Paid Upgrades and the Mac App Store

There’s been some solid debate recently around Mac App Store pricing, and the idea of paid upgrades, continual ownership and updates.  It’s relevant, and it is a change in revenue model for software companies.  Will Shipley, always a thoughtful and thought-proking individual weighed in with this opinion.   Largely proposing a way for the Mac App Store (and by inference, I would say it includes the iTunes iOS app store) to provide for paid upgrades on major revisions of the software.   It’s valid from a more traditional point of view on revenue and pricing of software.

A very solid counterpoint was provided by The Mental Faculty in the blog post Paid Upgrades and the Mac App Store.

I believe there is a missing piece there that major upgrades are treated differently, by Apple and others.

My expectation is as follows.   Initial prices for software will drop.   Not to $0.99 or any of that.   Major software is going to cost money.   $10-$30 for a lot of normal apps that might now go for $50-$70.  Those apps will have feee updates for their lifecycle.   Then when a major upgrade is going to be released, it’s a *new* application.   Migrating data will be a bit of a pain in sandboxing and application security, but a bit of Dropbox or other transfer ingenuity will alleviate that.

My rationale?    It comes down to essentially a “license” that you sell for the duration of a version, rather than the duration of a year or the like.   The great part for the customer is the license never expires (unless the software no longer works on an OS upgrade or device upgrade).   The upside for the developer is that you get lower cost for adoption, and you do have a recurring revenue stream for solid bits of new work.   It is a change in the upgrade and sales model.   The other option is to introduce major uplifts in features as paid in-app purchases, which is another option with what already exists.

I don’t think it’s either full price new versions or free upgrades for life.   There’s a lot of capability in the revenue models Apple has in the app stores they run, and while those models are nowhere near exhaustive, they are, I believe, sufficient to support a wide range of development models and companies.

I expect that the iLife and iWork applications will go this way as well, and as that happens, iCloud is how those apps will move across data and settings between versions.   Mountain Lion will be a new app on the app store, even though it’s an “upgrade”.   The supporting evidence is that Apple showed us long ago the OS was a lower cost upgrade than say Microsoft provides.   This gives incentive for people to upgrade much more readily than a higher price point would, yet everyone pays the same price.

Every sale is an upgrade.   From the previous major version to the current version, or the first version to the latest version.  One price upgrades.  Even if it’s upgrading from nothing to a new customer.