Mar/110
The Case for the $500 App
Last year I started a company that is developing iOS software for the architectural services industry. The price of our first app, Architactile Inception for iPad, is $499.99. This makes it one of the most expensive apps in Apple’s App Store. As you might imagine we get several comments about the price of Inception. While generally, the intended audience of the app (namely architects involved in business development) recognize the value Inception delivers, many folks can’t seem to get past the price. The suggestion seems to be that by virtue of running on an iPad, software has an upward limit in value. That somehow, no matter what utility is provided by an iPad app, it is simply inconceivable that it might be worth $500. So why then have we set the price of Inception so high? Is it some sort of get-rich-quick scheme? Are we trying to bilk our customers? Quite to the contrary, we’re trying to do something important. We’re trying to improve the efficiency of the business of architecture. And we’re trying to legitimize the iPad as a real business tool for architects. But to do that, a $500 price point for Inception is both necessary and justifiable. So before you make any snap judgements, please consider the case for the $500 app.
There’s a lot of talk about people using iPads at work, but the reality is there’s very little development going on for vertically-oriented point solution apps on the device. There are a few industry giants (Autodesk, SAP, Salesforce, Intuit, etc.) that are dabbling in app development, often publishing “free” apps that provide a mobile interface to their flagship products. And there’s lots of general purpose business software - voice recording, expense reports, time keeping, todo lists, notes, business card scanners etc. but when it comes to real application specific tasks, there’s not a lot of serious development. So why is this? There are lots of reasons. Many of which have to do with challenges to B-to-B business models when trying to provide software through Apple’s consumer centric iOS ecosystem such as fixed pricing and the lack of detailed customer information (Apple provides no more detail than the county in which an app is purchased to the developer - no name, contact information, etc.) But perhaps the biggest barrier to the success of B-to-B software for the iPad is the perception that apps should be cheap or free.
It’s ironic really, that Apple has simultaneously created the perception of a luxury brand and is able to fetch top dollar for it’s high design tablet, while simultaneously driving the perceived value of software targeted for the coveted device to almost nothing. The common perception is that “apps” are disposable and should be purchased on impulse, without thoughtful consideration. You don’t like that app? So what? It’s only 99 cents. For the consumer market this is quite brilliant. From the developer’s perspective, high quality, low cost applications with very limited utility or functionality can be produced and sold in large quantity to an audience conditioned to perpetuate the buy-use-delete disposable app cycle in an insatiable quest for the next Angry Birds. It’s a beautifully engineered system for all involved - the user, the developer and Apple.
This system works as well as it does for one reason: Apple has done an awesome job of creating a captive audience of massive scale. A well designed and marketed app selling for 99 cents can generate hundreds of thousands, or even millions of dollars in revenue for the developer. Although blockbuster “hits” are hard to come by (and getting harder each day, especially for the small developer) even a part-time hobbyist can cobble something together that, priced at 99 cents, can pretty easily sell hundreds of copies.
But the model changes dramatically when the developer wants to target a narrowly focused vertical market. Instead of a market defined as “anyone with an iPad” it’s something smaller, perhaps much much smaller. In Architactile’s case, our market is “architects who are involved in business development who have, or are willing to buy, iPads.” Furthermore, vertically oriented business apps typically require more functionality, domain specific knowledge, licensed 3rd party content, and so forth, not to mention customer training and support. From the developer’s standpoint this means higher development, maintenance and marketing costs, and smaller markets. For this type of model to be viable, the price for the app must be higher than that of less sophisticated apps with target markets of millions.
So what’s an app worth? The “value” of consumer apps designed for entertainment is subjective and intangible. Much of the value of consumer apps is derived from context. By setting the lowest non-free price of an app in the app store to 99 cents, Apple (perhaps unknowingly) set the de facto standard “value” for a typical iPhone app. The common consumer perception is that in order for an app to be “worth” more than 99 cents, it must be significantly better than the average app. “Better” again being subjective. For iPad the perceived value is slightly higher - I guess because the screen is bigger and bigger should cost more.
