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All pricing shown is with a new 2-year contract, and some deals may be temporary.

AT&T

iPhone 3GS
The iPhone 3GS is the best overall smartphone you can buy. It's really that simple. Best user interface, best internet, best apps, best media support—the list goes on. Okay, not the best network, but nothing's perfect. $199

BlackBerry Bold 9700
I miss the original BlackBerry Bold's king-sized keyboard, but the Bold 9700 squeezes the best of the BlackBerry for CEOs into an impressively tight form factor—faux leather back included—making it very possibly the best BlackBerry you can buy. $10

Bonus: Nokia e71x
It's free, and an actually good smartphone—my favorite Nokia phone on the planet. Free

Verizon

Droid
It's a terminator. A huge, disgustingly high-res screen, Batman-worthy industrial design, and the full power of Android 2.0 make it the best phone on Verizon—and the fact that it's running on arguably the best network in the US make it the second best smartphone you can buy, period. $150

BlackBerry Tour
Sure, it's notorious for trackball problems and it's missing Wi-Fi, but this is the BlackBerry of choice for email warriors if they're not on AT&T or T-Mobile—and it sure as hell beats anything running Windows Mobile. $50

Bonus: Droid Eris
If you're desperate to save $100 over the Droid, the Droid Eris will run Android 2.0 soon enough, and is smoother, smaller, and friendlier, if a little blander. $100

Sprint

Palm Pre
The Pre offers one of the best user experiences of any smartphone with Palm's webOS, and it's probably the best phone on Sprint, hardware build issues and comparatively dinky App Catalog aside. $80

HTC Hero
The best Android phone not running Android 2.0, HTC's Sense UI makes the sometimes confusing Android interface more digestible and has a few nifty tricks of its own, like integrated social networking. $100

Bonus: There is none. The Pixi's close ($25), but the fact that you can get the Pre for nearly as cheap undercuts a lot of the value, as much as we like the design and form factor.

T-Mobile

Motorola Cliq
Motorola's other Android phone is gussied up with Blur, a custom interface that's bright and friendly, with widgets for keeping track of everything happening on your social network. It's our favorite Android phone on T-Mobile. $100

Unlocked iPhone
No, I'm not kidding. A jailbroken and unlocked iPhone, even without 3G powers, is the second best smartphone you can use on T-Mobile.

Bonus: BlackBerry Bold 9700
The BlackBerry Bold 9700 is the first BlackBerry with 3G on T-Mobile, which is reason enough, really, but it's good the reasons listed above, too. $130

I call this a deal on a phone with a terrific UI on a terrific network, but I'd pay double these rates if the Palm had a more sizable app library. But if your'e set on palm, remember what we said: For $80, even if 3x as much, the Pre is a much nicer piece of hardware. All Things D's John Paczkowski says it best: "If Things Get Really Bad, Palm's Pixi Will Make a Great Happy Meal Prize" [Amazon via All Things D]

The $100 Pixi made sense once upon a time, when the Pre was $200 and Palm needed a phone for the masses—like the Centro, oncer upon a time—to establish the webOS as a real platform. A leaner, cheaper version of the Pre was a good idea. Now, you can get the real thing—faster, stronger, screenier—for under a hundred bucks. The Pixi's existential crisis is not insignificant.

What's Neutered vs. the Pre

• Slower processor (using an older ARM11 architecture vs. faster ARM Cortex A8)
• Smaller and squintier 400x320, 2.63-inch, 18-bit color screen (vs. 480x320, 3.1-inch, 24-bit color)
• 2-megapixel camera (vs. 3MP)
• No Wi-Fi

Pixi Perfect Design (Just About)

There has not been a candybar phone more perfectly designed and executed than the Pixi. It's exactly the size and shape a phone that aspires to be small should be. It's a Hot Pocket sliced in half, but flat and glossy on top and round and rubbery on the bottom. It almost feels fake, like a concept that you hope is a real phone but isn't, except that in this case, it really is. It fits inside of an iPhone, if you wanna get more literal.

