There are many ways to monetize an app; charge a purchase fee for it, generate revenue by displaying ads, and use In-App Purchase to unlock features or load additional content. For the purpose of this blog, I’m going to concentrate on In-App Purchase (IAP).
There is a general move towards IAP as the favored way to distribute and monetize apps; it allows the users to try out some of the features of the app whilst still generating revenue if the user wants to make use of the full feature set. This is clearly a better approach than creating 2 versions of the app, a paid version and a free version.
However, there is a risk with using IAP, and it is a risk that is resulting in a fear amongst some app developers.
Unless you have been hiding under a rock for the last few months, you will be aware of the Lodsys patent claim and that they are suing App Developers. I won’t go into details here, but if you are not aware of the issues, you should search Google for Lodsys IAP. In brief, Lodsys are seeking 0.575% of the US IAP revenue for each app that they go after.
Charge a purchase fee
A quick search will show that some developers are removing their IAP apps from the app store because of the fear of being sued, other developers are switching from IAP to the more traditional ‘charge a purchase fee’ revenue model, to avoid being sued.
I’m not one of the developers who feel that this fear is justified; yes, the risk is real, but is the risk so great? Let’s take a look at some numbers to put this whole situation into perspective.
It’s difficult to know exact numbers, there are lots of unfounded guesses and estimates on the web, but the numbers are all big enough to make the point.
How many App Developers are there? The guesses and estimates suggest anywhere between 40,000 and 100,000. Lodsys are suing 11 developers, not 11000, not 1100, not even 110, just 11 developers.
How much money will they take off an IAP app developer? Well, for each In-App Purchase made in the US they are seeking 0.575%. What is that in real money? If you generate $1m through IAP in the US, Lodsys would want $5750 of it. It’s not really going to break the bank is it, and remember, Apple already get 30% of the revenue generated. If we look at more realistic numbers, say $10000 revenue generated through IAP in the US, Lodsys would want just $57.50. I doubt that even covers their costs.
Balancing risk and reward
As app developers, we are Entrepreneurs, Business people, we are well accustomed to dealing with risk, and we are almost constantly balancing the risk and the reward. But for some developers there seems to have been a ‘knee-jerk’ reaction to the Lodsys issue; to pull an app from the app store, or to change the revenue model based on such a clearly minimal issue, is a waste of time, effort, and money.
I should finish by stating that I am not a lawyer, everything stated above is just my opinion, and as an opinion, it should only be important to me. Use the information to help draw your own conclusions and generate your own opinion. Please don’t stand up in court and say ‘but Jez said…’ as much as I think of myself, I doubt it would work!
In conclusion; To Lodsys I say, if you come after me, it will be for a very small amount, and I’ll make sure you work hard trying to get it off me and spend more than you’d get, not because I think it is a significant amount, but because you didn’t work for it.
This blog post was originally posted on Apps Marketing (http://blog.appsmarketing.mobi/2011/07/iap-lodsys-questions/). You can follow Apps Marketing on Twitter: @Apps_Mktg.
Check out Jez Harper’s Tús Nua Designs, Twitter: @TusNuaDesigns