Why in-app payments is big

News that Apple will now let free iPhone apps use in-app payments has been broadly welcomed by games firms.

“This announcement changes the landscape of the App Store as we know it,” said Colin Smith of Freeverse.

SGN boss Shervin Pishevar said “This is one of the most important announcements to come out of Apple on the iPhone platform.”

But why? It’s not a big change from selling a game for 59p with in-app payments, is it? Well, yes.

The first impact will be on social gaming from companies such as Zynga and Playfish.

On Facebook, their business models are based entirely around free-to-play games, which then make money from advertising, but also virtual items.

That model now works on iPhone too – they don’t have to put an initial price on their games to do the virtual item stuff. If that nudges those companies into bringing games like Pet Society, Farmville and Restaurant City to iPhone a bit quicker, it’s good news indeed.

The second impact of Apple’s change in its in-app payments rules is on the difference between Lite and Paid games. In short, they become the same thing.

Currently, if a developer wants to let you try a limited version of one of their games for free, it has to make a separate Lite version. If you like it, you have to go back to the App Store to find the non-Lite edition and buy that. It’s a bit fiddly.

Now, developers can bundle the two together: let you download the full game for free, but keep most of it locked behind a paywall. It’s what ngmoco has already done with Rolando 2, following Apple’s announcement. More will follow.

Ironically enough, this is one area where iPhone can be said to be following in the footsteps of Nokia’s N-Gage, which provided every game as a full download for free, to be unlocked with a payment.

Which brings us neatly onto the third impact of the new in-app payments rules: they could help reduce iPhone game piracy. Which, as you may be aware, is pretty rampant at the moment.

Pirates can crack a premium game file and stick it on BitTorrent, but if the payment is happening within the game itself via an in-app payment, that’s a different kettle of fish for hackers to get around.

We don’t like to make the mistake of assuming that every pirated copy of game equals one lost sale, but developers will be chuffed at anything that helps to stem the tide of illegal downloading.

Of course it’s very early days to see how quickly this shift will affect the App Store. Not all premium games will go free with in-app payments tomorrow, social games won’t flood the App Store this month, and BitTorrent downloads of iPhone game files won’t slam to a halt anytime soon.

But the potential changes shows why there’s so much excitement in the industry about Apple’s announcement.