Case in point, Google just purchased Quickoffice (my previous employer) which just sold software (and didn't until a few weeks before the Google acquisition have a recurring fee product).
If you want them to keep working on your product year in, year out, you have to pay for it year in, year out.
The alternative is selling upgrades, but that doesn't work on iOS at all.
In-App purchases don't really work for a lot of situations and can make your users feel like you are nickel-and-diming them. Just releasing a new app doesn't reward or encourage existing users to upgrade, and as an end-user, it kind of sucks to have a bunch of copies of the same app lying around.
The problem here is that it has little multiplicative power. Selling software is lucrative, but it will rarely make you Fuck-You-Money, and the tech industry nowadays is all about the Fuck-You-Money.
Recurring revenue model = incredible potential for revenue growth = justification for insane valuation = gigantic exit, which is what everyone is now looking for in the age of Facebook and Google.
Note that I'm not saying this is a good thing, it probably isn't, but it's certainly the trend.
How did Sergey and Larry "cash out," by declining acquisition offers? I'm thinking that's not the best example for you here.
That said, everyone (including me) who is speculating a better revenue stream would have prevented them selling out in the first place is merely guessing ;-)
Sparrow is really really cheap. A generation ago I used eudora, which cost $50 to $100, for email. So between the mid to late 90s and 2012, the price fell something like 80 to 90 percent to $10 for the mac program. The above is worsened by the rise of decent free email clients since it diminishes the audience.
If you do the math, you have to sell a fuckton of $2.10 cent apps to afford salaries for good developers: say four people at $200k/year fully loaded (salary, health insurance, ss, medicare, office space, internet, diet coke, coffee, macbooks). That's 380k sales just to tread water. And we didn't deduct marketing expenses which are probably significant: you'll have someone fulltime doing seo / sem / banging on blogs and reviewers to get organic / etc. Plus, again, Apple has created a norm where apps get updated forever for free. So that $2.10 is close to being a lifetime value for a user. That means you probably can't use sem for user acquisition: a wildly optimistic 10 percent clickthrough and purchase rate (an order of magnitude high for most things) and 20 cents per click (also wildly cheap) puts you at $2.00.
I presume Apple does this because of classic economics: increase demand by decreasing the price of complements. But if developers can't get paid, users can't have nice things. And I'm not an ios or mac dev, but looking at the interactions in their apps, they seem super custom. That means you have to go to the bottom of frameworks, increasing development costs.
I'm not 100% satisfied with any of my explanations. Here's a few ideas I've been pondering: the $80/month can be thought of as a subscription fee for the apps that come with the device. So I'm paying $80/month to use Phone, Mail, YouTube, Maps etc. The amount of time I can use my iOS device is limited by time spent at work, with family etc. Therefore adding new apps into the mix reduces the time I spend with the default apps. For example I might download a game and spend a month playing that and ignore the YouTube app. But now my "monthly subscription" for the YouTube app has been wasted. Say I use 10 of the default apps regularly. That's $8/month for each app. Ignoring YouTube app for one month means $8 down the drain.
So when I'm deciding to buy your $3 app I'm subconsciously wondering if it's worth $11. And that's if I only use it for a month. What if your app is really great and I use it and ignore YouTube app for 10 months? Then I'm paying $3 + 10 * $8 for your app.
Now take into account $200 for the device + $80/month is a lot for most people. And it's a lot relative to the free basic flip phone + $30/month w/o a contract we all had in the not too distant past. Now it's clear why free throw-away apps are the easiest to download. Free implies no additional upfront cost in addition to the arm + leg I'm already paying. Throw-away app implies I won't ignore the other $8/month apps I'm already subscribed to for too long.
It's just a theory and I'd like to hear some counter-arguments. If it's true it could have interesting implications on tweaking value and price of apps with the goal of maximizing revenue.