The point about the coffee cup comparison isn't that cups of coffee are the benchmark experience for product pricing; if that were the case, my next root canal would cost $0.20.
The point of the coffee cup comparison is marginal utility: the money you spend on an expensive cup of coffee almost certainly has very little utility at the margin, because you are happy to chuck it away for a bad cup of coffee.
Oh, you really like Starbucks coffee? That's unfortunate, because it's pretty bad, but more importantly: you militantly miss the point of the comparison when you benchmark the experience of installing a new app against the enjoyment you get from a cup of coffee.
This place has an enormous problem with pricing and economics. Unlike Patrick, who really does sweat the fact that developers are making small fractions of their overall worth due to underpricing their offerings, I should be overjoyed at the fact that the biggest collection of new software entrepreneurs on the Internet hangs out at a meme generation engine for exploitable market inefficiencies. But unfortunately, I'm an obnoxious nerd, so all I can think to do about this is yell. ARGH.
A dollar at the margin for a person with a $600 phone on a $50/mo data contract is not an enormous gamble. It is a pittance too trivial for that person to even contextualize. The problem isn't that people are unwilling to give up $1 for apps; it's that they're hesitant to give up $0.25 for anything online. When you start with the understanding that there's huge impedance at "anything above free", it's clear why "$1" is not a particularly great price point, and why "better strategies to motivate people to part with $1" is a terrible meme to propagate.
Not sure what artisans you have running Starbucks cafes in the US, but in Australia the barristers are largely low paid teenagers using un-cleaned machines and second rate beans. To top it off most of the drinks have dollop of cream or some other sugary ingredient to mask the awful quality of the coffee.
I would gladly 'gamble' 99c with an iPhone developer over a Starbucks beverage.
EDIT: I'm talking specifically about Starbacks. Australia has excellent coffee. I'm drinking a lovely Sprocket coffee as I write this.
a) "Starbucks" serves in this situation as a generic term for an espresso drink of your choice. Like Kleenex or Xerox or what-have-you. When someone says "people will spend $4 on a coffee at Starbucks without thinking about it" they don't mean at Starbucks specifically, they just mean "some coffee shop that isn't 7-11 or Dunkin Donuts or McDonalds".
b) Even within the category of espresso-serving, $3ish coffee shops, the argument still applies. In a strange town (), in the absence of other reliable information, I will probably go to Starbucks because I know that I'll get a somewhat over-roasted, but drinkable, latte. If I walk into a random independent coffee shop, there's some chance I'll get an excellent cup of coffee. But, experience has also taught me that it's more likely that I'll get something that's no better, or frequently worse, than Starbucks. Similarly, if I'm out of saline or need some allergy medicine while traveling, I'm likely to grab it at Walmart, because all their stores are laid out the same and I can find what I need blindfolded. There is value in predictability in many situations.
() caveat that this applies to travel in the US, and generally for work. In various European countries, I'd bet on the random local shop. And if I'm traveling on vacation, there's value in experiencing something new and local. But, if I just want my morning coffee on the way in to the office, easy and predicable wins.
It's hard for me to relate to your experience of Starbucks in the US. But in Australia the quality of a Starbucks coffee is inconsistent and typically bad. Australia has a relatively old coffee culture, so most coffee drinkers are discerning.
In the absence of reliable information in a strange town I will always gamble on a the small cafe, as they have to work to get customers as opposed to depend on an advertising budget and novelty style sugary drinks.
Starbucks coffee in the US is just as bad as Starbucks coffee is in Aus, possibly even worse because US customers seem to have much lower standards for coffee. Last time I had to drink Starbucks in the US I had to get 5 shots in a latte so that I could actually taste the coffee.
I've been hating Starbucks since 1993 where at my first job at a movie theater we shared a trash compactor with them, and those bastards would never press the button, so you had to stand in the smelly garbage room and wait for it to compress their garbage before you could throw yours in. It would be years before I could actually afford to buy a coffee from there.
Now I live in London, and as far as I can tell, all the good coffee is made by Aussies, so I can only imagine how terrible Starbucks is by comparison in your country.
No idea why. Scandinavia is exotic and hip these days, probably. Then again, a lot of new Swedish things are popping up, like Swedish pizza places (which, if you haven't had it, mostly revolves around unexpected toppings such as banana, cabbage and kebab meat).
Hum, there is more than one ... Only in Amsterdam there are at least 2 (went there 2 days ago), one in Central Station and one not far from the Science Museum (that I could see from the train leaving the Central Station :D ).
And no doubt there are more in the inner city.
Then there is also at least one in Utrecht Central, so we are down to 3 already.
Anyway, I know it was not your point.
Besides, as a Frenchman (living in the Netherlands), I'm not fond at all of Dutch coffee, but hey, it could probably work in "New Amsterdam" ;)
Norway (#2 in coffee consumption) has a single Starbucks, located in the arrivals hall at Oslo Airport.
I overheard some people recently talking about how they sometimes take the airport express train just to have coffee at Starbucks. Which is just insane, not just because the coffee isn't particularly good (and Oslo has plenty of extremely good barista places) but because a round-trip ticket from Oslo to the airport costs $56 (€46).
