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Subscription app pricing in iPhone OS 3

UPDATE: Looks like it isn’t happening like this.

I’ve been hoping for subscription app pricing since the App Store was announced. But since then, the app market has taken some turns that I never thought possible. I’m very curious to see how this plays out — specifically, if app developers can keep sales volumes up if they’re charging small monthly fees instead of higher one-time prices.

We don’t know the details yet. I’d love to see more options than just monthly billing, such as quarterly or annual pricing. Ideally, the same app could have multiple price tiers, such as offering it for either $2/month or $10/year.

I’ve wanted to charge a subscription price for Instapaper since the beginning. The app requires a web service with recurring monthly expenses, plus my time to update and maintain the service, all for the indefinite future. One of the reasons I’ve stuck with the (relatively high) $10 price point is to cover these recurring costs because I only had one opportunity to take money. Now, the game changes: I can elect to charge a lower initial rate because I know I won’t need to maintain server capacity to support this user forever with just $10.

This will, in a way, give us much of the effect of the rumored Higher-Quality-App Store. I suspect we won’t see a lot of subscription-priced apps charging more than $1-2/month, but even the minimum of $1/month (which I suspect will be a very popular price) accumulates to real money from the truly devoted users who keep it installed over the long term.

And if a lot of apps switch to $1/month, we could see some great side effects:

But, like the App Store itself, the market dynamics of this are likely to surprise us and go in directions we never anticipated after it launches. I’m hoping for the best, and I think it’s most likely that this will be a very positive change for the App Store.