In-app purchases are one of the big misconceptions about how app monetization works. Apple and Google have guidelines about in-app purchases (IAP), but some of the rules can be complicated to understand. That’s a big deal because Apple and Google charge a 30 percent fee on all IAP, and that may be 30 percent of your company’s revenue. Before you develop your app, make sure you know how (or if) these rules apply to you.
What is an in-app purchase?
An IAP only refers to purchases for digital goods or services to be consumed with the application. Contrary to popular belief, purchasing a ride from Uber, a pack of diapers from Amazon, or a latte from Starbucks does not constitute making a true in-app purchase. IAP must be for something delivered digitally, directly in the app itself.
Examples of in-app purchases:
- Extra lives or power-ups in a game
- Paid text-based content
- Paid video content
- Paid functions (syncing, upload capacity, sharing, etc.)
- Advertisement-free version of app
Examples of physical goods or services purchases:
- On-demand delivery or ride
- Hotel or flight reservation
- Printed photos, books, or cards
Sometimes the line between digital and physical can get fuzzy, though. If you’re uncertain whether your app is selling an IAP or a physical purchase, check out this guide from Apple for more examples.
How is an in-app purchase handled?
An IAP transaction is directly facilitated by Apple’s App Store and/or Google’s Play Store. The amount owed is charged to the credit card the user has on file with Apple or Google, and if the user has a issue with the purchase, they can appeal directly to Apple or Google, who are not obligated to consult the developer of the app in question. Apple and Google retain 30 percent of the purchase price and pass along the remaining 70 percent to the developer’s account.
Is there any way around that 30 percent fee?
If the user is purchasing a one-time use digital good or service in your app, like a new level to a game or to remove advertisements, there is no way around the 30 percent fee. If you attempt to go around it, soon as Apple and Google find out, they will likely kick your app out of the store for breaking the rules or never approve the app’s submission to the store in the first place.
If your user is purchasing a subscription to features or content, you can work around the fee by following a model like Netflix and Hulu. This involves managing all subscriptions through a web application and providing no way for a user to sign up for or modify a paid account in the mobile app. All of your marketing efforts would direct new customers to your website, where they would create their account and subscribe to your service. Only then would they be able to go to your app and log in to access content.
The benefit of this workaround is that you get to keep 100 percent of your customer’s payment, but it involves additional software development work to integrate with a payment processor and manage every aspect of the purchase and/or return. All of the app store guidelines must be followed. The rules are generally more strict with Apple than with Google, so it’s best to plan to adhere to Apple’s, knowing Google will typically accept the same. Your app cannot reference anywhere in the app or in the store’s app description that the user needs to sign up for a subscription on your website. You cannot include a link that takes the user out of the app and redirects to your website to sign up or modify their paid account.
Does your app have an in-app purchase?
It’s important to make the right decision about monetizing your app, and a big part of that decision is understanding how the IAP rules apply to you. We can help. Drop us a note!