Don't get me wrong, Aussies make amazing coffee. The best coffee comes from a portable stall outside Sydney central station crafted by a Polish Aussie using Campos beans.
I'm an Aussie coffee afficionado, and the best coffee I ever had in London was at Monmouth. No idea of the address, but it was about 5mins walk from the modern art museum, on that side of the Thames, near a food market. As if that'll help... :-)
I'm in the US and you have all really got me curious about the Aussie coffee. I too hate Starbucks and find it quite bitterly me a pot that's been on all day).
Unfortunately I just prefer Big Coffees off the shelf brand, but don't know what to try. Just that it's not Starbucks.
Is there somewhere that I can order Aussie coffee from and know its actually the coffee you describe and not just branded 'Aussie'?
There's really no such thing as 'Aussie' coffee, as I doubt coffee is produced in commercial quantities anywhere in Australia, although there are local roasters.
What they are referring to is coffee made by an Australia barista.
Basically, coffee culture is huge in Australia, and being a quality barista is seen as a cool kind of job to have, despite the generally low pay.
It's not unusual on a city street in Australia to have 5 or 6 coffee shops in a row. At this point, they are competing on coffee + barista quality. With this type of competition, the consumer gets well educated on the nuances between cups, and so it goes.
I had no idea this idea of 'the aussie barista' was being exported to the world, but I guess it makes sense.
Ironically it grew out of Italian culture, mainly through immigrants to Australia. While my best coffee experience was still in Italy, generally I find coffee in other parts of the world appalling in comparison, esp in the USA.
Demonstrably untrue. Like most coffee producers, a lot of the beans are imported, some of it is grown locally. But they are hand selected, blended and roasted here in Australia and are most definitely produced in commercial quantities to be consumed here and exported as far as Korea.
To name but a few Campos, Sprocket, Lavazza.
Australia has very rich Italian and European cultural heritage which means we cultivated a coffee culture quite early on, relative to other western countries.
@andrewfelix - you're right in that there are specific roasters, but I'm unsure about where they get their beans.
I guess I took 'Aussie' coffee to be places that marketed themselves as 'Australian', or internationally recognised Australian coffee brands. While everyone can find a bottle of Australian wine, and what it means to be Australian wine, defining it for coffee is a difficult task.
dpark, 'Western' is more of a cultural moniker than a geographical moniker.
If you want to get specific about it, all of Europe west of Greenwich is not 'Western' - and that's most of it. Tunisia is definitely Western Hemisphere but you wouldn't call it west.
I recognized Lavazza, so I had to look it up. It's apparently an Italian company, with production in Italy, and seven subsidiaries in other countries (notably not Australia). Probably not the best choice to promote Aussie coffee. The others do seem to be Australian.
By the way, does Australia count as a western nation? It seems to be in the wrong location for that. This is totally tangential to the coffee topic, just something that I found curious.
Culturally western, yes. While we're positioned in 'Oceania', we were settled(invaded?) by the British and had a 'White Australia Policy' up until the 70's, meaning most migrants were of European descent.
As an American living in Sydney: I've found it to be exactly the opposite. Sure there's a ton of coffee places, but mostly they're the same crappy $4.00 burnt roast. I suspect Melbourne is probably better, but I haven't had enough coffee there to confirm.
My speculation is that this is due to a general lack of hip/divy/young "artisan" cafes/restaurants in Australia (yes, yes, I know there are some, I'm talking purely about prevalence) compared with "hip" American cities. This is particularly true outside of the hip parts of town (Surrey Hills, mostly).
US coffee quality depends greatly on which city you're in, and the barista being a cool job is true in many places as well. The Pacific Northwest (Portland, Seattle -- despite the Starbucks black mark) has really amazing coffee shops, and they're everywhere. If you're ever in Portland, I highly suggest Barista -- http://baristapdx.com/ -- it will change your life.
I have lived in Sydney a long time. I agree. Most of it is not that good. But everywhere you go there is usually at least 1 place that you can count on.
Sadly the best coffee comes from speciality roasters that only sell it over the counter (or wholesale if you own a cafe in the city), so it's hard to get if you're out of town. A few (like Campos and Cleanskin) will ship within Australia though.
I think it's mainly a freshness thing - after resting for four or five days after roasting, coffee is only at its very best for 10 - 20 days at most (as whole beans).
Well I haven't found a real Italian coffee shop in London yet so I can't say. The only Italian joints I've been in have been mom and pop cafe type places. Someone you go for a quick bite. The coffee has been middling at best, certainly no baristas behind the counter.
I'd say feel free to replace "Starbucks" with any other purveyor of a product you enjoy at around this price point.
When I say craftsmanship what I'm really referring to is the overall brand that Starbucks (or other coffee shops) have built. A brand that says "what you get here will meet your expectations".
I'm sorry you even had to come here and point that out to people.. Jesus Christ, man. After reading your article, I clicked HN hoping for some good discussion, after all, I too have always found the coffee analogy to be a poor one, but the bulk of the comments here are people pissing over the quality of beans and who was superior taste buds.
