As part of the new iPhone OS 3.1, Apple released a new “API” (set of programming language features) to its programmers. To me, perhaps the most interesting API set is the “In App Purchase” code. Here’s the description from the Apple web site:
In App Purchase allows you to embed a store directly within your application. You can use this in-application payment functionality to collect payment for enhanced functionality or additional content usable by your application. You implement In App Purchase in your iPhone application using the Store Kit framework. Store Kit connects to the App Store on your behalf to securely process payments from the user. Store Kit prompts the user and collects the payment, then notifies your application so that it can provide items the user purchased.
For example, you could use In App Purchase to implement any of the following scenarios:
- A basic version of your application with additional premium features.
- A book reader application that allows the user to purchase and download new books.
- A game that offers new environments (levels) to explore.
- An online game that allows the player to purchase virtual property.
On the outset, this seems harmless, right? But what does this really mean? Is content always going to be limited to “digital” content? Meaning, will you only be able to purchase items that can appear on your phone, such as apps, digital subscriptions, wallpapers, ringtones, silly “virtual property”, and news streams? Or, will Apple open this up and allow for real goods and services to be transacted via this API? The real question: is Apple now competing with PayPal and MasterCard?
One thing that’s sure, for this new model to work, Apple will need to lower its usurious 30% revenue share rates. At 30%, it’s impossible to create an economic ecosystem that extends beyond the handset. Many think American Express’ 3% rate is too high, so the marketplace certainly won’t accept a rev share that’s an order of magnitude higher. How quickly this rev share changes will be interesting to track. And exactly how Apple structures it will be even more interesting: will digitally distributed content carry a higher premium then real world content?
Before we assume Apple will proceed down this path, let’s explore the other ramifications:
- Dispute Resolution and Refunds: If Apple does enter the hard goods distribution path, how will it handle the myriad of dispute resolutions faced by credit card processors? Will Apple build out a call center to handle fraud claims?
- Direct Payment: Right now, when you make a purchase through the App Store, or iTunes, your credit card is billed for the transaction. If Apple begins competing with MasterCard, it will need to cut out the middle layer, and either bill the user (with 30 day terms), or directly debit the user’s bank account.
- Competition: What Apple does, the world (Google, Microsoft, Blackberry, Palm) follow. As Google continues to give away it’s Android platform to handset OEMs, will a quickly multi-carrier, multi-phone strategy model unseat Apple in the commerce arena? I’m guessing NO, but you can’t rule out the possibility.
- Donations: It’s only a matter of time before Kiva wants an app where you can track your donations and make payments. Will these be subject to the same 30%?
We’re still years (who am I kidding! MONTHS) away from seeing the true ramifications of this new API, and it will certainly be interesting to watch.
From a computer company, to a music store, to a phone manufacturer, to a commerce engine. What’s left, Steve?
