What happens when you take away one of the 4-Ps? It makes the whole universe of marketing a heck of a lot harder. In essence, this is what has happened in the modern software business and this is why the smartphone world will never end up like the PC world.
If you are not familiar, the 4 Ps are:
When Apple came out with the iPhone 3G in 2008 it also changed the rules of software sales. By building an App Store, Apple took away one of the 4 P’s, Place, and put all the stress on Price, Product and Promotion. Not too bad, you’d think. Even I was a big proponent at the time. Back in the Palm days we talked about how much easier it would be for customers if there was one single place to purchase apps and download them directly to the device. After all our biggest problem in those days was awareness and our biggest support problem was installation. By having a store on the device that would take away these problems, our world as developers would be so much better. What could go wrong?
Yeah, well, the law of unintended consequences always finds something.
By removing Place suddenly all the emphasis was put on the other three Ps. Since all apps were in one spot, it became clear very quickly that reasonable software prices were not sustainable. App prices began to drop and drop and drop until prices for the average app reached about $0.35 each. With Place defined and Price so low, Promotion became a problem. Where can we each promote our apps and still make a profit when the average app is only a few cents? And how do we promote when the only place people go to find apps doesn’t take ads? So it all comes down to Product.
Don’t get me wrong, some products found their way in this world. Gaming, in particular, has done quite well with its pay-to-play models, where the app can build buzz, become its own network effect, and then build revenue off a small sliver of heavy users. But this hasn’t worked as well in productivity where apps are either a few bucks or, if you really want to be successful, free. Most of these free apps have some way of making money away from the app stores.
I’m only picking on software but this is also one of the major problems with smartphone hardware as well. Once upon a time we bought PCs from a plethora of computer, retail or web outlets. Now, unless you are an Apple customer, you head to your local carrier store. For device manufacturers Place is gone, too. The carriers dictated Price, Product features, controlled all Promotion. Compared to the carriers, app stores so far have been downright benevolent.
What breaks this logjam, at least for the software world? I don’t fully know but clearly business models are changing. Games have started to figure this out. Fewer and fewer of them are fixed price, buy once stuff. Pay to play models are more and more prevalent. The same will be true for productivity apps. The future clearly will be some sort of freemium subscription model. The beauty is these models don’t need to be expensive. The infrastructure is cheaper, the distribution is cheaper. But it still costs money every year to develop and support these products. I hope consumers will adjust.