• by Mark Walsh  @markfwal, October 16, 2009

Apple's decision to allow free App Store applications to capitalize on in-app transactions is welcome news to developers. Until now, the option to sell content, subscriptions and digital services within apps was only open to paid ones. As a result, makers of premium apps began offering both full paid and free (light) versions of their software.

Now they can simply create a single, upgradeable version of an app, enabling the "freemium" model to take hold in the App Store. In its note to developers Thursday, Apple also suggested the new feature could help combat some of the problem of piracy by allowing them to verify in-app purchases.

Extending in-app transactions to free apps should be a boon to the virtual goods economy, allowing game developers to offer free games, as the do online, that let users buy virtual items in the course of game play. It could also benefit other companies, such as Offerpal Media and SuperRewards, that let players earn virtual goods in return for taking a brief survey or other action desired by a marketer.

Inside Social Games, however, reports that the use of virtual currencies-like Facebook credits--for in-app purchases, is still not allowed. Justin Smith, who founded that site as well as InsideFacebook, released a report this week projecting the U.S. virtual goods market will double to $1 billion in 2009. The study cited the iPhone as an emerging part of the sector.

For consumers, allowing in-app purchases in free apps could also lead to a less cluttered and confusing App Store if it leads to fewer versions of essentially the same software. On the downside, it also holds the potential for more bait-and-switch schemes by developers. Such an approach would likely lead to a swift backlash by iPhone users who have 85,000 other choices in the App Store.