Quotes of the Day

Apple recently released lists on iTunes of the Top 10 most downloaded paid and free iPhone apps of 2008. Which app was No. 1 is unclear — the list, according to Jennifer Bowcock of Apple, is "not in ranking order on the website." She wouldn't comment further, nor would Apple disclose how many copies of each application were downloaded, so it's hard to glean too much from the lists.

Still, the inventory (here, in plain text) breaks out the 10 "top overall" paid and free apps, and, luckily, a number of the developers behind them were happy to talk about their apparent success and the business wisdom they picked up in Year One of the iPhone App. (See the Top 11 iPhone applications.)

Most would offer this advice to would-be iPhone-app entrepreneurs: Don't be greedy. You can easily make up for in volume what you lose in price.

A case in point is the puzzle game Enigmo. Formerly a desktop game developed by Pangea Software of Austin, Texas, it was ported over to the iPhone in May around the time the iTunes App Store launched. Pangea started out selling it for $9.99. "The iPhone App Store has been a textbook example of supply and demand because at first there was a huge demand for the new apps, but there was a very small supply of them — only a few dozen games," founder Brian Greenstone told me. "So we could charge $9.99 easily for them."

Before long, there were thousands of games on the market, and demand hit a natural high. Pangea dropped the price to $0.99, an enormous discount that initially pained Greenstone — until sales took off. "The incredible sales volume has more than made up for the drop in price," he said. "I initially thought we might sell 20,000 copies of Enigmo over its lifetime on the iPhone, but we've already done almost 500,000 just in five months." That's $1.8 million in sales, according to Greenstone. Cro-Mag Rally, another Top 10 title from Pangea, has sold nearly 450,000 copies, he said, adding that he's no longer developing for the Macintosh desktop market and is focusing exclusively on the iPhone.

Zach Saul, a founder of San Francisco–based software shop and consultancy the Retronyms, created Recorder, a voice and audio recorder, which is the only utility among the Top 10 paid apps. Saul said the app was $10 at launch but went on sale a day later for $0.99 — and has sold nearly 250,000 copies to date. What's most remarkable about Record is that a number of other apps provide the same service — for free. "I think we're successful because we continue to improve and fix bugs and so on," he said.

But Steve Sheraton, the magician behind Las Vegas–based Hottrix, a magic and special-effects shop that developed another (apparent) 2008 top seller, iBeer, said dropping the price on his app may have been a mistake. "I'm not selling more at $0.99 than I was at $2.99," he said of the entertaining little app that simulates a glass of beer: put the phone to your lips, tip it and you can "swallow" the beer. He dropped the price as part of a presidential sale on Election Day but said he'll raise it again soon to test his theory. Sheraton, who's filed a lawsuit against Coors for creating an iBeer knockoff called iPint, declined to say how many copies his application sold.

One big winner this year was the free app Pandora, a streaming-music utility that allows users to create "customized" Internet radio stations. Since the launch of the Pandora app in July, the growth of the music site Pandora.com has "been insane," said Tim Westergren, Pandora's founder. "It doubled our growth rate the day we launched, and it's still growing." Westergren said nearly 2 million people have downloaded the iPhone app.

Since the app (and website) are free, Pandora, which has 19 million registered listeners, relies on advertising to generate revenue. While it's not yet profitable, Westergren believes the iPhone is accelerating Pandora's path to profitability, accounting for roughly a third of all new users going forward.

Now that there are some 10,000 applications available at the App Store, it makes it much harder for new apps to be discovered, some developers say. Brandon Bogle, an engineer and a co-founder of the Blimp Pilots — an ad hoc group of iPhone-app creators, who are otherwise employed as game developers — said its hit app Koi Pond, which sold 600,000 copies, was simply in the right place at the right time. "We were lucky enough to get in on day one, when people could find us. There are so many good apps for the iPhone, the problem is that now it's so hard for them to rise to the surface." Bogle said he and his partners had no desire to quit their day jobs.

Indeed, iBeer's creator, Sheraton, said he's seen it all before, on the old Palm Pilot platform. His first app was E-spresso, in 1999, which created a virtual cup of espresso on the Palm, the first great PDA. "Having lived through the Palm apps market, I was able to predict what would happen here as well," he said. "There are way too many apps, and the prices will drop through the bottom."

Of course, the iPhone, in its second year of existence, is now the second most popular smartphone on the planet. With nearly 17% market share, it's chasing No. 1 Nokia. If the iPhone continues its explosive growth, developers won't need to be among the Top 10 or even 100 best-selling apps to make money. Palm's downfall, after all, had nothing to do with the number of applications available for it. After the first Treo, the company simply lost its mojo.

See pictures of the iPhone 3G hitting stores.

See pictures of the cell phone's history.

• Josh Quittner
• Wanna create your own iPhone app? Ask the developers of the Top 10 best-selling apps of 2008