Plastic, slightly sticky Rice Krispie keys, arranged in four rows form a keyboard so electrifyingly good it's thrilling, like finding an actually sweet wind-up toy in your cereal box (Rice Krispies, of course) every time you type. They keys are tiny, but have a deceptive amount of rise, so your fat thumbs can feel out individual nubs, which pop in this remarkably satisfying way when you click down. The size-to-goodness ratio might just be the best on any keyboard I've used. If there's any reason to pick the Pixi over the Pre, it's if you type a shocking amount on your phone, because the Pixi's is better by like an order of magnitude. Or eleventy.

Between the screen, with its shaved corners, and the keyboard is a stretch of empty space. Until you run your finger along it, and a spark—a line of light, really—emerges. The LED strip, invisible when it's not indicating something, replaces the ball on the Pre, which I always thought was a weird little speed bump when you stroked the gesture area, anyway. It's kind of beautiful, the stark aesthetic of it emotionally tinged with sci-fi imagery, from Gort to Cyclop's visor.

Two things are wrong. The screen lock button on the top left is a little too in touch with the overall robustness of the phone, so it's hard to push and doesn't provide enough feedback. On the opposite end of that spectrum, the trap door covering the micro USB port feels flimsy and aggravatingly snaps shut, making plugging in a USB cable a struggle worthy of a Homerian epic every single time.

Tinkerbell Would Be Pissed

The Pixi is slow.

Achingly.

Maddeningly.

Ripyourhairoutandsmashitagainstthewallingly.

It lags, it hangs, it stutters, it freezes. A lot. A simple fact: Multitasking isn't better than unitasking when it takes longer to get shit done. An example: I wanted to take a picture while I had the browser and and App Catalog open. Simple. The camera froze spectacularly, rendering the entire phone completely unusable for well over 30 seconds—whenever I tried to flick the camera card away (cards are apps), it would shoot halfway off the screen, then appear back in its place. Somewhere between 30-45 seconds later, it regained composure. That's with just three core apps open, and no active syncing happening in the background.

True, I could sometimes have up to four apps running without problems, at least for a minute or so, before things starting getting cludgy. But it hangs even with just a single app running sometimes. (Just try loading the full Gizmodo page.) And every time you open an app, there's a solid expanse of time that elapses that you can feel, and it gets old real quick. Maybe webOS is just more transparent about load times than the iPhone, which masks them with title screens, but the whole experience of using this phone is like swimming through very pretty Jello, with one arm, wearing a cast-iron suit, or something like that.

Screen, Camera and Other Hardware

You get used to the smaller screen and its 80 fewer pixels, mostly. It's cramped, but you'll only be directly, painfully cognizant of it from time to time, like when you're reading some text outside of Palm's own apps or navigating web pages. It's not a crappy screen, but it's not exceptionally bright or vibrant, either. The touch accuracy seemed less spot-on than the Pre too, though that could've been the effect of smaller targets because of the tinier screen, like the drop down menu for apps in the top left corner, which is just a sliver on the Pixi.

The Pixi's 2MP camera is unimpressive. The comparison shot above—of ramen, people—was taken with a 2MP iPhone 3G in the exact same lighting and place, snapped within 10 seconds of each other. The camera app, when it's not freezing up, is quick to shoot once you press the button though, which is definitely something.

And I'll just say it: No Wi-Fi sucks, since there are lots of place in NY where even Sprint's 3G can't penetrate.

Software

The Pixi comes with webOS 1.3.1. Palm's definitely tuned things up since webOS originally shipped in June with stuff like more support for Yahoo services, the ability to buy songs over 3G, performance improvements and other interface sprucing up, but it's not a radically difference experience than the one Chen documented exhaustively here. (In other words, read that for the software review, since it's basically the same, just much slooooower on the Pixi.)

What's different now is that there are over 300 apps in the App Catalog, and Palm's dumping fresh ones in every week. So the app situation is greatly improved. The problem is that it's still behind the rest of the pack though—iPhone, Android and BlackBerry—and being fourth-place development priority for cross-platform developers with limited resources it not a great place to be, so Palm's got a rough road here. Oh, one interesting point, since this is supposed to be the smartphone OS for multitasking, is that while an app is downloading from the App Catalog, you can't browse for other apps—if you leave the download page, it cancels. So I hope you've got good Sprint reception in your house.

