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."

Comments

Pricing tactics

[Froggie]

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.

Re:Didn't do the math

[Alef]

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.

Don't Read TFA, Read This Instead

[hdon]

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.

(Snipped down.) When developers will be able to set a suggested retail price ('MSRP'). Then Amazon will set the retail price. 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.

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

For each sale of an App, we will pay you a royalty (“Royalty”) equal to the greater of (i) 70% of the purchase price or (ii) 20% of the List Price.

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:

..if your app is $10 in the official Android market and $10 in Apple's iPhone app store, but $5 at Amazon's store, it could hurt sales in your other channels where you get more revenue per sale.

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

The “List Price” for an App is an amount that does not exceed, at any time, the lowest list price or suggested retail price for such App (including any similar edition, version or release) available on any Similar Service or the lowest actual price at which you make such App available for sale through any Similar Service. You will update the List Price for each App as necessary to ensure that it meets the requirements of this section 5i.

"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

This is an evil monopoly move, and must be stopped

[Garwulf]

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.