2013-09-11

Is It Time For Apple To Update App Store Pricing Rules?

Last month longtime Mac developer Omni Group tried to offer its users something Apple wouldn’t: an upgrade pricing path for apps bought in the Mac App Store. Apple torpedoed it. This is what I learned when I asked Omni Group’s CEO Ken Case to plead his case.



In late August, Omni Group, one of the oldest and most respected Mac software developers around, released an app called OmniKeyMaster that allowed users who purchased Mac App Store versions of Omni’s software to verify that they have done so and then allow them to purchase discounted upgrades in the future via the company’s web store. But within the week Apple told Omni that if the company continued with OmniKeyMaster its apps would not be allowed to be sold in the Mac App Store any longer—Daniel Jalkut, founder of another renowned Mac dev shop called Red Sweater Software, called it "a chilling message from Apple."

With OmniKeyMaster, Omni Group was trying to address one of the Mac App Store’s greatest flaws: the lack of upgrade pricing. And though the Mac App Store is an excellent—and increasingly important—distribution point for OS X developers, the argument goes that its lack of upgrade pricing ability ultimately hurts developers in the long run. After all, after spending lots of money and man-hours to release a major update to an existing app, a developer with that app on the Mac App Store can then only choose to release it for free—or not at all.

I sat down with Omni Group’s CEO Ken Case to discuss the paid upgrade problem, the advantages and disadvantages of using Apple as your distributor, and the difference between apps that are consumable and apps that are tools.

The App That Launched The Upgrade Problem Into The Limelight

Despite what happened earlier this month Ken Case doesn’t think badly of Apple or the Mac App Store. He loved it upon its launch in 2010 and still does today. "Two and a half years later we still think the App Store is the most convenient way to buy our software—it’s just more limited in its pricing options," he explains when I ask him about what happened and why he felt the need for OmniKeyMaster to exist. "We were simply trying to offer all of our customers the same benefits, no matter how or where they purchased our app—much as we've previously done with retail boxes. In my ideal world, we would be able to offer upgrade pricing through the App Store itself."

Case says that Omni didn’t intend to try to skirt around Apple’s rules when it released OmniKeyMaster—the company was simply trying to meet the needs of its users. Matter of fact, the company publicly announced its plans for OmniKeyMaster way back in January, eight months before the app went live. Perhaps that’s why Case was a bit shocked when Apple notified Omni Group in early September that it had run afoul of the company’s strict hold on distribution agreements.

"When we sell an app through the Mac App Store, we are not allowed to distribute updates to App Store purchases through other channels," Case explains. "This isn't news; it's why we removed our apps' built-in software update feature before publishing them to the App Store. On September 4th—the day we turned off OmniKeyMaster—I gained a broader understanding of that rule: I had previously assumed that it only applied to that SKU, not to other editions which are sold under different SKUs."

Case could have continued to support OmniKeyMaster against Apple’s wishes and accepted the removal of Omni’s apps from the Mac App Store. After all, though he admits that Omni’s apps do very well in the Mac App Store, most of Omni’s customers still buy directly through their own online store. Instead he says he pulled OmniKeyMaster because he and Omni Group have a long history with Apple and he respects their relationship. Still, Case suggests that Apple should learn the difference between apps that are consumable content and apps that are tools worthy of financial investment.

Consumable Content Versus Tools

In Case’s eyes there are two types of apps: ones that are consumable content and others that are tools. Apps that are consumable content are like many of the ones you find in the App Store for iOS. These are apps such as games, or fun photo editors, or newsreaders. However, on the desktop side of things Case says apps are more often than not tools to get a job done. Sometimes these tools are very expensive and users can’t afford to shell out for the entire cost of the app again the next time the developer wants to do a major upgrade.

"In the world of consumable content that dominates Apple's iTunes Store and App Store—music, videos, and games—upgrade discounts are largely irrelevant," Case admits. "When I buy a movie or play a game, I don't expect to get a discount on any sequels. In fact, the sequel is actually more valuable to me because I was hooked by the original content. Since this sort of consumable content dominates Apple's online stores, I haven't been at all surprised that they haven't prioritized adding support for providing upgrade discounts. Instead, they've prioritized features that are useful to those content providers, like buying an entire music album or TV series at once for a discount."

If all apps on the App Store (Mac and iOS) were consumable, that would be the end of the story: The current model works great for that, Case argues, and points out that the stores’ top grossing charts are dominated by apps which succeed under that model.