Unlike consumer targeted entertainment apps, business apps are different or at least (I argue) they should be. With business applications a user should perform a cost-benefit analysis to determine the value of the app. For most business software there are both tangible and intangible benefits. Typically the tangible benefits (time savings, hard cost savings, etc.) should be able to provide a demonstrable cost benefit over the alternative solution in order to be selected. Intangible benefits (perceived status, improved aesthetics, easier to use, more fun) are typically used to choose between multiple alternative with similar tangible benefits.
The great challenge with business oriented software for the iPad is that the users’ perception of the software’s value is largely based on the intangible context pricing of large market consumer apps instead of the actual cost-benefit provided to the business by the use of the app in practice. This reasoning has resulted in criticism of high value yet moderately priced productivity software from great companies like The Omni Group who produce the $49.99 OmniGaffle for iPad which is often cited as one of the most expensive iPad apps.
It’s paradoxical that folks frequently argue that a $500-$830 piece of hardware is an essential, or even revolutionary business tool while simultaneously dismissing the validity of any software for the device priced at more than a few dollars. The reality is that, as a device, the iPad’s value to business is a function of what it can do for that business in terms of cost-benefit which is to say that iPad’s value to business is completely dependent on it’s software. The idea that the cost of iPad for use in business is justified before consideration of the nature and cost of the applications which will run on the device is sophomoric, unless of course browsing the web and playing Angry Birds at Starbucks alone is somehow sufficient justification.
Pricing is something we at Architactile take very seriously and we spent a lot of time considering it during the development of Inception (which sells for $499.99 in the iTunes App Store). We knew that the price would draw criticism, but at the same time we knew that in order to be viable as a business we needed to charge a significantly higher price than the typical iPad app because of our small target market. At the same time, we knew that we needed to provide a product that delivered benefit that far exceeds the purchase price if anyone was to buy it.
We spent a lot of time talking with architects and showing them early versions of the app to try to gauge value. The general consensus is that for architects who are routinely involved in business development or other activities that involve developing high level scope and conceptual budgets for projects, that Inception will save several hours (at least 8 to 20 or more) on every project. At a cost of $500, most architects involved in business development that we talked with feel that Inception will pay for itself within the first 1 or 2 projects with measurable (tangible) time savings while providing the intangible benefits of producing higher quality deliverables for clients in less time than what they (and their competitors) are doing now.
We also spent a lot of time sizing the market. In the US, there are about 40,000 architectural services firms. About 80% of these are 10 employees or less. Half of all US firms report less than a millions dollars in annual revenue. In September and October we provided a free preview of Architactile in the App Store (called Architactile Lite) which was downloaded just shy of 3,000 times - about 1,200 of which were in the US market. Based on this information, our sales goals are in the low hundreds of copies per year.
Often when I tell people that we’re selling our iPad app for $500 they reply with some version of “I think you’d do better to lower the price to $50 or less and make up the difference in scale.” The problem with this approach is that, for us, the scale is simply not that big. Our total market is not millions, not even tens of thousands but more like a few thousand.
So let’s run the numbers. Let’s say that everyone in the US who downloaded the free app was willing to pay $50 for the non-free app. That’s 1,200 folks - a number that we consider ridiculously high when projecting our sales (at almost any price).
1,200 people x $50 / copy = $60,000 gross revenue.
Apple keeps 30% of this, or $20,000 leaving $40,000 net revenue.
Architactile Inception took 800-1,200 hours to develop. We’ll call it 800 to be generous.
$40,000 net revenue / 800 hours = $50/hour
First off, the going rate for an iOS developer is $75-125/hour. Secondly, this doesn’t include the marketing costs, equipment costs, 3rd party content licensing (parts of IBC 2009 for example), ongoing maintenance and updates, customer training and support, other operating expenses, etc. And keep in mind, this result is only if we could sell as many copies as we were able to give away for free in the US market - something that seems pretty unlikely.
The bottom line is “make it up in volume” strategies simply don’t work for point-solution, vertically oriented business applications on the iPad or any other platform when the target market is small.
The alternative is to set a fair cost based on the actual benefit of the app to the business, and aim to penetrate enough of the market to make the business viable. In the case of Inception we hope to sell 200 copies in the first year. The math looks something like this:
200 people x $500 /copy = $100,000.
Apple keeps 30% of this, or $30,000 leaving $70,000 net revenue.
