Paid Upgrades and the Mac App Store
Originally posted on Tumblr, 29 March 2012.
If you hang around iOS and Mac developer circles enough, you’re sure to hear some complaints about how Apple runs its App Stores, and one of the most common is that they don’t support paid upgrades. Yesterday, Wil Shipley presented the case for paid upgrades on his blog, with some supporting analysis of Delicious Library 2 sales through the years.
Shipley has had success redirecting Apple in the past, most recently with a campaign to introduce Apple-issued developer certificates, which will make their debut via the Gatekeeper feature in Mountain Lion. But on this one, I think he has it wrong, and I doubt very much that Apple will be shifted. Here’s why.
Apple has spent the last 5 years or so cultivating certain expectations in how people purchase digital goods via their stores. If you buy a song in iTunes, it’s yours — forever. If you buy an app in the iOS App Store, it’s yours — forever. And now, if you buy an app in the Mac App Store, it’s yours — (you guessed it) forever. It’s part of what has made Apple so successful in this area. One click purchase, instant download, yours forever.
What Wil is asking Apple to do is to break this implied contract with its customers. Effectively, he wants customers to pay twice for the same product, and I don’t see Apple going down that route. It could actually be hurtful to developers in some ways. One of the reasons people so readily part with their cash in the App Stores is that they know they get to keep what they buy, and even transfer it to any new devices they acquire. They own their software, they don’t rent it.
Wil’s blog post goes into some reasonably detailed analysis of Delicious Library sales trends, concluding that offering free upgrades would result in his company ‘…losing a quarter of our revenue’. Fortunately, his arguments are oversimplified and based on pre-App Store sales models. Some of the analysis is also a bit disingenuous. For example, he shows that for the 18 months after the release of Delicious Library 2, 24% of sales revenue came from upgrades. A closer look shows that most of that probably resulted from the spike immediately following release, and that in fact, taken over the full four years since the app was released, upgrade sales would be much less than 24%.
But even if upgrade sales did account for a quarter of all revenue, it is not valid to conclude that revenue would suffer an equivalent drop if upgrade pricing was not available. The Mac App Store does not offer this stream of income, but does offer other streams that in my experience more than balance any losses. I already mentioned that customers are encouraged to buy apps by the ease with which they can do it in the App Store, and by the knowledge that whatever they purchase becomes a digital possession. It’s difficult to put a number on how large this effect is, but I am convinced by my own app sales that it is significant.
Giving away major upgrades to existing customers has a second positive effect on sales. Because all of your existing customers get the upgrade free, most will download it, and many will tweet about it, and generally encourage friends to take a look at the app. Word of mouth marketing is an enormous boost to any new release, and the more existing customers actually install an upgrade, the better. This could easily make up for the 24% loss in upgrade sales on its own, especially if you take into account the non-linear sales effects you see as you push up the charts.
Shipley implies throughout his post that making major upgrades free would effectively discourage developers from updating their software, because it would not lead to any extra revenue, in the form of a spike in sales.
But, with free major upgrades, we have this unhappy choice: for the next two years we can work on a brand-new product (call it “Delicious D”) or we can work the next version of “Delicious Library ∞”. If we write “Delicious D” we know you’re going to give us another $40 of your money, because it’ll be so awesome. But if we write “Delicious Library ∞” (and we give away major upgrades) then we’re going to get $0 of your money when we’re done.
This is patently false, and any developer who has ever released a major upgrade in the Mac App Store knows it. There is a very large spike in sales, which comes from the combined effect of increased word of mouth from existing customers, featuring by Apple, and increased visibility when the app begins to climb the charts. When I released Mental Case 2 — exclusively on the Mac App Store — I saw an order of magnitude more sales in the days after the release than previous to that. It is simply not true that free upgrades do not generate any additional income.
Ironically, it was Wil who once explained how the pool of potential customers was virtually infinite for any indie developer, that you will never even come close to saturating your market. This is exactly the reason why the App Store works, and does not need to include upgrade pricing. There are always many more shoppers out there than you currently have customers. Nickel and dime-ing your existing customers with paid upgrades means they will resent you, and you are taking your eyes off the bigger prize, the enormous body of potential new customers which should be your target.
Wil Shipley has been making money in this industry longer than most of us, and frankly, I think he is falling into the same trap that the music industry fell into when Napster came to town. What worked yesterday will not necessarily work tomorrow. The game has changed, and Wil wants to keep doing things the way he always has, when his audience is moving on.
By insisting old sales models get incorporated into the App Store, he is prolonging the day when customers forget there ever was such a thing as a paid upgrade, and that is hurting the transition for all of us. Rather than trying to move Apple, he should be adapting his software to the new way of doing things. No paid upgrades, but plenty of upgrade revenue.