"The age of selling software to users at a fixed, one-time price is coming to an end. It’s just not sustainable at the absurdly low prices users have come to expect."
While it is fun to watch folks figure out that business school is more than just a big party until graduation, watching them draw the wrong conclusions from their experiences hurts.
There is an old joke about a scientist who teaches a frog to jump when you yell "Jump!" he then proceeds to cut off the frog's legs and notes that it no longer jumps when he yells "Jump!". From this he concludes that removing a frog's legs makes it go deaf.
The same is true about concluding that the age of selling fixed price software is over. It is not economically viable at these prices. So people will go out of business, and the people who remain will raise their prices to the point needed to support themselves. Now it may be that its not economically viable to live off the revenue from a 'simple' application, but its also true its generally not possible to live off the revenue of a single paperback book either.
That said, its easier to see how a 'subscription' is a better model for somethings, but people aren't too excited about those either.
It seems like there's a key point you're missing, which is that there is currently a constant stream of people entering the market to write $2 apps. They write an app, it fails, and they move on, but instead of a situation where the surviving app makers can now raise their prices due to scarcity, instead the people who left are replaced my someone else who tries to do the same thing. The end result is that no one can raise their prices, because the instant they do, some college kid comes along and does the same thing for $1. And of course the acquisitions of instagram and Sparrow make this even worse, because now there are 10 times more college kids thinking they're going to make $1b by making an app and getting acquired.
Of course, the key to being able to charge a premium comes down to marketing, and positioning yourself well in the market, but that's obviously not a fairly difficult thing to do, especially in these competitive markets.
Actually no. Like most things it takes a while for the market to correct.
The quantity of crap produced is large, it begins to swell and what emerges is a discrimination filter. Be it review magazines, web sites, or even word of mouth. Take a look at computer games, initially people were putting out what seemed like lunar lander clones in BASIC and selling them on the Apple II and becoming zillionaires. And a lot of crap followed in little baggies. Sometimes there were gems like Ultima, but a lot of times there was crap. And to filter through the crap came user groups and other communication venues where the goal was to not bother with the crap but buy the 'good stuff'.
The total crap fell by the wayside and the cost of entry got higher because you needed talent a few production points to make it past the crap filter. Lots of magazines made a ton of money being crap filters. PC Gamer was one of my favorites at the time. The market matured and you got the 'studio' system and even higher production values. Some people made it big in computer games but it required actual talent or at least a decent idea.
The 'AppStore' as an environment for software delivery has been around 5 years. We're in the Microsoft Flight Simulator 1.0 era relative to that. The arguments were the same "You can't make any money selling games, its too hard, no one buys them, the market is illusory." But the reality was that the market was developing, and during development early movers get an advantage but they don't necessarily win or even complete the race.
People have needs that can be filled by applications running on their phone/tablet that would serve them better than a similar application running on a laptop. Selling applications that can solve those problems can support a development team working on the problem. There are multiple ways to monetize now that didn't exist before. Solve a need, get paid. But understand that some great ideas solve no problems and are thus not convertible into cash.
Until you can talk to your computer and it can figure out what you want and synthesize a solution on the fly, there will be a market for 'apps.' Give it another 5 - 10 years before you write it off.
> We're in the Microsoft Flight Simulator 1.0 era relative to that. The arguments were the same "You can't make any money selling games, its too hard, no one buys them, the market is illusory." But the reality was that the market was developing, and during development early movers get an advantage but they don't necessarily win or even complete the race.
Indeed, the article's conclusion is flawed: the gold rush is not over. We blindfold ourselves with a scenario where a hypothetical gold rush would make every arriver rich, observe that it is currently not the case, and justify not trying our luck by saying that therefore, it's over and there's no use trying.
As long as there are constant or increasing numbers of people "thinking they're going to make $1b by making an app and getting acquired.", there's — by definition — a rush.
As long as there are constant or increasing numbers of people "thinking they're going to make $1b by making an app and getting acquired.", there's — by definition — a rush.
And rushes, by definition, inevitably end. I'm sure there were gold miners that showed up in the Sierra's and were disheartened by all of the claims everywhere. They, being in the later wave, no doubt cursed their luck at missing out on the 'easy' riches. I can tell you that very few independent miners are wandering the Sierras these days to stake a claim (surprisingly it is not zero but that is a different story).
Forming a rock band is not a viable business plan. Hasn't been for years, since long before the music industry's current woes. The music industry survived for years and years parasitically feeding on the free labor that would-be stars put into skills for their hoped-for careers. The movie industry and the sports industry similarly harvest the freely available talent of would-be stars. And some musicians, some actors and some athletes indeed make lots of money but total final rewards look like very little if you divide them by the effort expanded by those aspiring to success. And consideration of the problems involved here can easily avoided if everyone who fails in any of these fields is dismissed from consideration as a "loser".
This stuff may not sustainable but it can be sustained for longer than one might imagine.
I heard once that the only ones who got rich in the gold rush was the ones selling pans. Too bad Apples seems to have a monopoly on the mobile-app equivalent.
> I heard once that the only ones who got rich in the gold rush was the ones selling pans. Too bad Apples seems to have a monopoly on the mobile-app equivalent.
Others can 'sell pans' by creating products that target developers (cloud backends (like Parse), mobile advertising, mobile testing infrastructure, etc.). Note that doing this makes you very susceptible to a tech bubble popping, though.
