Can Cheap Smartphone Apps Ever be Big Moneymakers?

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Matt Yglesias comments on the smartphone market:

Jenna Wortham writes that the Instapaper acquisition and the stunning growth of Draw Something maker OMGPop signals a new era for business strategy in which developing a compelling mobile ap comes first, and developing a Web interface aimed at full-feature PCs coomes second. What she doesn’t really do is make clear why this happening—the smartphone market will almost certainly be bigger than the PC market very soon.

That’s certainly true from a unit sales point of view, but the part I still don’t understand is where the revenue will come from. The problem for the app market is that smartphone (and tablet) apps are so cheap that there’s no way their makers will ever make substantial amounts of money. A few days ago I bought my most expensive app ever: $9.99 for Photoshop Touch. That’s a lot! But Photoshop for a PC or a Mac will set you back about $400. Adobe would have to sell a helluva lot of copies of Touch for it to ever be a serious money spinner for them.

What’s worse, as we all know from news consumption on the internet, once these kinds of low price points get established and people get used to them, it’s all but impossible to raise them. With Apple’s iPhoto priced at only $4.99, it’s not as if Adobe has a lot of room to increase its price.

Obviously there will be plenty of winners in the app market, and some of those winners will get snapped up by established companies at eye-watering prices. Even free apps can occasionally become big profit centers, after all. Still, I wonder how big the smartphone software market will ever be? Even if there are, eventually, twice as many smartphones and tablets as home computers, low app prices will keep the overall market size pretty small. Or am I missing something here?

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