A lot of what you’re saying is true, but some thoughts:

1st, you’re about a year late with this.

2nd, an added danger is the arbitrary way Apple turns on and shuts off filling iAds, so who can make make a business model off such unpredictable Ad revenue anyway?

3rd, more complex Apps are way, way more expensive to make. Again, Apple comes into play with success so reliant on their featuring individual Apps, and their Editorial decisions are again wildly arbitrary, sometimes promoting lessor Apps. Again, who can make a business model?

4th, the ‘in-app purchase’ Lawsuit is still in the way. Which direction are we going? Free? Freemium? Premium? Settle the thing and lead.

The point, yes, the way Apple runs the App store structurally inhibits innovation.

Apple should either totally control the App Store, choosing which Apps will be developed and promoted, proving much fewer Apps, but all great ones; or get out of the way and promote a free marketplace.

Alex (no relation!)

The free app gives you a taste of what you can do. If you want more features and capability, you pay for it. It is a variation on limited-trial fully featured apps, except you get the keep the basic app indefinitely.