CloudOn, a free iPad app that offered Microsoft Office functionality with Dropbox support, appeared briefly in the App Store yesterday before going up in a puff of smoke a short time later.

CloudOn has responded saying their app has “sold out”, but we think this may have had something to do with server overload.

Thanks for your support of CloudOn! We’re currently sold out. We look forward to the feedback we will receive as we continue to support the many users that have registered in this first phase.

The fact that CloudOn came with full Dropbox support for storing and managing office files on-the-go was a great idea for power users, and the overall offering is unique in respect to beating Microsoft to the punch at their own game. This could be another reason the app is no longer available, as Microsoft could have called shenanigans if CloudOn didn’t go through the appropriate channels before release.

I gave it a quick whirl when it was actually up and running, and noticed the app was somewhat sluggish from the get-go (probably due to how much it relies on the cloud backend to get things done paired with the influx of users hammering their servers).

We’ll let you know as soon as CloudOn is back in the App Store. In the meantime, here’s its description:

• Use Microsoft Word, Excel and PowerPoint on your iPad to create or edit documents.
• Rename, delete and manage documents with your Dropbox account
• Display, edit or create charts, change formatting, spell check, insert comments, into any Word, Excel or PowerPoint files
• Track changes while reviewing Word documents
• Use pivot tables and insert formulas in Excel workbooks
• Display and edit animation or transitions in PowerPoint presentations
• Present in full PowerPoint mode (not in PDF)
• Open files directly from your iPad email accounts or Dropbox account
• Automatically save documents to avoid losing changes

Source: CloudOn

Have an app you’d love to see featured on TiPb? Email us at iosapps@tipb.com, tell us about your app (include an iTunes link), and we’ll take a look.

Manton has an interesting post up where he theorizes that a lot of the problems we’ve seen in the App Store, from the across the board 30% revenue cut Apple requires for paid apps, to in-app purchases, to iAds, and now subscriptions can all be traced back to Apple’s decision to host free apps for free. In other words, that the cost of approving, hosting, marketing, and delivering free apps is high enough that Apple is struggling and stumbling to make enough off paid apps and content to cover it.

When Steve Jobs said it, offering free apps for so little seemed almost foolish, like Apple was compensating for the high 30% by giving too good a deal to free apps. Why not charge some hosting fee? Or why not give up exclusive distribution and let free apps be installed directly by the user without forcing everything through the App Store? Unlimited bandwidth, promotion in the store, and everything else just for the $99 dev program fee was a pretty good deal. And now I wonder if Apple hasn’t been backpedaling ever since, trying to make up for that mistake.

So in order to run the App Store at just over break-even — as Apple reports they during their financial results — they need to earn enough off paid apps to defray the cost of free apps. They also have to make sure they don’t lose revenue — they can’t let developers offer free apps, shouldered by Apple, with ads that make money for Google or that use subscriptions or other forms of outside payments as a way to circumvent the revenue sharing. (Which is why we said from the beginning Apple couldn’t charge less than 30% for subscriptions or every paid and in-app purchasing app that could would just switch to subscriptions in order to keep more of the revenue.)

Are free apps a burden? Apple doesn’t say so it’s difficult to tell. It’s possible the cost of approving, hosting, marketing, and delivering all those free apps while not insignificant is easily covered by paid app purchase. (I’m not counting profits from hardware sales because Apple is going to want App Store to be profitable, if only barely, on its own.) If it is, then Apple certainly didn’t make a mistake and their platform has benefited tremendously from having free apps in the ecosystem. If free apps are costing Apple significant money and resources, however, and if that cost is increasing as they reach milestones like hundreds of thousands of apps and billions of downloads, then what does Apple do?

Manton’s answer is for Apple to allow side-loading of apps — to allow developers to sell and users to install apps from outside the App Store on iOS the same way they do now on the Mac. That would take the hosting burden away from Apple… but it would create a new burden on consumers.

Sure, it would be a good answer for some developers and power users but certainly not for all of them — even most of them. Many developers value the trust relationship Apple has created for users. Successfully creating a place where users feel safe and secure enough to buy an app and know they won’t get malware or be defrauded, and can delete it easily if they don’t like it is invaluable (even if not always valued.) That simply didn’t exist before the App Store (it certainly wasn’t the case with Palm OS and the Treo, which was side-load heaven and mainstream user hell.)

