Consider this: recent estimates suggest that Apple has only taken in $20-$45 million in revenue from App Store sales. If we cross-reference the more generous end of that figure with metrics on total application sales, we can draw more grounded conclusions about the reality of the App Store gold rush.
Some 40,298 apps have been released for the iPhone as of May 18. Presuming revenue somewhere between those two numbers, with total revenues of $108.3 million (if Apple takes 30%), average gross revenue of $2,688 per app. Apple takes 30% of that, leaving the developer $1,881. Deducting the $100 fee Apple charges developers for the right to sell apps in the store annually yields an average net profit of $1,771 per App.
That's just about enough to pay for the iPhone and Mac laptop or desktop you'll need to develop for the platform in the first place. Put more plainly, for the average developer the App Store is a financial wash.
Things get worse if we look more closely at games specifically. Even though almost 20% of the apps available on iTunes are games, the average price of a game is 50% less than that of other apps ($1.44 for games, compared to $2.79 for everything else).
That means that dollar for dollar, games are making 50% less than other applications in the store.
By that logic, an average game developer might be lucky to clear $900 through sales of a single title. Of course, if the $20 million gross sales figure is accurate, then you can reduce things further. On the other hand, some sources think the revenue to Apple could be as high as $90 million.
(But for the average App Store developer, it may also be that it's median revenue, rather than average, that is actually important. With sales tending to cluster around the top titles, median may be startlingly lower than average, though this is very difficult to discern.)
And one more thing: Apple doesn't distribute sales royalties until the totals exceed the equivalent of $250 in each region, so it's possible an average-performing title could result in no distribution whatsoever back to the developer. At that rate, who can afford to update features or create new products to sate the confused consumer who cries, "I want my 99¢ back?"
If we put these two issues together, a rather dour picture emerges. On the one hand, players are split between the low expectations of a throwaway good and the high expectations of a keepsake. On the other hand, developers are pouring non-trivial effort into the creation of products that risk being neither fish nor fowl.
One result of this collision might be a sort of weeding out of the less serious or lower quality products, as the folks creating them give up on iPhone games and find other creative or commercial outlets. In such a situation, perhaps prices and profits will naturally rise along with quality.
But another result might be an irreparable poisoning of the well. If the race to the bottom persists long-term on the App Store, players' expectations will match it.
Something curious might happen if we consider the problem as one of Nash equilibrium. If everyone selling games doubled or tripled their prices, then the average cost of games for iPhone might rise above the threshold of cognitive dissonance.
No longer would iPhone games register as neither coffee nor Klax, and instead they might telegraph the value they often (but not always) provide. Whether or not such a move is feasible or possible is debatable, perhaps suggesting that the iPoison has already been installed.
Most game consoles are sold at a loss with the intention of making up the difference in game licenses -- the razor blade model. But Apple does things exactly in reverse. $100 million in App Store sales is a drop in the bucket compared to Apple's $30 billion+ in 2008 revenue.
But I'm sure this figure doesn't bother the company; the App Store service is meant to drive their highly profitable iPhone and iPod Touch sales anyway.
Speaking of razor blades, before iPhone game developers embrace Chris Anderson's call to make their products free in the hopes of charging for services atop them, they might want to take note of the counterpoint pop-psychologist Robert Cialdini and his colleagues offer in their recent book 'Yes! 50 Scientifically Proven Ways to Be Persuasive': giving away a product makes it less desirable. It's something worth pondering over a forgettable $1 cup of joe.