It isn’t every day that you see economics in action but thanks to AppCubby we have some interesting data on how to set price. AppCubby sell iTunes Applications including TripCubby, GasCubby and HealthCubby. Up until January 20th they sold these for $4.99. On the 21st, they dropped price to $0.99. This graph shows the outcome.
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Notice that quantity shot up by what appears to be 8 times but the initial part of this could be the coverage of the experiment. It then dropped down. But here is the kicker, despite the concerns about cheap apps not making money, even if you do not count the publicity around the experiment, revenue does not appear to have dipped. I think it is too early to tell whether the $0.99 price point is a bad idea. (That said, the hopes of using donations to fill the gap looks like a wash-out).
In any case, apparently the experiment is about to swing around the other way towards a niche strategy with the products rising to $10 a piece but with a Lite version included. Once again, this reinforces my belief that the most valuable commodity in the iTunes App Store is the data and I’m guessing Apple have access to this.
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Core Economics 
But what if there were no App Store? Making money without the App Store would require a big marketing budget to reach a sizeable percentage of iPhone users, so 1) There would be no small pure-play smart-phone app developers 2) Developers of web, desktop or non-iPhone mobile phone apps wishing to expand into the iPhone market would face a considerable barrier to entry. The AppCubby experiment is interesting but the App Store distribution model is very young and I expect we have not yet seen how app developers and other parties will exploit to add value and make money. My guess is that the PC software market would be different than it is today if there had been an App Store distribution model for Windows in the early 1990s.
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