This is a fallacy of the 'goods' economy. It goes like this,
"If something is free to reproduce and distribute, the marginal cost for an additional good is zero, so new entrants simply reduce the profit they take until the price of the good stabilizes at its lowest possible price (the bottom)"
The problem with this fallacy is that it doesn't capture the 'cost' of the good which involves creativity and implementation, combined with a system of copyrights. So while it may be true that a generic good like a text editor might reach a price point near the cost of maintenance, something like AngryBirds generates revenue over a longer life cycle. Things that people want, they pay money for if they cannot get value out of a 'free' offering. Capturing that value requires understanding a bit about what the actual user value is and how they weight it, but as we read in another set of comments about people weighing the pros and cons of an app vs plonking down $5 for a cup of coffee without even batting an eye, the market for coffee is mature, people know what they are going to get for their $5 so the value proposition is in the bag, not so with Apps yet, and perhaps not for many years yet. But that education process continues.
"So people will go out of business, and the people who remain will raise their prices to the point needed to support themselves."
This sounds a lot like what newspaper people were saying a decade ago: current prices couldn't support professionals, so prices would have to rise. But that's not what's happened, in most cases.
The tools one needs in order to build and sell software are accessible to more and more people every year. The barrier to being an indie programmer is getting lower and lower. You can build and sell an app on the app store without having ever heard of quicksort. Indie developers may well go the way of indie journalists: while a few flourish, most wind up working for beer money.
Journalism is an interesting parallel, its further along the transformation path. When I was at Google I was really excited about being able to build a better newspaper with e-readers. I did a lot of research on that topic and talked with a number of different folks. As it turned out, if you threw out the printing presses, the delivery trucks, the newsprint, the facilities that held the printers, the people that maintained the printers, and all of the recurring costs like ink, maintenance, and pest control, and charged the same amount to advertise you would have a fabulously profitable business for the same subscriber base. But here is the rub, you don't have the same number of subscribers (the advertisers pay by subscriber) and trying to negotiate print prices for what someone perceives as a web site, doesn't go very far.
Now that isn't really a problem because all things being equal you can be fantastically profitable at lower ad rates if you keep the subscriber base. But you need the subscribers. And for that you need people that have e-readers. The publisher of the NYTimes pointed out they could be wildly successful if they gave all of their subscribers an e-reader for free and took away the paper copy. Not everyone was willing to go there.
So you've got an industry in transition. I expect the Economist to be the first 'old world' journalism outfit to flip its profitability from the print publication to the digital one (they are furthest along the curve), but the Wall Street Journal has some great trending numbers as well.
Truth be told, people still read the news. And the folks who appreciate good news, are willing to pay for it, and if they are willing to pay for it they are pretty good folks for advertisers to have their ads in front of. But its all about stepping across that chasm of print to e-print.
The 'app' market was hugely disruptive because it kicked a huge chunk of infrastructure to the curb. That chunk added no value to the product they just did distribution and duplication. So you can sell a product for less than you would have if they were taking their cut, and still make money. Except Apple bends you over for 30%. Once the opportunities open up that price will fall, its not supported by actual costs (meaning others can get under it and still make a fair profit). But there are other pieces in the puzzle that have yet to fall out (like the horrible platform diversity on Android). The key though is that people continue to want to 'own' software and largely resist 'tax' type features. So as the business models flourish and die we will get to the place where things stabilize.
This is a similar problem to what you can see at etsy: people are willing to take minimal profits because being paid anything for their hobby is reward enough.
It's more like noting that cutting off the frogs legs makes the frog unable to jump: after cutting off all future revenue from a user, you no longer receive revenue from that user.
Regarding your second point, software is plagued by the zombie minimal-viable product. Sparrow is a pretty damned good email client right now. What could they offer to make me upgrade?
This is why smart developers and good software will move into SaaS, whether users are excited about it or not.
You can buy a lawn mower or rent a lawn mower, but you can't buy it for a rental price.
I'd rather own myself, but I suspect we've got a lot of market education on all sides to go through before we figure out that you can't sell apps for $0.99 at anything other than lottery-ticket odds.
A lawn mover still has cost after the initial purchase. You need to buy oil and gas, fix minor issues, etc, and at some point it dies and you need to buy a new one. Similarly, software needs to be maintained. Except, somebody else maintains (and even improves) it for you, and they need to make a living as well.
Not true. Software should work without any oil or maintenance (modulo bugs). Consumables are a lousy argument. My computer uses electricity, the money I pay for it doesn't go to the software developers any more than the gas money goes to the lawnmower manufacturer.
> The maintenance is keeping compatibility with current versions of the operating system.
Back in my days, operating systems kept compatibility with applications. If you want it the other way around, you'll have to pay more for the application, one way or another.
I think the devs that rent software have yet to demonstrate longevity. Renting services, e.g. Cloud storage, Internet access, or whatever yes, but pure software rental has yet to demonstrate it can work.
The devs that don't rent are demonstrating lack of longevity today. If the market choices become rent software or learn to make it yourself, people will rent and deal with it--a demonstration won't enter into it.
I think this captures it. You develop your code, you charge a price that allows you to be supported, and if the value equation is there you win, if not you try again.
Lawn mowers cost hundreds of dollars for the most basic bare-bones package, and into tens of thousands of dollars if you want all the bells and whistles.
If you want to buy software, then you need to pay buyer's pricing. Almost nobody is willing to do that.
While it is fun to watch folks figure out that business school is more than just a big party until graduation, watching them draw the wrong conclusions from their experiences hurts.
There is an old joke about a scientist who teaches a frog to jump when you yell "Jump!" he then proceeds to cut off the frog's legs and notes that it no longer jumps when he yells "Jump!". From this he concludes that removing a frog's legs makes it go deaf.
The same is true about concluding that the age of selling fixed price software is over. It is not economically viable at these prices. So people will go out of business, and the people who remain will raise their prices to the point needed to support themselves. Now it may be that its not economically viable to live off the revenue from a 'simple' application, but its also true its generally not possible to live off the revenue of a single paperback book either.
That said, its easier to see how a 'subscription' is a better model for somethings, but people aren't too excited about those either.