The average price of an iPhone app is 19 cents — and it’ll probably keep shrinking

There’s an emerging view among iOS(s AAPL) developers that both the amount of work involved and value created by app development merit higher prices for apps. But a new study shows that developers test pricing tend to lower the price of their apps — or even charge nothing at all.
New research published Thursday from mobile analytics firm Flurry, which looked at app pricing over the past four years for 350,000 apps using Flurry’s mobile analytics service, found that developers are charging less for their apps over time, and many times, end up going completely free. (The results are weighted to account for number of users for each app.) The result is more ad-laden apps.
But Flurry says purchase habits show that user demand is higher for apps that will cost them nothing, even if there are ads as a result.
Since 2010, when free apps accounted for 84 percent of those Flurry tracked, the percent of apps charging nothing — and using ads to drive revenue instead — dropped briefly to 80 percent, before rising in 2012 (back to 84 percent). As of April this year, 90 percent of all apps are free and ad-supported. As a result, the average price of an app continues to drop.

iPad apps are the priciest, Android the cheapest

When it comes to iOS apps, the average iPad app ($0.50) costs more than twice the average iPhone app ($0.19) and eight times an Android app ($0.06), according to Flurry’s calculations:
Flurry app pricing ios android
And the trend, at least for iOS app makers, indicates that those prices will likely continue to go lower, especially as more developers use data to make pricing decisions:

We looked at historical iOS app data (again because iOS apps have a longer history) to identify apps that have been the subjects of pricing experiments. That typically took the form of A/B testing, where an app was one price for a period of time then the price was raised or lowered for a period of time, then raised or lowered again. This lets developers assess users’ willingness to pay (i.e., price elasticity of demand) based on the number of downloads at different price points.

Most apps are not subjected to price testing. But Flurry found that when developers did test, they were far more likely to opt for free, ad-supported apps. “There was an upward trend in the proportion of price-tested apps that went from paid to free,” according to Flurry. Eight-four percent of apps that were price tested ended up going free as of April. “This implies that many of the developers who ran pricing experiments concluded that charging even $.99 significantly reduced demand for their apps.”

Flurry concludes that games can still do well with the free-to-play model — free to download with in-app purchase options — but that most apps will probably end up relying more on advertising. (Flurry, it should be noted, runs a mobile ad network, so take that with a grain of salt.)

App Store pricing has changed since its debut in 2008. Today, developers are competing for users against 900,000 other apps for sale, and they have to find ways to stand out. As Flurry has shown, charging for downloads is increasingly becoming less attractive to users, and especially as smartphones and tablets begin selling in larger quantities in emerging markets where customers may have even less discretionary money to spend on apps, the price of apps is likely to continue to drop even further.

Thumbnail image courtesy of Flickr user frankh