Make it More Expensive : A Valid Strategy

Today, the great team over at 37signals launched their first iPad app : Draft for iPad. It’s a nice little app, that allows you to quickly draw on a black background using either white or red pen color. The key feature in this case is the tight integration with BaseCamp. The kicker? The 10$ price point for the App.

That’s an interesting move because there are some very good competitors that are much less expensive. Penultimate is my current favorite, but there are others. Twitter users quickly reacted to the price, with many saying it was too expensive. @dhh (37signals co-founder & Ruby on Rails creator)¬†actually answered me with this line:

Thanks, Jonathan. We built Draft for us. Selling it at a higher price means less customers w/ poor expectation fit. That’s good.

37signals are not the first to use that strategy. Apple is doing this very same thing in a way. If you want to buy a computer, it’s easy to find one cheaper than even the cheapest Mac. On the App Store, the also-excellent OmniGroup also used this strategy with OmniGraffle for iPad (50$). Last I heard, OmniGroup was quite pleased with their results.

So is the strategy good? Well, certainly I suspect 37 Signals will sell a lot less units, despite strong initial sales. Once the buzz goes down, they’ll sell a steady stream of units to their customers, but have a smaller set of customers is not always a bad thing. As long as you make money on the App and that your customers are happy, then why not? Less noise, less distraction.

At 0.99$, the app would have attracted a lot of new customers to 37signals, but how many of these would have been good fit with the rest of the services offered there? At 10$, you’re attracting professionals, users who need Basecamp as a tool to do their work.

The other point to consider is product valuation. A great local software developer here in Montreal is Druide Informatique. They create the best french-language dictionary and corrector for the Mac & PC. When they launched their app for iPhone a year ago, they decided to price it at 20$. The reason? The “real” (desktop) version is priced at 129$. It’s a very good product and it’s well worth its price tag so for the iPhone version, they didn’t want to devalue the desktop product and price it at 0.99$. The result? The president of the company told me several months ago they were very satisfied with sales.

So the strategy is maybe not for everyone, but it can certainly work. Are you better off with a few sales at an higher price or many sales at a lower price? Let’s wish the 37signals team the best of luck. These guys are talented and deserve the success they’ve been having.