How a 99¢ iTunes Download Can Change the B2B Software Industry

(this post originally appeared on the "It's All About Revenue" blog)

With the popularity of iPhone apps, common software price points have dropped from $39.99–$59.99 to $0.99–$1.49. This trend currently dominates the consumer market, but as a B2B software marketer, you should take notice.

GigaOM Pro recently forecasted that the market for apps is expected to grow from $183 million in 2010 to $8 billion by 2015. This means consumers will get used to paying low prices for the latest technology and this may change their expectations of how they acquire business software.

Why Does the 99¢ Software Trend Exist?

Over the past decade, the cost of producing and selling software has plummeted. Many of the up-front expenses have been minimized as new libraries and development tools make it easier for you to put software on the market.

In addition:

• You don’t need a major investment in a sales and accounting team to sell 99¢ software. Developers who use the old digital distribution model need to arrange for credit card processing, set up a bank agreement, handle billing and collect outstanding payments. Delivering your products through full service models like the App Store removes much of this backend work. In exchange for a 30% commission, Apple will take care of your credit card transactions and provide a platform where you can focus solely on your product.

• Selling through the App Store removes the need for credibility. You’d normally have to spend lots of time and resources to build trust with customers so they would feel comfortable giving you their credit card numbers. However, distributing though a respected entity, such as the App Store, eliminates trust-related hesitations. iTunes customers aren’t required to give out their credit card numbers with every purchase. They simply open an iTunes account and don’t have to worry about fraudulent bank charges from unknown developers.

You also must submit a software development kit to Apple for approval. Apple will run performance tests to ensure their customers receive software that does what it promises across a variety of platforms.

• Marketing costs are minimized. The low costs associated with promoting 99¢ software can make testing this distribution model attractive. Research has shown that the best way to sell apps is by word of mouth. Reviews on popular blogs and YouTube can drive sales and give you plenty of free publicity. The bigger the buzz, the more units you will sell.

• Huge distribution networks make it profitable to lower your price points. Selling your product through major distribution networks like the App Store lets you reach a new audience and gain brand recognition. Even though you may need to price your app at less than $1.99 to be competitive, the increased number of downloads can make it worthwhile.

faberNovel recently conducted a study to determine the best practices for iPhone app marketing. They tested several prices for the Paris public transport (RATP) app. When they lowered the price to 0,79€ (approximately 99¢), their sales tripled and 50% of their new customers went on to purchase the full version.

• The sales model allows for discovery through free trials. Offering users a free version of your software is critical to attracting new customers and driving sales of the full version. Free versions are far more likely to rise to the top of the “Most Downloaded” lists, giving you, and your paid version, significantly higher exposure.

This trend, of course, goes far beyond Apple, although theirs is the most widely recognized model. Google also acknowledged the importance of 99¢ software in today’s market by adding an apps search to Google Search for mobile. This function not only makes it easy for people to find apps but also gives software developers another reason to seriously consider this trend.

Should You Sell Your Software for 99¢?

As a B2B software marketer, this is a major trend that you need to be aware of. In all likelihood, you may conclude that it doesn’t make sense to sell your software for 99¢ directly, but in analyzing your market space, this trend changes the overall landscape directly. You should be aware that your competitors, and new market entrants, may take advantage of this new landscape. Whether or not you have considered a 99¢ distribution model, you should think about the following three factors:

• Disruption: It may not make sense for you to offer software at 99¢, but for a new entrant with significantly lower overhead costs because of this trend, it may make sense. Could a new competitor disrupt your space with a 99¢ offering? Have you thought about what could happen to your market space and how you’re prepared to compete? Can you produce a quality competitive offering with minimal investment?

• Business Model Creativity: When CD sales started to decline, iTunes revolutionized the music industry by selling songs at 99¢, but in doing so creatively changed the offering to include the music, the player, and the software to manage it. To compete in today’s app market, you might also need a more creative business model. Pull your team together to brainstorm new ways you can deliver a “unit of value” to your customers. Should you sell your software in the same way as you are today, or should you change what you sell, and to whom, to create a new business model?

• Go to Market: Your software might currently appeal to a small audience, such as a buying committee or senior executive, to maximize your ability to sell large deals. However, smaller apps that perform well and generate the most word of mouth tend to attract a much broader range of users. Can you approach your market differently by developing an offering that targets a broad population of end users, rather than a narrow population of executive buyers?

If you’re wondering how this model has affected sales of a fully featured software product, read the results of The Great 99 Cent Software Experiment of 2010. For 24 hours, Bill Pytlovany sold lifetime memberships to the WinPatrol PLUS system protection utility for 99¢. The regular price was $29.95. Sales during the promo were phenomenal, which made the experiment a success from a financial standpoint. In fact, most of the challenges he faced – high credit card processing fees, pirates and extra work handling orders – would have been resolved if he had used more current sales methods and sold the software through an online transaction system such as the App Store.

What about you? Have you analyzed your business and considered what would happen to your market space if a competitor used today’s tools to reinvent your category around a 99¢ price point? Are you prepared?