Instapaper (previous TUAW coverage) is a read-it-later type service born, as so many great apps are, of personal need. Arment would often come across long web posts he wanted to read at work, but at the same time was bored on a long train commute armed only with an iPhone and sketchy cell coverage. He wrote a quick service that would accept web pages from his browser and build a queue of them that he could download to the iPhone -- and he integrated a markup remover into the software that stripped away almost everything from the page except the content, for quicker syncing on 2G networks and easier reading on the iPhone's small screen. Instapaper was released shortly after the App Store itself and has grown solidly in features and reliability since then.
The service has long offered a simple API to allow third-party apps to add content to a user's queue. This is what the "Instapaper" buttons in the various Twitter clients and suchlike use. However, up until now, there has been no supported way to allow apps other than Arment's own to pull data back out of the queue -- no alternative Instapaper readers. There are some like InstaFetch for Android that rely on hacks like scraping the Instapaper web page, but these are brittle and create support headaches for Arment.
However, in offering a full API for third-party reader apps, he acknowledges he is placing his own revenue stream at risk. Presently, he pays for his hosting costs and supports future development through website ads, in-app ads in the free iOS client and a $3.99 premium client. An API undercuts his own business model. He's solved this problem with an unusual approach: the full API will only work for users paying $1/month for a subscription account. In this way, he hopes to create an ecosystem of third-party apps (presumably on platforms he doesn't have the ability to support himself) that use Instapaper without cutting his own business model off at the knees. Arment has also announced Stacks for Instapaper, the first third-party app to use this new API -- a full Instapaper client for Windows Phone 7.
It remains to be seen how successful will be. It's quite possible that existing apps that use web scraping will continue to do so, rather than require their users to pay $1/month. Personally, I think it's a small price to pay for a compelling piece of software, so I hope there isn't an entitlement backlash.