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Price Elasticity of iPhone Apps

TechCrunch’s Robin Wauters just did an excellent post on iPhone app pricing / popularity trends.  Robin consistently writes great stuff about a wide range of new technologies and trends.  She’s written some great stuff – like how micropayments won’t save the publishing industry, T-Mobile’s alliance with BillShrink, and even the occasional whimsical piece like This Is Getting Ridiculous: Cat Amasses Half A Million Twitter Followers In 3 Months (whacky Twitter things is one of my side hobbies).

Robin’s most recent piece Report: iPhone Applications Are Getting Cheaper does an excellent job of summarizing a recent report by Distmo.  “Distimo , a young Dutch company that is entering the slowly but surely saturating market of mobile application distribution and monitoring services, has just released an interesting report about Apple’s App Store. It contains some noteworthy findings about iPhone app pricing and the significant influence prices have on ranking.”  You can download the full report here

For me, the App Store is a microcosm of what is going on in the tech industry today.  Developers, often working in their basements or capital-light startups are creating hundreds of applications every month for the iPhone platform.  Buyers as well as competitors can track market traction and revenues on daily basis.  The market is both a combination of serious software (Bank of America Online Banking or E*TRADE Mobile Pro iPhone portfolio management application), social software applications (Facebook, Twitterific, etc.), and simply crazy consumer stuff like the farting application that was generating $10,000 a day

The Distmo report does an outstanding job in using real numbers to analyze and assess pricing and popularity trends for the iPhone app store.  The five main points include:

  • 1) iPhone app prices are dropping
  • 2) Entertainment and Communication apps are most popular
  • 3) Paid apps maintain higher ranking longer
  • 4) Nearly a quarter of all apps got updated during the month of April
  • 5) lower price = higher ranking (and vice versa)

Distmo’s assessment of the price elasticity of demand of the top 100 iPhone apps is very insightful.  Price elasticity of demand is defined as the measure of responsiveness in the quantity demanded for a commodity as a result of change in price of the same commodity. It is a measure of how consumers react to a change in price.  “The first app that was looked at was Zombieville USA. From the 1st of April, its rank decreased steadily, from No. 4 on April 1st to No. 8 on April 11th. On April 12th, the price of the app was lowered, from $1.99 to $0.99. This had an instant effect on the ranking; it increased from No 10 on April 12th to No. 5 on April 14th.”

As a long time marketing executive in the enterprise software space I find the ability to understand and analyzed sales performance, in real-time, to be fascinating.  You should definitely take the time to download and read the full report.

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