Last week, Instapaper's founder Marco Arment gave us a remarkable insight into the economics of content applications. For readers who haven't used Instapaper on their iPad or iPhone (preferably on both): this application is an absolute must-have.
This is what I call a Real-Life App. Minimalist design, no frills, no "wow effect". But, in return for the sobriety, unparalleled efficiency. Instapaper was born from a need, not from a marketing concept or PowerPoint vaporware. In last October’s Wired profile, Arment explained himself: at Tumblr, the blog platform where he was Chief Technologist, a draining job that made concentration difficult, he began to feel the need for such an app.
Reading text longer than a two-page business memo has become everyone's daily challenge. The inability to allocate time for lengthy, in-depth reading is a contemporary disease – well portrayed in Nicolas Carr's last book The Shallows.
Hence Instapaper: a service based on a bookmarklet that lets you to save browser pages for later reading. When you want to save a page for later reading, you click on your browser’s Read Later bookmark . Like this:
The pages you save get automagically synchronized with your iPhone and iPad Instapaper apps; they become available for online and offline reading. This makes Instapaper ideal when traveling. For the Kindle, Instapaper features an easy setup to send all your saved stories to the device.
Instapaper is a one-man operation. It has three (modest) revenue streams: apps sales, a tiny one-dollar a month subscription via PayPal, and a small amount of ad space on the website. So far, Marco Arment checks all of today's smart Internet relevant boxes:
- a straightforward application with a clear purpose: saving long texts for later reading
- a clearcut business model, one that doesn't depends on "eyeballs" hypothetically pimped at bargain-basement prices
- a remarkable implementation of its own API model: see Instapaper's API's how-to page. The Read Later API allows 140 third party applications (news-related aggregators, RSS feeds readers, Twitter apps) to upload and sync pages for later reading on your devices.
- good execution: Instapaper works flawlessly, exactly as advertised
- the AppStore ecosystem is a perfect fit for such an ultra-light operation. The developer focuses on what he does best and Apple takes care of the rest: worldwide app distribution, updates… and monthly checks -- minus its usual 30% cut
- it addresses a well identified market: upmarket information consumers, willing to take the time to read quality, long-form text – and willing to pay a small amount of money for the service. This is a solvent niche market. Small revenues but nice margins -- as opposed to the thin or inexistent ones ‘‘enjoyed” in mass markets.
Coming back to today's subject – the monetization of content based applications – Marco Arment sheds an interesting light on pricing strategies.
Credit: Flickr Webstock Photostream (cc)
In the beginning (Fall of 2008), his iPhone app came in two flavors: free for the light edition, and $9.99 for the full-featured one. In June 2009, he lowered the price to $4.99 -- where it stands now. When the iPad launched, Arment decided against a free version for Apple’s new tablet. And, last Fall, he ran an experiment: the free iPhone version disappeared from the AppStore for three days. Sales increase immediately. Then he reiterates the experiment:
On March 12 , knowing I was heading into very strong sales from the iPad 2’s launch, I pulled Free again, this time for a month. Again, nobody noticed, and sales increased (although it’s hard to say which portion of the increase, if any, is attributable to Free’s absence, since most of it is from the iPad 2’s launch).
This break went so well that I pushed the return date back by another month. I may keep it out indefinitely, effectively discontinuing Instapaper Free.
In every market, for the news category, Instapaper is now one of the most downloaded iPad apps. See this spectacular chart compiled by AppAnnie.
For the application market, Marco’s experiment makes four critical points:
1 / A free/light version (hopefully) leading to revenue from a full-featured app no longer appears to be the all-around best promotional scheme.
2 / The free/light version works fine for games: I download the free (or near-free) version, I get hooked and I pay to increase my level of play, get more potent weaponry, etc.
3 / But on many content or services-related applications, people want to taste (and to test) the real thing. This is where the free/light option shows its limitations: it degrades the product’s image and frustrates users because most of the really attractive features are disabled.
In a market with a hyperactive swarm of competitors, the potential customer will therefore be inclined to ditch the crippled app and look elsewhere for more features. Users’ curiosity is vastly underestimated. So is their propensity to become quickly (and sometimes unfairly) frustrated. But they have the money...
4 / User reviews play a significant role in an application’s fate. Providing for free a half-baked app is likely to trigger reviews based on... half of its features. Better give it a chance to be assessed on a fully-functional basis.
As the mobile applications ecosystem gains in sophistication, there is no shortage of ways to develop better promotion systems.
The developer could lease his app for a period of time. An application priced at $5 or $10, could be used during a month for a couple of dollars, with all its features. Or it could be used for free during a week. (Finding the right settings for the trial or rental period is a matter of testing). In any event, the idea is to expose the user to the full experience. Hopefully, he'll get hooked. Then, getting him to cough up the remaining extra dollars becomes a no-brainer.
The Apple ecosystem does or will provide tools aimed at increasing the odds of converting a temporary user into a permanent, fully paid-for one. The in-app purchase system could easily lend itself to an efficient leasing process. Push notifications could turn into helpful reminders of a soon-to-expire testing period.
Going for a single, full-featured and paid-for app carries several additional advantages: a single app means a single customer-support & maintenance process, and one schedule for upgrades. Most importantly, it puts revenue ahead of a costs. As Marco Arment observes, in the application business, non-paying customers actually do carry a cost in the form of the web services the developer has to pay for every month. There is no such thing as a free promotion. Even in digital form.