With Apple’s upcoming iOS4 (formerly iPhoneOS), the operating system that powers the iPhone and iPad, developers can show advertisements in their apps using Apple’s iAd framework.

Like many people, I hate intrusive ads. I recognize that ads are an important and indispensable part of our capitalist system, and God knows I love capitalism, but when I sit down to play a game or use an app, the last thing I want is an ad in my face. Nevertheless, I think Apple is on the right track with iAd.

Here’s why. The unfortunate truth about the App Store, now that it has “matured,” so to speak, is that it is extremely hard for most small developers to make money. You might have a great idea, but it’s hard to get noticed and compete against the 225,000 other apps in the App Store. Economics 101 tells us that a such a huge supply will drive down prices. That has been demonstrated in spades, with most apps either free or 99¢. Many consumers will balk at paying even a paltry 99¢, given the enormous selection of free apps.

Sure, the AAA apps produced by the big companies, with their teams of programmers and designers, and with their substantial marketing budgets can charge a bit more and they can semi-reliably count on a large volume of sales. They, however, are the exception.

So, if you aren’t a large developer, and assuming you haven’t discovered an untapped niche (good luck), you almost have to give your app away. Yes, you could go the route of then charging the user money to unlock new levels or what have you, but some apps don’t lend themselves to that paid icadd-on concept.

The only other solution seems to be in-app advertising. Here’s where Apple’s approach is brilliant: if the user taps on an ad, they don’t actually leave the app. They view the ad, no doubt cleverly and engagingly designed, right then and there. No switching to Safari. When the ad is done, or if the user cancels it, the ad disappears, and they are right back in the app, right where they left off.

The only problem is that ads take up screen space, oh-so-precious screen space. For Zoo Clues and Treasure Chess, I need every last pixel for the game’s presentation and user interface. I can’t imagine fitting an advertising banner into the game-play space. There is simply too much information to convey to user as it is.

There is only one spot it might work: the home view. Zoo Clues has one, with buttons for Play, Help, About, and so on. An ad would work there. It would fit, and wouldn’t be annoying (hopefully). Treasure Chess doesn’t have a home window; the user jumps right into the game window. So, if I want to show an advertisement, I’d have to create a home view. Programmatically, it’s not a problem.

But what about the user? Will they mind seeing an ad? Would they rather pay 99¢ for no ad? Do I need to have two versions of my apps, one free with an ad, and paid version with no ad? Hmmm, time to do a little thinking, but my gut is telling me I need to strongly consider using Apple’s iAd.