Dec

11

iTunes Position Auction

December 11, 2008 | 3 Comments | Joshua Gans

In an open letter to Steve Jobs, software developer, Craig Hockenberry, complains about the nature of the iTunes App Store. Hockenberry’s firm is responsible for two very successful apps — Frenzic and Twitterrific. His complaint is that the store is dominated by 99 cent apps — which he calls “ringtone apps.” These draw consumer attention and so dominate the Best Seller rankings which themselves drive more sales. His issue was that this was making it commercially non-viable to develop more serious applications that would have to be priced much higher.

The App Store is a great open platform. The reason it has 10,000 apps after just a few months is because it is easy for both developers and users to use. The problem is that the market is immature. People are still experimenting with marketing, value and understanding what they are willing to pay. There is extreme competition for attention.

This is not new to Internet-distribution. Indeed, perhaps Apple should take a leaf out of those who have done it on such a large scale — namely, Google. Google have an open platform for advertising that, if you think about it, is very similar to the App Store. Like the App store, you set a price. Also, like the App Store, quantity has a big role in position. For Google sponsored links, the more users click on the ads the higher is its position.

But position can also be guided by price. Let’s face it, an App sold for $10 selling 100 units should have the same value to Apple as one selling for $1 but selling 1000 units. However, their current ranking draws attention to the latter — at least for anything transparent (who knows what determines the ‘Featured’ items). The App store needs a weighted sales rank based on revenue as opposed to units. Alternatively, it could offer developers an op out of the 30% sharing with Apple in favour of a bid for placement, just like Google. That would allow developers control over the up and downside sharing.


Comments

3 Responses to “iTunes Position Auction”

  1. Grendel on December 11th, 2008 9:43 am

    “An App sold for $10 selling 100 units should have the same value to Apple as one selling for $1 but selling 1000 units.”

    That assumes that Apple’s only measure of value is the dollar value – ie the $300 share of the $1000.

    I do like the suggestion of opting out, or bidding down on, the 30% share though. I’d take volume over margin any day if the App was a useful one.

  2. Clinton McMurray on December 13th, 2008 6:36 am

    “An App sold for $10 selling 100 units should have the same value to Apple as one selling for $1 but selling 1000 units.”

    If the best seller rankings were calculated thus, the two products would have equal ranking. But what if the sellers of the $10 app decided to drop the price to $5, in the hope of more sales? The app would immediately drop down to a lower position in the ranking, which might be detrimental to sales. For this reason, ranking by solely by quantity makes more sense over time. Prices move both ways, quantity sold only one.

  3. Clinton McMurray on December 13th, 2008 6:43 am

    Separate rankings, based on quantity, for apps of different functional categories and price groups, might be better than large uncategorised ranks.