Many interesting bits of information came out of the much-anticipated iPhone OS 3.0 event on March 17th, but the one announcement that wasn’t expected, the one that will forever change the way the App Store operates is in-app purchases.

In-app purchases will allow developers to charge for additional content for already distributed applications.  In its current state, the App Store doesn’t allow developers to create and distribute additional content for applications without issuing an application update.  For example, if a developer wanted to distribute a new course for a racing game, they need to issue an update for the application to get it into your hands.  There is nothing wrong with this system necessarily, but developers lack the ability to charge for that additional content.  The only way for a developer to get paid is to release an entirely different application, like a sequel to a game, making it a hassle for you and the developer.  In-app purchases will allow developers to be compensated additionally for their extra work while allowing you to decide whether or not you even want that additional content.

It all sounds great in theory, but the question is, what kind of affect will it have on the App Store as a whole?

Not Available For Free Applications

Apple has made it very clear that free applications will not be allowed to utilize in-app purchases.  The reason for this is developers could too easily take advantage of the system.  It’s obvious consumers flock to free items, who doesn’t want something for free?  The problem with allowing free applications to utilize in-app purchases is that the developers could make an extremely simple application for free, once you have downloaded it and opened the application up, you may realize that it is worthless in its current state without additional content.  A developer could use this bait and switch tactic to get you to initially download their application for free, and then charge for the ability to even use it.  It wouldn’t be so awful if only a few applications did this, but what developer could resist?  Eventually we would have an App Store full of free applications that required in-app purchases just to use them.  Apple made a logical decision by not allowing this to happen.

What In-App Purchases Mean To You

There are countless benefits created by in-app purchases for you, the consumer, but some of the most obvious include better content, the ability to choose what content you want, a streamlined payment system, and application longevity.

With in-app purchases, developers will spend more time creating better add-on content for their already created applications.  Instead of issuing several small updates, developers will be able to bundle all types of meaningful content into a single package.  The best part is, you will be able to choose whether the additional content is worthy of a purchase, leaving it up to the developers to spend time on meaningful updates to ensure your purchase.

Applications will also receive added longevity.  In-app purchases will give developers a reason to come back to an application, making it less likely that the developer will drop support of an application soon after distributing it.

The streamlined payment system from Apple will make it easy for you to purchase in-app content.   Apple has made it almost too easy for you to part with your money.  There will be no need to sign up for multiple user accounts to purchase content from multiple developers.

The initial cost of some applications may be even lower, making that nerve-wracking purchasing decision a little easier.  Instead of paying $4.99 for an application that has average reviews, you may be able to purchase the same application for $.99 and decide if additional content is worth purchasing later on, saving you time and money.

Of course, it won’t be all fun and games.  There will be growing pains for consumers to share with the developers who need to find a good reason to charge for additional content.  The Xbox Live Marketplace is a prime example of what may happen initially at launch.  When the Xbox Live Marketplace first launched, developers didn’t know what to charge for additional in-game content.  The infamous horse armor fiasco took place, where the developers charged $2.50 for a single horse outfit that did nothing to change any gameplay elements, causing a public outcry over ridiculously priced in-game content.

The other issue is, developers may initially hold back content to have something to offer later on.  We may see a flood of even more $.99 applications as developers strip away some of the originally planned content to offer it later on at an added cost.  As long as consumers are intelligent enough to catch developers on these possibly shady doings, this may not be a problem, but buyer beware.

What In-App Purchases Mean For Developers

Many of the positives and negatives that apply to consumers will also apply to developers, just with a twist.

Developers will have a streamlined system to get their users to purchase additional content.  Once the system is implemented and the developer starts issuing the content, the cash should just start rolling in.

Developers will be allowed to get applications out the door even faster, charging a low price for a fully-polished, but slimmed down version of an application while later issuing small in-app purchases once the user base has developed.  No more working for free to appease the customers.

So, what could he a possibly be considered a negative outcome from in-app purchases for developers?  The answer would be an even more flooded market, especially the $.99 applications.  At first, developers may find it hard to resist creating even more $.99 applications to save development time while promising to issue content later on at an added cost.

Developers are going to find it even more difficult to get their application noticed and create a solid user base to justify creating additional content.  If developers and their customers don’t play nice together, things could get interesting.  Without you purchasing the applications, developers won’t see a need to create additional content.  Without a promise of additional content, you may not want to purchase an application.

Don’t forget, Apple will also be taking their 30 percent cut from all in-app purchases.  It may sound unreasonable for Apple to get a cut of the initial sale as well as in-app purchases, but they are providing a streamlined payment service after all, allowing developers to focus on the application itself, and not having to worry about gathering payments.

What To Expect

Consumers and developers will have to adjust to the system as well as each other once again, just like when the App Store first launched.  It will be imperative for each side to feel each other out and not get too caught up in this fancy new in-app purchase feature.   Yes, in-app purchases may turn out to be a fantastic thing when utilized properly, but we must keep each other in check so no one gets taken advantage of.

In-app purchases will be unleashed on the general public sometime this summer.  Whether you are a developer or you simply love to purchase applications for your iPhone, be prepared for a few growing pains, but don’t worry, the end result should be well worth it.