The other thing that's changed is iTunes. Palm's former official way to sync your media to your phone is broken. Irrevocably. Even if Palm does restore iTunes syncing with its dirty hack (no really, it is a dirty hack, impersonating an iPod with a false USB ID) the entire model is screwed. Putting people buying your phone in the middle of a stupid pissing match that you're destined to lose isn't cool. In the meantime, Palm's official solution is for people to sideload or use third-party apps like DoubleTwist.

Don't Buy It

The Pixi is screwed. It's totally cannibalized by the technologically superior Pre, which you can find for under $100. Even if you can get the Pixi for $30 at Walmart, it's worth trading up to the Pre for $40 or $50 more if you're absolutely wedded to the idea of a webOS phone, simply for the speed and screen. Mostly the speed, since the Pixi is brain damaged, three-legged dog slow, as nice as the hardware is on the outside.

Not to mention, for a hundred dollars, there are phones that just offer better experiences and aren't in the same awkward position Palm is in the smartphone fight. I'm talking of course, about the Droid Eris, Android's 99-dollar darling on Verizon. The entire reason to buy the Pixi—a value proposition—has completely evaporated. And I almost feel bad about that. Almost.

Incredible keyboard (for the size)

Awesome design and build

webOS is nice

Camera sucks

Palm's dumb iTunes fight

Slow

I mean, slooooooooooooooooooooow

Apple Issues Update for Current-Gen iPod Nano

Apple quietly issued a firmware update for its newest, video-taking iPod Nano, and it's pretty minor but does fix a few problems. Audio podcasts can now be played back in Normal, Slow or Fast modes, and a few random bugs were patched (Nike+ integration, mono audio, VoiceOver). It's in Remainders because it really is a minor update—we wouldn't even bother with it except the Nano is such a ridiculously huge seller. [TUAW]

Barnes & Noble Giftcards Won't Buy Ebooks, Screwing Some Nook Pre-Orderers

Apparently Barnes & Noble's giftcards will buy you everything B&N sells—except ebooks. It's an inexplicable and irritating omission, but what makes it really rankle is that nobody seems to know about it, even those who work at the stores. Check out this story:

My wife and kids pre-ordered a nook for my birthday at our local B&N. The sales person also sold her a $100 gift card to "get my eBook collection started." When I tried to purchase a few books, I found out that gift cards can't be used on eBooks.

What a dick move! We're going to assume ignorance on B&N's part, but this is sloppy stuff, especially given our proximity to the holidays—their giftcards are incredibly popular and this will not be an isolated incident. Get it together, B&N. [Consumerist]

Dell Mini 3 Officially Launched in China

The Android-running Dell Mini 3 smartphone officially began its launch sequence today. It's been shipped out to sellers in China today, for release later this month, with a Brazil release to follow later this year. In early 2010 it should hit AT&T and Verizon—we'll see if we care by then. It's a noticeably low-key release, considering it's the first handheld in years from Dell, but it ends up in Remainders due to its current China-only status. [Electronista]

Palm Stock Skyrockets After Nokia Takeover Rumor

Palm stock skyrocketed today, with trading over 15 times heavier than normal, due to an odd rumor that Nokia would be buying the company. It doesn't really make any sense to us—Nokia is really unlikely to be purchasing a competitor to its Symbian line, and buying the beleaguered Palm would be a weird way to try to make gains in the US market. This one plops into Remainders because it's both unlikely and mere financial news, which isn't really that exciting. [Electronista]

The 650, which runs old-school Palm OS, must be straining to boot Google's mobile OS, working with just 32MB of RAM and a 312MHz processor—a far cry from even the G1, which isn't known for its snappy performance. But, with time and patience, she flickers to life anyway. And for its mere fact of existence, this Frankensteinian monster should be applauded. Onward and downward, brave Android hackers. [Engadget]

Compared against the Droid Eris, the decidedly secondary, little-advertised rebranded Hero that happens to be launching alongside the Droid Droid (and also happens to be the cheapest new Android phone on the market), the Pixi's hasn't been driving much Google traffic at all, according to Google Trends. More odd is that even with reviews starting to hit, exciting deals showing up online and a release date rapidly approaching, the Pixi's buzz is flat. Yes, that Pixi—thelegitimately interesting handset aimed at a broader audience than its much buzzier predecessor. Hm.

