Recently, there has been a lot of discussion about making app development more sustainable – these discussions were intensified by Sparrow’s acquisition by Google last week. This acquisition was bad for users, since it meant there would be no further development on the Sparrow Mail app. One theory being floated is that if app development were more sustainably profitable, fewer teams would be tempted to sell in situations that would harm the long-term future of the app.
One idea for improving the long-term profitability of an app – and thus the amount of effort that goes into continually improving it and adding new features – has been the idea of upgrades. On HackerNews and other forums, however, many folks have claimed that such an option already exists – “upgrades” via the In-App-Purchase (IAP) functionality that exists on all stores today. I wanted to share why I think this is a really poor approach – for both the user and the app developer – and why upgrades are a good way to financially motivate developers to deliver useful, significant upgrades to their existing applications.
Proponents of IAP as an upgrade argue that developers should continue to develop the core of an application and sell new features as IAP items. The argument is that users only pay when they derive new value from the application, and only purchase the functionality they want. Admittedly, there is probably some subset of users who would enjoy customizing their software to the max and saving a few bucks in the process, but I think the vast majority of users would find this to be a nuisance.
Nickel-And-Dime Your Users
The main problem with IAP-as-an-upgrade is the fact that your users are going to feel like they are getting nickel-and-dimed to death. Imagine this scenario: You see someone using a cool app and think “Hey, that would be useful to me!” You purchase the app, only to find that it only does about half the things you saw the other person’s app doing – to get the same functionality they had, you are forced to purchase a bunch of “upgrades”, possibly doubling the price of the app in the process. This is not going to delight your users – it will instead confuse them as they try to figure out what combination of features they need to purchase to actually use your app in a way that is meaningful to them.
The other problem with this approach is that it misses on benefit of paid upgrades – usually, the upgrade price is less than the full price, as a reward to your existing customers. This can’t be accomplished with IAP.
Create headaches for yourself
IAP-as-an-upgrade also creates headaches for developers. Improvements to your application can come in many forms – new functionality, improving existing functionality, performance improvements, UI improvements, and more. Rarely do you come up with a single feature that is worth paying for by itself. This approach forces you to think about it in terms of individually sellable items, which can get really complicated when there are feature dependencies. It encourages you to to focus on discrete functionality that can be sold, rather than potentially big general improvements to the application. Some proponents have even suggested including multiple code bases – even if Apple or the other app store maintainers would allow this, I cringe at thinking how ugly of a solution this is.
Upgrades are a good feature
Upgrades have a lot of advantages:
- They align your interests with those of your users – Users want applications they depend on to be maintained and improved for long periods of time, and you want the ability to derive a stable long-term income from that work.
- By making the upgrade price less than the full price, you reward your existing users.
- Application-specific settings are maintained in the event of an upgrade.
- Users don’t end up with a mess of different versions of your application, as happens when developers decide to simply sell a new product as a new version.
- Upgrades are a simple, well-understood system for delivering new versions of software.
The main problem with upgrades are transaction fees. It would be expected that an upgrade would cost some fraction of the original price of the application, but with many applications charging $0.99, this doesn’t give a lot of room for discounting – Apple’s fixed cost to run a transaction is rumored to be in the neighborhood of $0.15, which doesn’t leave a lot of profit for them at levels below $0.99 with a 30% cut of the retail price. I think there are a few ways to deal with this:
- $0.99 app upgrades could be discounted less – say, the minimum cost of the upgrade is $0.75.
- Only apps $1.99 and up are eligible for upgrades.
- Apple takes a bigger cut of upgrade fees.
IAP is a great feature and is useful in a lot of scenarios, but it doesn’t obviate the need for upgrade functionality. As a user and a (really small-time) app developer, I hope app store maintainers seriously consider offering upgrade functionality in the future, and I hope even more that we don’t see a bunch of developers trying to implement them as IAPs.