There are 4 ways to make money with apps:
- Get someone to pay you to make an app for them. (For developers this is usually the most profitable.)
- Have an app which provides access to a paid service. (The app is just a means to an end. But you do need the service people will pay for.)
- Have an app that provides value, utility or entertainment that people will be prepared to pay for. (This may be linked to a service. Although not normally services that people have to pay for. - Though there are exceptions.) If doing this, it's recommended to provide a trial version that allows people to try the app wihtout first having to pay.
Users like trials. Paid apps that
include trial functionality are
downloaded 70 times more than paid
apps that don’t include trial
functionality, expanding the number of
potential customers to purchase the
full paid version.
4 . Provide a free application which is subsidised by placing advertisements in it. It may be appropriate, or an option, to offer the ability to hide advertising if the users pays for the app.
I've heard anecdotal reports that people have made more money from ad subsidised apps in the WP7 marketplace than from paid ones but this is hard to prove.
There are possible combinations and variations on the above but it really depends on the app.