A couple of points: Although I searched for "Droid Eris" in quotes, there's a good chance the Eris is getting a leg up on Google searches by piggybacking on the hyper-hyped Droid Proper. Also, I've seen three people, two of whom work with gadgets for a living, write "Pixi" as "Pixie" in the last 24 hours, which is funny! Also: probably a bad sign, for the buzz. But still, that explains a disparity, not totally flat interest, or the weirdly tiny bump in attention the phone got when pricing was announced back in October. General public: what gives? [Google Trends]

When you stroke the gesture area between the screen and the keyboard, the glowing indicator stares out of the center like the eye of Gort, except bad things don't happen when it lights up. I kind of want to throw it at something, simply because it feels like it can take it. I won't. We'll have more later, of course, but for now, here's some photos.

The $30 Pixis (Pixies?) are backordered already, probably because this is far and away the best deal we've seen so far for this handset. This news does two things: It raises the possibility of a free-on-contract Pixi sometimes in the near future, and calls into question again whether or not the Pixi can ever be a truly good deal. Today, the Pre is $100 at Amazon, so a $30—or even free—Pixi might not be worth the loss of screen size, speed, Wi-Fi and camera quality. This isn't the kind of queasy, awkward decision a company that's so close to the brink needs its customers making right now anyway.

And as BusinessWeek crunches it:

Amortized over the required two-year contract, with the cheapest offering being Sprint's $70 a month unlimited data, 450 voice minute Everything Data plan, the Pixi works a out to $74.15 a month and the Pre to $76.25. Not much to choose from there in budgetary terms.

And that's at $100 and $150 prices for the Pixi and Pre, respectively—not the new bargain basement/flea market/crack den rates. So what does that leave in the Pixi's favor? Size? Style? The fact that its name actually sounds like a noun? [EverythingPre]

In a way, software written in Ares is the purest kind of web app: It's designed in a browser, written in web languages and rendered like a webpage. In another, it's not, because the tools packages these things like native apps. As weirdly hybrid as the results are, Palm reasoning is straightforward: They want to "help Web developers make the leap to becoming mobile developers." You know, by making web development into app development, even moreso that webOS and the Mojo SDK already do. Ok!

The tool will be available by the end of the year, Palm says, but it's not clear what effect it'll actually have. The hope is that it'll spur development for a platform that runs the risk of scaring would-be developers away with its limited user base. The fear is that by encouraging the development of nicely-wrapped web apps before they have a steady stream of regular apps, Palm is dooming the Pre and Pixi to wallow in a sea of $1 farts and spam. I'm taking bets, in the comments. [PC World]

It May Be The Best WoW Costume Yet, But It Makes Me Cry

Right now this kid is probably thinking that he's the coolest MMMORPG player on the block with his costume that comes with a LED health bar, mana bar and spell casting glove, but I have the feeling that he'll be haunted by the glowing fairy companions of Halloweens past one day. I, on the other hand, already feel haunted by the misguided costume ideas of this particular Halloween. [Make]

Cupcake Frosting Robot Takes The Fun Out Of Licking Up Messes

The MakerBot Frostruder MK2 is the second prototype of a computer controlled cupcake froster. It looks kinda cool, but is it really necessary to build a robot for consistently frosted cupcakes, cakes, and toast? I'd rather use the time saved to nibble on the "defective" inconsistently frosted treats. [Makerbot via Make]

Palm Will Not Be Having A Very Merry Christmas

Things worse than creepy commercials loom on the horizon for Palm as analysts at Citigroup and CL King are predicting a rough winter for the handset maker. Part of the reasoning is the release of several Android handsets including the much discussed Motorola Droid over the next few months. Is it really surprising that people would flock to the new and shiny toys of the season? [All Things D]

Personalized Google News Pages Appeal To The Narcissists In Us

Google News now allows for personalized pages with multiple queries (rather than the single query sections of the past) which are publishable in a directory. Not really all that exciting, but as Techcrunch suggests, the best use for this feature is as the ideal vanity search, rounding up everything you didn't even know was online about yourself. [Google News Blog via TechCrunch]

Even Palm, who used this feature as a symbol of their underdog status, repeatedly defied a notoriously litigious behemoth and just wanted to give their users an easy way to sync music? Yes. It's a clear stunt to garner sympathy as a scruffy up-and-comer, it's in defiance of published USB standards, and Apple is clearly never, ever going to stop patching this "bug." You've got bigger things to worry about.

