Picture 5With the announcement last week that Apple would allow In-App Purchasing (IAP) for free apps, we wondered what will really change in the App Store. Obviously right now this is a theoretical exercise as, so far, very little has changed. We’ve seen a couple apps that were previously paid switch to free, and at least one high profile app released as free with IAP.

We talked to a few users and a few developers to get their take on what this could mean for the future of the iPhone App Store.

This new app type, free but with In-App Purchasing has quickly been nicknamed free+. There are some really great things about it, and some really bad things about it. Let’s break this down into what’s good and what’s bad for developers and consumers.

Good for Developers

There are lots of really good things to like about this decision for developers and they are almost uniformly happy with the decision. We asked Kyu Lee of Gamevil for his thoughts, “In-app purchasing for free apps is a huge step for Apple, and it really shows how much they are willing to adjust to the developers/publishers needs. Apple was first to adopt in-app purchases, and now first to adopt in-app purchases for free games. We strongly believe the next steps would be introducing microtransactions that are lower than 99c or the ability to use an intermediate currency within the game. We believe that Apple should provide as many options available to the developer/publisher as possible as long as it enhances the customer’s experience, and we’re very excited about what the tracks they’ve been following so far.”

For some types of apps it makes the developers job a lot easier and potentially more profitable. Then there’s the added bonus of making piracy much harder with apps that include in-app purchasing.

More Income Options

With in-app purchasing there are many more income possibilities for developers. Not only can they sell expansions to their app from within the app, but they can also sell subscriptions, upgrades, and virtual goods (think MMO apps). Doing in-app purchasing allows for the impulse buy. For example, the recently detailed Eliminate from ngmoco:) will feature a certain amount of time you can play per day while advancing your stats. If you are really getting into the game and you run out of time you are pretty likely to drop a buck and buy more time. Maybe just once, maybe a few times. Depends on how compelling the app is. Think of this as the candy racks at the grocery store checkout. You are standing there looking at it, a certain number of people will decide to buy.

In addition to more options, income opportunity is spread out for a much longer time. The way it is now most apps that make it to the top 100 do so quickly, then fall off quickly. This little spike represents a very high percentage of their sales. Sales after that are usually tied to an upgrade, press, or other such promotion. IAP allows for longer term income opportunities for developers as they can add content to the app and charge for it over a longer period of time. In addition, you can continue to get money from the dedicated users more than just once like most current apps.

Get Rid of Lite Versions

One thing is for sure, developers have been asking for a way to do upgradeable lite versions, this solves that issue and works out to be a pretty good solution.

IAP1As we’ve already seen one example of this with the release of Rolando 2 Chapter 1 last week. This was previously slated to be a $0.99 app with in-app purchase to upgrade to other chapters in the app. This basically is a lite version that you can expand, through in-app purchase, to the whole apps. In this case it’s done in chapter forms, a gamble. I think we’ll see more examples of a single upgrade for greater income for the developers. But either will work, it will be interesting to see how each method works out.

Slow Down App Piracy

It’s a sad fact that piracy of iPhone apps is rather rampant. Some developers report 50-90% of their users are using pirated versions of their apps.

We spoke with Neil Young, CEO of ngmoco:), and like most developers he is excited about the possibilities. “[This decision] is great for the iPhone and will help take it to the next level” said Mr. Young. And particularly about the piracy aspect. While he concedes that this won’t eliminate piracy, it will most likely slow it down a bit. “I have no problem with jailbreaking, I do have a problem with people stealing software from the people who develop it like the great people that I see every day here at ngmoco:)” remarked Mr. Young.

While moving apps to a free+ model won’t eliminate piracy, it will at least slow it down. The truth is crackers are very smart people, they will figure eventually figure out something to work around IAP. But it doesn’t appear as though there will be a quick, easy way to crack in-app purchases, at least not yet. So it will require special work on each individual application to crack it.

Good for Consumers

This new application marketing method isn’t good just for developers, there are some things that make it very compelling for consumers.

Upgrade With Losing Progress

When you have a lite version and do something, then upgrade to the paid version, it’s a different app. That means that you lose anything you’ve done in the app. For example you’d lose your progress in a game, your preferences, etc. With an integrated lite / paid version using in-app purchasing, you get to keep your data.

In addition, it’s just easier to upgrade, when and if you need it, by clicking a couple buttons in the app.

Try Before You Buy

I’m also guessing we’ll see more try before you buy apps as this is truly the greatest advantage to consumers. They will obviously be limited to certain features (number of records, few levels in a game, etc.), but will allow convenient and quick unlock of full app with In-App Purchasing.

