Thanks to the European Commission, Apple has changed the way it labels apps with in-app purchases.

Can Apps Be Free or Not?

In-app purchases for iOS apps are made with Apple’s new payment system, Apple Pay. Simply by providing Apple with a credit card or debit card, you can use Apple Pay as a secure payment method, not only for in-app purchases, but also for retailers and other service providers, such as Target and Uber.

When people have downloaded an app labelled “free,” this can make it all too easy for users – or their children – to make in-app purchases.

Now, however, when you visit the app store, all free-to-download apps no longer have a button labeled “free” next to them. Instead, Apple chose to use the word “get,” whether the apps contain in-app purchases or not. Apple is following in the footsteps of Google, who stopped labeling games “free” when they offer in-app purchases.

Both companies are responding to a request by the European Commission laid out earlier in 2014. The request required that app-makers abide by four essential guidelines:

  • Games shouldn’t mislead users about costs associated with the app
  • Games shouldn’t coerce children into asking parents to make in-app purchases
  • Games should inform users about the purchase practices, and all purchases should be transparent and consensual
  • App makers should provide an email address for users to file complaints

In response to the original request, Apple responded that it was already doing more than other companies to safeguard against any unwanted in-app purchases.

For instance, to prevent children from making unwanted in-app purchases, it has instituted a feature called Ask to Buy. Every time kids attempt to make an in-app purchase, a notification is sent directly to the parent’s iOS device. Before a purchase can be completed, the parent must grant permission.

According to the European Commission’s vice president Neelie Kroes, in-app purchases are a legitimate form of monetization, but “it’s essential for app-makers to understand and respect EU law” when they use this as a business model. In the EU, enforcement will be the responsibility of the specific countries.

Potential Impacts of “Free” vs. “Get” on Developers

Developers need to earn money for their work.

And when the marketplace is full of apps that are free to download, other monetization methods must be found. Charging for in-app purchases is one strategy, but, as the European Commission pointed out, it’s not exactly free for the end user.

Apple and Google have both reacted differently to the European Commission’s request for policy changes.

Apple’s more conservative stance – which can be seen in App Store labels and policies around pay-per-install ads – may fare better with its customers, families, and the EC. It may also make things easier on Apple’s back end when it comes to regulations, since Apple’s App Store has a somewhat involved app review process.

In Europe, Google’s initial response was simply to change “Top Free Apps” to “Top Apps.” While Google Play in the USA provides fine print informing users of in-app purchases, it is not shying away from the word “FREE” – in all capital letters. The top game in the Free category in Google Play games is Candy Crush, which has come under the spotlight as a game that uses subtle psychological tricks to coerce users into making in-app purchases.

So how will these changes impact app developers?

The policy changes of Apple could have less of an impact than those made by Google. Here’s why:

  • In Google Play, the Top Free category ranks significantly higher than the Top Paid category. Moving all in-app purchase games to the Top Paid category will cut an enormous chunk out of the EU game developers’ profits. To prevent this, however, Google would need to restructure its category system, implement a solution similar to Apple’s, or both.
  • For all apps that include in-app purchases, Apple has unilaterally changed “free” to “get.” This will have minimal impact on rankings and profits, which would be affected much more if Apple were to implement a regional change or only make label changes to apps with in-app purchases. Now, it is much less obvious which apps use which monetization strategy.

Because the internet is becoming mobile-first, and since most people spend their time in apps, we’re seeing a decline of search advertising and other web-based strategies. Instead, in-app advertising and display advertising are pushing sponsored search ads out of the way. These forms of advertising are monetization strategies that let developers make money, while still allowing apps to be truly free for the end user.

While Google and Apple will try to mitigate much of the damage done by the European Commission’s change request, it may drive even more developers to pursue in-app advertising. Any shifts in monetization strategies will be towards in-app advertising.