And not to be too cliched about it but if my mother couldn’t find an app on the App Store she would either simply not realize it existed or bug me to help her side load it. (Or she would call me asking if “Amazon Kandle” was safe to buy via “PayPul”.) That’s not an Apple solution, and it’s a crummy mainstream experience overall.

So what is the answer? Getting rid of free apps and creating a baseline of $0.99, like iTunes music of old, doesn’t seem realistic. The genie is out of the bottle. Given how Apple has added in-app purchases, reversed their policy and allowed in-app purchases in free apps, added iAds, added subscriptions, they certainly don’t seem to have found it yet.

[Manton via Daring Fireball]

Apple has just sent out a letter to developers introducing in-app purchasing for free apps.

UPDATE: Developers Erica Sadun on TUAW, and Marco Arment delve deeper into the subject, as does Techcrunch (twice).

ORIGINAL: Here’s what Apple had to say:

In App Purchase is being rapidly adopted by developers in their paid apps. Now you can use In App Purchase in your free apps to sell content, subscriptions, and digital services.

You can also simplify your development by creating a single version of your app that uses In App Purchase to unlock additional functionality, eliminating the need to create Lite versions of your app. Using In App Purchase in your app can also help combat some of the problems of software piracy by allowing you to verify In App Purchases.

Visit the App Store Resource Center for more details about how you can add In App Purchases to your free apps.

So in one email, Apple ends the clutter of Lite apps, provides a real possibility for demoware (a developer can provide 1 level of a game, for example, for free, and 10 more via in-app purchase), and offers developers the carrot of anti-piracy measures at the same time.

Previously, Apple was resolute about “free apps stay free” so as to avoid user confusion. What changed their mind, all of the above? And will in-app purchases in free apps be extra-carefully marked to avoid just such confusion?

[Thanks everyone who sent this in!]

One of the highest profile iPhone games to state, EA’s Spore, retails on the iTunes App Store for $9.99. Now, however, you can also get a “free” version, Spore Origins Lite Edition (iTunes link). The catch? It’s teaser consisting of 1 level. Since Apple doesn’t (yet?) have a model for demoing apps (“try” instead of “buy”), it’s likely the only thing developers can do to give potential buyers a real preview. They hope, after one or a short number of levels, you’ll be hooked enough to pony up the bucks for the full blown version.

How’s this working? Well, Spore Origins Lite is not in the iTunes App Store Top 10… Pac Man Lite, which uses the same model, sits at number 5 in the free listings as of this posting, but it’s full blown counterpart in nowhere to be found among the top 100 paid Apps.

What does this tell us? That people would rather pay nothing for a Lite edition than something for a full game? Or is it simply that the whole App ranking mechanism still broken?

Have you downloaded any free “Lite” Apps? And if so, how many have convinced you to move on up to the full version?

Last month, Dieter let us know that Facebook’s popular, but feature-thin App Store application would be getting an update to (hopefully!) bring it up to par with the older WebApp version accessible via MobileSafari browsing. The due date was September, and boy did they just manage to sneak it in under the wire! Check out the iTunes App Store for Facebook 2.0 (still free!).

So what’s in the Facebook 2.0 update?

• Notifications
• Full news feed
• News feed story comments
• People search
• Friend requests
• Photo tagging
• Photo captioning
• Photo posts to friends’ walls
• Full mini-feed combined with the wall
• Entire inbox, including sent and updates
• Inbox search
• Message attachments
• Speed and stability improvements

(Thanks to Gregory for sending this in!)

TUAW (nice redesign, guys!) notices that the iTunes App Store no longer has a link on the lefthand side to browse all free apps. The best we have now is the Top 100 Free Apps over on the right. TUAW is hopeful that Apple will bring back the link to browse all them free apps, and indeed, so are we. Even stores that traditionally only sold for-pay mobile apps like the Mobihand store sister-site WMExperts have seen the writing on the wall and added a link for free apps.

Fear not, though, loyal TiPb Readers. We have the link to browse all 90 pages of free apps, over 1850 apps in total, right here. Go on, browse those free apps, don’t let the man keep you down. Browse all Apps

Update: Turns out that you can, in fact, stop the signal. The “Browse all free apps” listing linked above contains, well, a lot of apps that ain’t free. Could it be that Apple got sick and tired of developers listing their apps as free to move up the top apps chain, then switching to for-pay to bring in the cash? Our best guess: Apple must not have a good, automatic way to categorize “free,” so they took the above link down to tweak the store.