Saturday, March 21, 2009

In-Application Purchasing: The Power of Micro-Payment

Last week, Apple announced a major update, introducing their new OS, iPhone 3.0.  All the added functional abilities are impressive and will be welcome additions to users of one of the most popular smart phones on the market (and for those Touch users willing to pay for the upgrade). Yet the standout update could be the added ability of users to make purchases within applications. 

This feature has potentially major implications; in-application micro-payment purchasing power could revolutionize the mobile application industry in numerous ways. 

Ben Parr, at Mashable, writes about the possibilities of in-application purchasing to transform the developer-user relationship. He foresees a transition for the current "one-and-done" purchasing model, to a model wherein users will keep returning to make purchases from the same developer, so long as the product is worthwhile, and the developer maintains their end of the bargain.  I agree with his assessment.  This new business model will benefit both developer and the user, as users will be in a position to demand a higher quality product, and developers will have incentive to deliver, so as to exploit a continuous source of income

Two categories of applications could be influenced the most by in-application micro-payment; gaming applications and news service applications.

News services developers/publishers could experiment with an app that gives the user a sampling of the news, and then allow them to choose what broad topics, or what specific articles, they would like to read, or receive more information about.   Users would demand, and pay, for the specific news items in which they have interest.  Publishers could exploit the "long tail" of marketing, thus allowing publishers of niche stories to be profitable, and accord general interest news services the opportunity to better serve their consumers. 

Game developers could create an in-game market for certain objects.  Imagine being surrounded by countless zombies, only to see a 'killer gun' enclosed in an illuminated glass case...if want to use the uber-gun, you can! And it only costs $0.99!  Or, developers can focus on releasing game applications sooner, and developing additional levels or maps later on.  If the game proves to be popular, developers can invest the resources to create new levels.  If the game is a commercial failure, the developer has not wasted any extra time or money. 

The ability to purchase items, in-application via micro-payment, is an intriguing technological advancement.  I anticipate that this function will see widespread incorporation into the booming application industry. 

The ability to exploit the "long tail" of marketing, the prospect of catering to individualized consumers, fostering a profitable long-term economic relationship, and the capacity to institute micro-payments as a mechanism to profit from impulsive purchasers are all invaluable reasons for any developer to adopt in-application purchasing. 

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