Marco Arment is the creator of Instapaper, a great reading app for webpages, blogs, etc. that you want to cache for reading later on your iPhone, iPad, or browser of choice.
He recently announced an "extended vacation" for his free app:
Maintaining a second configuration of the app incurs direct, significant costs in development and support. Furthermore, the Instapaper web service that powers the app costs a good amount of money and time to operate every month. So Free users have a direct cost to me.
On the website, this cost is defrayed by ads from The Deck, but people using the iOS app might never visit the website. So Instapaper Free has an ad from The Deck in its list screen. It?s unintrusive, its advertisers are respectable, and it pays well. It?s the best ad unit I could ask for.
But it still makes far less than paid-app sales ? the increase in app sales with Free?s absence exceeds this many times over. The math to explain this is simple: most Free users won?t give me anywhere near $3.50 worth of ad impressions.
Essentially, conversion rates from free to paid were low.? But without the free option, many would pay that relatively harmless cost of $4.99 - because the app has that much value to a significant number of people (including me).
I love the way he sums this up:
If you?re a developer, you?re probably talking yourself out of making a move like this because you think Instapaper is a special case.
Every app is a special case.
Maybe you think I can only do this because Instapaper is already popular. But it built its popularity while charging ?a lot? for an iPhone app from the start.
Maybe you think I can only do this because my blog is moderately popular among geeks like me. If so, I assure you that my blog?s audience is smaller than you think, and is extremely insignificant relative to the size of the iOS app market.
Maybe you think there aren?t enough people willing to pay $5 for an app with no free version. I used to think that, too. But I was wrong.
The short version: don't assume free is the only way.? People will pay for quality, and getting paid allows you to invest in quality... and the virtuous cycle ensues.
If you're in a business other than writing apps for smartphones... you might be convincing yourself right now that you're case is different, your market is different.? But you have only to look as far as Ning to see that sometimes charging for your service, site, or product is exactly what you need to do to focus the business and make money.