Apple reverses course on microtransactions

Content providers have a new way to make money from the iPhone. Apple has announced that free apps can now have a microtransaction component.

That might not sound real significant at first blush. Apple has let paid apps sell small items for nominal amounts for a while now (The top-selling “Tap Tap Revenge 3” game, for example, sells a six-pack of additional songs for $2.99.) This is just an extension of that policy, right?

On the surface, sure, but this also makes upconverting users of free demos a much easier process – as it’s something that can be done within the demo itself, rather than requiring users to exit, search for the product in the App store and hope they don’t lose momentum (or get distracted by something else) along the way.

It’s also a handy way to make money off of apps that aren’t looking to convert people to a premium version. Studios, for instance, that offer free apps promoting elements of an upcoming film could charge for ringtones or exclusive clips.

Naysayers call it nickel-and-diming, but the long tail potential of these small transactions is considerable. Korea and China have built an entire gaming industry off of them – giving away the core game for free, but charging players for little things like armor and weapon upgrades.