The App Store Effect

[Mark Funk <mefunk@med.cornell.edu>]

Yesterday, New York Times columnist David Pogue wrote about the 
iPhone's "App Store Effect."

http://www.nytimes.com/2009/06/11/technology/personaltech/11pogue-email.html

Pogue was amazed that Apple will be selling its upcoming version 
of OS X (called Snow Leopard) for only $29, instead of the usual 
$130. After listing three reasons why this might be so, he 
settles on a final possible reason: the App Store Effect.

> When programmers write iPhone programs, Apple encourages them 
> to set a price that's really low--like free, or, if you insist, 
> $1. As a result, the huge majority of programs in that store 
> are impulse buys. Nobody blinks at $1; it's less than a soda, 
> and it's something you'll have for a long time. Price is 
> virtually no barrier at all.
>
> That's quite a bit different from any other software category. 
> Even shareware usually starts at $20. There's a huge 
> psychological difference between $1 and $20.
>
> The App Store Effect says this: if you cut a software program's 
> price in half, you sell far more than twice as many copies. If 
> you cut it to one-tenth, you sell far more than 10 times as 
> many. And so on.
>
> It's a little counter-intuitive, but this principle has paid 
> off beyond anyone's wildest dreams. The numbers are staggering: 
> as you've probably heard, iPhone/iPod Touch fans downloaded 1 
> billion apps within 9 months. Some iPhone programmers have 
> become millionaires within months--yes, selling $1 
> software--because of this crazy math. $20 may sound like more 
> than $1, but not when 1,000 times more people buy at $1.
>
> I can't help wondering if Apple has the App Store effect in the 
> back of its mind with Snow Leopard. If the previous Mac OS X 
> version sold for $130, then Apple would need five times as many 
> Snow Leopard sales to equal the revenue.
>
> The App Store Effect says: Oh, baby, that's a no-brainer.

Granted, STM journals are hardly impulse buys. But we're all too 
familiar with the death spiral of increasing journal prices 
leading to cancellations which leads to increasing journal 
prices, leading to more cancellations. Couldn't there be an 
opposite effect? In a normal economy (not now, unfortunately), 
could there be an App Store Effect for publishers if journal 
prices were slashed instead of increased? I'm not suggesting that 
STM journals be priced at $1. But a significant reduction of the 
current prices would practically eliminate cancellations and 
absolutely cause more subscriptions. Librarians desperately want 
to buy more resources, it's just that we can't afford them. When 
they become affordable, we buy more.

Yes, I know: "That is so naive." "You don't understand how 
publishing works." "That would never work in reality." What I do 
know is that Apple's App Store is demonstrating an economic 
theory that actually works in the real world, and in the process 
not only are millions of copies of applications being sold, their 
authors are making a ton of money--all because of low prices.

Mark Funk
Head, Resource Management - Collections
Weill Cornell Medical Library
1300 York Avenue
New York, NY 10065-4805
mefunk@med.cornell.edu