New App Store Rules Good News for iPhone Users

Last week's news that Apple will allow in-app purchasing for free App Store apps should help usher in the era of "micro SaaS" on mobile devices, says Gartner analyst Ken Dulaney. In-app purchasing for free apps basically means you can download a free app that has a limited amount of features with the option to pay to unlock the full range of features.

"People want to step into things, they want trials, they want to live in the environment for a while for free," says Dulaney. "It's Apple being smart again."

Prior to Apple's announcement, only paid apps could have in-app purchasing. This meant consumers would have to pay for an app just to see if they liked it. If they did, then they'd have to pay more to get more features.

In order to get past this hurdle, many developers offered a free "lite" version, which was really a marketing version, and a paid app version. This, however, presented other problems. For starters, developers needed to build and support two versions.

Even worse, the consumer experience was rather messy: download a "lite" version, test it out, decide if you want the full-featured app, download the paid app, delete the "lite" version, and lose any settings or accomplishments in that "lite" app.

With Apple's announcement of in-app purchasing for free apps, the day of the "lite" app is over-and the era of micro SaaS is ramping up. Micro SaaS, or software as a service, refers to the ability to sell a service in a recurring revenue form.

Earlier this year, micro SaaS for the iPhone got its start with the iPhone 3.0 update that let SaaS providers charge for services over the iPhone. And micro SaaS gained some traction in the App Store. It's big hurdle was, again, the fact that many consumers didn't want to pay even $.99 to test out a service only to have to pay more to open up the full-featured app.

Now, though, consumers will soon be able to download, say, an article of a magazine or a cool game for free and then decide whether or not to pay for the full magazine or more game levels with a simple tap on the iPhone. Also, there might be an option to subscribe to the magazine or game developer and receive monthly downloads of magazine issues or games. That is, the app will have a built-in marketing engine-a free front-end-that can give micro SaaS a much-needed shot in the arm.

For app developers, micro SaaS is the big promise of the iPhone and App Store. "You've got to make more money than $.99," Dulaney says. "Apple has provided for a recurring revenue stream, which is really where you're going to make any serious money."

The downside is that, at some point, there will be an accumulative negative effect on individual buyers who will be nickel and dimed by mass micro subscriptions, Dulaney warns.

Tom Kaneshige is a senior writer for CIO.com. Send him an email at tkaneshige@cio.com. Or follow him on Twitter @kaneshige. Follow everything from CIO.com on Twitter @CIOonline.