With the recently released OS 3.0 for iPhone adding features like embeddable maps, peripheral support, and push notifications, the variety of products in the iTunes App Store is increasing by the day. The same can be said of its prices.

In the June edition of its iPhone App Store report, mobile distributor Distimo identifies an upward trend in prices directly linked to OS 3.0’s release. While the most popular price remains US$0.99, burgeoning tiers include $1.99, $4.99, and $9.99. Medical apps command the highest prices (US$8 on average), while business, navigation, productivity, and reference apps average half that amount.

On the gaming front, Exient Entertainment has seen particular success with the launch of X2 Football 2009, which marks a departure from its years of developing high profile DS and PSP ports of top EA Sports titles. It costs a mere £3.99, yet already there are calls for a price cut. We ask company founder and technical director Charles Chapman to make sense of it all.

What’s driving the price fluctuations post-OS 3.0?
The biggest thing I’ve noticed recently is applications can drop in price massively, presumably in order to get into the top 25 or top ten. Once they’ve established a nice position, the price is increased. Peggle is a great example – it was sitting somewhere well outside the top 25, and then the price was dropped to 59p for a week. By the end of that week, it was at number one pretty much all around the world. Then came an increase back to £2.99. It’s now down at 87.

I’d say that this type of ‘dynamic pricing’ is a good strategy for creating a false impression of how popular your app is and gaining prominence really quickly. You can easily argue that using a cheap price point to gain a high chart position and then upping the price means that newcomers will still see the app ranked high, think it must be there due to its quality and therefore worth the re-adjusted price. You could even say that early adopters and iPhone gaming site readers reap the benefits of this approach, while an ‘average joe’ consumer, who relies solely on the App Store for guidance, is completely oblivious.

There are only a handful of apps in the top 100 which are more than a couple of quid and there’s nothing over £1.19 in the top 15. I think there’s always room for premium product, but with the way that the App Store works, that premium product is often not getting the prominence it deserves.

What are the theoretical limits for the new, higher prices?
I don’t really think there are limits – the app at number 45 in the UK is £52.99 – and it’s good value at that price, too. For games, I think things will struggle to get over the £5.99 mark, and so long as there are enough developers able to create product and sell for 59p, that market will remain. The App Store is a bit like a high-volume supermarket at the moment – most things there are low price, reasonable value, and reasonable quality. There are a few premium products, but on the whole the platform is dominated by the cheap and cheerful. This also has the knock-on effect that consumers come to expect to pay a certain ‘average’ price for satisfactory content and need real enticement to spend beyond that perceived (and wholly artificial) boundary.

On that note, we’ve had a few emails from people saying they’d buy our game if it came down in price a bit. That’s amazing really, as X2 Football is £3.99 – you couldn’t buy a beer for that in some parts of the world, and to buy a similar game on DS or PSP you’d be paying at least eight times that!

Do the higher prices purely reflect the increased costs of R&D, or are publishers adding a premium?
The pricing takes on artificial trends as they don’t really reflect the actual production costs. I expect many iPhone titles by professional development companies will struggle to break even. The additional work in supporting 3.0 and 3GS features, which will be necessary in order to compete, will probably make that situation worse.

I’d say another issue is that traditional pricing models from retail sell-in don’t really apply – guessing an app’s first week and lifetime sales and using those estimates to set per-unit pricing doesn’t really work, as real-world sales figures can be so unpredictable. You also have a situation where a game’s price can fluctuate wildly over the space of a couple of months, going both up and down according to the producer’s whim. This is pretty much unprecedented.

What can we expect from licence-holders like EA? Will they be pushing for full 3.0 support from their collaborators, and will their prices rise accordingly?
I expect the big players will support everything they can. They know they’ll get featured on the App Store, and that pretty much guarantees reasonable sales. Ultimately quality shines through and supporting more features will become a big part of that. The App Store is actually a great democracy for quality – if you’re charging a high price then there’s no excuse for a bad product, and if the product is poor then it’s right there for all to see and it’s all reflected in user feedback. It would be like high street videogame stores displaying Metacritic ratings next to all the boxes on shelves – there’s no hiding behind the marketing and brand if the quality isn’t there.