Is Amazon Appstore's free app promo a bad deal for developers?

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It's been about four months since online retailer Amazon.com officially opened its Amazon Appstore for Android, and while the digital storefront remains far off the pace established by Google's (NASDAQ:GOOG) Android Market, it's gaining ground. Amazon Appstore category leader Aaron Rubenson recently told VentureBeat that the store now offers more than 14,000 Android apps, up from 4,000 at launch--games lead in terms of both sales and inventory selection, with Plants vs. Zombies outperforming all rivals. Amazon Appstore for Android is also synonymous with its Free App of the Day promotion, which Rubenson says is a win-win for consumers and developers alike.

"When developers are trying to get their product discovered, the promotion as a free app of the day is a very powerful marketing vehicle," Rubenson says. "Then once that core base of customers has a product installed, they tell their friends about it. That spurs more downloads. It rises in popularity in our store. That makes it more popular as people are scrolling through the bestseller list and notice it there. So it starts the virtuous cycle from a marketing perspective. And then increasingly as developers are using various forms of monetization post-purchase, such as advertising or in-app purchasing technology, there are all sorts of downstream monetization opportunities as well once you have that initial base."

But in an incendiary blog entry published Tuesday, developer Shifty Jelly disputes Amazon.com's public assertions that it still pays developers 20 percent of Appstore for Android list prices even if it gives away their app for free. Shifty Jelly found out the hard way when Amazon contacted the startup about featuring its Pocket Casts podcasting app in the Free App of the Day slot: "We have seen tremendous results from this promotion spot and believe it will bring you a great deal of positive reviews and traffic," reads the Amazon email, reprinted in the blog post. "It is an opportunity to build your brand especially in association with a brand like Amazon's. The current price of this placement is at 0 percent rev share for that one day you are placed."

Shifty Jelly responded to the email to clarify the terms of the agreement, writing "We like being paid for our work. I appreciate that Amazon is trying to build up its store, and get more users, but the problem is at the moment you have the reputation of being 'The place where I get my free apps' and for a developer like us who doesn't put advertising into our applications, that can only be a bad thing. We'd be happy to reconsider if you decided to pay us the 20 percent that we agreed to in our original developer agreement, but this new one seems to favour only you, at the expense of us?"

Amazon's response: "The Free App of the Day promotion is the most valuable and visible spot in the store... Amazon will not receive any sales rev share from the Free App of the Day; and in fact, with as the Free of the Day for one day, you will receive a subsequent Appstore main page placement for the following 14 days. All these highly valuable placements are at no cost to you. We want to promote your app and in exchange of the placements, at the 0 percent rev share for one day only."

After considerable internal debate, Shifty Jelly consented to Amazon's terms, and on June 27, Pocket Casts assumed the Free App of the Day spotlight, generating 101,491 downloads in the process. If the 20 percent revenue share agreement had been in place, Shifty Jelly would have earned $54,805.14 in a single day--instead, it made nothing. "Did the exposure count for much in the days afterwards? That's also a big no, the day after saw a blip in sales, followed by things going back to exactly where we started, selling a few apps a day," Shifty Jelly adds. "In fact Amazon decided to rub salt in the wounds a little further by discounting our app to 99 cents for a few days after the free promotion. All we got was about 300 emails a day to answer over the space of a few weeks." On top of that, Shifty Jelly was forced to invest in new server hardware to support the flood of incoming Pocket Casts users--"Hardware that we are going to have to support indefinitely at our own cost."

Shifty Jelly acknowledges the obvious: It knew exactly what it was getting itself into. "We agreed to Amazon's terms, even if they were underhanded and secret, so we deserve everything we got," the company admits. "That said, we want to make a clear stand here, so that Amazon doesn't take advantage of those less fortunate than us. So today we're making a stand. Effective immediately we are removing ourselves from the Amazon Store." Shifty Jelly states it will refund all 200 or so consumers who purchased the premium Pocket Casts app from Amazon and will also continue to support users who downloaded the free version, although future software updates are on hold. One catch: Shifty Jelly must secure Amazon's permission to delete Pocket Casts from Appstore for Android's inventory. "To remove an app you have to ask [Amazon] via email," Shifty Jelly tweets. "They replied not unless we remove it from Google too." Just another pointed reminder that developers play by app store rules, and not the other way around.--Jason