Longer Commitment From Developers

With the increased income opportunities we’ll hopefully see greater commitment from developers. Currently, most app developers stop updating their apps when the sales drop off. But with the opportunity of income over a much longer timeframe, many more should choose to continue to update their app. This will mean that we’ll see some apps remain fresh for longer and if you really like the app it may be an even greater value for you after a few updates than it is currently.

Bad for Developers

While in general this policy change will be great for developers, there are some downsides.

Decreased Exposure on Top Paid List

One of the reasons this is bad for developers is that they will no longer appear in the Top 100 paid apps. While I use that as my main area for finding new applications, I’m not the usual user. Most users seem to start with the top free apps. Apple knows this. Neil Young from ngmoco:) told us that he believes that free apps are downloaded 10-20x more than paid apps.

So, in reality this might be a good thing for developers. If the top free list is the most popular place to discover new apps, being on that list might be a good thing. Though you’ll be stuck in a list with a bunch of fart apps and MMO apps.

Greater Support Expense

Using the most flexible system for processing IAP, the downside is that Apple has pushed a lot of the processing to the developers. There is a fairly significant bit that the developer needs to develop and support on their end. Apple has some strict rules about how IAP needs to be recorded and restored. The developers need to keep all of that information indefinitely.

Consumer Confusion

There is already a great deal of consumer confusion for In-App Purchasing. Most have still never utilized it. Adoption could be very slow due to this. Good communication will be needed.

Reviews From Free-Rats

It’s well known that free apps get the worst reviews and seem to attract the least intelligent consumers in the App Store (and I’m being kind). This will now open up a whole new class of apps to these reviewers. It’s not going to be pretty.

Bad for Consumers

While there are some good features for consumers, really this doesn’t work out all that great for users. There are some really nasty issues.

Purchase Depends On Developer Uptime

There are two ways that a developer can set up in-app purchases. One of the ways requires the developer maintain a service on their own web server to return data on what is purchased. If an app that you do a purchase in utilizes this method, and the developer closes up shop and shuts down their server, you are out of luck. You won’t be able to restore those purchases. Depending on how they are implemented, you may not even be able to use the purchases you have already made.

In the current system, if you buy an app, you can use it forever. If the developer decided to stop supporting it, close up shop, or the app is pulled from the App Store, you still have it and can use it. There are many examples of apps that have been available in the App Store but were pulled for various reasons. People who have downloaded those apps can still use them as long as OS changes don’t make the app incompatible. Not so with in-app purchases. And in all honesty, this is a problem with any app that uses IAP and is not just reserved for free+ apps. The different is that free+ apps would basically revert to demo versions if the developer shut down their server.

Hard To Tell What You Get

It will, initially, be hard to tell what you are getting and if it’s worth the expense. At least the way most apps are now you know you are getting the whole app when you pay for it. With in-app purchasing, you never really know what you are getting, or if you will need to pay more to get what you want.

In the end, you could end up paying more for a full experience than you currently are.

Requires iPhone OS 3.0

Most iPod Touch users don’t have iPhone OS 3.0 yet — that will be required to use any of these apps.

Some Free+ Apps Already Available

IAP2We’ve already seen a couple apps switch to free that were previously paid apps. TweetPush and Boxcar, both Twitter push applications that went free the day of the announcement.

We’ve also seen ngmoco:) release Rolando 2: Chapter 1 as a free app with in-app purchasing options for the remaining chapters. This app was approved the day of the announcement and waiting to go live on the App Store when Apple made the announcement allowing free apps to have in-app purchasing. ngmoco:) quickly decided to switch the app to free and were the first new app to take advantage of this new app purchasing method.

Future?

Where will this lead? We asked for an opinion on this from David Barnard from App Cubby, “Well, I definitely think we’re gonna see a LOT more free apps! I definitely don’t think that everyone, or even a majority of apps, will shift to this model, but there are quite a few apps that will benefit from a “try before you buy” model and/or a freemium model where additional content can be purchased. The bottom line is that Apple is giving developers more control of our businesses and more options for monetization, and that’s a very good thing.” remarked Mr. Barnard.

David Frampton from Majic Jungle remarked “My biggest fear is that developers will abuse it, flooding the store with ‘free’ apps, that are really just store fronts for their downloadable content. This in turn would quickly make users wary of downloading such apps, effectively putting a giant ‘Don’t Bother Downloading’ sign on any free app with downloadable content. This in itself is enough to make me wait before I make any changes to my current apps or plans.

“I also expect some consumer backlash. Reviews will definitely be worse overall for a free + downloads app than a paid app, if anything just due to the lower barrier to entry. Add to this a certain proportion of people who expected they would get more for free than they did, and you have a recipe for low ratings.”

At this point there are lots of really interesting possibilities and more than a few potential pitfalls. But, we really don’t know how this will all shake out. Apple has given developers more leighway to operate, something they have clambored for, and it’s up to them to make it work or sink it.

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