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Amazon, Not Developers, Will Set New App Store's Prices
Trebortech writes "Looks like Amazon is changing the rules of the game for developers with their new Android App store. I'm curious how Amazon will determine the value of your app and if having control of your prices really matters."
The core of the linked article: "Here's how it works: When developers submit apps to Amazon's app store, they will be able to set a suggested retail price ('MSRP'). It can be free, it can be $50, whatever.
Then Amazon -- not the developer -- will set the retail price. It can be full price, it can be a sale price, or it can be free.
Developers will get to take home the standard 70% of the app's retail price (what the app sells for) or 20% of the MSRP (what the developer thinks it should sell for), whichever is greater."
I think they'll probably refuse to sell it, then. But you could still ask for 3.5 times as much as you normally would, and get at least the same income you wanted in the first place.
I am a developer, I want $2 per sale, so I set the price at $10 knowing it will never sell at that price.
Amazon will then have it almost permanently on sale at $2.85, "70% off!" - which is coincidentally the 70% return mark.
The basic premise seems to me to be that Amazon will be able to offer huge discounts on apps because the developer nominally 'agrees' that their recommended sale price is offensively high - because the pricing strategy compels them to. But the developer gets decent money, so neither party loses. The only loser is the consumer who are being deceived into thinking they're getting a huge discount.
It'll be interesting to see how this plays in different countries - for instance the UK has no great respect for recommended prices and insists that items on sale are actually sold at full price for some (small, admittedly) proportion of the time. I imagine the rules vary by country, too.
Seems like somebody didn't think this through.
Indeed, but I don't think it is Amazon. Obviously, if you set the MSRP to $1,000,000,000, then Amazon will just offer it for that price (or anything down to about $285,700,000 where they still make a profit), and you'll get zero sales.
Not particularly sweet.
That's OK. They'll just set the price at $1,000,000,000 so you can enjoy your lack of sales.
That reminds me of old Dutch anti-contraband law - a skipper could set any price of his goods and pay duties based on that price. However, Dutch government reserved a right to buy all skipper's cargo at whatever price he declared.
It's whichever is greater, so if Amazon sells for $1, they pay you $2. This means that, aside from loss-leaders, they won't sell for under $2 - even at that price you're taking the entire sale price. At $3, they're paying you $2.10.
If it's implemented well, then developers may make more from this than from a fixed price. The advantage is that it lets Amazon dynamically adjust the prices quickly based on changes in the market. If 20% of people who buy something else are buying your app, then they may try offering a bundle where you buy both together for 50% off. If now 50% of people buy the bundle, then you get more money in total. With fixed pricing, they can't do this.
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They control the horizontal, and they control the vertical (literally). At the rate these large companies continue to screw over customers and developers alike, I just don't see how they will last as more robust open-source ventures proliferate. It won't be too long before the combination of open-source hardware devices (like Arduino), combined with an open-sourced mobile OS, and Open-source ventures and outlets render these proprietary monopolists dead.
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If you think about it, the 20% of MSRP thing is good for developers; Amazon is going to maximize their return, at the same time they're maximizing the developer's return, which is *at least* 70% of whatever Amazon is getting. If Amazon lowers or raises the price, it's because they expect a greater return (which means you'll get a greater return) and to be fair, they're probably better at setting a price to make the maximum amount of money than your average Indie developer. This means the 20% MSRP just means you'll get a larger cut than 70% if Amazon thinks they can make a killing slashing the price.
The only way you're going to get screwed is that if Amazon decides having your application priced in an uncompetitive way is going to maximize their return on another app. This is more of a danger than anything, because they might raise the prices of all competing apps to make one in particular seem like a "bargain" at the same time they advertise the hell out of it.
It's interesting and could somewhat work, with Amazon's experience in finding the perfect price point.
However, developers have some experience here too, and regularly adjust prices in the search for the perfect price point themselves.
All in all, I don't really get why we, the developers, should submit our apps to yet another app store. Aren't these things meant to make everything easier for everyone ? The consumer has yet another app store to visit, the developer another one to maintain. How will people even get the Amazon app store ? Why would people install it, seeing their phones already come with Google Market, which is of course a bigger store than Amazon's ? Even if Amazons store is pre-installed, would it actually be used ?
Take for example the Samsung app store for Android. It's pre-installed on all Samsung Android devices. There's only a handful of apps in it, and sales through this store are abysmal - so bad it's not worth the effort to have your apps available in there. And we sell quite some apps across various platforms!
Not to mention it's one more app store to track sales through, which is actually a lot of work for some of us. If you sell a lot of copies, you need to have your taxes in order, so you need to get the right reports from the app store. This will differ per country, but in our country (inside the EU), we need to charge 19% VAT for all sales made to European customers, and then hand this money over to the taxman. That sounds pretty straightforward, and it is, as long as you have the information about how much is sold (and for how much) inside and outside the EU. You can imagine this can be quite some work ( = money) for some of these app stores as their reporting is generally terrible (Google has the reports you want only if you are from the US or UK, or make less than 500 sales a day). The app store needs enough users and sales to warrant even bothering with the extra work, or it's a net loss to publish apps there. I don't see Amazon getting there any time soon.
You can't really compare that way. The cost to stock your software at Amazon is close to zero. They are not buying a fixed number of units from you. Technically, they aren't even buying and reselling the software, they are simply brokering the sale for you, since they never invest any money into the transaction. That said, the 30% commission is very reasonable, but not sure everyone will like Amazon setting prices. Even if Amazon does a good job with it, the fact that they are setting the price for a product that they are actually only brokering is problematic.
