Home > News > How a $66 in-app purchase can potentially cost Google millions

How a $66 in-app purchase can potentially cost Google millions

Are freemium or free-to-play apps a misleading practice among app developers, or a fair strategy in attracting users?

Mother and daughter using tablet

Games targeted toward young children might hardly be considered profit-generating, especially with the low purchasing power of this particular demographic (they would have to ask mom or dad to buy stuff for them). But with mobile apps that offer in-game content, this might not be the case. The “freemium” or free-to-play model has grown in popularity, fueled by the rise of smartphones and tablets and mobile app ecosystems like Google Play and the iTunes App Store.

No longer do users have to deal with paying for games upfront. In many cases, the games are free, but some in-game items are not.

This does not come without drawbacks, however. Recently, a mother has initiated a class action lawsuit against Google for a seemingly innocuous purchase on her mobile device. Her daughter played the game Crystals and had apparently purchased $65.95 worth of digital content within the game. While Google Play can be set to require a password for premium purchases, the system offers a 30-minute window during which a user will not be required to re-enter the password. Hence, once a parent keys in one’s credentials, kids can potentially purchase more items within the said window.

Are freemium apps misleading?

The lawsuit alleges that many freemium games are “designed solely to lure minors to purchase Game Currency in order to meet the objectives of the game.” True enough, while freemium games can be played as-is, these will often require premium content in order to improve gameplay or to more easily reach targets. Additionally, the lawsuit alleges that the games are “highly addictive.”

The lawsuit also includes recent European Commission rulings against “free” applications that are supposedly misleading. With this, the lawsuit claims that Google and the developers are in violation of California Consumers Legal Remedy Act for “concealment of the characteristics, use, benefit, or quality of goods by actively marketing and promoting certain gaming Apps as ‘free’ with the intent to induce from minors the purchase of Game Currency.” Additionally, the lawsuit is citing California law that states minors have the right to “disaffirm contracts such asthose at issue here.”

The lawsuit seeks remuneration from Google in the amount of their respective purchases, plus attorneys’ fees and damages. As a class action suit requires at least 100 plaintiffs to qualify as such, this could potentially cost Google millions in legal fees, noting that there have been precedents.

In 2013, Apple settled a similar lawsuit for $5 million in cash and iTunes credits, and had likewise paid a $32.5 million settlement with the Federal Trade Commission. “Children ran up millions of dollars without their parents’ knowledge and consent,” said FTC Commissioner Elizabeth Ramirez, citing that Apple should have obtained customers’ informed consent before charging for premium purchases.

Developers weigh in

Freemium apps are often considered by developers to be a way to get their foot in the door, so to speak. Premium apps that require an upfront charge historically get fewer downloads on major app marketplaces. In contrast, free and free-to-play apps dominate both Google Play and the App Store. According to AppAnnie’s list of top apps, 91 percent of the leading mobile applications are free or freemium, while only 9 are outright paid apps. Additionally, 71 percent of app revenues are earned by in-app purchases from free-to-play apps, compared to 24 percent of revenue for paid apps and 5 percent of in-app purchase revenue for premium apps.

For developers, the freemium model is not necessarily a bait-and-switch tactic. “Let’s not forget the end user side here, that gets to ‘test’ a game very deeply before making a purchase decision,” says Nimrod Cohen, co-founder and CEO at OnlinePianist, a piano-learning app for web and the iPad. He told VR Zone that apps can still be labeled as free even if these involve in-game purchases if they still provide a “good enough value” for users.

If regulators will ban the use of “freemium” or “free-to-play” in marketing materials, this might result in some difficulty for developers. “It will certainly be a disadvantage for developers because freemium models are proven to be a very good source for tracking users. I believe that the EU should focus on more important issues such as competition between the big players and the small players.”

Some developers prefer to use a mix of free and freemium applications in their products. Some are even exploring alternative means of letting users pay. In emerging economies, for example, micro-payments through mobile plans or prepaid accounts are growing popular — thereby skipping Google Play and Apple’s App Store altogether. “Our team is building SMS payment integration into our service,” says Gian Scottie Javelona, co-founder and CEO at Orange Apps, which has recently launched an online learning platform called Khawna. “Once this is finished, users can pay for classes through SMS using their mobile plans or prepaid account,” he told VR Zone.

Javelona pitched in how free-to-play is a good way for developers to monetize their apps. “I think freemium is one of the best business models for mobile apps right now.” He does not agree that the use of “free-to-play” is deceptive. “As a developer, I understand why are they doing this strategy — they need to make money.”

In conclusion, the solution here might be a matter of safeguarding the usage of mobile app stores against unwanted purchases. Or at the very least, Google and Apple may want to revisit their refund and cancellation policies. Otherwise, smartphone and tablet users who have kids might constantly find themselves being charged hundreds of dollars for purchases unwittingly (or perhaps knowingly) made by their kids.

Source: Google App class Action lawsuit, via GigaOm / Image credit: Mother and daughter with tablet, Shutterstock

J. Angelo Racoma
J. Angelo Racoma has written extensively about mobile, social media, enterprise apps and startups. Angelo develops business case studies for Microsoft enterprise applications and services. He is also co-founder at WorkSmartr, a small outsourcing team.

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Read previous post:
Microsoft plans to bolster Games With Gold initiative with more favorable titles

Microsoft's Phil Spencer reveals that the company is working on offering more higher-profile and desirable titles to the Games with...