Pulleeeeze. Sounds like Dvorak. "Cannot be sustained"? To the contrary, it's a platform and will continue to grow exponentially.
There are more than 30,000 apps today, growing at just less than 6,000 per month. If that continues apace, by year end there will be roughly 80,000 apps on the AppStore. Yes the platform will grow and grow amazingly. That's Apple's genius. They earned an estimated $61,000,000 gross after payment of royalties on 4th quarter 2008 AppStore revenue, plus whatever hardware sales were driven by the mere existence of the AppStore. Stories of overnight millionaires will no doubt continue to attract thousands of new developers. That looks pretty sustainable to me.
Now examine "sustainability" from the developer's standpoint on the AppStore of today: If you group all paid apps into "buckets" according to daily royalties paid to developers, by far the most common buckets will lie in the range of $12 to $24 per app per day. Use the upper figure and assume sales will continue for a year (both of these assumptions are optimistic). This comes to $8,760/year. Not bad if you consider it extra income, but if you run it like a business and allow for overheads (18%) and the expectation of a modest profit (15%), that leaves a development + updates budget of $5,869, and $0.00 for promotion.
Let's say we don't hire 3rd world programmers and it costs $45/hour to pay employment taxes, benefits like health insurance and vacation, and a moderately competitive wage in the US (say about $68,000 in salary). We can afford to budget about 3 weeks total per app. So **commercially sustainable** development for the vast majority of developers means: deliver 18 bug-free, high-quality, feature-full, innovative apps a year per programmer. If and when you get a "hit", pour a few more dollars into the app to sustain or increase sales.
Here's another inconvenient truth: fewer than 2% of paid apps will earn enough money to recoup a combined development and promotion budget exceeding $50,000, or about 28 person-weeks of effort - not big numbers in the application development world. Not too many more than 1/2% of apps will make it onto the top 100 list or a promoted list. A small handful of these "exceptional" apps will earn a few hundred thousand dollars.
Keep in mind these numbers will come under even more pressure when the AppStore has 80,000 instead of 30,000 apps. I happen to think the AppStore is an *incredible* opportunity for the small developer, particularly to get into the game industry, but I wouldn't suggest any romantic ideas about earning a million dollars overnight. Success will require innovative approaches to structuring the business, rethinking development processes, and even how promotion is accomplished. Just good old hard work seasoned with a smidgen of good luck. Eventually those who can't make it will leave.
Draw your own conclusions about who will win, who will lose, how customers will be served, and how sustainable the business model is for the average developer.
www.InMotionSoftware.com