MicroTransactions MacroImportance!

I haven’t seen this picked up anywhere, but this is rather huge when you think about the scope of this announcement: the iPhone 3.0 operating software is going to allow for microtransactions directly through it’s downloadble content (DLC). This seems to be rather overlooked by the blogosphere, but it starts to create a paradigm shift in mobile digitally distributed software (read: huge potential/opportunities for marketers).

The Big Deal

Let’s rewind first for the people who don’t know/care about what Apple’s doing with their iPhone. Through iTunes, you can get software (paid and free) for your phone. Up until now, updates were free, but now, developers are able to charge for content – allowing for microtransactions taking place within the software itself, instead of through iTunes. This creates new opportunities for how marketers take advantage of mobile apps.

A New Business Model

This changes the way products are sold, how they’re marketed, and how they’re used. Lots of software nowadays requires a premium component, but also requires a free trial component, so a lot of these barriers are seemingly removed as publishers can charge for exactly what they want to. If you’re a game developer, you can essentially give your game for free, and charge specifically for premium content. If you think about it, for a lot of software, and games in particular, this is a business model that competes directly with pirates. You can’t pirate microtransactions, and if it’s priced competitively, then it can be a winning formula.

Why it could rock

The concept of premium downloadable content isn’t anything new, especially in the video game world, and if you’ve ever bought a song through Rock Band or Guitar Hero, you’ll know exactly what I’m talking about. Sony, Microsoft, and Nintendo have been experimenting with premium downloadable content for a a few years now, and by in large, a lot of these companies are their respective third party publishers are getting it.

As an example, imagine playing the Sims. Now your character could walk around theh city, but perhaps you were passionate about a brand like Armani Exchange or American Eagle. Wouldn’t it make sense that you could wear that brand’s clothes in the game? That’s exactly the type of thing you could do. Brands now have yet another point of contact where they could have their products pushed to customers, particularly through video games. It could be premium, so that users have to pay for additional content, or it could even be free, just to promote free WOM advertising. The possibilities and partnerships are, in a sense, limitless.

Why it could suck

I mentioned video games above, and I’ll mention two instances where premium downloadble content has been outright stupid. The first example is what Sony did with their puzzle game Luminos, about two years back. Essentially, what they did was give a broken game, and charge like crazy for additional levels and the content that was originally promised from the initial game purchase. It was horrible, and the company got slammed for those attempts. People expect a deal when shopping for microtransactions.

Just like with that example, the opportunities for publishers to use microtransactions in the wrong way are practically limitless. In oppose to finding opportunities to work with their users, it could easily be an opportunity to exploit companies. A game could be marketed as being cheap, when its true cost could be significantly higher, even by double digit dollars. Not fun.

Closing Thoughts

When I got Rock Band 2 years ago, I actually got a credit card just to purchase some downloadable songs without harassing my brother. Since then, I’ve become a huge supporter of microtransactions when it provides value to its end-users.

I’m glad that Apple’s opening this door that was begging to be opened since the App Store opened. I think it’ll be great for end-users who want to try a developer’s content, while the publisher can use a “free for this part, pay for this other part” business model, which has been proven to be more profitable when compared to traditional models in certain situations.

I think a lot of companies are going to try using microtransactions in their business model, and fail, unless they’ve already experimented with pricing schemes on other videogame platforms. I’ll be curious to see how long it’ll take for companies to “get it” and how soon markters will be able to leverage their brands in new online spaces.

[ Gizmodo – Why iPhone In-App Transactions Could Be a Disaster ]
[ Apple ]