And even Apple, who's just trying to maintain control over a proprietary media player, and who has every right to do so? Yes. To users, the updates look weirdly protective, and make the company seem dickish, which here, they kind of are.

It's like watching children locked in a yes/no argument over whether or not licorice tastes good, and both parties should just leave it. I don't say this because I prefer Palm users to be locked out of iTunes or something—it's just that that's where things stand right now, it's the status quo and devoting any more energy to this protracted fight would be a waste. Apple can ignore this, because it shouldn't matter to them, and Palm should tell Prefolk to sync with doubleTwist, because that works—now even with the Pixi—just fine. Thanks in advance! [PreCentral]

Reviews aren't even hitting yet, but the early consensus is clear: Android 2.0 is the first version of Google's OS that's really grown-up. And now, with hardware like the Droid and the Hero, it's not just a technological triumph, it's the kind of thing that people—and not just leery, jaded tech blog readers—can connect with, and actually use. This is huge for Android.

iPhone OS is already a superpower with massive adoption, a huge app store and a bright future. They're not going anywhere. They learned their lessons about the importance of volume and apps when I was still a kid. But what about the other two smartphone players that consumers really love? You know, Google vs Palm? Think Apple vs Microsoft, circa the late 80s.

Hear me out: With version 2.0, Android is sitting on the cusp of greatness. And Palm? They've got a nice OS, but with just two handsets and a tiny user base they're up against a wall. Google is old Microsoft: They've got a open development platform, tons of hardware partners. They're going to start having problems with this strategy—you know, fragmentation, device support issues, etc—but as with Microsoft, it's going to serve them well, and make them huge. Palm is old Apple: With inhouse hardware and iffy developer support, they're just insular. What that means:

• Hardware partners: Who isn't developing an Android phone nowadays? Motorola, Samsung, LG, Sony Ericsson, and HTC dwarf Palm's hardware partner list, which consists of "Palm." Don't get me wrong, the Pre and Pixi are nice pieces of hardware—like Apple always had—but it's tough to compete with such a broad lineup with just two devices, both of which are somewhat polarizing. Android is the new Windows Mobile, but in a good way.

• Apps: Apple learned from their past mistakes, and actively courted developers from the start. Android's start was slower and more organic, but seems to so far correlate with handset adoption, meaning it's growing, and it's about to grow a lot more. More apps=a better user experience=joy for Google. Palm has introduced paid apps, but it's not clear why anyone would want to invest in development for such a small userbase. (The first paid app, if you remember, was an air hockey game.)

• Apps, again: Android came before webOS, and likewise the Android SDKs came well before mojoSDK. But no matter how far into the future you look, Google has Palm beaten from a developer standpoint. If Android handset sales start to approach iPhone territory—tens of millions—the combination of a huge potential market and powerful development tools, especially SDK 2.0, will make the choice for developers obvious: Go with Apple, or go with Google. Palm won't even register.

• Resources: Google can dedicate tremendous amounts of money and time to developing Android, as their pastry-themed release schedule can attest to; Palm is hanging by a thread, and they haven't issued a truly major update to their OS since it came out. Google can lose money on Android for as long as it wants—they've got Microsoft-level buoyancy, those guys—while Palm has to turn fast profit by building and selling phones, lest their nervous investors jump ship.

• Google is an app development powerhouse: Their apps are becoming more and more central to the general smartphone experience. Apple and Palm both use Google's maps and search, but naturally, Android always has a later, greater version of both. It helps for the company behind a platform to supply a few killers apps for it too—just look at Office and Window 2.0.

