you can compete with free

Marco Arment explains the economics of free, as they apply at instapaper. 

Last fall, I conducted an experiment: I quietly removed Instapaper Free from the App Store1 for three days, leaving only the full, $4.99 Instapaper app. Not only did sales increase incrementally, but nobody seemed to notice.

On March 12, knowing I was heading into very strong sales from the iPad 2’s launch, I pulled Free again, this time for a month. Again, nobody noticed, and sales increased (although it’s hard to say which portion of the increase, if any, is attributable to Free’s absence, since most of it is from the iPad 2’s launch).

This break went so well that I pushed the return date back by another month. I may keep it out indefinitely, effectively discontinuing Instapaper Free.

Here’s why:

Background

The paid app has never been “on sale”. It launched in the fall of 2008 at $9.99, and in June 2009, I dropped the price to $4.99, where it remains. I have no plans to drop it further.2

When it was still available, Instapaper Free was downloaded about 3 times more often than the paid app. This is a very good ratio, especially given such an “expensive” paid app.

The iPad represents about half of my business, but I’ve never offered a free iPad app, and almost nobody has ever asked for one. (Instapaper Free is iPhone-only. Like most iPhone apps, it will run in the iPad’s “2X” simulator, but it’s terrible.)

Bad economics

Maintaining a second configuration of the app incurs direct, significant costs in development and support. Furthermore, the Instapaper web service that powers the app costs a good amount of money and time to operate every month. So Free users have a direct cost to me…

via Why Instapaper Free is taking an extended vacation – Marco.org.

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