Is App Store pricing hindering app development?

The growing proliferation of bargain-priced iPhone applications is inhibiting product development according to Craig Hockenberry, principal and engineer with The Iconfactory, the software firm behind top-selling App Store downloads Frenzic and Twitterific. In an open letter to Apple CEO Steve Jobs posted on his blog, Hockenberry writes "As an iPhone developer who's been in the App Store since its launch, I'm starting to see a trend that concerns me: developers are lowering prices to the lowest possible level in order to get favorable placement in iTunes. This proliferation of 99¢ ringtone apps is affecting our product development... We have a lot of great ideas for iPhone applications. Unfortunately, we're not working on the cooler (and more complex) ideas. Instead, we're working on 99¢ titles that have a limited lifespan and broad appeal. Market conditions make ringtone apps most appealing."

Hockenberry goes on to crunch the numbers, concluding that at an average developer and designer cost between $150 and $200 per hour, a three man-month project requires more than $80,000 in development costs--to break even, an application priced at 99 cents must sell in excess of 115,000 downloads. Hockenberry concedes those kinds of sales totals are doable given a compelling concept and a few weeks of prominent App Store placement, but adds that more complex projects requiring six or even nine man-month project run up development costs in excess of $150,000 or $225,000, with a break-even sales totals of 215,000 to 322,000 units. "Unless you have a white hot title, selling 10-15K units a day for a few weeks isn't going to happen," Hockenberry writes. "There's too much risk... This is why we're going for simple and cheap instead of complex and expensive. Not our preferred choice, but the one that's fiscally responsible."

A chart published in late November by news site notes that of the 9,700 or so apps available in the App Store at that time (the total topped the 10,000 mark a week later), about a third are priced at 99 cents. More than 2,000 App Store downloads are free, and close to 1,500 are priced at $1.99 each. As Hockenberry points out, the fight for prime App Store real estate will only grow tougher as more applications enter the virtual storefront: "What's it going to be like when there are 20,000 apps? Or 100,000 apps? Volume is going to get split amongst a lot of players, hopefully the number of devices/customers will increase at the same rate." Hockenberry stops short of recommending how Jobs might solve the pricing quandary, however: "I'm not going to give you suggestions on what to do about this," he writes. "You and your team are perfectly capable of dealing with it on your own terms."

For more on the App Store pricing debate:
- read Hockenberry's blog entry