For me, your first point sums up entirely my problem with the coffee argument -- and specifically why I spend $4 a day on coffee but rarely buy an app (though I wasn't like this initially). Even if I go to [insert coffee shop here (calm down HN)] and the coffee is a bit crappy, it still gets the job done. I won't be as happy that I spent the money on it, but at the end of the drink, I've got caffeine in my system.
The state of the software in app stores, and lets be honest here, is a bit shit. There was a popular post the other day by some guy about not being able to make a living being an app developer, and it was all "boohoo"s.. until you look at what he's made. absolute crap. A concrete calculator that looks like an Intro to Android chapter one exercise? Boy, I wonder why he's not raking in the millions. Look at the top 100 right now. It the same 3 games over and over. My issue is that when I take a gamble on your app, and it turns out to be completely awful I don't get anything out of it at the end of the day, I'm simply out a dollar -- and no, that's not a large amount of money, but it is the principle. I feel robbed of that dollar because I got nothing in return for it.
I travel for work constantly, when I first got my Android phone, I would browse through the Google Market before a flight, and then dump up to $5 on whatever game seemed interesting. I had an initial expectation of quality-- I thought up to $5 was perfectly reasonable. After, I'm going to (hopefully) get a couple of hours of enjoyment out of this app. However, I only did this handful of time before realizing that reading the SkyMall magazine is more interesting alternative to most apps.
"Those of us in app development love to talk about how ridiculous it is that people will drop $4 every other day on a cup of coffee but will not “waste” 99 cents on our hot new app."
For this to be an appropriate comparison, there would have to be a coffee shop that had the massive peaks and nulls like that of an app store. Imagine a coffee shop where getting a bad cup of coffee didn't simply mean, "of less than ideal quality given the price," and instead meant getting a black, undrinkable, coffee-ground-laden sludge that can only be thrown away after the first sip. I think people would be a little less inclined to spend money on their coffee. Only under these circumstances would I view getting a cup as holding the same "risk of waste" as buying a random app from the App store.
Actually, the tragedy of it is that Starbucks uses pretty good beans. If you buy their brand of beans and make the coffee yourself, you can make a damned good cup of coffee.
But Starbucks apparently has standardized entirely the wrong procedure for using those beans, so that the end product tastes like they accidentally dropped a bouillon cube in it.
While it is easy for some to slam Starbucks coffee for taste , the truth is nearly every cafe you go to will have a healthy business - and often perpetual lines - of paying customers. Quality is subjective, and the entire experience Starbucks brings is what the urban masses are looking for. For that matter, take a long road trip, and if you happen to see a Starbucks logo on an exit sign, more often than not you're going to throw in the towel and go get a Grande.
McDonalds does a roaring trade in burgers, but that doesn't mean their burgers are very good. I had starbucks coffee exactly once, and it was so bad that I vowed never to go back there again. The way to know if a coffee shop is good is to ask for a quattro ristretto with milk, or something like that. If the barista looks at you funny or hesitates in the slightest just go somewhere else.
I don't go on road trips without a significant supply of my concentrated aqueous solution of caffeine and theanine, and my handy concentrated flavoring so that I can make energy drinks on the go. So no, I wouldn't surrender to Starbucks in that scenario.
But I realize that my habits are not exactly typical.
Sure. You need a scale, but high precision isn't terribly important if you mix up large batches at once. A postal scale probably won't cut it though; you want at least as good as 100mg precision. You can get these ingredients from online retailers (except the orange extract — get that at a grocery store). I've used Hard Rhino Muscle and Pure Bulk and been satisfied with both.
My caffeine/theanine formula:
Caffeine - 1.6g
L-theanine - 3.2g
Water - 2 cups
This makes for 100mg of caffeine per fluid ounce of solution, which makes measuring pretty easy. That is like a cup of coffee on the weak side of average, or 2-3 cups of tea. 200mg is like a strong cup of coffee. I have found that 100mg twice a day is close to the sweet spot where I get energy from it but don't build a tolerance. Obviously if you already have a tolerance, you'll want to use more. This mixture should be refrigerated to keep stuff from growing in it. Also, you can vary the concentration a little, but there is a limit at which the theanine solution will gel into an unusable colloidal mass. Hot water is useful for getting the ingredients to dissolve initially.
The theanine is there for two reasons: 1) it smooths out the jitters from caffeine, and has a mood elevating effect when used with caffeine and 2) studies indicate that combined with caffeine, it has a number of cognitive benefits. 2:1 theanine to caffeine is around the ratio that evidence supports.
My flavoring solution is:
Citric acid - 30g
Malic acid - 10g (optional)
Sucralose - 1.5g
Orange (or lemon) extract (83% alcohol) - 8g
Water - 2 cups
I put this in a squeeze bottle like the kind fast food places sometimes put vinegar and oil in, and it only takes a little squirt (about a teaspoon) to flavor a cup of water. I don't bother measuring this, as it's easy enough to do by taste. But do be careful not to make it too strong or the citric acid will hurt your mouth. Nothing dangerous, but it can make your gums sore.
Malic acid is not strictly necessary. It adds a bit of fruitiness, but it's subtle. You can leave it out and use 35g of citric instead of 30g.
