Mobile Marketing Lessons or the Bittersweet Story of In-app Purchases

The mobile front offers a lot of opportunities for commercial growth and prosperity. There are different mobile apps business models that enable companies and individuals to take full advantage of the numerous opportunities out there. Yet, some promising technologies, such as the in-app purchases happen to do more harm than good.

Hello folks! It’s that time of the week again, so I am ready to hit you with yet another marketing volley that could rock your business to the top. Before I set the mood and the tempo for today’s article, I want to remind you that we are still roaming the mobile marketing fields and we have been comfortably stuck there for some time. Indeed, taking into account that mobile platforms and mobile products and services are way too hot at the moment, it only seems fair if I keep pushing the mobile boundaries and continue exploring the possibilities that the new wave of technology offers. Hence, I will keep dissecting the various mobile apps business models and inform you how you can use each of them for your business purposes. Now that you know how to level the playing field with a free mobile app, it’s high time I told you the bittersweet story of in-app purchases. Why harboring mixed feelings for this particular mobile app business model? Well, read on and find the answer for yourselves!

I believe it is simply pointless to start lecturing you on the importance of mobile applications. As we have already established, mobile applications are hip, trendy, and way too important to ignore. You can either embrace them or perish. The choice is yours. Now that we got this covered, I can finally move to the real crux of the matter and elaborate on the different types of mobile apps business models and what the benefits and the drawbacks of each of them really are. Some of them, such as the paid mobile apps one, are pretty straightforward: you develop an app and you sell it for a certain amount of money. Others, such as the free mobile apps business model, serve more as marketing and promotional tools that can unleash a blizzard of publicity and put you in the limelight. Yet, there is another mobile apps business model that allows you to get people hooked on your products and/or services and eventually make money from an enhanced version of those very same mobile products and services. Some of you might have already guessed where I am going with this. Yes, you are right, I am talking about the in-app purchases. In a nutshell, you can offer people to download a free or a paid app and meanwhile, you can offer paid access to additional services, features, and/or content within the very same app! If people really enjoy using your application and they cherish the value it adds to their lives, they might be prone to pay a little bit more to gain access to extra functionalities and hence, profit from a slightly or a dramatically augmented experience. In fact, this mixed mobile apps business model offers great possibilities for developers and businesses in general. Indeed, the in-app purchases technology gives you the opportunity to choose from the current mobile apps business models available and generate some revenue. For example, Smurfs' Village, the lovely Capcom game, can be downloaded absolutely free of charge. Indeed, you can custom build your Smurfs' village, take care of the gorgeous blue creatures, grow your potatoes, harvest your tomatoes, build nice houses, buy various interesting items with the gold coins you collect, etc. All you need to do so is to be patient. Alternatively, if patience is not among your virtues, you can start using your scarce smurfberry resources and make crops grow faster, build houses for your little smurfs almost instantly, or buy cute smurf characters like Smurfette.

The only problem, however, is that you cannot grow smurfberries. You can collect them one by one every time you unlock a new level, or directly buy them with real money. The extra content in this case is considered in-app content, which you have to purchase. Given the attractive and addictive nature of the Smurfs' Village game, people tend to spend a little fortune on in-app purchases. Indeed, the conversion rates are quite high and if your original mobile application enjoys some popularity, people would not mind spending a few extra bucks on services or content that are worth it. In addition, if you are offering your top notch application for free and you are doing an amazing job marketing it, it could break into the top 100 free apps. Then, you simply cannot stop the mobile business train from rolling and in-app purchases could really help you monetize your app.

Alternatively, you can offer in-app purchases within your paid app. For example, the uber famous Angry Birds game has the Mighty Eagle feature, which enables you to skip a level. Indeed, if you have a hard time destroying those squealing, evil, egg-snatching pigs, the Mighty Eagle is there to save the day. Essentially, the Mighty Eagle is an in-app purchase, which allows you to skip a level every time you get the feeling those green villains and John McClane are somehow related as all of them just die hard! Yet, convenience has a price and you have to spend a very small amount of money on a feature that helps you overcome frustration. Sounds good, right? Especially, if you want to smash those grunting monsters and see what the next level holds! In fact, if your paid app offers such an amazing experience and it adds a lot of value to the lives of your users or it is very entertaining, people would not really mind spending a bit more to receive even better or more enhanced services and/or content.

