Appenomics (App Economics) – the real reason why apps are $0.99 or less.

The problem is not simply that users are unwilling to buy apps that cost more than $0.99. Anecdotal evidence suggests that some users will pay considerably more without any protest. The problem is that the resulting drop in downloads the more expensive an app becomes pushes your app so far down the rankings that it becomes a vicious cycle, and the customers who might have paid more can no longer find your app. The App Store is so vast nowadays that the name of the game is app discovery. Quality apps don't necessarily win. Apps that get seen win. If people can't find your app, no matter how good it is, you're screwed. The new App Store design on iOS further exacerbates this problem - with iOS 6 it switched from compact vertically scrolling lists of apps to much larger panels that the user has to swipe horizontally. The result is that it's no longer good enough to be in the top 100, you need to be in the top 20 to get any traction. It's unclear whether Apple makes more or less money because of this, or if the same amount of spending is concentrated on fewer apps.

From my experience, charging just $0.99 for my app resulted in a 12x decrease in daily downloads from when it was free. Each additional dollar brings similarly large decreases. An app that had thousands of downloads a day when free can quickly be reduced to a few dozen. Then, once your downloads go down, you precipitously fall down the charts, which starts the vicious cycle. Even though the paid charts are less competitive than the free charts (bizarre, but true), it's not enough to offset this downward spiral.

To summarize, $0.99 is probably the most you can charge without your app falling off a cliff (not a gradual slope, but a cliff). The exceptions to this are if you have a powerful brand or IP (you have pricing power), or if you are lucky enough to be featured (as my app was) which circumvents the rankings temporarily.

My primary goal as a developer is to build software that people use and enjoy. That's what gives me a thrill - more than simply making money. The current app market environment and the App Store ranking algorithms dictate that the magic price is $0.99 (make some money & still get enough users), but there are signs that it may soon be $0 (requiring developers to make money later via ads and in-app purchases). Since my app operates in this reality, and I want it to be used, I am left with little choice but to compete as best I can or exit the market. Taking a moral high ground and charging more because I think I deserve it will only leave me with no users and no money.