It's time for an App Store pricing revolution

Loyalty is a powerful factor in consumer choice, and you'd be hard-pressed to find a company that has benefited more from customer loyalty than Apple. That's what makes the company's lack of support for software upgrade pricing so puzzling. Offering a discount on a new product (or more fleshed-out version of an existing product) to thank those who are already using your software is good business, and the lack of such an option on the App Store is, at this point, baffling.

Remember how things worked before we had a one-stop shop like the App Store for our software needs? When a new or vastly improved version of an application was released, it would be offered at two different pricing tiers: Full price for new customers and a discounted price for those who already owned the previous version. This ensured that brand-new users paid their entry fee while giving returning customers more of a reason to upgrade, along with a pleasant feeling of being rewarded for their allegiance.

The App Store has no such option, requiring updates either be applied to an existing product for free or be sold separately as an entirely new app with one price for all users. This structure works just fine for Apple's OS X upgrades, which are now priced cheaper than a trip to the gas pump, but Apple isn't relying solely on the revenue from each new version of OS X to pay its bills. Many of the App Store's developers, on the other hand, live or die by the sales of their software alone.

When it comes to launching a new and improved version of an existing app, developers are already working from a disadvantage, and to not be able to offer a lower price to loyal users can be painful.

"How much is the new version worth to me? I can already use the older app to do many of the same things, so the value of the upgrade is much lower to me: I can't justify the cost of making a full investment in the app all over again," Ken Case, CEO of The Omni Group, tells us. "As someone who has already invested in the previous version, what will make the investment worthwhile would be discounted upgrade pricing based on the relative increase in value of the new version, rather than having to pay for the full value of the app all over again. Otherwise, it may not be worth purchasing."

The Omni Group -- developers of business and productivity software such as OmniGraffle and OmniFocus -- believes so strongly in the upgrade pricing strategy that it went so far as to create an OS X app called OmniKeyMaster that scanned for existing purchases and then offered customers discounts on upgrades from its own online shop. This is a fantastic solution, or at least it was for the few days between the announcement of OmniKeyMaster and the blog post by Omni detailing why the app would no longer be available.

But can you really blame Omni for trying? Apple has left developers little choice but to attempt to sneak through loopholes in order to offer a pricing structure that has been an industry standard for decades.

Apple is in love with simplicity, and a one-price-fits-all model is certainly simple. Unfortunately that simplicity comes at a cost to both developers and consumers, not to mention Apple itself. By not providing a paid upgrade option, developers are unable to offer loyal customers a break -- thus driving sales. Customers are hurt by not being able to take advantage of these would-be discounts, sometimes forcing them to purchase two different versions of a single product at each app's full price. Meanwhile, by incentivizing non-App Store purchases and forcing developers like Omni to promote upgrade pricing through their own online shops, Apple is missing its cut of the sales.

Newer developers -- the ones that need a marketplace like the App Store the most -- are left with few options. What we end up with is an App Store filled with paid "Pro" versions of each app struggling for footing alongside free, stripped-down skeleton versions of the same apps. If the free iteration of the app in question offers an adequate experience, many customers won't see the value in the paid version. At the same time, if the freebie fall short, there's virtually no chance of getting a user to throw down the money for the real app.

Some developers have found a way to promote new paid versions of their products -- such as offering limited-time launch discounts -- but this is a bandage on a hatchet wound. Sure, users who catch wind of huge launch discounts on new apps can benefit, but should those who happen to miss the chatter be punished? This strategy might work for apps that only cost a few bucks, but when these price cuts could have a noticeable effect on your bank account, like in the Mac App Store where software can run hundreds of dollars, it can often be the deciding factor when determining whether or not to upgrade.

For its part, Apple hasn't officially come out for or against upgrade pricing as a practice, but if the company does indeed support the idea, it's clearly not very high on the priority list. Whether we can ever expect to see such an option is anyone's guess, but in the meantime we're missing out on a better version of the App Store that we should have had all along.