Suppose you have an app on the iTunes App Store, and you want to provide a new version. No, this isn't me. I'm talking about someone else's app.

As I see it, there are three options:

1. Free Upgrade. Just update the app in iTunes Connect, and it shows up as an update for all existing customers. New customers get the new version.

   Pro: Easy to implement. Generous to existing customers.

   Con: No way to get a paid upgrade.

2. Entirely New App: Create a new app, and remove the old app from sale.

   Pro: Easy to implement. Many new sales at full price. Some existing customers will go buy the new app.

   Con: Abandons existing customers, who get NO further updates. Most existing customers won't know there's a new version. Appalling customer service. Most existing customers will simply leave you and buy another app.

3. In-App Purchase: Separate the 2.0 features from the 1.0 features, and make them unlockable in the app.

   Pro: Allows existing customers to upgrade, just like a desktop app with a paid update. Allows a lower entry price for the base app, which drives sales up. Keeps existing customers locked into your app.

   Con: Much harder to implement. Slightly confusing when people buy the new app, and not all possible features are enabled.

I consider Free Upgrade the best option, if you can afford it. This maximizes the happiness of existing customers, and gives both old and new customers the full app.

In-App Purchases are certainly a lot of work, and maybe somewhat risky as a business model, but it's a fair balance between satisfying existing customers and making money on the upgrade. Apple appears to have no problem with unlocking functionality by purchase, and purchases can be re-downloaded if you uninstall and reinstall the app, so this appears to be a functional method.

The Entirely New App idea is appalling. It's the worst possible customer service to existing customers, and gets you few or no paid upgrades from them. They won't know the new version exists, unless you update version 1 with a message "go buy version 2", which Apple will almost certainly reject.

You may get normal new sales, nothing more, but those who know what's going on will remember how you shafted the previous customers, and realize you'll shaft them in the next version. Since you're going to get a low conversion rate from your former customers, there's little or no financial advantage over a Free Upgrade.

There is a sort of fourth option: Release an update to version 1 with ads. Now you can make some money on the existing customers, and sort of push them towards buying the new version without ads. It's annoying, and upsets their expectations of an ad-free app, but it'd work out financially.

While it would be nice if Apple would provide a "Paid Upgrade" option, and allow multiple versions of the same app on the App Store, that seems improbable to "never going to happen". Apple's business model works fine for THEM, and if it makes life hard on developers, they don't seem to care. Given that, it's up to the developer to make choices that make financial sense while NOT screwing over existing customers.