Why Social Networks are Cheap


mobile gameResearch in diffusion of innovations provides information about how social networks and mobile technologies are adopted. The data can be used by marketers to help determine the optimum social media tools in which to invest, the trajectory of consumer acceptance of networks and technologies and the usage patterns of customers over time.  However the old methods of charging high prices for new technologies may work for physical products, but it is much harder for marketers to charge high initial prices for social media or mobile applications.  Apple was able to choose a price skimming strategy, introducing the iPhone at a high price and reducing it over time because people really wanted the product and had few similar alternatives. Consumers are used to paying high prices for hardware design.

It is much more difficult for marketers to get away with high prices for software and media because consumers have grown accustomed to getting these items for free.  For example mobile app marketers use a strategy of price penetration, offering the product at a reduced price to attract consumers and raising the costs or fees later on. The app Temple Run is free, but to unlock new screens the consumer must pay more.

Below is the progression of price discounts for the iPhone over time.  Each stage represents a consumer adopter group and shows how the price skimming practice worked for the iPhone 8 gig model.

Table 4.6: Gotta have an iPhone

Adopter Date Price of iPhone
Innovators June 28, 2007 $599 8 gig
Early Adopters September 5th, 2007 $419 8 gig
Early Majority July 11, 2008 $199 8 gig 3G
Late Majority January 6, 2011 $49 3G

Some app designers are able to charge high prices because the consumer base has strong motivation to pay high prices and have the money to do so.  Apple limits the price of apps in the iTunes store to a max of $999.99.  One such app is called VIP Black, which offers special services to high income individuals who must prove their assets before buying.

Here is a link to an article from the UK Telegraph on the Most Expensive Apps.







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