Prior to in-app billing, developers only had the options of advertising in their apps or charging a fee in Android Market. As a result, most apps here are offered free and most developers are not successfully monetizing their wares. In-app billing is something that wireless operators, developers and app store giants like GetJar Networks Inc. agree is necessary to make any money in mobile apps.
"Consumers need to sample before they pay," Patrick Mork, CMO of GetJar, said at a CTIA panel.
Mork says that 25 percent of content purchased in Apple Inc. (Nasdaq: AAPL)'s App Store comes from games, of which 47 percent is done through in-app billing -- downloading a game free then paying $5 for a virtual avatar or access to another level, for example. Todd Murphy, director of Verizon Wireless 's consumer solutions group, agreed that the trend in app stores is toward a "freemium" model in which you entice a user into the app and then hit them with the upgrades.
He said it's been proved that a free app with an in-app purchase option is more lucrative than a 99-cent version of the same app.
Verizon plans to shift its V Cast App Store to an in-app freemium model too, although Murphy noted that big game developers will likely continue to offer premium content but with at least half the titles featuring the in-app ability. For wireless operators looking to do the same, Murphy said it's not hard for Verizon to implement the capability on its platform through carrier-billed transactions. It's a matter of doing it in a way that's easy for developers to access -- and clear to consumers, to avoid accidental purchases. (See OS Watch: RIM Embraces Android at Arm's Length and CTIA 2011: Verizon Looks to Stand Out From App Store Crowd.)
Why this matters
Developers are excited about the rapid growth of Android Market, but the biggest reservation they've had is around monetization. It's something that only Apple, which has paid out $2 billion to developers so far, has been able to accomplish.
Google will have to work hard to shake its reputation for being a marketplace of free apps, but offering more options for developers to get paid is a good start. And, like Apple, Google will take a 30 percent cut of all in-app purchases, so it could be lucrative for its business too.
Offering more flexible billing options, including in-app payments and carrier billing, is something operators can also do to make their storefronts more attractive. It's still early days for them, but most are beginning to at least recognize the opportunity.
Check out the following stories for more on how app store owners are getting creative with monetization.
- Genband Plays Mobile App Matchmaker
- Apps Watch: Using Mobile to Connect to Japan
- App Ecosystem Aided by Beer, Comfy Chairs
- OS Watch: Android Lets Developers Go Hungry
- Telefonica Shows Developers the Money
- Angry Birds Like Carrier Billing
— Sarah Reedy, Senior Reporter, Light Reading Mobile