The cost of selling
One other major factor that comes into play when selling an app is the cost of making the app available in the first place. Apple's iTunes store splits revenue 70-30, with Apple getting the 30 percent. Windows Phone 7's app store has a similar 70-30 split, but a portion of Microsoft's 30 percent is distributed back to the network operators. Both also have application requirements and yearly membership fees -- $99 for Microsoft, and from $99 to $299 for Apple, depending on whether you get the Standard or Enterprise iPhone software development kit.
The Android Market also features a 70-30 revenue split, but the 30 percent is distributed between the payment processor and the carrier. The registration fee for developers is also only $25, but an unlocked developer phone, either the Android Dev Phone or the Google Nexus One, can cost upwards of $500. These phones are not required, but they provide some major power-developer features: They can work with any GSM network, and the Android Dev phone also lets you install any custom Android system image.
Alternative places to obtain apps are also starting to become available. For example, Verizon is planning to open its Android V Cast apps store sometime in November, for which it will be offering a 70-30 revenue split. GetJar, an independent site, takes a varying fee for each app download, using a bidding system that starts at one cent per download.
Making a living at apps
All that being said, there are a number of different strategies that developers are using to earn money with their apps -- most outside the traditional pay-for-product model.
The freemium model. The first and most basic approach to monetizing a mobile app is to just sell the application itself. But even a method this elementary is fraught with complexities. After all, how much will people be willing to pay for a given mobile app? Set the price too low and you can't cover development costs; set it too high and nobody will touch it.
One quick way to resolve that problem is to adopt an approach that's been used in the PC world for decades: Give away a minimally functional version of the application -- sometimes ad-supported, sometimes just outfitted with nag boxes -- and encourage the user to buy the full version. The missing feature or features don't have to be significant but should be worth paying for. Another way to put this would be: Give away the app, sell the functionality.
The word freemium has been coined to describe this approach, and it has quickly become an essential means of bringing a mobile app to market. Ferraro described the freemium model in his blog as "a classic marketing tool available to mobile app developers to maintain the perception of a free service, while attempting to lock-in customers into some type of charging mechanism."
The key word here is "perception": As long as people feel as if they're getting something for free, they don't mind as much if they have to pay down the line -- even if they have to pay again and again. What matters is the sense that they're getting something for their investment.