The Interesting Part About Amazon’s In-App Payments Beta Is That Developers Have Pricing Control

The most interesting part of Amazon’s move to provide an in-app payments flow is that they’re ceding pricing control to mobile developers.

Amazon has been testing a new in-app payments system with several top-tier mobile developers for several months. It’s a big deal because there has been a huge shift over the last 18 months toward giving away apps for free instead of selling them for a dollar or more. This move would bring Amazon’s Android appstore closer to parity with Google and Apple’s stores for developers.

But the part worth noting isn’t that Amazon will offer an in-app purchases flow. It’s obvious that they would do that, given their experience in online payments and commerce and need to compete with Google’s app store. In fact, I have no idea why Bloomberg decided to report this story now, since top-tier game developers have been using Amazon to process in-app purchases since last fall. I even discussed this on-stage with developers at a conference in February. So this story is actually several months old. (Weird.)

The part worth pointing out is that Amazon is letting developers set their own prices for virtual currency and digital content. Developers set the prices and Amazon takes a 30 percent revenue share, a split that seems benchmarked off the precedent Apple set, according to conversations I’ve had with developers in the beta.

It’s a departure from the strategy the e-commerce giant tried to pursue last year. The Seattle-based company has historically fought to control the prices at which it sells both physical and digital goods as a way to undercut online and brick-and-mortar rivals.

When Amazon opened the developer portal about a year ago, it set a very unusual pricing policy for paid apps. Mobile developers couldn’t set the final prices of their apps. They would either earn 70 percent of the sale price (what Amazon actually sold the app for) or 20 percent of the developer’s desired price (whichever was higher).

Needless to say, this pissed off many developers. The International Game Developers Association lambasted Amazon’s policy a year ago, saying that “Amazon has little incentive not to use a developer’s content as a weapon with which to capture marketshare from competing app stores.”

Now it looks like Amazon is giving developers a little bit more control.

So why do in-app purchases get a special exception?

Because in-game economies are very painstakingly designed and calibrated to make sure there is an even balance between currency sources and sinks. Developers have to make sure a user’s progression through a game seems natural and addictive at the same time.

Letting someone else discount your in-app purchases at will would destroy this delicate balance. It would basically be unpalatable to game developers, who would forgo Amazon and just stick to Google Play or iTunes. It would mean that Amazon would forfeit the most lucrative part of the app economy — gaming.

Amazon hasn’t formally confirmed the beta or the revenue share. The store’s terms of service for developers still have no mention of in-app purchases, unlike Apple and Google which both issue restrictions. On iOS, developers have to use Apple for in-app purchases of digital content. Google has a list of “authorized payment processors,” which really means Google Checkout (er, Wallet) although the company hasn’t appeared to start enforcing it until this year.

The next interesting policy question for Amazon is whether this flat revenue share and pricing control extends to other types of in-app purchases. Like media subscriptions. (Cough.)