iPhone apps make money by being free

Apple added third-party software abilities to the newest iPhone operating system edition. Now users can download various applications without having to jail break their phones. The new App Store is raking in $1 million a day and CEO Steve Jobs would like to see it grow to a billion dollar a year business.

So, is Apple making money off of it? No.

Are many developers? It’s hard to tell. Although this lady is making $2,000 a day on a crossword puzzle game she created.

Most articles I’ve read suggest these apps — many which are free or near free — are great for promoting other services.

“It’s all good, thought [sic], as a sort of reverse razors-and-blades scenario: Instead of razors selling blades, Jobs theorizes that applications will help drive sales of the iPhone — just like iTunes helped propel iPod sales,” writes Wired blogger John C. Abell. Here, again, we have “free” making people money.

Free apps may also help sell the services behind them. Some are a teaser versions of full-blown programs, iPhone-optimized versions of a pay service, or promotions for beer or food.

The quality of these programs vary widely. By allowing the apps to be sold, Apple is opening up its phone to a “marketplace” of ideas, or programs, really, and enriching the user experience. Many will stink; fewer will be awesome. Quite a few will only be downloaded a couple hundred times but will find their niche down the Long Tail.

Apple has taken a risk by opening up its previously closed system, but could reap the rewards of increased phone sales (the company already has sold millions and plans to sell 40 million worldwide next year) and marketshare. When Google’s Android OS debuts this fall, it could be a battle of platforms.