Sucralose is the sweetener in Splenda, but it's important to remember that Splenda is highly diluted with fillers to make it the same sweetness as sugar. Pure sucralose is 600 times as sweet as sugar, so it must be measured with care. Hard Rhino is the only source I've found for it. Other sweeteners like xylitol, stevia extract, and erythritol are easier to find. Xylitol and erythritol are not sweeter than sugar, and I find stevia unpleasant. If you like stevia, it's actually more cost effective than sucralose; it's half as sweet, but it's cheaper.
If you don't want to bother with the flavoring solution, you can also mix the caffeine with anything that is sweet and sour because those flavors mask the bitterness of the caffeine. Citrus is particularly effective.
These are the most cost effective ways I've found to have tasty beverages and caffeine. The caffeine solution comes out to about 7 cents per reconstituted cup (18 cents for the equivalent of a Starbucks Grande). Most of that is actually the l-theanine; if you forgo that, it's only half a cent per cup.
The flavoring comes out to under two cents per cup, or $0.30/gallon, but depends on how much you use.
So basically, if I take this with me on a trip, I can have the same caffeine boost as a Grande, plus theanine to take away the jitters, for twenty-five cents. And as an added bonus, it's actually drinkable.
Edit: One more thing. You can use volumetric measurements if you can find the bulk density for your powders, but I don't recommend it. The scale I have is an American Weigh DIA20, which costs about 20 bucks. The only thing I don't like about it is that its maximum capacity is 20g, but it's easy enough to measure the citric acid in two shots.
wow..sorry but that is completely incorrect. Melbourne has amazing coffee. I've been in Canada for over a year now (travelling to the US every now and then) and the general level of coffee here is truly awful (starbucks, tim hortons etc). The positive is that it is cheap.
On the other hand, if people all made such rational comparisons about marginal utility, not many people would be paying $100/month for TV channels that only allow them to watch certain shows at certain times and are full of interruption based advertising and not many people would be flushing $15 down the drain to go see a 90 minute movie instead of buying a month's membership to World of Warcraft and getting tens or even 100+ hours of enjoyment out of it.
The thing is that some people want what they want and they don't care about the long term investment angle. So they're willing spend $8 on a beer at a bar instead of having something healthier and cheaper like water. A lot of those same people won't spend $8 in a year on apps, no matter how rational a case the author might make. In general, food, alcohol, caffeine and cigarettes are more effective than software for generating these kinds of poorly-planned impulse buys (though a lot of Chinese gaming companies have been doing well with free-to-play games and micro-purchases for the past 6 years or so).
In retrospect, I think I've only bought three apps in my nearly 4 years of having an iPod touch, one of which cost 99 dollars. It's a heck of an app, though, and has been in development for longer than the iTunes store has existed.
I very much think that's the wrong lesson to learn from people's willingness to fork over $100/mo for pay TV.
It is not an iron law that people will not pay $8 for apps because less than $8 is what apps cost, and $8 is what beer costs, and $100 is what pay TV costs.
It is a law, I believe called "gravity", that products that present themselves as market substitutes for other products that cost $1 will have a hard time selling for $8. This does mean that, absent a very effective and inventive marketing strategy, casual games and offline web page readers are hard to sell for $8.
Then the logic question as far as the OP's original topic is this:
Can any app truly be a substitute good for a sweetened beverage with stimulants in it? I would say no. It doesn't matter how much people are willing to spend at Starbucks. It has virtually no bearing on how they'll value your app.
I think "online purchases" (software services, mobile apps, etc.) are in special category because they are generally run and sold by people which really don't know a lot about pricing and selling.
>and not many people would be flushing $15 down the drain to go see a 90 minute movie instead of buying a month's membership to World of Warcraft and getting tens or even 100+ hours of enjoyment out of it.
So, playing some shitty game for 100+ hours instead of watching a movie would be the result of "rational comparison" of time spending? Who would have thought...
This has got more to do with production and consumption of a physical good as compared to a "virtual" good than anything else. The marginal utility you mention for coffee is derived from the physicality of the product - and thus I think the Starbucks vs. app comparison is invalid.
The barrier to entry to create and deliver a software application is extremely low as compared to creating and delivering almost any physical good. The physicality of a thing - especially coffee - ensures that only one instance of it can be used at any time (and it would probably be "used up" during consumption). Creating a new copy has costs (where copying and delivery costs are zero and more than one copy can exist at a time disorienting the supply/demand dynamics, people would always be reluctant to pay for a thing - hence digital piracy).
Software, has no such restrictions and virtually zero delivery costs. That's why RMS always said that charging for the act of software development is right. But charging for copies of the same stuff (and not providing its source) is not - people may talk about intellectual property - but that's a different debate.
When you buy a car, you pay for it - your neighbour with exactly the same model also pays for it. It's also "open-source" (or at least, it used to be) - you can take it apart and figure out how it works. What you might not be able to do is to create the car from scratch (you may not have the tools, materials, expertise etc.). And that's why you pay a hefty sum for it.
The same does not hold true for simple apps - they are easy to put together, the tools to do so are freely available in most cases and the expertise can be gained in a short amount of time. Hence, the $0.99 price tag - because the developer knows it's easy enough to put something together for free - if you had the time.