"But the kind of apps we build at Omni are intended to last for decades, not weeks," he says. "Most of the value of purchasing a productivity app comes from the initial investment: When I buy a spreadsheet or 3-D modeling software, I can use it to do things I couldn't do as efficiently before. I'm not using the app because it entertains me, I'm using it because the cost of investing in that tool is less than the cost of trying to do that work (or not doing that work) without that tool. Investing in the tool saves me money over time."

In other words, if a user invests $1,379 on a 3-D modeling app like Modo by Luxology, the high cost of the app is worth it because it’s an investment that allows them to get work done. For an animator, the price tag is just the cost of doing business.

But for a developer, the price tag is the value of return that dev needs to get to make a living. So what happens when the developer wants to add new tools to the app—all of which costs him time and money—so he can offer better tools to his users? Oftentimes the new tools aren’t enough to justify releasing a brand new app that the user would reasonably be expected to shell out the same amount of money for.

"I can already use the older app to do many of the same things as I would do with the new tool," Case says. "So the value of the upgrade is simply how much better it is than the previous version. Since I'm buying a tool, not consumable content, I can't justify the cost of making a full $1,379 investment in the app all over again."

The solution, of course, is an upgrade pricing path—an option that allows all parties to win. "As someone who has already invested in the previous version, what will make investing in the new tool worthwhile will be discounted upgrade pricing based on the relative increase in value of the new version, rather than having to pay for the full value of the app all over again. Otherwise, it may not be worth purchasing," Case adds.

But therein lies the problem: In the Mac App Store it’s either a brand new, high-cost version of the app each time, or free upgrades for everyone. In that situation someone will always lose: either the user or the developer. And as Case and Omni found out, even trying to offer an external third-party upgrade path for apps bought in the Mac App Store are forbidden. It all goes back to the fact that, for Apple, consumable content—and not tools—is king.

Apple, Upgrades, And The Future

"Apple is certainly aware of our desire for upgrade pricing," Case tells me. "It's something I've been asking for since before the launch of the original App Store in 2008. However, that doesn't mean they agree that it's important. For many titles in their online stores, it's not."

Case’s only hope is for an increased dialog from both users and developers about the upgrade pricing problem, which is why he sat down with me to talk about it. And though he admits that for many users the Mac App Store is a more convenient solution for purchasing software—something Apple is very aware of—he’s keen to note that pricing flexibility on the App Store has continued to improve over time, signaling Apple’s willingness to test different sales models if enough people demand it.

"Since we originally entered the App Store, they've added support for institutional educational pricing, for In-App Purchases, for content subscriptions, and for business-to-business custom app development. I still have hope that upgrade discounts are slowly making their way up their priority list," he says.

"From Apple's perspective, I think upgrade pricing will make the App Store channel more attractive to developers and consumers of high-end productivity apps, and they can reap some of the same benefits as we would—after all, many of their apps are sold exclusively through the App Store, and I have no doubt that they would make more money from Final Cut Pro and Logic Pro if they could offer upgrade discounts to customers rather than changing their initial prices from $999 to $199."

While Case does admit that many customers are happy to get apps like Final Cut Pro X for only $199, he thinks Apple’s current software pricing strategy on the Mac App Store is keeping developers and users from investing in high-end software. That’s something many of Apple’s pro users would agree with, as they are long weary of signs the company is moving even farther away from its professional solutions.

"While depressed software pricing may make the platform more attractive in the short term (and Apple can make up for their own software losses with increased platform sales), over the long term it discourages developers and consumers from ever investing in high-end software solutions. I suspect the lack of this flexibility may be one big reason why we don't find apps like Modo and Mathematica in the App Store," Case says.

In my talks with other developers of big name professional apps, I can say with one hundred percent certainty that Case is right on the money.

Before I let him go, I ask Case about Omni’s long relationship with Apple. Has the skirmish over OmniKeyMaster changed anything between the two companies?

"Our relationship with Apple has always been great—and this certainly doesn't change that," he says. "I don't think they're trying to work against our interests; they just have to decide where to focus their efforts, and our priorities are not always their priorities."






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1 Comments

  • MrMLK

    Why don't they just release the upgrade as an IAP purchase to the existing version. It would be somewhat more effort to support, but it would allow them to to release an upgrade at a reduced price.