Andy Finnell makes a lot of sense in How to Price Your iPhone App out of Existence.
Since the opening of the app store I’ve felt that the $0.99 (or thereabouts) pricing model isn’t sustainable – Andy lays that out in thorough detail.

He does make one point I’d argue with, however.  His assertion that developers should charge a price that’s high enough to keep them in business is backwards, in my opinion.  Developers should charge a price commensurate with the value of their software to users.  If I write an app that only appeals to 5 people and I need $50,000 a year to live, it’d be ridiculous to ask those 5 people to pay $10,000 / copy. If it’s worth $50 to them based on what it can do, then that’s what it’s worth.  If that’s not enough to pay the bills, then I shouldn’t be writing that application, or should look at changing something (the feature set, advertising, or marketing) to make it more viable.  Of course, we often don’t know the correct formula at the outset, but in the case of iPhone apps, it seems clear that charging $0.99 is not going to enable you to really support or update it long-term (where “long-term” is more than a few months).

Congrats to Michael Mistretta, who’s going to be getting a brand new iPod Touch for his winning entry in the iPhone Application Idea contest! I apologize for taking so long to judge the entries – as I said in an earlier comment, I got sidetracked a lot as I explored the feasibility of some of the entries and discovered details about the workings of the iPhone OS.

While I’m not going to talk up Michael’s idea until its development is a bit further along, I’ll share some of the other entries we liked:

• Location logging that can be used to tag photos after you upload them to iPhoto
• Consultant’s client billing / project timer / mileage / expense tracker
• Podcast downloader that updates over WiFi so you don’t need iTunes
• Enable the iPhone as a touch sensitive input device to replace or augment the mouse
• A visual bookmark viewer that uses CoverFlow
• A diet / health blogging app to feed something like Body Lapse

There were a ton of other great entries, many of which I’d love to implement if it weren’t for technical or distribution issues. There are a couple in particular that deserve special mention:

• A Mojo client
• A “spaces” capability where apps are activated by turning the iPhone to particular orientations (how sweet would that be?)
• Download song lyrics for the currently playing song (obvious, but still not there)

Thanks to everyone who submitted ideas! Oh, and if you submitted one that didn’t win but we end up using it later on to build a successful product, you’ll definitely get a “thank you” iPod or some other present