Thursday, December 30, 2010

iPhone apps and the Philip Morris business model

Once upon a time tobacco companies distributed abundant free samples. It's a good business model when you're selling an addictive product.

This holiday the kids have been piling up iOS games on their phones, mostly at $1 each. Since FairPlay DRM works on an iTunes/account basis, each app goes to four (soon five) iOS devices.

At 20 cents/app/phone this looks like a heck of a bargain -- but appearances are misleading. Increasingly the apps are entry points to a series of in-app purchases [1]. The real price is a cumulative sum; I'm guessing the average cost is more like $5 than $1. iOS games are rediscovering the Philip Morris business model.

This isn't necessarily a bad thing - for games. It means we can try quite a few games, and only spend money on those we really like.

It's certainly not a bad thing for experimental economists! The App Store is a wonderful model for exploring pricing strategies ...

[1] I don't know how FairPlay treats these. Are they tied to a particular devices or to the account? I suspect the former, which means the FairPlay redistribution (our five devices) becomes a feature, not a problem.


Anonymous said...

Caveat: this is a stupid question.

I didn't know that you can buy an app once and have it show up on multiple phones.

Do you actually use the same account for all 4 devices? Does that mean that both phones have to be synced to the same itunes install on the same computer for it to work?

I think I've been doing it all wrong - wife and me have been forced to buy apps twice or have it on just one phone.

But having to sync to just one phone might be a deal-breaker.

Sorry for stupid question, but your advice on how to accomplish this would be appreciated.

John Gordon said...

Not a silly question

For background see:

but then I gave up. I consolidated so everyone syncs to one account. This is closer to what we do now:

When you do this you have to go cloud for everything, since otherwise you'd be synching calendar and contacts to a single user account. We use a mixture of MobileMe and Google Apps for cloud services, mostly the latter. We don't sync anything from the iPhone to the user account directly, it's all cloud sync.

DRM licensing is per iTunes account, so we have one account for all family purchases.