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Microsoft in unique position to raise app prices

Microsoft is raising the entry-level price point for paid apps on Windows 8 to $1.49, a move that may do little to attract developers but could turn off consumers.

While the average starting price for paid apps on most app stores is $0.99, Microsoft is hoping to curry favor with developers by giving them a way to make more money per download. However, other mobile app stores are unlikely to make a similar move given the fierce competition customers.

?Microsoft has a rare position in the industry with a built in community of existing developers and a high volume OS in Windows 8,? said Sam Abidar, chief technology officer at appMobi, Lancaster, PA.

?Even if they pull off moving the price of software closer to historical Windows software prices, it's not clear that anyone else could pull off the same strategy,? he said.

?Every other OS/App Store will be so competitive for consumers that they'll happily lean on developers to essentially give content to consumers for free.?

Building a mobile presence
In a post on the Microsoft blog announcing the pricing for Windows 8 apps, the company said that developers will be able to choose a price tier between $1.49 and $999.99 for their apps later this year when the platform becomes available.

App developers will be charged a store fee by Microsoft of 30 percent of the app price per transaction until an app reaches $25,000, when the fee drops to 20 percent of the app price.

Developers will have a variety of monetization options available to them, including the ability to offer a free trial offer with conversion to the full paid app, in-app purchasing, advertising and the ability to provide billing vi their own existing mechanisms.

The move by Microsoft to raise the entry level price for apps may be directed at helping it retain and attract desktop application developers, who are used to earning more for their software. This is also where a lot of initial volume for Windows 8 is likely to come from since Microsoft is still trying to build a presence for itself in mobile.

However, with smartphone and tablet owners used to paying $0.99 for apps, Microsoft may hinder its ability to attract mobile users to Windows 8 with the higher pricing.

?Microsoft already has a very large desktop developer community so the trick is to not lose the developer community they already have,? Mr. Abidar said.

?That said, it seems like $.49 one way or the other won't materially change the market for developers or consumers,? he said.

?It's kind of ?so what? and it doesn't make sense that they'd take the risk of alienating consumers for so little gain for developers.?

Premium apps
Microsoft appears to be hoping that the overlap between Windows 8 PC and Windows Phone will make the platform more attractive to developers and attract both premium apps and premium app buyers who are willing to pay a little more for an app that does more. This puts Microsoft?s app strategy more in line with Apple?s, whose highest-grossing apps are dominated by paid apps while the highest grossing apps an Android typically use the freemium model.

Microsoft may also be banking on being able to charge more for apps because its users will be predominantly business users.

?I think they are simply testing pricing elasticity in the market,? said Peter Farago, vice president of marketing at Flurry Analytics, San Francisco.

?If they can bring in 50 percent more per price point, then developers can make more per download which increases the attractiveness of developing for Microsoft,? he said.

?Also, it's possible that Microsoft feels that its mix of consumers are willing to pay higher prices, perhaps because there may be a larger proportion of business users.?

In general, the move by Microsoft to raise the starting price for apps is a reflection of the fact that the pricing model for apps is still evolving.

Compared with the gaming market, mobile apps are being sold for very little, causing some developers to save their best content for other channels.

?The current economics of apps have made it such that developers on iOS and Android can't put much R&D into an app because the pricing structure is so off,? appMobi?s Mr. Abidar said.

?For example, console games and even games on Nintendo DS get a lot more development cycles and consequently, engagement per title is way higher than on iOS apps,? he said.

?As a result, the best content isn't getting onto smartphones. Microsoft, given their close relationships with big budget developers via XBox has to be acutely aware of the issues.?

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York