The evolving business model of iPhone Apps: charging for upgrades

As we are increasingly starting to see iPhone App developers making millions on their applications through the iTunes App Store on single sales at a value of often less than £1/$1 one has to ask the question as to how sustainable their business model is, and how long it will take before one can start charging for upgrades to the applications.

The media these days are full of stories of people making vast amounts of money after spending a relatively short time on creating an application for the iPhone, be it a simple application for playing Star Wars sounds, or be it more advanced and useful applications that will improve work efficiency etc. Application development for the iPhone and iPod Touch is deemed by many to be one of the few booming industries in an otherwise dark global economy.

My understanding of the business model at the moment on the iTunes App Store is that you only pay for the application once, and any upgrades to the application that is not deemed as a completely new application you will not be charged for.  Fora user that is nice to hear as in the early stages of application development for this new media platform there is often early bugs in the first releases of any application, and as developers get better at taking advantage of the Apple development platform, the apps will continue to evolve and get more advanced.

But the question has to be asked; how long until the iPhone app industry realizes that to make their business more sustainable constant innovation is not enough, and they need to find ways to make more money out of the apps they have already created and put into the marketplace.

Once the iPhone/iPod Touch application industry starts to mature more, which might be years away still, the competition will increase and the user will become more critical to which apps they will download amongh the already 20,000+ apps available at the iTunes App Store. For quality applications that are always being improved and that is evolving, the next step might be to charge for significant upgrades, perhaps at a different price level then the original download.

This is how other industries takes advantage of the cash cows in their product portfolio, because the rules of managing your business and portfolio does not change just because a new industry might have emerged.

Personally i would not have a problem with paying a little bit for a significant upgrade to an application that i already have and that i deem to be worthy of upgrading, but i would also expect that i would have the option of even testing the upgraded version before deciding to buy it, just like you can with so many software for your Mac or PC.

As for Apple and the iTunes App Store, there would be more money to be made by making people pay for upgrades to the applications, however one has to ask the question of why application developers should have to share the value of any upgrade with Apple. Perhaps instead we will see functionality where you can upgrade certain applications directly through the applications themselves, just like with computer software, which as an app developer would be my preference.

Who knows where the mobile application market will go in the future, but one thing i’m pretty sure of, it will not stay the same forever.

Read part 2 here: Usage trends and stickyness of iPhone apps - looks into consumer trends as well as apps that could be changing distribution of digital music.

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