TightWind is written by Kyle Baxter. Stay Hungry. Stay Foolish.

Tim Ricchuiti:

To all those who tout “make a compelling app, charge for it” as the be-all and end-all in “sustainable” business models, read that again. In its current iteration, the App Store really doesn’t allow for a “sustainable” business model any more than giving something away for free does for one very simply reason: developers can’t charge for upgrades.

I think that’s a point that’s been lost in this furor over Instagram’s and, now, Pocket’s business model: the App Store’s “sell once, give free upgrades for life” model isn’t very good, either. Low average prices for applications (99¢ to ¢2.99 or so) mean that developers have to sell a lot of copies consistently just to stay in business, let alone make a substantial profit. While it’s true that taking advantage both of the platform’s tremendous number of users and its blistering growth rate can make this model workable, that depends on creating a rather sizable hit of an application. For the growth to continue, the application has to be well-known. That means a relatively small group of people will realize that kind of success, and it creates two very distinct groups: a small group who are seeing long-term, sustainable success with their application(s), and the rest—a much, much larger group that isn’t.

This dynamic also concentrates development in more popular categories like productivity, because larger categories have a greater chance for that success. As a result, more niche applications are less likely to be created and sustained over long periods of time. The end result is we have an App Store focused on big hits with much less diversity.

I don’t know if charging for upgrades is the answer, nor whether Apple is even interested in implementing it.1 But we need to figure out better ways to sustain applications as a business. I think in-app purchase and subscriptions can help. Small up-front prices for applications (or free, even, like Paper) with additional features or content available through in-app purchase could be much more sustainable, because not only does it have the potential to increase total revenue per user, but it also spreads this revenue over a period of time rather than lumping it up-front. By spreading revenue over time, it should make the business much more predictable and consistent for a larger number of businesses.

1. It is something they should be thinking heavily about, though, because a healthy third-party development community is one of the main factors that has made the iPhone and iPad so successful. Maintaining that strength is important for Apple. [↩]