Happy New Year, everyone!  One of my resolutions for 2012 is to actively start blogging, and sharing some of the insights I’ve picked up after 3+ years of mobile development, and 28 (gasp!) years of software development, from not only development considerations, to larger business, marketing, and strategy considerations as well.  This is the first such post.  Please feel free to let me know if there’s something you’d like me to talk about!

Many frequent visitors to glowdot.com found the site due to a highly publicized and fairly controversial blog post I made years ago, in the early days of the app store, talking about app pricing, marketing, general hype (and how to avoid falling for it), and other reasons why the app market is tough one.  3 years later, a lot has changed, and yet a lot has remained the same.  The “race to the bottom” that I (and many others) were talking about then is done and over, and here we are at the bottom.  In the current app atmosphere, figuring out how to price your app is harder than ever.

This topic came up in a discussion I recently had about non-mobile game software.  We were looking at two models for pricing PC games: bundles, and volume sales.

With bundles, like the Humble Indie Bundle, several developers pool their games, offer them up in one big bundle, and let buyers name their price, from as low as 1 cent to… well, the sky’s the limit.  Sounds great, and usually is, but as you can imagine, the average price is somewhere around $3, and that’s split among around 5 or so developers.

Volume sales, like Steam’s holiday sales, are a bit more software-specific, with developers dropping the price of their games to anywhere from $1.50 to $2.50 and hoping to make up the loss in volume.  Also sounds great, and also usually is, but as I recently noticed in one game’s post Steam sale chart, the dropoff after the sale is pretty dramatic.

In each of the above cases, it’s kind of hard to see the forest for the trees.  Consumers are getting a great deal on a bunch of games, and developers are seeing a sudden influx of cash.  It all seems great until you take a step back and look at the bigger picture.  The biggest issue, to me, is that these sorts of drastic, dramatic price drops and sales are messing with the perceived value of software.

This is exactly what happened with the app store.  Because so many people jumped in so fast, the only way to compete was according to price.  Which is great an all, if you are selling 1 million copies of something for a buck, but after time, consumers started to expect the lowest possible price.  In their mind, apps were now worth a buck, and anyone charging more was out of their mind.  The problem is, apps weren’t priced that low because of their worth, they were priced that low in lieu of actual marketing.

Here’s why that’s important: when we look at average app prices, or average indie game prices, we see a steady decline all the way to rock bottom.  But when we look at the price of AAA games over the same period, what do we see?  We see no change whatsoever.  Games are still priced at around $60, and in some cases higher if they come bundled with (meaningless, let’s be honest) preorder perks or a cheap plastic toy.

So why do AAA games hold their perceived value?  Because the AAA studios never backed down.  They decided what their software was worth, set the price, and stuck to their guns.  They competed with each other (and the indies, and the app store) through aggressive marketing, not through aggressive price slashing.  And the result is, no effect on the perceived value of a studio game.

I think the same thing needs to be applied to indie software as well.  Of course, there is no way to get every developer, from Los Angeles to Beijing to collectively agree to stop undercharging for software, but they don’t have to.  The trick is to stop competing with bedroom developers who undercut themselves in lieu of marketing, and start competing the way the AAA studios do.  That means: develop a quality product, pick a price, and stick to it.

Of course, you’re going to look silly being the only app on the app store selling for, say, $10.  But so what?  Why give your game or app away for a dollar (or worse, free) if it’s worth $10 in a sane world?  What is the point of building that app in the first place if you are just going to sell it for a fraction of its actual value?

One of the reasons people are scared to do this is that they don’t see software as a business, and if they do, they don’t see it as any other business.  The truth is, software is just like any other business.  Just as you wouldn’t open a bookstore and sell a single book, you really shouldn’t create a developer account and sell one app.  You need to stock your shelves.  The fear of confident pricing is really based on the fact that many developers only have a single item to price.

But look at EA or Activision, do they base their entire year on a single game?  Of course not.  They are shoveling games out right and left, for different platforms, audiences, etc all year long.  This allows them to be a bit more risky and confident in their pricing.  If one $60 game doesn’t sell, one of their other ones will probably make up for it.

Another really important piece of advice I have is this: if you are going to slash the price of your product, at least have a good reason for doing so.  If you are going to make your $10 game free, don’t do it to generate exposure for the game.  First, that doesn’t work, and second, what exposure you do generate is in the people who just got your game for free, and now have no reason to ever pay you for it.

One good reason to drastically drop the price of your game is to generate buzz for another game.  If you have an older game that stopped selling long ago, and you’ve got another one coming out, slashing the price of the old game can be a great way to get more people into your audience.  If the first game was good, people are likely to at least take a peek at what else you’ve got coming.

Another good reason might be that you’ve completely rethought your revenue model.  More and more games are going freemium these days (also a direct result of the drop in perceived value, and something I will blog about in the future), and dropping your app to free is a pretty obvious move when you are now selling IAP.  Just keep in mind that freemium is pretty much the de facto revenue model now, so where you were competing against a bunch of .99 apps before, you are now competing with 100 times more free apps.  Most importantly, don’t make the switch until your new model is in place.

I have much more to say on the matter of pricing, and I hope to get to some of those thoughts soon.  In the meantime, feel free to let me know your thoughts!