Instapaper and The Magazine developer Marco Arment has an interesting piece up about the market for paid apps, and its viability, on Marco.org:
In most categories, if you either solve a new problem that a lot of people have, or solve an old problem in a new and better way, you can sell a paid app today just as well as you could in 2008. In fact, the market is much bigger now. But, as with any maturing market, you'll need to do more to get noticed since so many problems have already been solved so well.
Here is the problem cycle, as I see it:
Apple wants to keep things simple, so they compromise on features. Apple does not allow for demos or upgrade pricing on App Store, which means all purchases are, for all intents and purposes, one time, up-front, as is, and (mostly) sight-unseen.
Customers want to avoid risk and paying any more money than they have to, so they compromise on buying apps they're not certain about. Since there's an abundance of cheap and free apps, absent urgent and immediate need or factors like addiction or ego-gratification, most people don't spend any significant amount of money on apps.
Developers need to make a living, given the previous two realities, they compromise on direct income by holding sales, dropping prices, or trying alternate business models that involve corporate or VC funding, or value-added services.
So we end up with the sum of all those compromises: apps we can't try before we buy, so we don't buy them until they go on sale, their price drops, or a free alternative comes up, which means we (mostly) only get apps that can survive under those conditions.
There are things like brand and reputation, social influence, etc. that can alter that reality slightly—a new app for one of our favorite things, by a rockstar developer, that all our friends tell us we simply must buy now, now, now—but not enough to alter the general course of the App Store.
If you make another RSS reader or Twitter client, there are certainly a lot of people who could use it, but you'll need to compete with very mature, established apps.
You're also competing against the known with the unknown. How do I know if a new RSS or Twitter app is better for me than what I'm currently using, unless I take a risk on a paid app?
And that's only a silly $1 or $5. Now imagine a $50 app, or a $150 app. For those developers who do Jury-up, how do you help them succeed? Sure, the more niche the app, the smaller and more informed the customer base usually is, but what about new ideas, experimental ideas, ideas that help shape the future?
Arment is right in that there remains a lot of opportunity in the App Store, but until we get a way to reduce risk for buyers without forcing devaluation on developers, there's nowhere near the opportunity there could be, and should be.
Go read Arment's piece, and I'd also recommend Federico Viticci's take on MacStories.