Note that this does not apply to high-end software where significant amounts of R&D and engineering effort is required - and hence the end-product can't be easily reproduced from scratch. That's why I still feel slightly guilty (and very privileged) when I can download and use Linux for free and browse through its source all I want - economics says it shouldn't be free - but it is.
The bit about "coffee" and "$5" and "less than" and "marginal utility" have to do with the value of $5 to the average Starbucks customer reading things on the Internet, and nothing at all to do with the nature of coffee other than that coffee is not Important to people's lives.
The point of the comparison is that coffee means so little to people that the cost of a cup of coffee is a good proxy for "how much you should spend without thinking".
That it is an imperfect proxy is something that obviously will not be lost on a site full of nerds like us, but s/trees/forest/g.
Why not price the coffee at $30 then for millionaires? Surely the marginal utility of $30 to them would be similar to that of $5 to someone earning $60k? Why would one pay $5 for the same amount of gas one month and $3 in another month when the marginal utility derived from the purchase of gas is precisely the same?
Ignoring the price effects induced by the supply/demand characteristics and intrinsic nature of the good in question (inelasticity of gas demand, in this case) leads to bad pricing as much as incorrectly estimating the marginal utility of a product to consumers.
All manner of ridiculously expensive gewgaws are priced that way exactly in order to exploit the marginal utility of $30, or $100, or $5000 to millionaires.
The problem with pricing Starbucks that way is that a huge chunk of Starbucks strategy involves there being a Starbucks on every quarter, ready for any passerby be they millionaire or middle class, and while it is notoriously easy to do price discrimination within a band of $1-$10 prices, it is very hard to do price discrimination across a $1-$100 spectrum of coffee.
"huge chunk of Starbucks strategy involves there being a Starbucks on every quarter"
The other chunk of Starbucks strategy is that it's not about coffee.
Speaking strictly of the product (and not the experience which of course is equally important) Starbucks secret sauce is essentially that it is a "sugar delivery system".
I've yet to be in a Starbucks (and I"m in them every single day) where the majority of the beverages that are sold are not black coffee but drinks with a high sugar and even mocha content that are addictive on several levels.
Sure. That's why they get away with selling bad coffee. If you're going to load it up with sugar and cinammon and whipped cream and three shots of caramel the quality of the coffee is largely irrelevant.
"Why not price the coffee at $30 then for millionaires? Surely the marginal utility of $30'
If they could figure out a way to differentiate the product either in taste or image they actually could sell coffee or a coffee drink at a higher price in addition to what they are selling now.
PR wise it could prove strangely to be a bad move thought and might send the wrong message.
This is currently done with liquor to mention only one product where people pay outrageous sums of money for something that is not clearly better (taste tests of grey goose come to mind). And who would have imagined that people could charge for bottled water? Or that people would pay money for luxury ovens? Unheard of back when I was growing up.
The difference is that coffee is a completely different kind of market: producing a small quantity of very good coffee does not give you much help in producing it in large quantities without at a linear increase in the costs (and actually has hard limits based on growing conditions, available labor, etc.) whereas software can be infinitely replicated.
The price of a cup of coffee is useful only in establishing the threshold for how much money the average person is likely to spend without significant thought.
>Why not price the coffee at $30 then for millionaires?
That happens all the time, including for coffee.
Coffee at a "high end" hotel / coffee shop etc does not cost the same as coffee at your local coffee joint --while the coffee itself has marginal difference. And there are places that sell $30 hamburgers (even $1000 hamburgers).
Same for brand name clothing etc compared to lesser known or bargain brands. The cloth / manufacturing quality in tons of cases is exactly the same, to the point of both being made in the same factory in China.
That's why RMS always said that charging for the
act of software development is right. But charging
for copies of the same stuff (and not providing its
source) is not.
While I understand the rationale behind this statement, it never felt right.
When designing a new car, a lot of money goes into research and development, money that cannot be recovered (sunken costs). However, once that's over and the assembly line is put together, the cost of creating new copies (while never zero) it definitely converges to the cost of the raw materials involved. The more items the assembly line produces, the cheaper it gets. And when buying a car, you're paying a lot more than that, because you're in fact buying a brand, not just some pieces of metal put together.
I also disagree on a car being "open-source". Assuming you can make copies of your car and give those to other people, you'll be obliterated by trademark, copyright and patent lawsuits. Also many car manufacturers are voiding your warranty if you go to unauthorized car repair shops. And if you can look under the hood, that's only because of strong consumer protectionism laws.
Apple has more than 50% profit margins on iPhones. Is that moral? Well, they need to earn a profit (otherwise they wouldn't be in this business) and they also need to pay the research and development costs for newer versions or for other products. And after all, this is capitalism - if you don't like it, buy from somebody else.
So why can't this rationale also work for pure software? After all, the developer needs the profit to develop newer versions, improvements or other applications from which you may also benefit. And again, this is capitalism. If you don't like it, search for something cheaper, or create your own.
RMS's principle (being paid only for creation of software, not for delivery of copies) does not work because it doesn't scale. You cannot put together an assembly line for software, like you can for physical products. This effectively means that you end up selling your time, which makes a good living, but it won't make you rich and it won't allow you to work on lots of silly things that may or may not pay off.
