Yahoo Finance 4-in-10 people would delete Facebook if it wasn't free
It has always amused me that people are willing to pay $20 for a restaurant meal that lasts only 30 minutes – but are disgusted at the prospect of paying $1 for a really useful smartphone app that lasts forever.
"I can't believe this app costs $1.50! Outrageous."
Before the smartphone era, computer software cost hundreds of dollars. But in the current age, the digital population has an expectation that apps are free.
A new study conducted by advertising agency McGuffin has worked out how much people are willing to pay for the most popular free apps.
All 16 free apps surveyed are currently supported by advertising. The 2,000 respondents were asked whether they would stop using the service if it was no longer free, or how much they would pay per month if they wanted to continue using it.
People value WhatsApp but not Facebook
In terms of price that survey respondents are willing to pay, YouTube topped the list, with 72 per cent of people willing to shell out US$4.20 (AU$6.20) each month for the video streaming service.
But it seems instant messaging software WhatsApp is the essential app most people couldn't do without, with 89 per cent willing to pay if it weren't available for free.
On the other end of the scale, Facebook was the app that the least number of people wanted to pay for. Just 64 per cent said they'd shell out cash to continue checking their news feed, and even then only US$2.92 (AU$4.31) a month.
Overall, roughly three quarters of those surveyed would pay a monthly fee to continue using their favourite apps.
Reason why people want apps for free
So why were consumers willing to pay $200 for Microsoft Office years ago but would flip over cars and burn houses down if a smartphone app cost even $100?
Invento Robotic chief executive Balaji Viswanathan said on Quora that it's due to a psychological phenomenon called "anchoring".
"We are anchored to think that $200-$500 is the norm for quality PC software, because people 25 years ago paid that much," he said.
"Bill Gates especially helped us think that way through a strongly monopolistic hold on the market. Cloud apps and mobile apps came at a time when people thought information goods should be free, and thus, we have anchors at $0."
So why couldn't app makers, when the smartphone era first started, set their price anchor to be a lot higher? It's because the competition was so high – there were a lot more people making apps compared to desktop software in the 1980s.
The way mobile apps are sold makes a difference too, according to Viswanathan.
"App marketplaces make it harder for anyone to form a monopoly and have pricing power. They just have to bend to the anchors set by the market owners – Apple and Google. Apple iTunes started with $0.99 pricing and thus most apps are around that level. Google started with $0 and thus most Android apps are $0."
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