Analysis Companies developing software for the iPhone are seeing their creations drown in a sea of one-dollar mediocrity as they struggle to gain visibility in the increasingly cluttered Application Store, and some have taken their complaints to Steve himself.

In an open letter to the great man successful developer Craig Hockenberry lays out his problems with the Application Store, and why his company can't spare the resources to create proper iPhone applications.

This argument is taken up by AppCubby, which goes further and reveal exactly how much it spent, and made, making and marketing an iPhone application - concluding that success depends factors beyond its control and so it can't be sure of any repetition.

The simple version of the problem is that the vast majority of iPhone applications are selling for a dollar a time - which is all they're worth in many cases, but the Application store lists apps by their popularity and no matter how great your $20 application is those "ringtone apps" are going to see bigger volumes, and get more positive reviews, than the business productivity application you've spent months working on.

Craig reckons a cheap, quickly developed, application needs to sell about 115,000 units to break even, which is possible, but that a more complex application can't achieve the volume necessary to make money.

Compared to the well-established markets for Symbian, Windows Mobile and BlackBerry software, this is just weird. Handango, the largest application store for those platforms, reports an average price of around $25, so even if the volumes are smaller the motivation to invest in developing decent applications is much greater - which is reflected in the complexity of applications available for those platforms.

Advertising is one route to achieving greater sales, but with the Application Store being the only route to market, and one that doesn't allow developers to see where purchases are coming from, it's hard to judge how effective adverts are.

AppCubby tried various forms of advertising, but concluded: "The only methods of marketing... to be measurably cost effective are working with the press and getting featured by Apple, both of which are essentially free, but incredibly hard to guarantee".

AppCubby saw a jump in sales when mentioned on a couple of high-profile blogs, but its real boost was when the application was selected as a "Staff Pick" on the Application Store, followed by an appearance on the "What's Hot" list. AppCubby has helpfully provided a graph, showing how effective this unexplained promotion was - and conclude that without the promotion by an unknown Apple employee the application would never have made money.

But this approach to promotion: relying on being randomly selected by an all-powerful entity operating on a whim, is no way to run a business.

It seems strange that Symbian and Windows Mobile users will happily shell out $25 for an application, while iPhone users balk at paying more than a dollar. The disparity probably stems from the way that Apple has promoted the iPhone as a computing platform - the vast majority of Symbian users have never downloaded an application, or had any desire to, but the iPhone encourages you to explore and spend a few dollars trying applications.

Right now the iTunes Application Store is no more than an online Poundshop: customers will come in, take a look around and maybe even buy some tat they didn't know they wanted, but if the iPhone is going to be taken seriously then the boys from Cupertino are going to have to find a way to make users come to the store looking for something, and go away satisfied having spent more than a dollar.

Both AppCubby and Craig believe that being able to offer limited-time trials of software would help a lot, but some sort of weighting to increase the value of ratings placed on more-expensive applications might also be necessary - though as the number of applications increases even that may not be enough to prevent the Application Store drowning under its own success. ®