Also, only simple apps can be cloned easily. No software can currently match Adobe Photoshop, which still deserves every penny, and it wasn't for a lack of trying. I use Gimp because the price of Photoshop is too high for my amateurish needs, but I would shell out the cash for Photoshop in a heartbeat if I would be a professional photographer or designer.
The $.99 price tags is common just because the app stores are filled with crap, with most apps not even deserving $.99 - but create an app that enriches people's lives and even allows them to make some money, and you'll have no problem selling it for $90 or even $900.
1) When you buy software, you often aren't paying for the brand. As was stated in the original post, purchasing software is often done blindly and is a total gamble. Given that the brand of most software is worthless and the cost of production is nothing, where does the value of that software come from?
2) Granted, there are some arbitrary restriction on cars, but they are still a lot more open than software. You can easily alter them, fix them yourself, etc. None of that is remotely possible with commercially-distributed software. I can't just fork Tweetbot, add in support for Orkut, and redownload it to my phone. However, if I want to install a better radio into my car I can. Software (especially on mobile) exists as an immutable "black box" that you have no access to other than the user interface, and that makes it less valuable.
3) No one is arguing that it is inherently wrong to charge for software. People refuse to pay not because they are principally opposed to it, but because the average price of an app in the app store is far below $.99, and thus $.99 seems like an inflated price.
4) It's true that apps like Photoshop are valuable, but it's apparent that their prices are absurdly inflated. Pixelmator can make an app with 90% of the functionality at a little over 2% of the price. Is that 10% extra functionality really worth all those hundreds of dollars? For most, it isn't. The same can be said of apps. Sure, that $.99 app is cool, but this free one does 90% of what the paid one does. Is that 10% extra functionality really worth all those dozens of pennies? For most, it isn't.
The car example is a bit more complicated nowadays: The price of the car does not only cover the variable costs of the producer, but also has to recoup the fixed R&D. Software is only special, because the variable costs per item are essentially zero.
Wait, what? Are people seriously arguing about the dollars and the coffee? Here, let me explain you why paying a dollar for an app or a theme or any such crap on my (full disclosure: Android) phone pisses me off and why I'm happy to go pay CLP3250 for Starbucks coffee once or twice a week.
When I go to Starbucks to buy my coffee, I get a beverage that has a certain level of caffeine I like, lots of milk, is sweet and will last me the better part of the morning. I found out that they have a product that I like and it's a repeatable experience: I go, I ask for my favorite brew and it has the same qualities that enjoy, every time.
When I look for an app for my phone, I can see screenshots of it and see the reviews and ratings. Neither of these are very reliable, for reasons I assume I don't need to elaborate here. At this point, I have the two options: 1) I can go online and do further research to try to separate truth from crap; or 2) I can install the app.
When it turns out that the app is crap after all -- or that it's good, but doesn't do what I need, or that it's excellent but the stuff I happen to need doesn't work for my phone or OS version -- I have to uninstall it and look for a better one. Or give up.
At this point, I've "paid" with my time and effort and hopes, so this is where the difference between free and $1 dollar is a lot more important than $1 dollar and $4 or $10 dollars. If the application was free, I feel disappointed and disgruntled. If it wasn't, I also feel ripped off.
But the most important part is that this whole process is repeated for every app. That is where the comparison with Starbucks breaks down: shopping for apps is fundamentally different from buying coffee at Starbucks. The comparison with movies is a lot better, because every movie is different and every movie is a gamble. Then again, movies still have more alternatives than apps: I usually go to see a movie because 1) I'm so excited about it that it doesn't matter that I'm risking a disappointment or 2) I want to spend some time relaxing with my wife and it doesn't matter that much whether the movie was good or decent, as long as it isn't godawful.
Bottom line: when it comes to purchasing apps, the reliability needs to improve. Alternately, I wouldn't mind if every paid app had a time-limited, full-feature free version. Whatever the cure, the problem has nothing to do with the quality of the goddamn coffee beans.
A POV of "repeatability" which is missed: It's not so much that you're buying a repeatable $4 item, it's that you're paying thousands of dollars for something instantiated over and over. You're not so much buying the individual drink as buying into Starbucks. You've made your evaluation, considered the options, and settled on a product for which you are going to shell out a pile of cash, using it for a long time (in $4 20oz increments). This vs. apps which, as you note, requires evaluation every time with a different experience for each $1. The "coffee vs. app" comparison would only be valid if every time you bought a drink you weren't quite sure what you were getting, knowing that there was high odds of chucking it on the first sip; you wouldn't be buying many of those either. The coffee analogy matches more the device you're running the app on: same device, used in small increments daily, with a little surface variation (the apps), for a very long time; this matching more that you're buying the Starbucks experience for $2 a day, and swapping out toppings/flavorings (apps) for another $1 or so.
BTW: the correct order is "short black". "Tall" isn't their smallest size, the un-advertised "short" is. They may not have the proper cups (as most customers don't know they exist), so you may get a free upgrade to "tall". As for "black", why would anyone want to adulterate a perfectly good coffee into a milkshake?
