When I was a kid, if I had a really good idea but it was something impractical, my mom’s way of bringing me back to Earth was to tell me, “You know, that and a quarter will get you on the bus.” (I regret once telling her that Tri-Met was all the way up to $1.35 by the time she said that.)

It seems a lot of would-be high-end iPhone software developers are feeling that way.

Last month, I mentioned briefly that there was a bit of a gang-up from some big names in the Mac world—Paul Kafasis, Daniel Jalkut, and Brent Simmons—complaining that the iPhone App Store’s pricing and purchasing model discourages high-end and higher-priced applications. But it seems that, in spite of my short shrift, the discussion kept on going. (What? You mean people don’t set their agendas by my input?)

Macworld’s Dan Moren wrote a great opinion piece on the topic, with a central insightful observation: the 99-cent price point is tempting, especially because the iTunes Music Store relies so heavily on it, but the market for software doesn’t work like the market for music. He hits a couple of points: (1) production costs for music are usually at the album level rather than the song level; and (2) music producers have a whole catalogue to sell, so they can make up nominal losses on one song with significant gains on another. To this, I’d add a corollary, (2a): the music industry has a massive back catalogue to sell, and the cost of producing the back catalogue is a sunk cost in the past, which means that its current production cost is zero.

He uses this opportunity to interview developers of 99-cent apps to find out what they’re doing. For instance, David Barnard (App Cubby) tells Moren that he’s pricing his applications at 99 cents and then asking for donations from users.

His own opinion is that the iPhone’s new, lower price point of $199 may have driven down the market’s tolerance for variable App Store price points. If you want to appeal to a larger audience, as a developer, you end up driving down your price and hoping to make it up on volume. That’s a solution that works great for big companies but not for the individual producer. Moren also gets back to the point that Kafasis argued in December, that by offering fully functional, complex applications at 99 cents, you end up leaving consumers wondering what could possibly make a $9.99 application worth buying.

You can put this to a real-world test. Moren links to an interview with Ars Technica’s David Chartier, for Infinite Loop, in which a developer from High Gloss Software demonstrates himself to be a real asshole. Apparently this developer, who wants to remain anonymous (!), was inspired by Craig Hockenberry’s post and wrote a “terrible app” in 20 minutes. (This would be Sound Grenade.) Seven days later, it made it into the Top 10 for free apps—he got 106,831 downloads in a single day. Chartier speculates that, if he had priced it at 99¢, the developer might’ve made $70,000 that day. More astonishing, he added ad requests to the application when it cracked the Top 50, and now it makes him $200 an hour in click-through revenue.

(AppleInsider has a similar interview, but with less analysis.)

With applications like this succeeding, it does make you wonder—with, as Brent Simmons pointed out last month, no supported trial period—what the point of even a $1.99 application is.

Andy Finnell has a parable that he uses to illustrate precisely this problem: his hypothetical Little Timmy slaved over an application for three months and then priced his application at 99¢—but at that price, only made $4,000. There’s some research that went into this, which Andy detailed in a previous post, that an application not in the Top 100 can expect to sell just 16 copies a day on average, or about 6,000 copies a year.

(If I extend his math, if he had priced his application at just $4.99, he would make $20,399 a year after the initial launch, and at $9.99, $40,839.12. And if people were willing to pay what most Mac apps cost, in the $19.99 ballpark, and sell 16 copies a day, he’d make $81,719.12. Not bad. Even better, if he could sell the median 49 copies that Finnell found, at $4.99, he’d make $62,472.30 with the same low effort!)

Finnell suggests that $9.99 should be the new 99¢. As I said, at 16 copies a day, you’d get $40,000 a year, not enough to send a kid to college but at least enough to pay your rent. Finnell is pretty dismissive of that sum, but $40,000 a year goes a relatively long way even in Florida—you won’t save a lot, you won’t have a flat-screen HDTV, but you can have an apartment and a car, health care, and groceries on $40K. I did it.

In November, the guys at Veiled Games described their experience doing just this. It’s a nice, how-you-get-from-99 cents-to-meaningful-sales essay, and it sounds like a valuable lesson for anyone doing App Store development. Along the same lines, Marco Arment wrote about his own App Store development, and suggests one other really good idea: offer a free version, which is version-limited but still “doesn’t suck,” and encourage users to upgrade. (This gets around Simmons’ complaint.)

Mike Schramm from The Unofficial Apple Weblog is on the other side of the debate. He writes, “If someone can sell 100,000 copies of an application for a buck apiece… why are the talented developers leaving? Surely you can make a quality application for less than $70,000, right?” He eventually adds that, if developers really can’t figure out how to do this, maybe it is time to look at the pricing setup—but that we’re not there yet.

I didn’t hear much from that side of the debate. Some of this is that everyone’s sort of talking past each other: users want cheap, developers want more expensive, but users shellack developers of expensive software for the most part.

It’s a hard topic. I happily paid for PCalc for my Mac and for my iPhone, four years apart, for instance. The default Mac calculator sucks, although not as bad as Windows’, and the default iPhone calculator is borderline useless. I paid for OmniWeb because it’s vastly superior to Safari. But would I pay for a Web browser for the iPhone? Maybe not.

What do you think? Are you a developer, an iPhone user, the prototypical 13-year-old Nickelback listener who won’t pay for software? Tell me why, tell me how you’re making do. I’ll reverse-blog the best next month.