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.
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.