The movie analogy is interesting, because you can see the way people have evolved techniques to handle the grossly different movie products:
rotten tomatoes aggregates professional reviewers to give a general score
imdb lets people see the entire body of work by directors, writers and actors. So people will see a movie by a director they like the same way they'll pick up a book by a writer they like.
and then you have companies like Pixar and Disney (same, I know) that exist on brand. People will see the movie because it's a Pixar movie and they know what to expect (or not expect).
but what is even more interesting about the movie analogy is that with all these tools for discovering movies, box office take seems to be a function of advertising budget than anything else (to the point where they believe that movies have to hit a certain take on opening weekend to be successful at all).
Situation in Apple App Store is actually much better then selling it via web. You could actually convince some people to buy your app for $1.
Convincing people to pay for anything on the web is much much harder. A know few real-estate agents which have all their data in Dropbox but they don't want to pay for Dropbox storage and constantly terrorise colleges with Dropbox invitations so they can get some more storage. Go figure.
No. The situation on the web is the opposite. People with real business problems can readily be convinced to lay out far more than they do in apps for a year for a web page that solves those problems. Case in point: teachers who want bingo cards to build a lesson plan for a single day's biology class.
The interesting thing to me is that the web seems to be a wholly different market than an app store. Getting me to pay even a dollar for an app in an apps store is tough, and frankly a bad bet. On the other hand, there's absolutely no way I'd pay a dollar for any app on the web. I assume that anything priced that low is a best trash and likely malware.
If you want me to buy an app in an app store, you've got pretty much the same sell whether you're charging a dollar or five. On the web, if you're not charging at least twenty, I've probably already navigated away.
But with that said, I don't spend much on random apps on the web, either. You've still got to make a good sell. It's just that "low price" on the web is $20.
I agree. My point is that as hard as it is to get me to buy an app for $1, getting me to buy software for $1 elsewhere is just impossible. I won't likely subscribe to a service for $1/mo, either (though I might subscribe for $12/year). Really low prices in an app store make me think "this might be crappy". Really low prices elsewhere make me think "this is probably malware".
The marginal utility of a Starbucks coffee is indeed very small, but at least it is known. The marginal utility of your $0.99 app is unknown and possibly even negative.
Of course I agree with you on the issue of pricing, but I think that's orthogonal to this discussion.
> A dollar at the margin for a person with a $600 phone on a $50/mo data contract is not an enormous gamble
It's not a big economic gamble, but there are good chances of getting screwed, which is more important than the money. I believe that's contributing to the prices being pushed down. I don't mind paying for the software I like, but I absolutely mind paying to try out 4 other apps that turned out that sucked. Indeed, because I had to give them money to find out, they will have the funds to keep on sucking. Effectively, I can't vote with my wallet.
Try shopping for an ssh client or a vnc client in the app store. I suspect you'll have that exact experience.
> This place has an enormous problem with pricing and economics
I think the worst example I ever saw was someone implying that a copy of a digital photograph should (!) only cost £0.0001 as that's the cost of hard drive storage.
There is also a sort of price inversion principle going on with software that doesn't happen with physical products.
Say I make great coffee, I get the beans myself, I ship them by sailboat from Indonesia, and do everything by hand. People would expect to pay a lot of money for coffee like that, more than at Starbucks.
Say I make great software, I have the best designers, work for weeks on user interface details, and make a great web site to go with it. Quite apart from the general expectation that my software should be cheap, or free, there is a logical conclusion that if my software is so great I must be selling millions of copies, and at $10 a copy I'm charging way to much. If I'm selling millions of copies I should be able to price at a volume level. In economic terms my marginal costs are near zero, and if the app is so great that it is selling well then my fixed costs should be divided by a very large number.
So for physical goods, the better the product, the more you can charge. For software the opposite is often true.
At the other end of the spectrum there is software that is not expected to sell in huge volumes, and for educated purchasers they understand that these apps cost more. Probably most apps in the app store that are priced over $20 are in this category. Apple does a really bad job of supporting these apps though, theres no mechanism for trying before you buy, so the risk factor is large. If you are in a market that is well connected though, then this risk is lowered by word of mouth feedback. If your market is not well connected then you have a problem convincing users of your value.
We were in the top paid iPad apps category briefly with an app that was priced at $49, but our market for that app is small. We choose that prices based on an estimate of selling only hundreds of copies, to a user base that had already paid thousands of dollars for the required hardware for the app. We were competing against a $3 app at that time, but our assumption was that price would not be a large deciding factor for our user base, and we were right. We could invest more in the product because our price was realistic (I think) whereas our competitors had very little money to reinvest. They had to sell 15 times the volume to make the same revenue, in a small market, and that didn't happen.
Actually, what happened for the most part was that customers bought both apps. We got $35.00 from each customer and our competitor got $2.50. Once the purchase was made the price was mostly forgotten, it was the reliability and features that mattered from then on. If you do have a high priced app you'd better make sure that it works well.
you militantly miss the point of the comparison when you benchmark the experience of installing a new app against the enjoyment you get from a cup of coffee.
Actually, you're missing the point here. Yes, marginal utility blah, blah, blah, but you seem to be assuming I have infinite marginally useful dollars to piss away each month. There is, by definition, a limit to how much disposable funds I am able to spend each month.