Keep in mind that we’ve already invested about 1,000 hours in development. So even if we hit our targets, no one is getting rich quick - but it would allow us to expand and develop more applications for the iPad designed specifically for architects. We’re okay with this - we’re in it for the long haul.
So, how will architects perceive the value of iPad apps for their business? The jury is still out. But if architects (and other professionals) want to use their shiny slates for more than email, slide shows and PDFs, then they’ll need to measure the cost against benefit instead of Angry Birds. Otherwise, the market for industry specific B-to-B software for the iPad simply won’t be able to attract developers.
Aug/102
Apple iPad & The Bath Water
I love Apple. There, I said it. I love their vibe, their vision and most of all, their products. In fact, I'm so enamored with the iPad that I'm staking my future on it by building a company around developing software for iPad. Or at least I'm trying to. What's my biggest barrier to success? Apple. That's right. Apple. Let me explain...
About 6 months ago I was laid off. It was a good thing as I really hated my job and I took the opportunity to start my own company. The iPad had just been announced and I saw it in a way that many people couldn't and still don't: I see the iPad as a transformation tool for vertical business applications. I mean real business applications - not just expense reports and calendars, but important business critical niche market stuff. Stuff that changes they way people do business forever. I wrote a lot about this a while back.
So anyway, my company is called Architactile and we develop iPad software for architects. I spent 4 months developing what was to be released as a beta product for free in the Apple App Store in early July. It was initially submitted on July 4, 2010. Today is August 26 and to date my app has been rejected six consecutive times and is still not available in the App Store. It's now awaiting it's seventh review. To be fair, some of the blame is on me but most of this delay has been Apple's famous and seemingly arbitrary application of it's ill-defined rules for the approval of an app.
So what's happened? Here's an a brief history...
July 3rd. The day before I first submitted my app I got an email from Apple. This email was in response to some questions I had asked over a month prior. Ironically, almost none of my questions were answered but I was told that "Beta" applications were not allowed in the App Store. This was news to me. I hadn't asked about this, but I had stated in my email that I was planning a Beta release. Oh well. What now? I reviewed Apple's policies (not trivial) and had some discussions with folks like Dan Lovejoy. Dan works for a la mode, a software firm based in Oklahoma City that specializes in Real Estate software. They have a killer iPad app for appraisers called DiVinci that is released as a "prototype" (essentially a codeword for "Beta"). Based on feedback from Dan and taking a cue from DaVinci I renamed my app from "Inception Beta" to "Inception Prerelease Preview" and submitted to the app store.
A week went by (the average time Apple takes before they start to look at apps once submitted) and to my surprise, I received a reject email from Apple. Specifically I was rejected because of a bug I didn't catch. My fault. Completely. But also in the rejection email was the somewhat cryptic (but Apple standard) text:
Inception Prerelease Preview cannot be posted because it is a feature-limited version application. Free or "Lite" versions are acceptable, however the application must be a fully functional app and cannot reference features that are not implemented or up-sell to the full version.
"Huh?" I thought. "but I see 'feature limited' versions all over they place in the app store. And yes, they are called Lite but almost without exception they advertise the functions only implemented in the full version and they ALWAYS up-sell to the full version. ALWAYS." So I was confused. I fixed my bug and resubmitted figuring that Apple would give me more detail if there was still a problem.
A week later, rejection #2. This time the stated reason was a minor violation of the iPad's Human Interface Guidelines. I'll own this one too. It wasn't on purpose and it was minor, but it was a mistake. This, I thought, is what the app review process is for. I corrected the issue and resubmitted.
A week later, rejection #3. This time almost no detail but a repeat of a familiar phrase:
Inception Prerelease Preview cannot be posted because it is a beta or feature-limited version. Free or "Lite" versions are acceptable, however the application must be a fully functional app and cannot reference features that are not implemented or up-sell to the full version.
