Industry

How to price developer tools in the app ecosystem

Ian Sefferman

Over the last week or two, I’ve had many conversations about pricing our upcoming App Store Optimization product, including two conversations today alone. It’s an interesting topic (and everyone has their opinion), and while we haven’t made any decisions yet, I thought I’d expose our process publicly and get some more reactions.

Pricing types

There are essentially three different types of pricing we’re considering:

High-price/low-quantity
Build a very comprehensive, highly-tailored service and sell it to the few companies who make a large amount of money on apps, have a large budget and are able to spend $1,000-$5,000 per month.

Low-price/high-quantity
Build a streamlined service and sell it to the tens of thousands of small/indie (1-10 person company) app developers for $10-$100 per month.

Freemium
Offer a streamlined service to the small/indie developers for free while offering a comprehensive, but high-priced, alternative to the larger developers.

Decision factors

Now that you know the pricing types we’re thinking about, here are some of the factors we’re taking into account to make our decision (by the way, Joel has a classic article on software pricing I highly recommend):

Sales cycles / Sales staff
It takes substantially longer to get a company to pay thousands of dollars per month for a software product than it does to get a company to pay a few bucks a month. We’ll need sales material and a sales staff to reach out to these folks and close the deal if we go with the High-price/low-volume approach.

Ramp-up time
Ideally we’d have time to try out each method, see which works best, and go with that. Unfortunately, we don’t have unlimited time. In fact, I’d say our runway — if revenue goes to $0 tomorrow — is around four months (our actual runway is much higher, given we have non-zero revenue, but we do not have infinite runway). So, we have to recognize that building scale and meaningful revenue at $10/mo will take a long time, but so will selling to very large enterprises (see above) as the sales cycle will be long.

The App Ecosystem
This is probably the most interesting factor to me right now. The app ecosystem is fundamentally different from the web ecosystem, so we have to treat it differently. Both ecosystems have long tails, but in the case of the web, there are far more people “in the curve” than with apps. That is, there is a large market of web companies making decent money, whereas the app ecosystem currently has only a few companies making a lot of money while most apps making $0. I expect this to change over time as the app ecosystem naturally matures.

Here’s how I view the two ecosystems in my head:

Summary

We’ll be taking all of these factors (and more!) into account when we finalize on pricing. We’re still a ways off: building our MVP, getting a few private users into the system, getting feedback, etc, but we’re always curious about this topic. If you have any input (especially if you consider yourself a potential user!), please leave a comment or send me mail. Ian Sefferman: Ian is a co-founder and CTO at AppStoreHQ, the operators of AppStoreHQ, MobileDevHQ, iPhoneDevSDK, and AppESP. Previously, he worked at Amazon.com.
http://twitter.com/iseff, http://www.iseff.com

Author
Ian Sefferman

As General Manager of the TUNE Marketing Console, Ian is responsible for building products that simplify app marketers’ lives and increase their advertising performance across all channels, including paid, earned, and owned. Ian joined TUNE in 2014 through the acquisition of MobileDevHQ, the industry-leading inbound app marketing solution, where he was co-founder and CEO. MobileDevHQ was a member of the TechStars Seattle class of 2012 and Ian is still involved with TechStars as a mentor and investor. Prior to starting MobileDevHQ, Ian was a Software Engineer with Amazon.com on their Traffic, Personalization and Website Platform teams. A Detroit native and Seattle transplant, Ian studied Computer Science at the University of Chicago.