Just to recap: so far, we have established that the in-app purchases offer a plethora of opportunities to businesses and developers to promote their products, indulge in bold experiments, and eventually, generate revenue. Yet, there is a caveat. The in-apps purchases have a meaner, darker side and companies and developers that have been making profit by using this mixed business model have found themselves in trouble. It just happens that the in-app purchases technology was patented by Lodsys, LLC. Hence, according to the Lodsys, LLC officials, developers and/or businesses that choose to implement the in-app purchases options within their mobile solutions require a license to do so. Although behemoths like Apple, Microsoft, and Google have obtained the necessary license to use Lodsys, LLC intellectual property, allegedly, this license does not confer a right to extend it to third parties such as Apple/Android licensed developers or businesses. At least, this is what the representatives of Lodsys, LLC claim. In fact, Lodsys, LLC has filed a number of lawsuits against independent developers and a few companies in the U.S District Court for the Eastern District of Texas over alleged patent violation related to in-app payments and data collection applied to user interactions. Currently, the battle for in-app purchases use rages on. In June 2011, Apple filed a motion to intervene as a defendant and a counterclaim plaintiff in the Lodsys, LLC suit. The outcome of the legal proceedings is still to come and presently, developers and businesses operating in the USA are frantically removing their mobile applications from the App Store and the Android Market in an attempt to avoid problems and financial strains. Effectively, the Lodsys, LLC patent affects only businesses and developers who reside in the USA or are interested in selling their mobile wonders on the US app stores and markets. Yet, this happens to be the lucrative market everyone has an appetite for.

Nonetheless, it is not all doom and gloom. Fortunately, there is no such thing as a world or an international patent. Such a notion simply does not exist. Indeed, the only thing that comes remotely close to an international patent is a patent granted under the Patent Cooperation Treaty (PCT) to residents or nationals of a Contracting State. Yet, filing an international application under the PCT is not an easy thing to do. In addition, to obtain patent protection under the PCT, an applicant has to go through the motions and be granted a patent by each designated State party to the PCT. As you can imagine, the process is quite lengthy.

Just to give you a glimpse of the complicated patent landscape in Europe, it may suffice to tell you that obtaining a patent and enforcing it before the respective national courts could be more complicated than flying to the Moon and back. Whereas there is a European Patent Office (EPO) and a number of conventions, which govern the very patentability of software, computer programs, and computer implemented inventions, the conditions that each and every applicant has to meet to be granted a patent are extremely strict and quite controversial. Indeed, each and every invention has to pass a few very complex subject-matter tests and meet a number of requirements with flying colors. In addition, the available case law is very inconsistent and it lacks any coherence whatsoever. Just to make things a bit more complicated, I will tell you that if an invention has been granted a patent by the EPO under the relevant conventions, there is no guarantee whatsoever that such a patent would be considered valid before national courts in Europe. Indeed, each and every national court may interpret differently the very patentability of an invention in view of Article 52(2) of the European Patent Convention. Consequently, any European patent issued by the EPO may be revoked by a national court. (Phew! Enough legal stuff for today, I promise!)

Ok, what’s the point? Why did I stray from my in-app Angry Birds purchases and ended up talking about patents? The answer is quite obvious. I just wanted to inform you of the risks you are taking if you decide to utilize the in-app technology in the USA. It might cause you a lot of problems. I also wanted to point out that there is still a certain margin of freedom for developers and businesses operating outside the USA. Whereas, the value proposition might not be so attractive, as patents might impose a virtual embargo and dissuade businesses from selling their software on the US market, it is still better than nothing. Alternatively, you can simply pay the respective license fees to Lodsys, LLC and avoid unnecessary complications. It might not seem fair, but hey, you might choose to be a slave to the grind to survive. Do not blame the player, blame the game!

If you, however, do not want to get in trouble for using the in-app purchases but you do not feel like paying any license fees either, you can develop both a free, ‘lite’, and a paid version of your mobile application at the same time. It comes as a no brainer that the free version of the respective app should be somehow limited and it should not contain all the features and functionalities the paid version boasts. Normally, if people enjoy using your free app and if they think that it is really good, they might decide to buy the paid app. Whereas offering two apps at the same time seems like a crude solution in comparison to the elegant in-app purchases option, it still follows the very same marketing rationale and it saves you a whole lot of trouble. In any case, such is the bittersweet story of in-app purchases.

So, that’s all folks. I do realize I have not exhausted the subject matter, but I’ve given you quite some reading and thinking to do. I hope this article can help you avoid some hidden traps and unnecessary legal or financial complications. If you want to share your thoughts with us, just type away a comment in the section below, send us a tweet, contact us on Facebook, or contact us the old fashion way. In the mean time, do not forget to subscribe to the feed that rocks, check out our wisdom generator Stuff We Say and stay tuned! I’ll be back for more next time around!