Bytes: The 0.99 Problem

If any of you don't know, I work at an iPhone game studio that I founded with my friend Eric last year.  We're kind of a weird little studio, as we've made just two iPhone games, both have been financially successful, and both were self-published without a marketing budget.  Both games made the EDGE Magazine top 50 iPhone games list, and both games are original IP.  Both games cost more than a dollar, and that's what I'd like to write about tonight.

I am not going to write any doomsday predictions about the app store, but I am going to explain why we don't sell our games for a dollar in the hopes that it might add something interesting to the iPhone game pricing debate.

Exposition

We released Wurdle for $1.99 in August 2008.  At this time, it was NOT rare for apps to cost $4.99 or even $9.99.  The 3G had not yet been released.  Wurdle was embraced primarily as a cheap but high quality title - a "no brainer" or "must buy" or whatever.  Wurdle peaked at #7 in September but stayed in the top 50 or so until January.  We had a really great run with it, and it allowed us to bootstrap our company and shift to internal development full-time.  It's been an awesome year!

Conflict

Sometime during maybe the spring of 2009, people began to notice a weird thing happening on the app store, a pricing pattern for top 10 games; everything was $0.99!  Well, not everything, but the vast majority.  Frequently this would take the form of a launch price, $0.99 for a limited time, save 80% during launch week, etc.

This seems really odd and backward compared to retail, but it's important to remember that the app store is NOT a normal retail space...at all.  Pricing your game down doesn't really cost YOU anything as long as volume goes up, since you're not printing boxes or manuals or anything.  And app store ranking and sales tends to be a little logarithmic; moving up a few slots can mean a huge increase in sales.  Dropping your price from $1.99 to $0.99, chopping it in half, can mean increasing your actual units sold by a factor of 10, or 20, or 100.  The benefits are pretty obvious!

As a result, this has become the standard pricing scheme for nearly all iPhone games, and it's more or less I think accepted wisdom that if you want to make a top 10 app, it's gotta be a dollar.  But hold that thought!  We're going to come back to this, but we need one more chronological data point.

Climax

We released our second game, Canabalt, for $2.99 in October 2009.  It has been unanimously critically praised and we've seen very satisfactory sales - we peaked at the #37 slot this time.  More than a few people have wondered why we didn't price our game lower; say, for $0.99 maybe.  Our short answer is an honest one, that we felt (and still feel) that the game is worth $2.99, and our intuition was solid there.  Nearly every review (and there have been a lot) has glossed over or outright praised our pricing decision.

Resolution

Since launching two months ago, though, I've had more time to think about the decision, and the more I think about it, the more I realize that we really didn't have a choice.  So, using the conflict above and a little maths, I would like to quickly explain why, as a developer, pricing your game at $0.99 is actually far more risky than pricing it at $1.99 or higher, using something like Canabalt (popular, self-published, self-marketed, NOT a top 10 hit) as an example.  And we will call it:

The Manabalt Business Plan

Our 3-man studio, Manabalt Games, has a new game idea.  It's called Manabalt.  It's a pretty small game, but highly polished, and we have a lot of pre-existing tech and a good workflow.  Barring any tragic unforeseen circumstances it should only take about 8 weeks to build.  NOTE: This is definitely a best case scenario, but that's actually even more useful in this case!

3 people x 8 weeks = 24 man-weeks, or roughly 6 man-months.  That's our budget.  Since we're riding high off the success of our first game (Manabalt 0: Origins), we're not worrying too much about the finances at this point.  We put in our time, build the game, test the crap out of it, then upload the file to Apple.  While it's sitting in certification for the next week or so, we need to figure out how much we should sell it for.

First, let's simplify this some for our own sanity; instead of lifetime sales, we're just going to worry about sales from the first 2 months, since most games will do the majority of their sales in the first 6 weeks or so.  Between our journalist friends and contacts at Apple, we're pretty confident we can make a top 100 app, maybe even a top 50.  In the simplest terms, we're hoping to sell 50,000 copies in the first two months.

As you all probably know already, Apple takes 30% off the top, and we need to at least recoup our development time on this little 6 man-month project.  The best case scenario here is that we're all working from home and have cheap mortgages, and only need maybe $5,000 per month for living expenses (before taxes).  We're going to ignore health insurance and stuff like that for now too - very rosey best-case scenario!  So, quick mental math, we need to recoup about $30,000 in net revenue just to break even, much less earn a little extra to put toward the next project.

So, let's check out the bottom three pricing tiers (in USD only for sake of simplicity):

50,000 copies x $0.99 = $49,999 - 30% = $35,000

50,000 copies x $1.99 = $99,500 - 30% = $70,000

50,000 copies x $2.99 = $149,500 - 30% = $105,000

Lest I somehow forget to belabor this point even more, the situation I'm talking about here is not a worst case scenario, or even a likely scenario; this is a best-case, just shy of winning the lottery situation. 99.95% of developers never do this well on the app store (top 50 or thereabouts), much less breaking out into the top 10.  And I cut so many corners figuring out that $30,000 number that it's not even funny.  A little bit of feature creep, a little bit of health insurance, and that could very easily be $50,000 or $60,000 if not more.

But...what if you have a good idea?  A great idea?  The best idea of the year?  If you think you have made something that is so hopelessly compelling, so brutally addictive that it can't help but succeed, yes, I believe the only way you can reach the top 10 in the app store is by selling it for a dollar.  I can't and won't dispute that.

You have to keep in mind, though, that as the sales scale up exponentially on that ranking chart (which is why you want to be in the top 10 in the first place) the competition scales up as well.  Getting into the top 100, or the top 50, you don't have to beat Flight Control or Hook Champ or Fieldrunners or any of those great games.

Which brings me somewhat circuitously to my main point: selling your game for $0.99 means you have to get in the top 10 to make it worth your while.  Selling your game for $1.99 or more means you can get by and maybe even fund your next project even if you're only in the top 100.