Startups with little overheads have the most potential to thrive in a marketplace where mobile users are opting for low-priced apps. Developers are also encouraged to price their apps appropriately.
In Apple's App Store, for instance, the 25 most popular paid mobile apps feature mostly those that cost US$0.99. Of those in the top 10, only five applications, including PopCap's Bejeweled 2 (US$2.99) and Synthetic Corp's Hipstamatic (US$1.99), cost more than a dollar.
The Windows Marketplace for Mobile is similarly filled with low-cost apps. In its "most popular" category, the first 36 apps featured only five that were priced above US$0.99 with the highest at US$6.99.
Meanwhile, Google, which developed the increasingly popular Android-based mobile operating system (OS) and runs the apps ecosystem for the software, allows apps to be sold in only 12 countries. These include Canada, the U.S. and Japan--the rest of the apps are available free.
In a climate where consumers expect their software to be free or nearly so, Michael Barnes, Springboard Research's Asia-Pacific vice president of software, noted that low-cost startups with little or no overheads, such as distribution expenditures, are the ones that could potentially thrive.
Conversely, traditional software developers such as video games developers have the most to lose.
"More [of these] developers with existing infrastructure and a higher cost structure will struggle as margins will be far lower than their business model was designed for," said Barnes in an e-mail interview with ZDNet Asia.
With consumers playing lower-priced games on their mobile devices such as Apple's iPhone and iPod Touch, this would threaten video game makers' traditional console- or personal computer-based sales, which are priced at a much higher level, the analyst added.
A sustainable pricing system?
Asked if such an app pricing system was sustainable for both the operator and developer, a Google spokesperson said as an open content distribution system, the Android Market lets developers decide how much they want to charge for their apps--but within a specified price range. On the Android Market, apps must be tagged between US$0.99 and US$200.
"We anticipate a variety of different applications where developers who provide an enhanced experience seek to monetize their efforts. Given what we've seen in the past in the mobile business, we anticipate games to be an important category in markets across the globe," he said in a statement.
Fellow app market operator Microsoft, told ZDNet Asia that developers who utilize its Windows Marketplace for Mobile, set their own price for applications--"typically in the US$0.99 to US$29.99 range" in the United States. Some apps are available for free, the spokesperson added.
"We're doing all we can to generate revenue for independent software vendors (ISVs) and developers to encourage innovation and attract shoppers by delivering strong value and a great experience," said the Microsoft executive. "Our model encourages developers to sell their applications at a price that reflects their true value to customers, rather than defaulting to US$0.99 to maximize downloads."
Nokia, which runs the Ovi mobile app store, declined to comment, while Apple did not reply by press time.
Seeking alternative models
In order to meet customers' expectations but not at the expense of the bottom line, developers are relooking the paid downloads pricing structure for alternatives to bring in the money.
According to a report by Mobile Entertainment, an online gaming news portal, developers at the recently held Mobile Games Forum 2010 are looking to offer free games but to make money through ad-funded models and micro-transactions.
Sunil Gunderia from the Walt Disney Internet Group noted in the report that it, too, "can't really fight the tide" of free or low-priced apps.
"To the extent that we can get something out into the marketplace on the back of Toy Story 3, getting that into 10 million people's hands is very valuable to the company," said Gunderia. He added that micropayments made within the game for additional content will be key to generating revenue from a freely-distributed game.
Others, such as Andreas MacMahon, account director of Accumulate UK, promote flexible price options as a more viable choice. Pay-per-play, rental and try-before-you-buy models are some of the retail methods his company is advocating.
Interestingly, consumers such as Web designer Caleb Lim, are still willing to pay for mobile apps even though freeware is their primary source of content. He revealed that most "lite" or free versions of apps are sufficient for his usage, and will not be willing to pay more for the premium version. "I can live with the limited options. Some of these free apps are so bad, I won't even consider keeping them anyway," he said.
Lim did add that he would be willing to pay "less than S$10 (US$7.13)" for an app, and was even willing to pay more if the app was "really fantastic" and there wasn't a free version available.
Bucking the low trend
Not everyone is resorting to giving away their software or pricing them cheaply. BarMax CA, for one, is a recently released app in Apple's App Store that's going in the opposite direction with a headlining-grabbing price tag--US$999.99. According to a report by blog site TechCrunch, this is the most expensive iPhone app available currently.
BarMax CA is meant to help law students pass the bar exam in the U.S. state of California, and is substantially cheaper than an alternative like enrolling in BarBri, a course costing between US$3,000 and US$4,000. The significantly lower charge, coupled with more than 1GB worth of lessons and course materials, may eventually make this one of the more popular "premium" apps available in the apps marketplace, the report noted.