bad, but not an income either. "
Not an income? Tell that to real indie developers in the trenches. I'm one of the folks referenced above, who quit his day job to write iPhone/Mac software. I would be all smiles today if I was pulling in $20k a year. But I'm not, and now I'm trying to figure out what I'm going to do with my cat if I can't make rent.
I might be going a little offtopic here, but I can't help but commenting on this obsession with money in our culture that has deluded people into thinking they're poor if they can't afford a new $300 phone every few months. People who think $20k/yr is not an income are delusional and out of touch with reality, and the rest of the planet. We're in a global recession right now. Want to see just how little you can live off of? Take a look at people living outside your own borders... or just outside your local Starbucks or Apple store, for god's sake.
$20k a year _is_ a livable income, even in America for a software developer. I have the expense sheet to prove it.
An interesting point, which I think is best left to resonate with readers rather than to be subjected to praise or criticism.
@Michael
My game was just a hook into the rest of my argument (including the coffee metaphor), which I think succeeds in moving well beyond that example.
Why? It clearly has a lot more in common with other iphone apps than games.
This affects potential customers as well. If I don't know what a $.99 "game" is going to get me in the iTunes store, I'm definitely going to think twice before making an impulse buy there. Meanwhile, I might be more likely to buy a more expensive game from Steam simply because its games are categorized better and the pricing has pretty much been standardized.
"Some 40,298 apps have been released for the iPhone as of May 18. Presuming revenue somewhere between those two numbers, with total revenues of $108.3 million (if Apple takes 30%), average gross revenue of $2,688 per app. Apple takes 30% of that, leaving the developer $1,881. Deducting the $100 fee Apple charges developers for the right to sell apps in the store annually yields an average net profit of $1,771 per App.
That's just about enough to pay for the iPhone and Mac laptop or desktop you'll need to develop for the platform in the first place. Put more plainly, for the average developer the App Store is a financial wash."
Average gross revenue, of course, does not tell us what it is like for the average developer if the distribution of income across that range is uneven.
Here's an example... you're selling an app for $5 and get about 100 downloads a week, but you aren't even in the top 50. Now let's say you drop it to $1 and your downloads go up to 400 downloads a week. You're making 80% less but now your app gets into the top 50, and your download numbers start to increase. Eventually you may hit the top 10 and your numbers really start to accelerate from there.
The solution? Apple needs to change the top apps to be based on revenue. A $5 game selling 100 a week should be placed ahead of a $1 game selling 400 a week. Apps would get more expensive, but that's good for developers and ultimately good for users as well.
a) Impossible in a market with thousands of suppliers and very low barrier to entry.
b) Illegal in EU, US and many other countries.
iPhone games market has just freaking huge supply - that is the reason for low prices, not some magical iPoison and if you want to develop for that platform you have to get over it. Web game authors frequently do not charge a cent for their games and they do not whine about it. If you want to sell games for more you have to use other marketing tools then just price - invest in some advertising or create "quality iPhone games" brand or something other. I am not a marketer so I cannot help you more with this.