The problem is that the difference between $2 and $1 is not the same as the difference between $1 and $0 (i.e. free). Humans are not rational in this way, and the abundance of free apps kills it for everybody else in the market. If one company would start giving away really awful-quality chocolate (or any product) for free in every supermarket, the chocolate prices & industry would crash.
Dan Arielly did a couple of interesting experiments on this. He had people paying for products in a cashier line (i.e. people who had their wallet out anyway) choose between two really good offers: Hershey chocolate for $0.10 and Lind chocolate for $0.20 (or something like that, I forgot the detailed numbers, it may have been $1/$2 or $0.5/$1). In that case, most people choose the more expensive Lind chocolate as it was clearly the superior product (i.e. higher quality).
When he repeated the experiment with $0.10 for the Lind and $0.0 (i.e. Free) for the Hershey's, the game changed. Everybody took the Hersheys. Even though the pricing didn't really change, they only both became cheaper, by the same amount.
The verdict, really, is that if there's something free around, we go nuts and quality doesn't matter much anymore, because it is free.
If free apps, on the app store, would be at least $0.50, or even $0.10, I think it would totally change the game. (I.e. if Apple would change the Free Tier).
But as it is right now, I think the downward spiral will continue. The only way out is to create a high quality superior product (many features, etc) with a high price tag and hope that you get enough customers to survive. That also should lead to less support load.
Oh boy are you looking at this wrong. Only someone from a western country with a middle class wage could so utterly fail to distinguish between a choice between two costs in resources to a choice between a cost of resources and one of no resources.
Think of this another way. How many chocolates can you afford at a cost of $0.20 each? How many can you afford at a cost of $0.10 each? Now, how many can you afford at a cost of $0.00 each? The experiment artificially avoids this by manufacturing a situation in which purchasers only had a one-time choice, but the purchasers didn't necessarily know it was a on-time deal. For all they know, they may be faced with the same choice every time they go back to that store, even if it was advertised as a one-time deal. We get on-time offers pushed at us all the time these days.
So, is a marginal decrease in cost of $0.10 equivalent in both circumstances? Of course not. A cost in resources is always a cost. A cost of no resources is not a cost at all. Comparing two different costs is completely different to comparing a cost with no cost at all. To understand this, instead of adding costs together over a few transactions, try multiplying them by many decisions instead and you'll see that multiplying by zero has some very special advantages when it comes to resource preservation.
What I think is happening is that analyses like the above are considering only individual translations, but App store users download many apps. Multiplying costs over many purchases, even small costs balloon while free is always free no matter how outrageously you indulge your App store downloading habit.
That's without taking into account that not everybody considers buying a cup of coffee in Starbucks something that requires no thought or consideration. I certainly don't think that way for a start.
Sorry, but I found the parent's comment much more insightful, lucid and relevant to the point being discussed (why a large majority always seems to prefer free apps over paid ones) than yours.
And the utterly pointless ad hominem attack right at the beginning didn't help either.
You also seem to have mixed up "price" with "cost" at places. For instance I don't quite know what these lines mean:
> a choice between two costs in resources to a choice between a cost of resources and one of no resources (what do you mean by resources? Whose resources?)
> a marginal decrease in cost of $0.10 (the cost of the chocolate is borne by its manufacturer while a consumer pays the price)
I'm sure you have a valid counterpoint in there somewhere, but it's not clear what it is.
To me it's about the stress of decision-making. I like simply saying "hey, let me check out _____ type of app" then doing a search and downloading up to a half dozen different ones just to try out.
On the other hand if I had to pay a few bucks for an app I'd probably spend a while reading the descriptions, reviews, weighing options, etc. It would turn into work.
Sure, it's an explanation. But I find no evidence to believe that it is the only explanation. Or even that it is a better explanation than the parent's (that people behave irrationally when presented with anything "free").
The point of the original experiment was to have the charges be near-zero but tiered with respect to the other items available. It could easily be adapted to another country and currency. And it wasn't a buy as many as you want thing, it was a one-time-only deal offered in the checkout line. So, it's not about multiplying zero. It's about a single instance. Free breaks the logic of most people.
I'm not sure I really understand what you're trying to say, but it really thinks as if you're proving my point: What I wanted to say was that the difference between $0 and $1 is entirely different to the user than the difference between $1 and $2. Just like you say, you're not investing any resources for the $0 case. However, from a purely rational perspective, it looks like this:
Imagine that the quality of the chocolate is a utility-function. The cheap chocolate doesn't taste good, so you only gain 0.1 points of utility on a scale from 0 - 1. The Lind chocolate tastes really great, it makes you smile and happy, it has a utility of 0.3.
In this case, if you decide to buy Lind instead of Hershey's, you are willing to pay $0.10 more than what's necessary in order to gain more utility. The added value of the better chocolate has a worth of $0.10 which you're willing to pay.
