The iPhone Economy: Is There App Inflation?

Apps: Cheap, cheaper, cheapest.

Really?

If you’ve visited the iTunes store recently, you may have noticed the new Top Grossing Apps List, which ranks applications by revenue generated. Among the big-ticket items: a $99.99 in-car navigation product by TomTom that includes turn-by-turn software and technology highlighting the most efficient routes; WolframAlpha, a complicated math app, for $49.99; DieCalc, a cutting-die estimating tool that costs $119.99; and the $39.99 NBA League Pass Mobile for basketball fans.

Does the flurry of pricey apps spell inflation? To find out, SmartMoney approached appshopper.com, a site that tracks app sales. We asked the company to compare the prices of the 100 top selling (paid) apps in October vs. the same month last year. But instead of inflation, it turns out that the average price of the bestsellers has dropped 16%. Last month, the average price was $2.59, down from $3.11 in October 2008. (Compare that with the Consumer Price Index, an inflation indicator, which is down 1.3% from a year ago as of September, the latest month for which data are available.)

A lower average price for the top-selling apps in one month over another doesn’t necessarily mean app prices are definitively lower or trending in that direction. And even if you are a so-called top grosser, that doesn’t reflect an app’s popularity or how many people have them installed on their phones. The more costly apps certainly don’t have the broader appeal of, say, “I am T-Pain” ($2.99), a bestseller that lets users mimic the rapper’s trademark Auto-Tuned robotic voice.

Yet a 16% drop — even if it’s anecdotal -- is notable. It also prompts the question: What accounts for it?

The short answer to the price drop is the growing number of developers writing apps for the iTunes store.

Last week Apple (AAPL) announced that there are now more than 100,000 apps available in the app store, up from more than 3,000 a year ago. The company also says users have downloaded over two billion apps since the store launched in July 2008. (BlackBerry App World currently has more than 3,000 apps.) The platform has proven to be a goldmine for some individual developers and small tech outfits whose applications have hit it big. Now, major brand-name companies like Pizza Hut and Bank of America are getting in on the action too, hoping to reach customers through their smartphones. “Prices must be coming down because of competition. If you want to compete, it has to be on price more than anything else,” says Nick Holland, a senior analyst at Aite Group, a research and advisory firm.