Gold Rush 2.0

Of course, if a game creator can sell something for $1 and make a profit from it, then he is perfectly entitled to do so - that is the market at work. Game publishers may be unable to compete with that, since they have much larger overheads and costs, but the beauty of an open market is that it allows small, nimble companies with low costs and good ideas to undercut lumbering, inefficient rivals.

The problem is that, in conversation with iPhone game developers, it seems increasingly obvious that many of them cannot sell their titles at $1 and make a profit from them - but feel forced to opt for lower price points in order to win the consideration of consumers in the first place.

They are playing a risky gamble, hoping that by establishing the game as a success they will create an opportunity for profit down the line. In doing so, they give the vicious circle another hefty push, ensuring that other developers, too, cannot break out of this destructive cycle.

Just as gold prospectors scorched the earth behind them, so too have developers on the App Store critically damaged the ecosystem in which they operate. The extent to which prices on the App Store have collapsed are not the result of a healthy market - they're the consequence of a perversion of the dynamics of the market by developers willing to sell at a loss in order to make a land grab, forcing others to follow in their footsteps and keep the downward pressure mounting.

The consequences of this problem will reach out and touch the iPad, too. Already developers attempting to launch products at higher price points on the iPad are being hammered in reviews for "profiteering" - a dirty word in some quarters, perhaps, but hardly unreasonable if you're one of the iPhone developers who's been sucking down losses on your games for the past year.

Two solutions present themselves. The first is for Apple to enforce more tight price controls on the App Store, raising the lower boundary for games to bring an end to this destructive cycle.

That, however, won't happen - and nor should it. Quite laudably, Apple views itself as being beholden to one group of people only, namely those who buy its hardware. With no significant vested interest in the software end of things, it's not particularly concerned about pricing, and would prefer developers to work things out among themselves.

The second solution, then, is the one that must come to pass - and that's the abandoning of up-front pricing for games entirely. If it's not possible to sell App Store titles for 79 cents each and make a profit, then companies must turn to other solutions.

In-app purchasing and advertising are the two obvious candidates, along with a version of the old shareware model from the heyday of the PC platform - but there may well be other business models out there as well. In particular, the launch of Apple's own iAd network - a shot across Google's bows if ever we've seen one - should make game developers sit up and take notice.

For years, commentators have argued that "freemium" models such as these could be useful additions to existing business practices. On the iPhone at least, events have overtaken such ideas. An understanding of freemium on this platform isn't just a nice-to-have - as developers plough salt into the ruins of the pricing tiers on the App Store, freemium may well be the only way for good games to capitalise on one of the world's fastest growing gaming platforms.