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Business Insider and author of TFA, Dan Frommer, got several details wrong.
TLDR; Amazon prevents you from selling for cheaper on other outlets, or giving away free downloads or FOSS if you want to charge on the Amazon Appstore.
What does "MSRP" mean?
In the retail business (that's where the "R" in "MSRP" comes from) retailers make speculations on how many units they can sell at what prices over what period of time, compare to actual or theoretical negotiated bulk prices for purchasing from a manufacturer or wholesaler, and then decide whether or not it meets their profit expectations. It can be a little more complex than this, but this is the gist of it.
Well, the article linked to by Slashdot does not help you find Amazon's justification for using the terms "MSRP" or "SRP." My research, which may be incomplete, indicates that Amazon is not using this term, and rightly so. Here is an excerpt from Amazon's Appstore Distribution Agreement, which you can see in PDF form here (MD5 checksum 15636c42ecfb47dc819445ad3214eac4, just in case they change the file in the future without renaming it.)
Section 2a of Amazon's Appstore Distribution Agreement
Ok, so what we're actually dealing with is called a "List Price" in the legal agreement to supply Amazon's new App Store. This is a more correct term, because an MSRP is legally unrelated to the price a retailer secures from their supplier for units of the product. It's clear though that this "List Price" bears legal weight in determining the PPU (price per unit) of the product from the supplier (or, developer, I guess.)
So at this point what we have established is that the "List Price" in fact has no bearing on what the app will be sold for, but is defined to be five times the minimum PPU the developer is paid.
Here is a really important detail that Business Insider and author of TFA, Dan Frommer, glossed over:
Somehow, even managing to discuss the situation in which you set your prices differently for different sales outlets, Business Insider and Dan Frommer miss this juicy tidbit:
Section 5i of Amazon's Appstore Distribution Agreement
"List Price," then, is not simply five times the minimum PPU you wish to be paid (which would effectively allow you to actually set the price you want to sell at, which would be nice) but is in fact a function of what price you are offering, but a function of the price your app is available for at different outlets! This means if your app is on multiple outlets, Amazon takes away your ability to set your price through the List Price, and even
Lots of comments here that're completely missing the point. This is to prevent you from selling at multiple stores at once. You see, in addition to setting whatever price they want, Amazon also has a rule which says that you're not allowed to set a "list price" that's higher than what you sell it for on other app stores. This means that if you put the same app in both Google Market and Amazon's store, then Amazon's store will always be cheaper - and you can't raise the price to counteract Amazon's discounting without ruining your sales on Google Market.
This is just one of several showstopping issues that ensure that I, as an app developer, will not put anything to Amazon's app store.
As another comment on here pointed out, just about everybody is missing the point of what Amazon is doing. This isn't something to benefit the customer - this is a monopoly move designed to wipe out any competition to Amazon in the app marketplace.
I'm going to discuss this in layman's terms. Now, for details on the contract, see this post, which shows you where things are on the contact and how they're working: http://developers.slashdot.org/comments.pl?sid=1951734&cid=34889086
This is an evil monopoly move by Amazon, and it isn't the first one. This is the third I've seen. The first was a move to wipe out print-on-demand printers used by the small press market - Amazon contacted several of the larger small press publishers and informed them that if they didn't switch to Amazon's in-house printer (a company called Booksurge known for shoddy printing jobs), Amazon would remove the buy button on their books. Amazon did pull that trigger, by the way, and it resulted in a class action lawsuit that put an end to that particular trick. The second was an attempt to wipe out any competition selling e-books - Amazon spun the dispute as greedy publishers wanting to price-gouge customers, but what it was actually about was that Amazon had tried to get publishers to sign contracts stating that Amazon would always get the lowest list price for e-books, regardless of any other arrangements past or future...including direct sales from the publisher's own website. The publishers fought that one and won, even though they took a PR hit for it.
This one is an effort to wipe out any competition in the app market by manipulating app developers. Here's how it works:
As the article said, the terms are set where the app developer will receive 70% of the actual sale or 20% of the list price (basically, the price the store is supposed to sell it for), whichever is greater. As was left out (and pointed out in the post I linked to), there's a clause in the contract stating that Amazon must always get the lowest list price.
So, if you're a developer, you need to calculate the list price of your product based on what you need to receive from each app sold. Let's say that's $4. But, with the terms of this agreement, you are only guaranteed that if it is 20% of your list price, so you have to set your list price at $20. Therefore, if Amazon turns around and sells it for $4.50, you are guaranteed to get your $4.
But, this also means that in order to ensure that you get that $4, you are now forced to overprice your product. So, everybody else who carries your product - including yourself, if you have your own little app store - has to do it at a list price of $20. In the meantime, Amazon can set the price to whatever it wants, and so long as it doesn't go below $4, it will make a profit on the sale. And, Amazon even makes it look like it is doing you a favour - after all, if your app sells for $10, you're going to get $7 from it. Amazon gets to have the lowest prices, and you - the developer - have made it so that every other app store gets thrown under the proverbial bus when it comes to your app, because they will never be able to compete while using the list price that you are forced to give them.
This is an incredibly dirty trick, and what needs to happen is that app developers need to fight back and refuse those contract terms en masse. If they can do that - like the publishers did with e-books - then Amazon will be forced to back down. If they don't, then Amazon will stand a reasonable chance of not only gaining a monopoly position, but actually wiping out any competition.
Robert B. Marks
Author, Demonsbane in Diablo Archive