And take what happened yesterday, with Google Navigation for Maps. Google can just will a free turn-by-turn navigation app into existence. Palm can't do this. They can license Google's technology, sure, but that leaves them at the mercy of a competitor.

BlackBerry handsets are safe in their own way—suits need their keyboards, and familiarity is worth a lot—and Windows Mobile is on a fixed heading for total irrelevance, as evidenced by their once-strongest ally, HTC, talking about the OS like it's in hospice care. But there are just three true consumer smartphone OSes out there—the ones that don't feel like complicated smartphones, but which do all the same tricks.

And assuming Apple's is safe—and it is—that leaves two. Like Microsoft once was in the desktop computing space, Google is poised for a meteoric rise, and like Apple, Palm should be bracing themselves for hard times. For all the similarities, though, there's one difference: Palm probably won't be able to pull through.

The Pixi is generally thought of as a hardware downgrade from it's older brother, because that's basically what it is: With a smaller screen, no Wi-Fi and a gimpier two-megapixel camera, it's more or less a neo-Centro. Sure, the keyboard's a bit easier to type on, and the device is slimmer, but Sprint (and Palm) really should've shaved another $50 of off this thing: It's a drop in the bucket next to what Sprint will make from each Pixi's two-year service contract, and would go a long way toward making the Pixi, which has to compete with not just the Pre, but a decent spread of $50-$100 entry-level smartphones, a decent buy.

And seriously, still with this rebate stuff? The Pixi's technical price is $250 dollars, yanked down to earth by a $50 instant rebate and a $100 mail-in card. But Best Buy, Radio Shack and Walmart credit the MIRs instantly, so what's the point?

In any case, the Pre didn't sell for full price for more than a few months—in fact, as John Paczkowski notes, Amazon has it on sale for $100 right now—so with any luck we could see a Pixi deal in time for the holidays. And even without any luck, within a few months after that. [Sprint via BusinessInsider]

Straight from the Twitter feed:

@lanvuch We will be carrying the Palm Pre smartphone early next year.

Finally, it's looking like Verizon is going to get a decent phone selection. Between this and the Android Devices we could see any day now, it seems like Big Red is finally getting with the times. [Twitter via BGR]

The App Store is a strange new place for developers. Veterans and newcomers engage in bareknuckle combat, driving prices down to levels people wouldn't have imagined charging just a few years ago. Margins drop to razor-thin levels while customers expect apps to get cheaper and cheaper, but with ever increasing quality and depth.

For developers, for other software platforms and potentially for the increasingly fickle customers themselves, it's uncharted, and treacherous, territory. But the most bizarre thing of all is—in an effort to keep people in the App Store, and to prevent competitors from getting a toehold in the mobile app business—Apple's charting a course straight into it.

"The App Store is a very competitive environment," says Caroline Hu Flexer, co-founder of Duck Duck Moose, an indie developer of children's edutainment apps like Itsy Bitsy Spider. "As an independent developer without a large PR budget or well-known brands, it can be very challenging, and you're pretty much at the mercy of Apple."

The Problem

Most iPhone apps had no life before the App Store, and currently have no life outside it. But with those that did, you start to see a pattern. App prices could reasonably be expected to fall over time—an older game is worth less to customers than a newer game, and with other types of software, a late-stage price drop is a great way to scoop up late adopters. What's strange, though, is how prices dramatically collapse after hitting Apple's store.

Two weeks ago we flagged some bizarre differences in pricing between equivalent PSP and iPhone games. Big titles, like Tetris and Fieldrunners, were inexplicably cheaper on the iPhone, even in cases where it was executed better. This didn't make a whole lot of sense. As it turns out, it had nothing to do with Sony and the PSP, and everything to do with the App Store.

As you can see in the chart above, many apps and services take a price dip in the App Store. Zagat's premium To Go guides cost a healthy $4/month for Windows Mobile phones, but sell for just $10/year on the iPhone. CoPilot 7, a navigation app, used to set you back a full $200 on a Microsoft-badged device (later lowered to $100); the much-improved version 8 sells in the App Store for a measly $35 today. The premium version of WeatherBug runs $5 for people who happened to buy BlackBerry's touchscreen phone, but just $1 for anyone who bought Apple's. VR+ voice recorder, a full-featured dictaphone app, runs $30 on BlackBerry, and an incredible $2 in the App Store. So how can this little App Store, itself a subsection of the iTunes store, squeeze so many developers to the point of near-suffocation?