In the free case, the utility is the same, and the price difference is the same, so if you, earlier, were willing to pay an added $0.10 for the added utility, you should still be willing to pay an added $0.10. But of course, when there is a free alternative, people don't.
You're outlining some of the reasons for that, and they all make sense, I'm just saying that this is standard human behaviour which affects the realities of the app store even though it is not rational. On a Micro Level, human beings are oftentimes not rational at all and this is a good example of that.
Btw. there is a limitation in the study: People could only buy the chocolate once, so even if it is free, you could not take 100. So the no-resources point does not totally explain the behaviour either. There does not need to be a logical explanation to this anyway, it may be something that's still stuck from the Lizard Brain that's causing this.
I think the point is that even if it's only a one time study, a default strategy of preferring free to paid can be rational since we participate in a huge number of transactions in daily life. You are viewing this as an irrational sacrifice of quality for $0.10, but it's really a question of longterm strategy, even if the calculation is done on a subconscious level.
The experiment artificially avoids this by manufacturing a situation in which purchasers only had a one-time choice
Well how many times are you going to download the same free app? And how many free apps can you really stomach having crowding up your phone all at once?
I think the only way out is to allow demo apps. I find it really hard to justify $10 or $20 on an app which may or may not fit into my workflow.
That's on top of the problem of determining whether something is of reasonable quality (i.e. even does what it claims) from a few screenshots and likely-gamed reviews.
The problem gets worse the more complex the app... Yes, reviewer A might find it useful because some subset of the features work OK for them, but perhaps I just want one specific feature which they don't care about?
Without a demo I'm left with the size of the community around and app, and a general 'buzz', both of which make it harder to enter the market at all.
Reviews are very, very tricky in my experience. A few things I have noticed on my own app:
1. Any negative review hurts. It doesn't matter if it's a legitimate negative review, someone you're pretty sure isn't even referencing your product in the review, or a positive review where they thought 1 star meant great rather than 5 stars.
2. One negative review hurts worse than zero reviews. One or more negative reviews will consistenly drop my daily sales by around 30%.
3. People will almost never read beyond the current reviews. Those that do will ignore the date the review was posted, and often the top reviews shown are from years prior in the All Versions tab. Apparently Apple knew this too because that tab no longer shows the date on the iPad/iPhone App Store apps (iTunes still shows it).
4. Gaming the review system by submitting a new version works. This clears the reviews from the default tab (Current Version) and is the only way to "remove" abusive reviews. Flagging a reviews does absolutely nothing.
What about giving away the first version of the application, and charging only for upgrades? This way the user has a chance to integrate the application into their life before you ask them for money. Nobody likes shareware--if you have an explicit time limit then people won't feel comfortable with making that app 'apart of them'.
I think pricing like this could work well for open source applications too. I see people now putting up donation suggestions with the download (see elementaryos for an example[0]). The problem is I am not going to pay for something that I have never used before. However, if I like the application, payment is easy, and the pricing is reasonable, the warm and fuzzy feeling of helping a community project that is apart of my workflow would probably be worth the money.
Or instead of a demo, a good preview film showing how the app works. (Like Apple does on it's website, http://www.apple.com/ios/design/ (scroll down). Enough already with the static PNG files.
This Ariely experiment is unconvincing because it's quoted with percentages.
Are the free customers switching down from the luxury product, or are they new customers who otherwise would have gone for neither option?
The percentages withhold that information.
Yup - I read the post and immediately thought of Dan. Free kills everything.
One "solution" is to write great apps that no one else can make, like Amazing Slow Downer, and charge a premium price ($15). But not every app is that "significant," so we end up with twenty guitar tuner apps, or Tabata apps, or whatever.
Dan Arielly did a couple of interesting experiments on this. He had people paying for products in a cashier line (i.e. people who had their wallet out anyway) choose between two really good offers: Hershey chocolate for $0.10 and Lind chocolate for $0.20 (or something like that, I forgot the detailed numbers, it may have been $1/$2 or $0.5/$1). In that case, most people choose the more expensive Lind chocolate as it was clearly the superior product (i.e. higher quality). When he repeated the experiment with $0.10 for the Lind and $0.0 (i.e. Free) for the Hershey's, the game changed. Everybody took the Hersheys. Even though the pricing didn't really change, they only both became cheaper, by the same amount.
The verdict, really, is that if there's something free around, we go nuts and quality doesn't matter much anymore, because it is free. If free apps, on the app store, would be at least $0.50, or even $0.10, I think it would totally change the game. (I.e. if Apple would change the Free Tier).
But as it is right now, I think the downward spiral will continue. The only way out is to create a high quality superior product (many features, etc) with a high price tag and hope that you get enough customers to survive. That also should lead to less support load.