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John Allsop wrote a long piece over at Web Directions South with some thoughts on writing native iPhone apps versus web-based iPhone apps.

The obvious flaw in his piece is that he only looked at free iPhone applications and from that subset concluded that almost everything the native apps do could be done with web applications (he explicitly ignored Apple's Remote app; implicitly he must have also ignored Evernote, Pandora, PhoneSaber, Midomi, NetNewsWire--in that it works off-line, Graffitio--which interfaces with the GPS hardware, etc.).

If you've spent some time with some of the amazing free and for-pay iPhone apps as I have, just ignore the bit about those apps not being impressive compared to iPhone web apps and skip to the core of his piece where he makes an interesting assertion: the math of trying to profit from selling small apps in the iPhone store doesn't make sense when compared with (a) the costs of learning the devtools, (b) porting to different phone architectures (vs. one web app code base), and (c) the revenue stream from 37signals-style subscriptions.

Let's say you sell your App for $1.95. You'll need to sell 25,000 copies to make $50KUSD. Hang on, Apple takes about 30% so you'll need to sell 30% more. That's 36,500 copies. If you look at a typical conversion rate of say 3% of downloads to sales (in my experience, good Mac apps can get that kind of conversion), if this were a desktop shareware app, you'd need to have 1.2 million downloads. That's more than 10% of the entire projected iPhone user base for the end of 2008 interested in your app.

OK, let's think about higher price points - at $5, you need to sell 14,000 copies to make $50KUSD, with a theoretical download of 476,000 demo copies. Up this to $10, and we are looking at 7,000 sales, and 233,000 demo downloads. And that's for a single developer. Double this for 2 developers, triple it for a team of three, and so on.

Now, let's compare the “sell the app” business model with the increasingly common “subscribing to a service” model. Let's say we only have customers paying $5 a month. They are already paying $60 a year! So to make our $50KUSD, we'll need around 1000 customers (about 14% of the number of sales of a $10 app). And I've factored in about 12% costs here (transaction and hosting costs, based on personal experience).

Coupled with John "Daring Fireballs" Gruber's recent measurements of increased WebKit Mobile speed, do you agree with John that iPhone Web Apps are a much better business model than native apps?