Update: The BlackBerry Weatherbug app boasts a few extra features over the iPhone app, including push notifications. This accounts for some of the price difference

The Economy

Some of this is pure Econ 101: The store serves a massive, captive audience that's pre-trained to spend money in iTunes. The promise of higher volume makes it easier for developers to lower prices, which they use, along with interesting features and clever marketing, to set themselves apart from the competition.

If things work out just right, the App Store can move a lot of software for you. Spread your lower margins over tens of thousands of sales, and your $2 app could make just as much, if not more, than your old, slower-selling $30 app did. The App Store recently passed the 2-billion-download mark, and there are likely well over 50 million App-Store-ready devices in peoples' hands right now. A vast majority of these downloads—averaging an insane 35 per device—will likely have been free. Only Apple knows just how many. But even if just 5% of the 2 billion downloads were paid for, that's one hell of a market.

It's true that prices are falling as more and more iPhone and iPod Touch owners enter the market. But prices won't stop falling. And more and more developers from all over the world are submitting apps, too, so fewer devs are guaranteed visibility. Not all of the people investing time and money in their products are reaping the return they (reasonably!) expected.

Newsweek's exposé on the end of easy money at the App Store goes a long way toward making the case against going all-in as an iPhone dev. Not only are development costs high, while success appears to be basically randomized. But the story doesn't explain exactly what happened to make the situation so grim.

The Culture

Giz stories rage about app prices all the time, and in your own private way, so do most of you. Buying $1 songs and $2 TV shows has given us an expectation that apps should be cheap, no matter what their use. The glut of free apps you see filling out the app charts every day doesn't help either. Software is worth less to us now, even though we use it more.

I spoke with Steve Andler of Networks In Motion, the company that makes Gokivo. It's an app that we savaged for its introductory price of $10 a month, which then dropped to $5 a month a few weeks ago.

Andler explained reaching the unrealistically low costs with one thing: diminished features. Their app pulls up-to-date map, traffic and POI data from NIM's servers in real time, meaning that—beyond developer costs—they have to constantly pay for new, fresh data to pass on to their customers. But even at $5 a month, it's just about impossible for Gokivo to compete with an app like MotionX GPS Drive, which is $3 a month, or $25 per year.

Andler says there are subtle differences in services offered, which is true—MotionX, for example, doesn't yet read street names aloud when it gives you directions—but your average user probably doesn't know this, and there's a good chance MotionX might add it in an update later on, as their market share and revenues grow. But the damage is done. The app-buying customer is spoiled: As far as we are concerned, turn-by-turn GPS apps should now cost no more than $3 a month, period. This is the new retail, and it's weird.

Loren Brichter, father of Tweetie, is used to getting yelled at by jaded app shoppers. He's charging $3 for Tweetie 2, an update—but a whole new version, really—of his well-established Twitter app. Offering the software as a free upgrade isn't realistic for him:

I priced Tweetie at $2.99 not based on how much work I put into it (it would have been more), or to try and undercut other apps (it would have been less), but simply because I felt like $2.99 was a reasonable price to pay for a Twitter client. Impulse purchase, but not bargain-basement. I never liked playing pricing games either—a popular pastime of other App Store devs. It's always been $2.99, and will probably always be $2.99.

His decision wasn't easy. And even though his app is the darling of the tech press, and has hundreds of great user reviews, he's being lambasted for charging three measly dollars for a high-quality app that people will use again and again and again. Before the App Store, a complaint this petty wouldn't have even made sense.

Apple

From the outside, it appears that Apple is encouraging a race to the bottom. The top 10 lists in each App Store category—one of the only ways for an app to get any meaningful amount of iTunes visibility—are almost exclusively the territory of low-priced impulse buys, and are hard to cling onto for more than a few weeks at time. Flexer, of Duck Duck Moose, says she's experienced it firsthand:

The ranking by volume (as opposed to revenue) on the App Store seems to drive the prices of apps down. Aside from being featured by Apple, exposure of an app is dependent on its ranking in the top lists, so developers lower prices to obtain a higher ranking.