I only have $X ± Y of disposable income to toss down the drain each month, and I'm going to try and optimize the value for that money.
A dollar at the margin for a person with a $600 phone on a $50/mo data contract is not an enormous gamble.
Sure, I have nothing to loose by buying your shitty app. But I don't have a whole lot to gain, either. I still have to choose where to spend money. I'd rather get my regular cup of coffee that tastes like dirt because I know its going to wake me up for work.
If you gave a shit about the dollars you were going to spend for coffee, you wouldn't spend them at Starbucks, which is about 4x more expensive than the second most convenient place you can get coffee. You spend the money for Starbucks because you do not care about those dollars. Which is the point, when you get past all the noodling about what Starbucks coffee actually does for you in the morning.
Nobody who makes this comparison gives a fuck about coffee.
I haven't missed the point of this blog post. It suggests that developers should find ways to make their "craftsmanship" show in order to get prospects to part with $1. I find the idea of "$1" and "craftsmanship" sharing a sentence to be disturbing.
I do care about the money I spend. Our family plans a zero-balance budget every month, meaning we track every dollar. I still end up getting Starbucks once or twice a week. That would fall into the "snacks and candy" category.
I do not go to Starbucks for "good coffee." Ironically, I have given up on finding "good coffee" in the US for one of the reasons mentioned in the article: going somewhere else is a gamble and I have yet to find a decent cup of espresso. I go to Starbucks for exactly the reason that he mentions: it is a known quantity. I want caffeine and I know Starbucks will give it to me in a drink that is consistently good. It is not great and it does not really qualify as coffee, but it tastes good and it does not change (if it does they remake it free of charge).
The main point I took from the article is that comparing a cup of coffee to an app is not a useful comparison. Even though the marginal utility of both is low, the pattern of buying is very different. People don't get in a habit buying their daily app like they do coffee. Personally, I ran out of apps I wanted to buy on my phone--or even download for free--about three days after I got it. Now I only go to the app store when I hear about something that sounds interesting or I think of something new I want my phone to do.
I do agree with a higher price point than $1. If one of the problems with app purchases is finding a well-made app amidst the crowd of crap, then using price to signal higher quality makes sense, from both a marketing and business perspective.
I think that the reluctance to pay for anything online is what explains prices like $0.99 - the developers are trying to pitch their apps as "almost free" or "just about free" - sneaking in under that impedance. The whole point of that price is to send a signal that this doesn't cost real money. So this price point is not accidental or unexpected. How developers can get out of this is a different question...
There are people here with much better scientific data to argue from, but my sense is that this is exactly the wrong strategy: the biggest hump is from "free" to "pay", and most points on the spectrum from 0.01 to "whatever a DVD movie costs" are similarly hard to sell at, all else being equal (market sabotage by people selling apps at 99 cents notwithstanding; don't build apps that will compete at 99 cents).
> market sabotage by people selling apps at 99 cents
The real sabotage comes from Apple who are encouraging 99c ents applications. It fits well in their strategy to commoditize software so their hardware becomes more appealing.
The problem is that this strategy works: For every "homeless" developer who gives up there are waiting 10 in line to flood the market with their 99 cent apps.
The real problem is that the app stores are generally a winner takes all top list driven market. If you price an app at 99 cents, you probably have more of a chance of appearing on the paid top list. At which time you generate a lot more revenue that you ever would have at a higher price point, despite the inefficiency of the price point.
That's true, if the only way you have to market your product is people randomly hitting the app store looking for stuff to install.
Just from the first two pages of my phone: Rdio, Downcast, Google Authenticator, PCalc, Songkick, Ratio, and the This American Life app are all things I installed because I went to the App Store to get those specific apps. (Top Shelf, Star Walk, Flashlight, Fruit Ninja, and Osmos are examples of apps I "discovered" in the app store; those are probably not great app categories to compete in).
The point about the coffee cup comparison isn't that cups of coffee are the benchmark experience for product pricing; if that were the case, my next root canal would cost $0.20.
The point of the coffee cup comparison is marginal utility: the money you spend on an expensive cup of coffee almost certainly has very little utility at the margin, because you are happy to chuck it away for a bad cup of coffee.
Oh, you really like Starbucks coffee? That's unfortunate, because it's pretty bad, but more importantly: you militantly miss the point of the comparison when you benchmark the experience of installing a new app against the enjoyment you get from a cup of coffee.
This place has an enormous problem with pricing and economics. Unlike Patrick, who really does sweat the fact that developers are making small fractions of their overall worth due to underpricing their offerings, I should be overjoyed at the fact that the biggest collection of new software entrepreneurs on the Internet hangs out at a meme generation engine for exploitable market inefficiencies. But unfortunately, I'm an obnoxious nerd, so all I can think to do about this is yell. ARGH.
A dollar at the margin for a person with a $600 phone on a $50/mo data contract is not an enormous gamble. It is a pittance too trivial for that person to even contextualize. The problem isn't that people are unwilling to give up $1 for apps; it's that they're hesitant to give up $0.25 for anything online. When you start with the understanding that there's huge impedance at "anything above free", it's clear why "$1" is not a particularly great price point, and why "better strategies to motivate people to part with $1" is a terrible meme to propagate.