The App Store is a Ponzi scheme

The best apps on the app store are apps that provide some type of utility. They are useful. They are helpful. These are the apps that you use on a regular basis. They are apps that help you take better pictures like Camera+, apps that help you track tasks like Appigo's Todo, and apps that let you create and modify office documents like Documents To Go. Apple even makes these type of apps like Pages, Numbers, and Keynote.

Actually there are two types of apps on the App Store (that try to make money as a paid app). The one that gets the most press is the gamed/entertainment category. If the developer is lucky, these typically make *a lot* of money all in a weekend or two. Their monetary model is a lot like the movie industry. The apps are bought in order for people to be entertained. After the first week or two, the app is old and few people will buy it.

Apple has told people to go buy these useful apps in order to make your devices more productive and valuable. How many years did Apple run the "there's an app for that" advertising campaign? And they are right. When I go buy Apple's Pages app, I no longer feel like I need to have Microsoft Office for my iPhone or iPad. I can download a document, modify it, and send it back out to a coworker. No Microsoft Office needed, Mr. Gates.

These useful apps are like a Ponzi scheme.

Let's say that you buy that app. You pay your $10, $5, $.99, or whatever. What do you expect to get for your purchase? You expect a quality app that does what the app description says. You expect that you will get updates to fix minor bugs. But what about new features? App developers add big, new features trying to get new people to buy their app.

And this is how the App Store is like a Ponzi scheme. If new customers stop buying the app, developers stop updating the app, and all the old customers stop getting the increased value from updates to their favoriate apps. Somebody has to pay for the developer's time. I would love to see some analysis that shows how many of the apps on the App Store have not been updated in the last six months, or the last year?

This has to be fixed. Apple wants developers to create great apps. That is what they tell the developers repeatedly at WWDC. Great apps sell more devices, which makes Apple happy. The problem is that developers make more money selling new apps and less money updating their current library of apps.

Why should an app developer invest a couple of weeks of their time adding a new feature? It will not bring in new customers. It has the potential to break something for the old customers, which increases support costs. Why bother?

Potential solutions

Trial periods for apps would be nice. Amy Worrall has been getting some visibility for her comments on free trial periods. While I think this would help increase the average selling price of apps, I don't think this would fix the Ponzi problem.

Advertising? You have to sell a lot of copies of an app in order to make enough money from advertising. While that might work for the top 10 in each app store category, it doesn't work for smaller niche apps.

Freemium? For the most part this just creates crappy apps. Who hasn't played a free game that quickly isn't fun because you have not paid for some In-App-Purchase power up? It usually sours me on the game faster than I develop a desire to buy the extras. These apps usually just feel like a scam instead of something well made and designed to help me solve a problem.

Subscriptions? For some things this works well. If there is a backend service that can really provide value, have the user pay for the service and the app comes for free. But not all apps make sense to have a service part to them. I get a lot of utility out of Apple's Pages app without adding a paid, backend service. How about an email client or web browser? If you forced a subscription on to that, it would break the value of the app.

I wonder if some sort of expiration date would work? Maybe you get free updates that are compatible with the current version of iOS for a year?

I'm still trying to think up a good solution. But I am pretty sure that nothing will work well without Apple's cooperation.

When was the last time you paid for something digital through a webpage?

I was reading some comments by an analyst talking about iPhones, iPads, the "Post-PC" era, etc. You can read it here if you are interested. One topic was talking about the idea of apps vs HTML5.

Anyway, I had a thought while reading the analyst's discussion. When was the last time I personally paid for something digital through a website?

There are lot of websites where I pay for physical goods. Amazon.com, eBay, etc.

NetFlix: that's a good one. You pay and get access to streaming movies.

World of Warcraft: another good example. I don't do play online, but a lot of people do.

How about paying for online access to news? Not many people do it. The dot com folks taught us that we didn't need to pay. Their "get marketshare first, make money later" model made sure of that.

Do you pay for your personal email service? Gmail, hotmail, ? Nope.

Pandora? Nope. What happened when they tried to get everyone to pay? We all left and found another service.

Hmm....

Here's the thing. As consumers, we pay for value. How do we decide what price to pay for that value? We do it relative to something else. We feel that our personal email has to be free because there are so many good options that are. We are usually willing to pay a bit more for a book that has more pages, or at least looks thicker.

Back to Pandora. They want to charge $36. It happens to be for a whole year's worth of listening, but that is a big mental jump in price. Why not charge $3/month? Give me the first month for $1 and get me hooked. If it is really that good, I'll buy right? Have you not heard of Cocaine marketing?

But I'm getting distracted.

Apps. Why do so many people pay a couple of dollars at a time for apps?
1. It is a different delivery mechanism. What do we compare it to? (remember price/value comparisons) Other apps. Yeah, yeah - you're smart enough to know that it isn't much different from a website. But because it packaged differently I'm not expecting it for free.
2. Yes, there are free apps with advertising. But often times I'm willing to pay just a bit more for quality and no nagging. They are cheap. If the apps were $30 (cheap boxed software at a store) then I would have to analyze, comparison shop, question if I need it, etc.
3. Visibility. I can find all this value easily at one location. The app store.
4. I don't give my credit card and person info to some random app developer that may or may not be trustworthy, I give it to Apple. I already trust them. I bought my phone from them. Android/Google is a bit more complicated, but similar. On a site note, note the difference in the trust model and that Android users don't pay for apps as much. Interesting!

A website trying to sell something usually isn't any of the above.

Will HTML webapps make a comeback and destroy the app store model? Nope.

Yes, it costs more money to develop apps for each app platform. Trust me, I know all about that. But I can make enough money to make up for that.

If I made my app as a webapp, would people pay me for the value? Nope.
1. They would expect it to be free. Remember your dot com training!
2. Without the high volume of purchases through an app store, I would have to charge more, which would keep potential sales away.
3. My value would have to compete with many other websites that are delivering other types of value. How many people do you know are in the internet marketing business? I know a lot.
4. Would you trust me with your credit card for a $5 purchase? Not unless I was a big enough company to have a reputable brand.

The HTML side of the argument seems to usually land on the idea that HTML, being a standard, will win because it is ubiquitous. They say that it is to expensive to develop nonstandard apps for each app store.

Other than maybe Apple talking about their app store, you don't hear anyone arguing back on the side of the apps. Maybe they are to busy writing apps? If apps don't make money for them, they will come back to other kinds of software development in a couple of years.