JCP iPhoneA sea change is clearly occurring, and it started when Apple announced to developers on October 15th that it would allow in-app purchasing of goods and services within free iPhone apps, not just apps that cost money. First, this means that “light” versions of applications will probably soon disappear, replaced by full version apps, that will be “free.” That’s right, free! Expect a lot more free apps in the store! But……they will most likely have a timer on them and when you hit the magical time (say 30 days after download and activation), you will then have the ability to “purchase” future usage from within the application itself. Second, this capability is going to continue to fuel the current insurgence of big brand labeled iPhone and iPod Touch apps.

Today, Apple takes 30% of all revenue if you’re a developer who has developed an iPhone application, gotten it approved by Apple, and have it posted in the iTunes app store. The contract you sign with Apple specifies that Apple takes 30% of “all digital goods sold,” which by the way, includes anything sold within the app itself going forward too!


Image Source: Apple


For the full Apple App Store T’s and C’s….see here.

So if you sell your application in the app store for $10, Apple takes $3 of that. And if you turn on in-app purchasing, to maybe offer more features, for say another $5, Apple takes $1.50 of that. If you reversion your app (allow the customer to go to the next version of your app when it comes out) and allow for that “upgrade” from within the app itself, Apple will take 30% of that if you charge for it.

This will increasingly lead to more free apps on the iTunes app store, and soon, most of those apps will have in-app purchasing enabled. It will become increasingly hard for small application developers, who initially  jumped on the iPhone  bandwagon to shift to this model, and make money. It will require apps to be built differently. This ability is playing into the hands of big brands coming out with their own apps in the iTunes app store. If you look at Apple’s app store today, you are starting to see a lot of top consumer brand names appear. That wasn’t so six months after the app store debuted. It was mainly the little guy, the independent app developers! And Apple extolled the virtues of how easy it was to develop and get your app out there at the time. Anyone could do it!

Once the iPhone hit a certain installed base threshold (2 million subscribers) the big brands realized, that if their brand characteristics were similar to Apple’s (premium affinity, high customer loyalty), it would be prudent to build their own iPhone app, and market directly to a captivated, savvy audience, where they may find more stickiness than in traditional advertising. As the iPhone installed base grew even more, all the major brands (not just the premium ones) realized this, and soon we started to see an explosion of applications by major consumer brands and the campaign “there’s an app for that” took on a new meaning in the corner offices of advertising agencies and large consumer brands. There are now over 100,000 iPhone and iPod Touch apps in the app store, and growing.

If you’re a major consumer brand and are building an iPhone application, you need to take advantage of the in-app purchasing capabilities. Your primary in-app purchase offerings could be:

  1. Additional access to the app once the “free period” expires, for a fee (what many call “getting more juice”)
  2. Access to the next version of the app, for a fee (what I call “getting better juice”)
  3. Access to your affinity club offering (think Barnes & Noble) that for a fee, offers your customers additional discounts in your stores or on your web site (what I call the “virtual club”)
  4. Access to virtual goods that can then be used towards the purchase of your product at a retailer (brick and mortar or online) that sells your product or service

Big box retailers would be wise to look at all of these possibilities, to effectively target specific mobile customers to either keep them loyal or gain their loyalty. In-app purchasing and push notification to customers who have downloaded the app will become a compelling strategy for marketers to build brand affinity and loyalty going forward. Many agencies (advertising and PR) today are creating “New Media Officers” in order to figure out how to help brands better utilize digital media and social media tools in order to target more relevant consumers and turn them into more loyal ones. And they have to do it by spending less money than the brands would spend on traditional advertising. I know, I’ve been talking to many agencies as these job req’s have popped up (and also since I’m currently “in transition”). Few agencies “get it yet” nor do they understand mobile, mobile advertising, and more importantly, mobile application development and the new creative marketing methods that are emerging.

The big box retailers are beginning to see the potential though. And very soon, we could see virtual goods offered by the likes of Best Buy, Dixons, BJ’s, Walmart and other big box retailers!


-Randy Giusto