At this point, I'm 3 weeks behind where I wanted to be, I'm frustrated and I'm completely unclear about what Apple wants me to do. It's moments like this that non-iOS developers don't really appreciate how frustrating the process is. There is only one way to (legally) distribute iOS software to the masses - through iTunes. Unless Apple anoints you, you're screwed. Wasted effort. I've read this type of post from other developers but I've always thought - well, that's what you get for playing too close to the line - developers producing silly apps of no real value (like the Fart Machine) or apps that infringe on AT&T services or existing Apple applications, or apps containing content considered too risque. But for me, for my app, a business tool for architects? I thought I was WAY inside the line. I wasn't trying to dupe anyone here. I was trying to GIVE away a FREE app for Pete's sake. I'm trying to give architects a legitimate reason to buy an iPad. And the worst part is that there is no way to reliably contact Apple and have a discussion. You can't call them. You can email them but they tell you upfront that they may never respond and they don't tell you how long it might be. My previous email had taken over a month for them to respond to. I couldn't wait that long. So I removed the most egregious marketing components of my FREE app. I removed everything that talked about upcoming features. I wasn't sure if I had to change the name and I didn't want to, so I held my breath and resubmitted. I also wrote several emails to Apple asking about details about exactly what I needed to change in case I was still misinterpreting their crypic seemingly hypocritical rejection rhetoric.
A week later, I got a phone call... from Apple! Whatever negative feelings I may have had festering immediately disseminated. It was awesome that they called, and I still really, really appreciate it. It turns out they do this from time to time when they think a call can short cut the process after several rejections. We talked for almost an hour. I learned a ton about the process and what I needed to do. I didn't like everything Apple asked, but as least the guidance was clear. I learned that because I had been rejected before, and especially since I had been rejected more that once that my app was being reviewed with ever heightening scrutiny. And that my app was dragging with it the running history of it's reviews. Because of this I was advised to modify my app to be beyond reproach, to remove absolutely everything that might suggest that this app wasn't the "real" app. I could use anything with a "Pre" prefix - no preview, no prerelease, no Pre-Inception (which is how it showed up on the iPad screen). I couldn't mention forthcoming features, or forthcoming applications or software. And I had to change the name to "Inception Lite."
Since I was really desperate to get my app approved, I pulled out all of the skeletons. I asked about things that Apple hadn't mentioned but I could imagine might be a problem. Specifically I asked about user registration. My app had a REQUIRED user registration page the called for first and last name and email address. This information is sent off to my server via the internet. "Was that okay?" I asked. The Apple rep told me that required registration was fine as long as the app is free (which he knew mine was) but for non-free apps registration needed to be optional. Fair enough. Since my app was free we mutually agreed I was in the clear.
Interestingly, the Apple rep told me that I was the most forthcoming developer he had ever talked to. He said most developers are trying to misdirect or disguise things to sneak them past Apple. That's just not the way I roll, especially at the front end of a relationship. To my surprise the Apple rep's advice to me was "to be less forthcoming with Apple" and to leave more things unsaid. That's a really sad way to do business with your trading partners, but I was ready to do whatever it took to get my app in the damn App Store.
The Apple Rep also told me how to get an expedited review for my app, which saves about 3 or 4 days. That was awesome. The next day I resubmitted and wrote my email asking for expedited review.
About 4 days later, I receive rejection email #5. What now? What else do they want? Blood? As it turns out, my app crashed during testing. Three times. The email described how to make the crash to happen...it essentially happened 7 taps after launch... every time for the Apple tester. I couldn't believe it. How did I miss this in my own testing? Well, after 3 days of my own very, very thorough testing I'm convinced that I didn't miss it. I have never been able to recreate what the Apple tester reported. I had been through those same steps hundreds of times before (they're normal steps in using the app) and had never seen it in the past either. I can only assume that there was some other environmental factor to cause the problem and I don't believe it came from my app. So for all the dumb luck, my one shot at expedited review and some fluke causes a crash in testing. Another week gone.
So now what? How do you change an application to fix a problem that doesn't seem to exist? Well, you don't. I changed a few other things though, minor tweaks that had no relation to what Apple had reported. You know, just so the binary file would be different. And for the 6th time, I submitted the app for approval.
A week later, yesterday in fact, I get rejection email #6. This time Apple says
Applications cannot require user registration prior to allowing access to app features and content; such user registration must be optional and tied to account-based functionality.
