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Everything You Always Wanted to Know About "In-App" Purchases (But Were Afraid to Ask)

Oh Apple, you little scamp! You love it so that everyone is so confused about the in-app purchase rules. Your coy little games have everyone from Amazon to Microsoft walking on eggshells. Do you love the kerfuffles you cause in the marketplace? Your products have always made splashy entrances and the world has been hanging on your every word. The confusion and questions related to your in-app purchase rules have waxed and waned, but never fully exited the public conversation. I'm sure it is all according to plan that your dance of ambiguity stays ever alive.

Foreplay… Foreplay… Foreplay…

Much like a single-minded segment of men around the world, App developers keep asking "how do I get around the in app purchase fees?". And much like different single-minded segment of men, companies walk, ever so blithely, into the app store not even knowing what the commitment really means. And much like the nuances of communication between courting pairs, much goes unasked and unanswered as each party tries not to reveal too much.

As the rules stand right now (and yes, they are always subject to change) Apple takes a 30% cut of all "in-app purchases". Despite how it sounds, "in-app purchase" does not mean "a purchase made from inside an app". Apple's definition of in-app purchases come in a three flavors:

  • Features and content inside an application or game
  • Media purchases like books, periodicals, movies, etc.
  • Subscriptions to online services

You Haven't Seen Anything Until You've Seen Everything

Are you creating an obsession in your users that you intend to profit from? Do you want to sell a version of your game where the avatar wears a funny hat? Do you plan on selling access to new levels? Do you plan on selling advanced features in your productivity app? Do you plan on selling any virtual thing to be used or seen in your app at all? Then make sure you have planned to give Apple 30% of your sales revenue. Angry Birds players think that the birds are angry at the pigs, but I think they are angry at Apple for having to give one third of the in-game revenue away.

Are you a content publisher looking to create a media empire that you intend to profit from? Do you want to sell a series of videos or e-books through one simple to use app? Do you want to move from the world of physical media like books and DVDs to the world of virtual media with no variable manufacturing or shipping costs? Then make sure you have planned to give Apple 30% of your sales revenue. 

Given that price points for e-versions of anything are less than their physical world counterparts, it would behoove you to understand your strategy for growing and engaging with your audience. Without a well thought out and integrated plan, you are very likely to be trading dollars for dimes. Think of it this way — if your app store customers are the same as your physical world customers and your revenue is cannibalizing rather than incremental, the app store might not be the place for you.

No one but Apple Shalst Have the Goods of the Body

Are you creating a content consumption or hoarding addiction in your users that you intend to profit from? Are you selling a subscription based service where users pay monthly fees for the rights to view, listen to or store content? Is the thing you are selling arguably considered a subscription at all? Then make sure you have planned to give Apple 30% of your sales revenue. 

I'm waiting for the day that American Express tries to launch a feature that allows a user to apply for a card with an annual fee. That one is going to be fun to watch from the sidelines. Has anyone from the credit card companies talked about this? Has anyone from Apple talked about this? Not a chance! Nobody wants to give anyone else any insight into their intentions, as it might prepare a competitor or worse yet, box them in specificity with no immediate upside.

Examples of this dynamic have already come to pass. The skirmish with third party users of the Dropbox platform seemed to be settled around a year ago, and now it's heating up again with Microsoft and SkyDrive. Apple is refusing to let Microsoft, or third-pary users of the platform, release apps unless Microsoft agrees to the 30% cut in perpetuity!

To understand what this means, imagine this scenario: if you paid for space on Sky Drive via an iOS device and then changed to an Android device the following year. Microsoft would still owe Apple 30% of the revenue for your subscription for the length of your subscription, even if you renewed it on the web or on an Android device. Even if apps die a cruel death at the hands of HTML5, Firefox and Geeksphone, Microsoft still has to pay the 30%!

 

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