Unintended consequences: App stores

These days, we obtain more and more of our software through curated app stores. It started en-masse with Apple back in 2008 and the model was quickly adopted by Google, RIM, and now Microsoft. In fact, with the launch of the Mac App Store in 2011 and the Windows Store debuting this October, many consumers will be buying desktop software more frequently via an “app store” as opposed to downloading it from a 3rd party website or grabbing the boxed copy off a shelf at the local brick and mortar.

This trend is nice, because app stores enable some really cool things. Centralized ratings and reviews, marketing exposure for the more refined/popular apps, not to mention automatic software updates make this model really nice for end users. But there’s a consequence here which I’m not sure was completely intentional. Customers happily get software updates for free, which leads to a model where once an app is purchased, any update–major or minor–is automatically available and applied. Again, this is great for consumers, but on the flip side, it’s not so great for developers.

For example, let’s say a developer releases the killer office productivity suite for a mobile platform. Many people buy it, and it’s a big hit. However, when it comes time for the developer to create version 2, he faces a decision: release v2 as a separate application, forcing people to uninstall v1 and then purchase v2 (or install them side-by-side), or release v2 as an update to v1 and allow everyone to download it for free.

If the developer takes the second approach, then he must find another source of revenue in order to fund additional development. If he chooses the first approach, things get more complex for the end-user, and there’s probably less exposure to version 2, which results in reduced revenues (somehow the end-user has to find out about the new release, right?). Ultimately, it’s inconvenient and bad business.

So, the app store model essentially provides the developer with very little recurring income and incentive to keep up development, because even if he pours incredible amounts of tie and effort into future versions, there is little or no income from existing customers–often these are the most loyal. When was the last time Apple offered the newest iPhone up for free to existing customers? Yeah. Never.

The way around this dilemma seems to be: a) advertising, b) in-app purchases for new features (an interesting concept worthy of further exploration), or c) recurring subscriptions in order to use a service tied to the app (which is not always an appropriate model).

And then there’s an even better approach: allow developers to set a price for major updates, just like things were before 2008. App stores may be two steps forward, but the current policy on pricing unfortunately sets us one step back.

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