Apple’s App Store: The Rise of Transitionware?

The iPhone 3G product launch has had the kind of hype (and reality) that businesses dream about.   To date, there are well over 1M phones sold and over 10M downloads from the iTunes app store.  Apple’s newest creation opens the door to new revenue streams, but also strikes a new balance of power between the application developer, the channel, and the user.  Some of Apple’s curious design choices may also be carving out a new pricing strategy: apps that start free, then later move to a paid model – “Transitionware.”

If you have iTunes and an iPhone or iPod Touch, you can access the app store.  There are thousands of applications across many different categories like productivity, games, and finance.  Apple segments the offers into “Paid,” and “Free.”  Paid apps can range from $0.99 to $999, set by the developer, and Apple takes a cut of the revenue.  Every app has a 1-5 star rating, voted on by the users, and an open commenting system.  Anyone can review or rate any application, even if they haven’t purchased the app they are reviewing.

During the first month of the app store, there was a proliferation of simple free apps: flashlight (turns your iPhone screen white for use in the dark), to do lists, lightsaber, etc.  The reviewers tended to cut (some) slack to the free applications. For example, some reviews of the free game iGolf:

Good Game
(5/5 stars) by: Rubayath

Great game, it reminds me of my gf’s Wii, and hte best thing is, it’s FREE.

It’s Decent
(4/5 stars) by: The ace of hats

Amusing game for free.  Increainly [sic] unrealistic.  My high score is 520 yards.  Hold on tight to the phone.

Paid apps got no such treatment.  Some samples from the game iFish:

This is worse than just bad
(1/5 stars) by S.S.S. Truck Driver

This is worse than just bad.  It seems to be unplayable.  Dose [sic] nothing at all that I can see.  And no instructions at all…Dont [sic] get it even if it were free.

This should be free
(1/5 stars) by chr1s60

Extremely boring and pointless.  The game is too difficult and the graphics and display are plain and boring.  The sound is ok, but aside form that there is nothing even slightly positive about this game.

If you review more of the comments, you’ll find many from people posting opinions about the applications who haven’t even tried them!  It’s no surprise that people like free better than they like to pay.  The average rating for the across the top 25 free apps is 3.96, for paid it is 3.70.  If you are a business, how can you take advantage of the goodwill of reviewers who like free, and still turn a profit?

Avatron has a different strategy for their Air Sharing application.  For the first two weeks, they are offering their app for free, before the price transitions to the normal $6.99.  The result has been amazing – highly rated reviews, and they are the #1 listed app under their category in the app store.

Lots of companies have used try-before-you-buy strategies in the past, usually in the form of demoware or low-cost student licensing.  Jott recently transitioned out of beta (“free”) and into production (“paid”).  The difference is that Air Sharing is a fully functional app, and users who got in during the free period will retain their functionality.

In the app store, buyers are making impulse purchases based largely on the advice of other iTunes users.  Because of Apple’s walled garden, the first place that most users see an app is in iTunes.  If the app is rated low, it’s done before it begins, so the ratings of the first few reviewers count more than ratings of later reviewers.  The average rating on the Internet is 4 out of 5, so anything less than 4 is a death sentence.

Avatron’s strategy is brilliant because it captures lots of positive feedback from users who are happy to get a “deal” on a free app and reward them with a 4 or 5 star rating (currently 4.5 stars).  It builds hype because those users feel like they are part of the in-crowd who got in on a special deal early, and the ticking clock drives media coverage (“get in now before it’s too late!”) that you need for a launch.

The coolest part about this method is that it taps into OPT – Other People’s Time.  One of the key takeaways from David Meerman Scott’s writing is that you are what you publish.  Good advice, but I’ll take it a step further and say “You are what others publish about you.”  You can never have as much street cred online as reviewers of your product have.  Reviews have become so ubiquitous, it’s startling to go buy a product and not see reviews – you get suspicious.  BazaarVoice has built a company around it.

I predict that many more companies will adopt the “transitionware” approach to launching software in iTunes.  The power of the crowd demands our respect!