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Instapaper Free: A Study In App Store Economics

Instapaper Free: A Study In App Store Economics

April 29, 2011
In a lengthy blogpost, Instapaper creator Marco Arment explains why he pulled the free version of his popular app and why it might not make it back. If you have time to read the article, we at AppAdvice highly recommend that you do. It is a fascinating bit of developer insight into (and candid disclosure of) the realities and economics behind an App Store hit. The story goes like this: In the fall of 2010, Arment conducted a little experiment, removing for three days the free, iPhone-only version of his Instapaper app. This left only the $4.99 universal binary, and sales grew incrementally as expected. More importantly, however, nobody complained. Last month, as the iPad 2 burst onto the scene, he pulled Instapaper Free again. Once more, nobody noticed, and sales of the paid version increased. Now, Arment says it might stay that way. But why? Doesn't a free version (which he claims was downloaded in a ratio of three-to-one against the paid app) garner more sales of the premium product? The answer, surprisingly, is "not really." Along with these so-called "low conversions," Arment lists several other factors influencing his decision. These are, in no particular order, the following:
  • Image and product-design problems
  • Minimal demand
  • Undesirable customers
  • Plain old bad economics
The first in that list is obvious, as the developer explains,
If you have a free version of your app, that will be the only version many people will ever see. So, for the Free users, that app — that extremely limited app that lacks almost all of Instapaper’s best features — is what they think Instapaper is.
That's pretty much the case with every free app that has a paid counterpart. The second bit about minimal demand comes primarily from the aforesaid 3:1 ratio of free versus premium downloads. Posits Arment, "When there’s no free option, and the only way to try an appealing app is to pay a small amount of money, people do. Not everyone will, but enough will." On a personal level, I tend to agree with that, as I've done it on several occasions (and will on several more). "Undesirable customers," as a category, is a funny one (and very true). In the tech world, be it service or retail, we all come across them. In Instapaper Free's case, bad reviews left by unreasonable, inflammatory, or otherwise technically clueless users was giving a bad name to Instapaper proper. Here, I should note Arment's aside as particularly appropriate: "This is also a major reason why I have no plans to enter the Android market." All that considered, the final point -- economics -- is where all roads ultimately lead. A free app with server-side support costs money to operate. Ads may get some or all of that operating cost back, but they often don't. Instapaper Free's users are projected to generate click-through ad revenue of less than $3.50 lifetime. That won't ever add up to paid app sales, and it makes no sense to devote the necessary time, cash, and resources to keep on with such a service. In effect, the cost to operate Instapaper Free has simply not supplemented the paid version enough to keep the former afloat. Of course, Arment says your mileage may vary. I seriously doubt it. As a side note, I should tell you that this sort of developer candor just convinced me to buy Instapaper.

Mentioned apps

Marco Arment

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