Marco Arment has an interesting writeup on his blog about his iOS app Instapaper (and, of course, the web service that runs behind it). Arment says on his blog that he's quietly been removing the free version of the app from the App Store, and that's resulted in a surprising effect: sales of the full app have actually increased. Because of this, Arment says he's rethinking a free version completely, and may not bother ever bringing it back to the App Store.
Traditionally, free or "lite" app versions are very helpful -- they give users a taste of what the app does without any overhead costs to them but the time to download, and they can raise awareness of an app in certain situations. Of course, the drawbacks are that a free app doesn't make any money, and it can often be a drain on resources, requiring extra development time or support.
That's where Arment says his problem comes in -- the free app isn't really worth it, doesn't convert to paid as he'd like it to, and perhaps most interesting, actually causes some "image problems." A lot of free users don't realize that the free version has a limited featureset, so they aren't even seeing what the full Instapaper app can do. Moreover, the reviews for the free app (drawing from a pool of users who haven't invested anything in the app, and can "download and dump" but still review it) are noticeably worse than those for the paid version.
The whole post is intriguing, and it really goes against some of the conventional wisdom on free versions of apps. Of course, I think games are different than Arment's service, but it's true -- while a free app will likely grab you a larger audience than just putting out a paid version, it still may not be the best thing for a specific app to do. Instapaper Free is gone for now, says Arment, and it may not be back at all.