Are iPhone Apps Priced Too High?

We all remember when Apple started selling iPhone apps. It may seem like eons ago, but it all started over 15 months ago. Many apps were priced at $0.99 or were offered for free to iPhone owners. The market was just gaining momentum in those days, so one could argue that low app prices helped Apple iPhone become mainstream fast. But with two billion app downloads behind it, Apple has all the momentum in the world. The iPhone platform has been improved a lot in the past few months. The quality of some of those 3D iPhone games rivals what I have seen on dedicated mobile gaming devices such as the PSP. It will all get even better in the next few years. Unfortunately, that means those low prices are not too standard anymore.

Charging $15 for an iPhone app would have sounded very strange just a few months ago. But these days it’s not surprising to see companies such as TomTom and Navigon charge close to $100 for their GPS apps. And some advanced medical apps blow these away by going for over $150. Free applications will still be popular among iPhone fans, but many have come to the realization that those premium apps could cost them well above $10. Yankee Group’s latest research indicates that there will be a gold rush in the iPhone app business for the next few years, and one in four apps will be paid.

There are many ways to optimize an iPhone app and many business models to choose from. You can always go with a “freemium” business model to get people to the door and upsell to them. Some only focus on ad monetization to make a living from their app. Let’s not forget about companies such as TomTom that make their profit from their highly priced paid app, and additional accessories that you can buy to go with that app. But how much is too much when it comes to iPhone apps?

There was a time that paying anything over $3 was considered too much. Nowadays, a $3 app is considered to be somewhat cheap. The San Francisco Chronicles put it best:

The $.99 price-point … helped launch the App Store out of the gate, as well as make software purchasing a non-risky impulse…he $4.99 pricepoint seems to be a tipping point for app buyers

What considered to be a fair price just a few months ago is now considered a red flag among app shoppers. At the same time, shoppers are having less difficulty paying up $10 or more for iPhone games. The trouble is, PS 3.0 and Xbox 360 game prices have been coming down slightly, and it’d be interesting to see what happens as these prices get closer together. Let’s not forget about the recession either. Some may claim that we are out of the recession, but with over 10% real unemployment rate in the U.S., those cheap iPhone apps will still be highly in demand. Considering that the mobile ad market is growing fast, the developers who choose to rely on ads to supplement their direct app revenue will have another business model to think about.
So how much is too much? It’s tough to say. You can always point at a specific price point and call anything about it expensive. But writing an iPhone application takes a lot of time and effort. Last time I checked, a lot of people have already paid close to $100 to get their hands on TomTom and Navigon GPS apps. Developers can always price aggressively and reduce them later to boost demand. But increasing prices seems to be a no-no. Whatever the case, if you are a developer and intend to charge a decent amount of money for your app, make sure you offer real value to your customers or they’ll abandon your work, and you’ll lose your credibility in the process.
Your take: what’s your tipping price-point when it comes to iPhone apps?