This is echoed and amplified by the makers of Twitterific, an app that, in a bid to stay competitive, saw its price fall from $10 to $4, despite active development and a growing featureset:

While these changes represent perks for users, it also means that sustaining profitability for a given piece of software in the App Store is nearly impossible unless you have a break-away hit.

And if things don't change?

Myself and others like me will have no choice but to focus our development efforts elsewhere.

With yesterday's announcement that Apple is allowing free apps to include in-app purchases, things just got even more tumultuous. Depending on how this is handled, the top "free" apps could all be paid apps in disguise. Either that or the paid app rankings will be dominated by free-on-a-trial-basis teasers. In either case, the rankings open themselves up for opportunistic abuse, and the highest goal for any honest, talented app developer—to just crack that list—just became more uncertain.

This is disastrous for developers, even if it's mostly incidental, and a function of Apple trying to sell apps like they've been selling music for years, despite a totally different set of product types and customer needs. But Apple's effect on pricing goes well beyond incidental. At least in some cases, Apple calls the shots.

A high-profile dev team that has sold a number of apps in the store since the earliest of days, and who accordingly wishes to stay anonymous, told us as much. When they approached Apple with their first app, they had a price in mind. Apple told them it was too high, and that they'd need to cut it to succeed. They chopped it in half. Even then, Apple told them to "be careful."

This company made out fine, since they were in a position to adapt. However, to play the volume game, they had to restructure their entire philosophy around a pricing structure that, just months before, would've seemed ridiculous.

With over 2 billion data points to graph and filter to their heart's content, Apple understands the App Store climate better than anyone else possibly can. As such, their advice is probably golden. Which is okay if you're a relatively nimble, single-purpose company, and you can afford to risk restructuring everything you do around their store, and your costs can be covered at whatever price you evidently need to set to sell at a certain volume. But you'll just want to keep in mind that their advice is self-interested. Apple wants cheap apps, to keep people buying them, and to keep other stores firmly in the second tier—and they're not afraid to say it. From Apple's last quarterly report to investors, a line they've been echoing since the store opened:

[Apple] also expects competition to intensify as competitors attempt to imitate the Company's approach to providing [digital app distribution] seamlessly within their individual offerings or work collaboratively to offer integrated solutions...While the Company is widely recognized as a leading innovator in the personal computer and consumer electronics markets as well as a leader in the emerging market for distribution of third-party digital content and applications, these markets are highly competitive and subject to aggressive pricing.

You don't need to look back any further than the launch of the iTunes music store to see an Apple that will do everything it can to push other peoples' prices down for their benefit. Of course, they can't really fix prices for apps—they're not songs or movies, and each one does something different—but they can nudge like hell.

What Happens Now

So what does the App Store Effect mean, right now? In the short term, we'll get lower prices. This is great. But in the long term, it might not be sustainable.

The promise that sales volume will make up for the rock-bottom prices you need to charge just to be seen in your app category seems increasingly hollow, and to put it bluntly, if developers don't have a chance in hell of recouping their fees, they'll stop trying. And I'm not talking about 99-cent iFart app spammers here—I'm talking about big players who already make money selling software. If the navigation companies, the big game studios and the premium content providers can't thrive in the App Store, they'll have to leave; even playing in Apple's sandbox threatens and undercut their (sometimes much more crucial) product lines elsewhere.

And don't forget, Palm and Android fans, this App Store Effect sends ripples well beyond the App Store. Customers expect to see functionally identical apps priced the same way across platforms, because to us, that's what makes sense. Can devs really afford to port an app to the webOS to sell to the tens of thousands of Pre owners, when they're expected to tag it with iPhone prices, calculated for a base of millions? Whether by Apple's design or totally by accident, everyone who doesn't own an iPhone will suffer for it.

The App Store Effect illustrates a new kind of economy, and it's not going to go away. In fact, it's going to get worse. Developers will either adapt, die or leave. But where will they go? Until there are 50 million Android handsets and 50 million Pre offspring out there, the rest of the mobile software world is pretty much screwed.