The Future of Software Pricing

I think everyone can agree that we won't survive long as indie developers if we can only charge one or two dollars for our apps. I don't even think $15 is enough unless you have an enormous audience. So what do we do? How do we compete with the "race to the bottom" inspired by the App Store? I don't have all the answers, but I do have my opinions and I'm willing to back them up with evidence through my business actions.

Doubling Down

Michael Jurewitz gave a great talk on the economics of software pricing at Çingleton and expanded that talk at NSConference 5. You need to watch the videos to see all the details, but the high point for me was when he said, "Take your current price and double it. If you lose less than 50 percent of your unit sales, you're making more money."

Less tech support and more revenue. That sounds good to me. When others were telling me that I should lower the price of MoneyWell when the Mac App Store appeared, I refused. I know what my software is worth and what I need to grow my company and a $50 price is as low as I'll go for an app that could save my customers hundreds of dollars a year and improve their financial futures.

Back in the '90s at one of my previous companies, I wrote vertical market estimating software for the construction industry. We sold our software for $2,995 when our competitors were selling their products at four to five times our price. Were we making five times as many unit sales as them? No possible way.

So we hired a sales consultant to improve our techniques and he immediately asked why we were selling a premium product at discount pricing. He said, "Double your price and I guarantee you will only make more money." Nervously, we announced to our customers that the new price would be $6,000 and to buy additional seats before June 1.

The result? A very healthy seven-figure sales month for May and then unit sales leveled off to exactly what they were at half the price. We doubled our revenue. How much freaking money had we been leaving on the table all those years? What could we have done with our products with that added money? Shame on us.

Not every market can handle a 2x price increase, but the experiment is worth it for so many developers.

Subscription Pricing

Another wise developer and friend, Manton Reece, talked about subscription pricing. He gave us examples of how well this works with the new Microsoft and Adobe pricing and also with his some of his own software, which he was too modest to pitch, so I'll do it for him. Check out SearchPath, Tweet Library, and Watermark—they are great products.

Chatting with Manton after his talk, we discussed what software this model works for best and the simple answer is any software with a cloud back end. It's not going to work for simple device-centric apps, but if you can fit this model, it's a great option. Think about being able to lower the price point of acquiring your product and then having more balanced revenue figures for each month throughout the year. I know I wouldn't mind few valleys amongst the hills.

In-App Purchase

Since my price point is pretty solid and my products don't fit the subscription model, I'm choosing too go a different direction: In-App Purchase (IAP).

One of my biggest frustrations with the App Store is lack of trials or demos. Offering a "lite" version of an app just adds clutter and confusion, so we have a trial version on our website for our Mac app to allow customers to try MoneyWell before shelling out 50 bucks. This is not an option for iOS so I needed another solution.

Chatting with Michael Jurewitz at WWDC 2012, we came to the conclusion that IAP could work well for No Thirst apps. Last month we shipped MoneyWell Express and proved that it is a viable option with a consistent 25 percent IAP purchase rate.

MoneyWell Express is a companion app that syncs with MoneyWell on the Mac and allows for quick entry of your transactions during checkout at a store or restaurant. The fact that most people installing it are most likely existing customers skews the IAP units numbers a bit, but I'm still very happy with this adoption rate. We'll get more interesting figures when we release our iPad version, which will be standalone.

It's important to choose wisely with IAP divisions in your app. For MoneyWell, we played with different features at lower prices adding up to the price we wanted, but it got too messy. Instead we decided that the free version would allow for access to all the features and just limit the customer to a singe bank account. Most people have checking and savings accounts with a credit card or two so we were confident that they would want to purchase our "Unlimited Accounts" IAP and not settle for the limitation.

If a customer did only have one account, they would never be nagged to purchase anything. Those that did have multiple accounts would get to use all the features, but only one account would show a balance in their Accounts list. The others would have the word "locked" there instead. Tapping one of those locked accounts presented the IAP screen where a purchase removes any hint of IAP in our app.

It's a very soft sell and lets us charge more for the app than we could without that initial free experience. I want to keep our iPad app pricing in line with our Mac apps because they are going to be nearly feature equivalent to each other. Why charge less for the same functionality?

We have not seen a serious uptick in support and our ratings have been averaging four stars, but if your app has a serious learning curve, the IAP model may cost you in sales or support. I'll report back on our iPad experience when we ship it later this year. I'm optimistic that it will be excellent.

Peace.

Befriending Apple

You're writing an app that you hope will lead to fame and fortune or at least will pay the bills. If you have any hope of succeeding, you need to make friends with your platform manufacturer. For the iOS and OS X universe, this is Apple.

Like it or not, you will always have more success if people at Apple are rooting for you. They have influence over your App Store promotions, which is your best shot at free, effective marketing. This thought was brought to the forefront of my mind as I was listening to talks by Michael Jurewitz and sharing my own story with other attendees at NSConference 5.

Back before we called software "apps" and sold them through Apple's central pipeline, we had to sell software via our own websites. It was hard to get people to notice your product so download sites were a valuable marketing resource. Apple Downloads was the biggest and the best of these.

In 2006, I built a product called Debt Quencher to help me eliminate my credit card debt using the snowball payments process. It was the software that launched No Thirst Software. I knew this $15 tool was not going to lead me to any fame or fortune and it barely paid my website hosting bills at first. It was my toe in the water so I could decide to jump into the deeper waters of bootstrapping my new company.

