Greg Yardley recently published the following breakdown of Apple’s iPhone App Store applications listed at various pricing tiers. His insight was that “free” was no longer the most popular application price. Instead, $0.99 was the most popular application price. See below:

Many of the companies in the Union Square Ventures portfolio offer their services for free to end-users and find other ways to monetize usage. A significant part of the reason for this pricing decision is that any price (even one penny) is a significantly greater hurdle to jump when converting a visiting into an active user than giving away a service for free. Josh Koppelman best articulated this hurdle in his post on The Penny Gap.

I’ve talked about The Penny Gap on this blog before, and to summarize my thoughts: The Penny Gap is not an problem of economics, it’s an internet usability problem. The act of paying for something online (regardless of the cost) requires collecting so much more information (CC#, Paypal Acct, Exp Date, etc) which is subject to data entry errors and form fatigue… If paying $0.01 for a service had the same barriers to entry as paying nothing for a service, then I think The Penny Gap would almost completely vanish.

Returning to Yardley’s finding that “free” is no longer the most popular application price, the cause of this observation is that Apple has significantly improved the usability of paying for an application. Apple has made it drop dead simple for developers to charge for applications and for consumers to purchase applications. For developers, there’s no need to build a billing system, register for a payment processor, deal with chargebacks, etc; Apple makes charging for an application as easy as deciding on a price. For consumers, there’s no need to find your wallet, enter your CC#, create an account, etc when purchasing an app on the app store; all that info is stored in your Apple Account after your first purchase. That’s why “free” is no longer the most popular price on the App Store, because Apple has solved many of the usability problems that previous caused the friction which created The Penny Gap.