iOS app developer Jeremy Olson of Tapity has written an interesting article on how developers can survive selling apps and yep, paid apps are dead. (Tapity wrote Languages, Grades 3, and Hours, all available in the App Store.)
Olson cites anecdotal evidence that people are not buying apps in the quantities today as they did even a year ago. App downloads are healthy, but the ability to survive as an independent developer is in flux.
In-app purchases make up one revenue stream that has worked well for some, but there's still no