When we last left our fateful heroes, we had just finished learning about elasticities, demand curves, revenue maximization, and had conducted a very important thought experiment about the price of our app.
The burning question you still find yourself with is this — Can I actually charge a higher price for my app? Well, I'm here to tell you, "It depends." What it depends on, however, should end up shaping not only how you approach product development but also the type of products you choose to invest your time in creating. Let's dig in.
As we have previously discussed, your goal here is to maximize revenue. But your ability to do so will depend greatly on the kind of app you are and the type of need you are fulfilling. AutoCAD customers have few alternatives in the CAD space that are as featureful or as widely used. AutoCAD likely has a relatively inelastic demand curve. CHOCKRIFFIC on the other hand faces stiff competition from a large number of competitors and likely faces a much more elastic landscape. So what factors affect elasticity and ultimately the price you might be able to charge for your app?
Generally speaking, the elasticity of demand is affected by factors such as:
- Availability of substitute goods
- The necessity of the good
- Who's paying for it
- Brand awareness and respect
- The percentage of income the purchase represents to the buyer
The first four items, in particular, should heavily color the types of apps and types of future investment you make in app development. The availability of substitutes seems like such a simple concept, but it really is vital when you get down to it. At the end of the day, are you working on an app for which N other solutions exist (where N is any number greater than about 3)? If so, what exactly does your app do that is so unique, so special, so absolutely better that users should hand you money in droves? If you don't have something that sets you apart in this scenario, you will be firmly at the mercy of the lowest price. This point should not be taken lightly. You are likely a smart person, but there are many smart people out there. Where do you think your app will succeed where others have failed? How will you stand apart in a crowd?
The necessity of the good is the next most important point. This is so brutally simple — people will pay you lots of money if you solve a real need for them. If you merely provide a passing convenience, they are likely to care far less. If you want to make money and be a lasting part of this community, find hard problems to solve and solve them. Be a domain expert in something. Solving hard problems not only helps the people who have these hard problems, it also creates a barrier to entry for the next person. They have to be at least as good as your solution before someone is likely to consider them. Take that high ground and capitalize on it.
Who's paying for it is also a big deal. Back to my earlier point on building apps for Business, if you build an app that a business, an industry, or a vertical market really wants or needs to help it be more effective, you will have a much greater ability to extract a higher price. When someone can look at your software, understand how it will make them more efficient, and pass that cost off to their workplace, you win. How else do you think OmniPlan looks down from the commanding heights of $200/seat? (It certainly helps that there are few substitutes in the OmniPlan case.) Help businesses do more, do it better, and do it faster, and you will likely reap the benefits.
Finally, brand awareness and respect. This more meta point feeds into the general notion that your job as a software developer is to wear many hats: Engineer, business-person, marketer, etc. If you're smart, and if you have funds, you'll hire people to fill these roles for you either from the start or as time goes on and your product is successful. But you need to remember that everything you do, everything you say, every company tweet, every blog post, every support email contributes to a public image of you and your company. Loose cannons, hotheads, and other poor behavior can spread like wildfire, damaging you, your brand, and your company in the process. You or your company don't always need to put on a button-down shirt, but decide what your corporate tone and brand should be and stick to it. Remember that you are cultivating something just as valuable as your product. You are cultivating a reputation.
Above all, build software to meet a need and don't become a commodity or enter a commodity space. Not all needs are equal. I need air way more than I need another drink cozy. Weather apps and Twitter apps are fun, beautiful, and engaging, but they are also very difficult to earn sustainable revenue.
We would all be far better off if we strove to compete on quality, not price. After all, we are all customers of a company who is famous in its history for building a better product and standing behind the price. That prices have fallen so precipitously in the personal computer market in recent years is a great testament to commoditization, the power of placing large orders with suppliers, and streamlined supply chains. But craftsmanship and quality remain the forefront of what sets Macs, iPhones, and iPads apart.
So as you think about your own apps, your customers and your pricing, keep these simple thoughts in mind:
Build something great. Charge what your hard work is worth.