Craig Hockenberry, the developer behind Twitterrific and Frenzic in an open letter to Steve Jobs:
We have a lot of great ideas for iPhone applications. Unfortunately, we’re not working on the cooler (and more complex) ideas. Instead, we’re working on 99¢ titles that have a limited lifespan and broad appeal.
Raising your price to help cover these costs makes it hard to get to the top of the charts. (You’re competing against a lot of other titles in the lower price tier.) You also have to come to terms with the fact that you’re only going to be featured for a short time, so you have to make the bulk of your revenue during this period.
This is why we’re going for simple and cheap instead of complex and expensive. Not our preferred choice, but the one that’s fiscally responsible.
It is a weird phenomenon- people just don’t like paying for iPhone applications. Hockenberry’s own Twitterrific is a great example. Almost every iPhone + Twitter user I know uses the app, but very few pay for it, and live with the built-in ads that show up in the free version. I paid for it (for my Macs and iPhone, no less) to not only support the development of the app, but to get rid of those ads. Again, Hockenberry:
I’ve been thinking about what’s causing this rush to the 99¢ price point. From what I can tell, it’s because people are buying our products sight unseen. I see customers complaining about how “expensive” a $4.99 app is and that it should cost less. (Do they do the same thing when they walk into Starbucks?) The only justification I can find for these attitudes is that you only have a screenshot to evaluate the quality of a product. A buck is easy to waste on an app that looks great in iTunes but works poorly once you install it.
Another good point, and his own setup (one paid, one free with ads) works around this to a degree, but the conversion to the paid application is probably less then he would like to see.
All in all, this issue isn’t going to go away until Apple figures out a way for the App Store to balance price + popularity, and until customer are willing to pay for applications that are more than $1.