An open letter to proponents of premium prices
Whenever we've previously examined the contentious issue of App Store pricing, people have always tried to find excuses to dispute what seems to be a pretty inescapable conclusion from the evidence – namely the simple fact that selling apps dirt-cheap almost always generates far more money than charging higher prices for the same thing.
I'd love to see anyone try to make the argument after today.
(And while the specific examples under discussion here are iPod/iPhone games, the same arguments apply equally to all other digitally-distributed platforms, and only slightly less to games on physical media, where manufacturing and distribution costs make up a very small fraction of RRP.)
For the last month or so, I've been closely monitoring the chart performance of Gameloft's arcade racer Asphalt 5. Very kindly, the developer appears to have been constantly adjusting the price in such a way as to provide the most comprehensive evidence possible of the effects of various price points on both sales and profits.
In addition, Asphalt 5 is perhaps the perfect game to conduct such a study on. It's a game from one of the App Store's bigger developers, and a franchise with a pretty long history but a mediocre reputation.
Asphalt 1 on DS, for example, has a very modest Metacritic rating of 60% (and most UK review sources scored it much lower, at 20%-30%), while Asphalt 2 on PSP gets a pretty awful 42%, and the best-received title in the series to date (Asphalt 4, again on DS) still only managed to scrape 78% – a figure distorted by a very high score from some Spanish website that marks almost everything higher than anyone else does.
(And remember, all these numbers need to be seen in the context of modern videogame review scoring, where 78% in fact basically means "average".)
So this isn't a game that people have been desperate to own as soon as the price was affordable. It's not something universally-known and much-loved like Pac-Man. It's a fairly dull, generic second-division fourth sequel in an undistinguished franchise from a company with a patchy catalogue, and it's got a Lite version so people could already see what it was like.
Anyway, let's do the appropriate thing for a review of Asphalt 5 and cut to the chase. (As you may already know, the little green and red markers along the bottom of the graph signify price cuts and increases respectively.)
Wow. I'll give you a minute just to take that in.
Now, that graph doesn't tell the whole story, but we'll get to the all-important gross-revenue bit shortly, and it's worth spending a moment or two to recap what it does show.
1. The game wasn't on the Top 100 radar at all, either in the general chart or the Games one, despite having already had its price slashed by 30% a month after release and despite Gameloft having one of the biggest advertising and marketing budgets of any App Store developer and Asphalt being part of its core portfolio.
(And there goes the argument that says "people just buy stuff when the price has come down because it seems like a bargain, regardless of what the specific numbers might be in any particular case".)
2. When the price was cut to 59p, Asphalt 5 INSTANTLY rocketed into the Top 10, not just of the Games chart but also the All Paid Apps one. Overnight – literally overnight – it shot from absolutely nowhere to become one of the best-selling apps in a market of around 250,000 titles.
3. For the entire period that the game was 59p, it stayed in the top 10 of both charts, peaking at No.4 in All Paid Apps.
4. After a week the 59p sale ended, but the price did NOT revert to the previous $4.99 (£2.99 in the Queen's money), but to $2.99 (or £1.79) – still a reduction of 40% on what it had been eight days before. Despite this lower "normal" price the game's chart placing fell off a cliff almost as fast as it had rocketed into the stratosphere – within two days it was out of the All Paid Apps top 100 entirely.
5. After just six days, with the chart positions in freefall (it was now down to No.75 in the games-only listing), Gameloft slashed the price to 59p again.
(Interestingly – and here my evidence is only anecdotal – this cut seemed to be missed by several of the app-tracker sites. I certainly didn't spot it on my daily bargain trawls, and only saw it had come back down when I checked specifically for it.)
The result was another dramatic rise, slower than the first (see paragraph above, perhaps) but still taking the game back into the top 25 of the Games chart and the top 40 of the All Paid Apps one, and climbing steeply.
6. After six more days, Gameloft finally restored the full £2.99 price point, and the game duly sank like a stone again, taking just two days to disappear from both Top 100s.
So far so unsurprising, the detractors of the sell-cheaply argument might say. Price gets slashed by 80%, game sells more copies, big shock, right?
But the real story isn't in the number of copies sold, it's in the profit made from them, and it's Asphalt 5's performance in the Top-Grossing chart – which obviously measures a game's revenue, not its unit sales – that developers and publishers really need to sit up and take notice of.
Here, then, are Asphalt 5's prices and Top-Grossing chart placings for the month of August 2010.
Wednesday 4th (price £2.99) – [position too low to track]
Thursday 5th 6pm (price 59p) – 25th
Thursday 5th 10pm – 21st
Friday 6th 8am - 15th
Friday 6th 8pm - 11th
Saturday 7th 9am – 9th
Saturday 7th 11pm – 8th
to Wednesday 11th – 8th
Thursday 12th (price £1.79) – 11th
Thursday 12th 6pm – 17th
Thursday 12th 1am – 24th
Friday 13th 3pm – 31st
Friday 13th 11pm – 37th
Saturday 14th noon – 47th
Sunday 15th – 117th
Monday 16th – 138th
Tuesday 17th – 165th
Wednesay 18th
to Saturday 21st – [position too low to track]
Sunday 22nd (price 59p) – 70th
Monday 23rd – 54th
Tuesday 24th (price £2.99) – [position too low to track]
I've crudely imposed the Top-Grossing rankings in red on top of the other chart here, extending the price-cut and price-rise markers to handily isolate the periods, and the picture is so clear even Glenn Beck could understand it.