Huh? WTF!?!? This is EXACTLY what I had asked when Apple called me two weeks ago and EXACTLY THE OPPOSITE of what I had been told. What's more the registration page is the very first thing you see when you launch the application. You can't get into the application without registering. And it's been that way since I first submitted the app on July 4th. FIVE previous Apple reviewers have all clicked through the REQUIRED registration page and not until now, the SIXTH review, does anyone mention it.
In about 10 minutes I added a button to let users skip my registration even though I had been told two weeks ago by an Apple representative this was okay. Go ahead, use my free application. Don't worry about me contacting you, Apple won't let me know who you are, loser.
That should meet the requirement of an "optional" registration, but what about "account-based functionality?" The "and" between those two tells me they are BOTH required. This freaked me out. I don't have any account-based functionality. But the statement itself didn't even make sense to me. How can you have account-based functionality and have optional registration? Hoping that they really meant "or" and not "and" I held my breath, again, and submitted my app for review for the seventh time last night. I followed up with an email asking for a merciful expedited review, hoping for benevolence, half-expecrting to be put on an even darker shade of black list.
Early this morning I sent another email off to Apple asking for clarification on the "and/or" issue. They responded almost instantly (just when I start to get really pissed Apple always seem to do something exceptional). Turns out they really meant "or" so if the registration is optional then no account-based features are required. Of course, two weeks ago they told me required registration was okay on free apps, so who know. I guess I'll find out in a week.
As I said, I love Apple, but I love them a little less than I did 3 weeks ago. If Apple iPad is the proverbial baby, then the arbitrary and inaccessible application submission process is the bath water. In the past, when I thought I was standing inside it, I've been a vocal defender of Apple's walled garden. I'm slowly starting to feel like I'm standing outside though, looking in through razor wire laced trellis. I'm too invested in the baby to throw it out, but man, I sure could do without the bath water.
UPDATE: Remember how I said "just when I start to get really pissed Apple always seem to do something exceptional." Well Apple pulled it off twice in one day. After submitting my app for the seventh time late last night and sending an email of desperation to Apple, someone inside those hallowed white halls heard me. My app went into review literally WHILE I was writing this original post. Less that 24 hours after submission. It was approved and on the way to the App Store about 90 minutes later. RECORD TIME. My App, Inception Lite is now available in the App Store for download at no cost. I guess the seventh time really is the charm.
And now I'm ready to drink the bath water and pretend it's Kool Aid. I love you Apple, I never doubted you for a second.
Jun/100
Architactile Named TESA Top 25 Finalist!
(cross posted from Architactile.com)
We're so proud to be named as one of top 25 finalist in the Tulsa Entrepreneurial Spirit Award for 2010. We've been working (mostly in stealth mode) for the last few months developing our first product, Architactile Inception for the iPad, which will hopefully be submitted (as a beta) to the Apple App store by the end of June. Here's an early look at Inception in action:
If you're interested in architecture applications for the iPad, please sign up on our mailing list and we'll keep you posted on our progress.
Congrats to the other 24 TESA finalists - especially my friends the Simpsons (@geoffreysimpson & @ShawnaSimpson) over at Moxie Software and John Fanning of Language Speak Easy. I wish you the best of luck... or at least the second best. 
@mattgalloway on Twitter
- @abbyannette BTW, I love your new avatar pic. It's like a mildly deviant Norman Rockwell.
- @Boldface Not me, but the computer. And since the computer is HAL 9000... the programming part must be easy.
- @Boldface And, of course, clients don't know the difference between a designer and a developer which is why we have so much ugly software.
- @Boldface "Where do I get the data to drive that decision?" I ask coyly. "I don't know. Like the internet...cause it's computers and stuff"
- @Boldface I'm constantly surprised people seem to think computer are capable of telepathy & precognition AND that both are easy to program.
- @Boldface You'd be surprised. Although jazz hands are most often associated with excitement about an "awesome" idea that's impossible.
- I heard Punxsutawney Phil saw his shadow so winter continues. CONTINUES?!?!?!? When's it gonna start?!?!?
- I'm working on streamlining an UI this morning. I've managed to trim down the paradigm into a little less than a digm and a half.
- @boldface I love that cliche post. FWIW all true of software developer clients too. Close to home.
- I feel truly and deeply sorry for all of you who missed the Jonathan Coulton/They Might Be Giants show last night. Life altering.
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