I filled lots of paperwork to acquire a $50,000 small business loan and dove into development of MoneyWell, a personal finance tool that would fix all the problems I was having with Quicken. While developing my flagship app, I needed help making sure I had the infrastructure to sell it—one that would withstand selling thousands of copies instead of the manually emailing licenses process I had for Debt Quencher. The best place to hang out was the MacSB group on Yahoo, so I was very active there.

At the same time, I wanted feedback on my app design and the sister group, MacGUI, was perfect place to get peer reviews. I started talking about my unique single-window design for MoneyWell and posted some screenshots of alpha versions. In addition to excellent advice from designers and developers, I was contacted by a guy from Apple. He said, "I am in charge of the Business and Finance section of Apple Downloads. Could I get more screenshots or see a beta version of MoneyWell?" I replied, "If you work for Apple, I'll be happy to give you the source code if you want."

In August of 2007, my government-backed loan had run out (actually, it ran out much earlier, but I did some creative financing and spending reductions) and I had to ship what I had completed as 1.0. Let's just say it wasn't the software I wanted to release, but it was the software I needed right now.

As promised, I had included my new best friend at Apple on beta versions. As best friends go, we didn't talk a lot, or at all really, but I was sure that in his own quiet way he felt as much love for me as I did him (call me). I didn't expect much from this relationship since I was a nobody in the Mac developer world. I was just covering my bases.

I released MoneyWell and submitted it to all the various download sites including Apple's. I was thrilled to see it listed and getting healthy downloads—double digits each day! Two days later, I was shocked to see it featured as the main app on the Business and Finance section of Apple Downloads. Even better, it was also the featured app on the front page. I may have had to change my underwear, I'm not sure.

My website didn't give me realtime statistics, but I was able to see them the following day. It said there were over 20,000 downloads. I recounted the digits in that number three times. I called my wife over to look at it to make sure I wasn't having a dyslexic fit.

Twenty. Thousand. Downloads.

Holy unexpected server activity, Batman!

And this continued for the week that I was featured giving me a total of over 160,000 downloads in the first month. Unfortunately, it wasn't the version I wanted everyone seeing. It was crap in my eyes. Features were missing. It lacked half what I had planned for it, but my funding ran dry and I had little choice.

My brain toggled between praising and damning Apple. But it honestly was a fantastic gift from the Fruit Company and proved that there was a huge market for Mac software no matter what the naysayers repeated throughout my development process. All this because I followed up with an opportunity to work more closely with Apple during my app development and release.

How much bigger is the potential win today? What size win can you have by cultivating your relationship? Say hello to your Apple Developer Relations team members. Talk to engineers at WWDC and show off your products. Be an active member of the Cocoa community and share what you are doing and have learned. You never know when someone with influence over App Store placement might be watching.

And I'm not saying you shouldn't be critical of Apple, there is plenty of room for improvement. Just do it without being an asshat.

Peace.

Community Inspiration

This past week was an incredible experience—I attended NSConference 5 in Leicester, UK (don't feel bad if you didn't read that city name as LESS-ter; two years ago while visiting London, I spent a week thinking I was walking through Lee-eye-cess-ter Square). If you're not familiar with this conference, it was started by Steve "Scotty" Scott a few years ago to build more community among Apple developers.

My buddy, Scotty, has an amazing team that cares deeply about the whole experience of attending a conference. They know how precious our time is and they don't waste any of it. The venue is well thought out, the food is delicious, and every detail is polished, including down to making sure there are three wines to match each course of dinner.

NSConference always has great speakers, but this year felt exceptionally high quality. Slides were professional, talks well rehearsed, content relevant, interesting, and entertaining—it could have been an Apple event. But that's not why the three days were so successful. The difference is Scotty's insistence that we spend time as a community and share experiences and ideas with each other.

More than half of the nearly 300 attendees were first-timers and I was able to talk with 20 to 30 of them due to the structure of this event. We switched tables at breaks, we talked at the parties and meals, and we were given a goal of meeting three new people. It worked. If you didn't come away knowing many more people than when you arrived, you have no one to blame but yourself.

This conference reminded me that we have some incredibly smart people in this community who are talented and diverse. I was delighted by the creativity streaming though the participants. Attendees shared software designs, hardware hobbies, business strategies, life experiences and much more. It was inspiring.

So inspiring that I wrote three blog entries on the flight home to Houston, which is more than I published in all of 2012.

As an added bonus, I got to spend time with Michael Fey, my friend and one of the reasons our company has cool products to sell like MoneyWell Express. Any time I get to spend with my Number One is priceless.

While WWDC fills your need for a technical conference and allows you to talk to Apple engineers and get introduced to the latest tools from Apple, NSConference feeds your emotional and spiritual needs. Writing software in isolation may produce technically solid apps, but connections with your community drive innovation and inspiration. We all need to recharge and reenergize so we can be at our most brilliant—this is a great place to do just that.

If you get a chance to go next year, I highly recommend you set aside a portion of your budget for NSConference. Just don't try to steal my ticket because I'll fight you for it. If you didn't make it this year, buy the videos (when they're posted). At least you'll get a small idea of how much you missed.

Peace.