iPhone Free-For-All
Elizabeth Woyke , 07.24.08, 10:30 AM ET
Free markets are always tough on their players. The iPhone App Store is no different.
In Apple's online storefront for iPhone and iPod touch applications, newcomers battle tech giants like eBay and MySpace. At stake: a coveted spot on the store's two top 100 lists (one for paid applications, one for free) and, potentially, millions of dollars.
Apple is splitting proceeds from app sales with developers, 30/70. On Tuesday, Apple reported that users have downloaded 25 million apps from the store since July 11.
Developers hungry to get their work on masses of phones are turning to both time-tested and strikingly new methods. Some are slashing prices, mindful that people are more likely to try out a free or low-cost app. Others are lowering prices as competitors flood in.
In less than two weeks, the store has nearly doubled in size, to 929 apps.
Mobile entertainment company Jirbo currently offers one of its most promising games, "Break," for free. It originally planned to charge $2.99 for it. "In the plethora of games in the App Store, our games were being buried," admits Chief Executive Jonathan Zweig.
Earlier this week, mobile game publisher Gameloft dropped the price of three of its six iPhone games, including versions of solitaire and sudoku, to $3.99 from $7.99. The company wanted to improve its odds against the other solitaire and sudoku games for sale, says spokeswoman Sanette Chao.
"Now people have an idea how the store works and how titles move up in rankings and are adjusting accordingly," she adds.
There are still a few outliers, including a $20 music sampling program and a $20 productivity application that rank in the top 50 paid applications. But the vast majority of App Store applications are $4.99 or less, with free and $0.99 apps rapidly becoming the most popular price points, says Greg Yardley of Pinch Media, a New York-based iPhone analytics firm.
Apple's hands-off approach to app pricing is helping speed the price drops. Developers say that they can tweak prices without Apple approval and that changes usually take effect within a few hours. Apple's revenue split, which is more generous than what most carriers pay developers, may also be encouraging the price cuts.
To make up the difference, developers are turning to advertising and tiered pricing. Agencies are moving quickly to partner with them. On Thursday, mobile ad firm AdMob planned to announce a $1 million program to help developers promote their iPhone apps. Instead of cash, the program will distribute ad credits, in lumps worth $5,000 apiece, to 200 developers.
A mobile game developer will be able to use the credits to place ads for his own games in other iPhone applications or on the iPhone's Web browser. In return, AdMob will ask developers to host ads in their own applications.
"A lot of agencies want to run ads on the iPhone," says Jason Spero, vice president of marketing for AdMob. "We want to make sure we have enough places for them to run." Advertisers, including Ford Motor, Electronic Arts and Universal Pictures, have already signed up for the program.
Other business models are cropping up. The New York Times arranges its own advertising for its iPhone application. Some smaller players, like Jirbo, also plan to go it alone. The company, which currently offers 14 iPhone games, believes it has enough traffic across its applications to launch its own ad platform, says CEO Zweig. It's working on a system that would support banner ads as well as video snippets that could run before, during or after games.
To appeal to users who are willing to pay a premium to avoid ads, Jirbo will also offer full-price versions. It hopes to have the system running by this fall.
The App Store doesn't currently support demos or trial periods, so some companies are simply offering a "lite" version of their more expensive applications. SAP charges $450 for a full version of its financial software but also has a free sample version.
Some enterprising developers are trying to bridge the iPhone's applications, Web browser and media player functions. Zweig says his company is talking to music labels about featuring their artists in Jirbo games, both as background music and game characters. A singer's logo could be featured in a matching game, for instance.
Many of these plans may go bust. Concerns about privacy and user irritation have limited the mobile ad market for years. Industry forecasts vary widely, with forecast revenues ranging from $7.9 billion to $19 billion worldwide within the next four to five years.
The tech savvy have their own alternative to pricey iPhone apps: "jail breaking" their iPhones to run free applications that aren't approved by Apple and carried in the App Store.