When the game was cheap (the area from a green line to a red line), it was right up at the top of the money-making charts. When the price was higher (from a red line to a green line), Asphalt 5's revenues went down the toilet almost as fast as its sales.
When the price was cut again, it fought its way back up into the high cash earnings again. And when the price was restored to the original high point, the amount of money Gameloft were making from it plunged instantly into a bottomless abyss.
Now, you'd have to ask Gameloft why they prefer making far less money from their game. I suspect the answer is some load of brainless idiot marketing crap about brand image and such. But making less money – MUCH less money – they absolutely unquestionably are.
(Incidentally, if you're thinking of arguing over whether game quality is an issue, the most popular and high-budget App Store racing game is probably Real Racing by Firemint. It has an almost unprecedented average rating of 4.5 stars, a raft of glowing reviews, perhaps the platform's most impressive graphics, and also sells for £2.99. At the time of writing it sits at a lowly No.77 in the Top-Grossing chart, is 85th in the Games chart, and hasn't troubled the All Paid Apps Top 100 for quite some time.)
I'd wager that Asphalt 5 is nearer to the top end of iOS game development budgets than the bottom end, and really, really stupid people sometimes try to argue that you can't make big-budget games if you're going to sell them for 59p. They claim that the race-to-the-bottom pricing phenomenon will leave us with a Store full of nothing but fart apps and balloon-popping games.
But the events of the past month prove beyond any reasonable doubt what a giant pile of bullshit that argument is. Development budgets are, and always have been, completely irrelevant to game pricing. Because whether you spend £5m making a game or $50, you get that money back an awful lot faster if you're making $50,000 a week from selling it than you do if you're making $500 a week.
(Okay, almost completely irrelevant. The size of the market is so dizzyingly huge, and growing at such a rate, that unless you go absolutely batshit insane and spend about $40m making your iPod game, you can still plausibly sell enough 59p copies to make yourself a tidy profit.)
I don't know precisely how much money a game at No.8 in the App Store Top-Grossing chart makes, but I'm betting it's a lot. Similarly, I don't know how much a game that's at No.250 in that same list makes, but I'm betting it's much, much, much, much, much less.
The arithmetic of App Store pricing, then, seems pretty simple to me. But hey, what do I know? I'm just some guy who can count.
This is surely a no-brainer. It's simple Price Elasticity of Demand – http://en.wikipedia.org/wiki/Price_elasticity_of_demand
A consumer product (usually with elastic demand) will suffer a drop in demand if the price is hiked up, and a surge in demand if the price is lowered. Although the variables differ so you can't garuantee that the demand will increase proportionately to the price decrease or vice-versa.
Very encouraging to see that idiots who try to milk their products' success get their fingers burnt. And not just once, but multiple times.
Anyway, it's surely enough to prove that the capitalist system works rather well…?
The demand thing isn't the point, though – if shifting a lot of copies was your only consideration, you could give a product away for nothing, create a huge artificial demand and go bust very quickly. Stu's point is that not only does slashing the price cause a surge in demand (obviously), but that it causes such a surge that you end up making more money anyway. (Which doesn't even take into account the other benefits of getting a lot of copies out there – more word of mouth, people who like it being more likely to take a punt on the sequel / buying other games from the same developer, that sort of thing.)
Exactly. The argument I've been making for 20 years isn't that slashing prices increases sales – of course it does – it's that it increases PROFITS too.
Well, yeah.
But that depends entirely on the cost per unit of the product. Which should be pretty low in the case of iPhone games, and so there should be no reason for a low price-point.
It gets a bit more complicated when you consider other consumer goods or PC/console games.
There is also the psychological effect that a low price-point has – sometimes it works against sales as consumers suspect the product is subpar. You'd be asking a notoriously risk averse industry to take one hell of a risk going with your idea, Stuart.
But not if they looked at some figures. And the vast majority of the cost is in the production – that is to say, the coding. After that, unless you're talking cartridges, the actual 'printing' costs (relatively) very little, and if you're scared of committing even to that, nowadays you can go for the download market. The problem is in applying economic theory that applies to making physical things and dealing with the cost of that and of moving them around, neither of which applies here. Here it's a simple – price it to attract people in, make wonga, allow the fact that there are millions and millions of potential customers to keep making wonga.
And still people won't learn. Look at something like Steam a service I railed against for years. I've come to love Steam for PC gaming because it's reliable, easier and less time intensive than pirating and then of course there are those massive Steam sales which seem to make buckets of money for Valve and those involved.
And then look at Sony's incredibly bad PSP download service which is not only difficult to navigate but defeats the point of buying online in that the prices are either the same or more expensive than a physical copy.
Agree 100% about the PSP store, and see also Nokia's Ovi for an example of how not to do it.