Appolicious powers Verizon Educational Tools

Developers hit by customers getting refunds on in-app purchases

by Phil Hornshaw

Here’s the other half of the familiar “my kid spent a thousand bucks on in-app purchases” story: game developers take a hit on those situations, too.

It’s an issue that goes on with “freemium” games -- games that are free to download and free to play, but that sell content to users through in-app purchases. These purchases are often some kind of digital goods, like the ability to speed progression through the game or to make a player more powerful in the game world.

Controversy around the in-app purchase situation has developed among a few games that are clearly geared at small children, but include high-priced in-app purchases. The game most often targeted in these stories is Capcom’s Smurfs’ Village, a game in which players can purchase “smurf berries” that allow them to more quickly progress through the game or reduce wait times on certain actions. Smurfs’ Village includes smurf berry purchases that go as high as $99, but it’s hardly the only one -- Zynga, the maker of games such as FarmVille and Mafia Wars, makes its huge profits off this exact model. Even bigger premium games such as Infinity Blade include in-app purchases in this vein.

The problem arises from the fact that the iTunes App Store on the iPhone and iPad allows users to sign in with their Apple IDs to make purchases, and then keeps that device authorized for purchases without signing in again for another 15 minutes. During that time, many parents have claimed they’ve handed off their iPhones to children to play the games, only to find later that those kids are making in-app purchases in the 15-minute grace period. It’s a problem so widespread that Apple (AAPL) has been issuing refunds to complaining parents, although there’s no official refund policy for the App Store -- it’s a case-by-case, call-in-and-we’ll-see system that Apple runs more in the vein of troubleshooting than an actual return policy.

That’s not exactly great news for developers, though, for obvious reasons: every time Apple issues a refund, that’s money from a game-maker’s pocket. According to a Pocket Gamer report from Game Developers Conference 2011, it’s a growing problem in the mobile game developing community. And really, it’s not the developers’ fault that such purchases are getting made, necessarily. Part of the blame falls with Apple’s system, and part has to fall with the parents allowing their kids access to a device on which they can easily make payments without being password-prompted.

But, depending on your point of view, the developers are at fault as well for hanging a carrot out in front of kids and trying to get them to bite. Of course, that’s what all business is, but the implication is that it’s somehow seedier when done through a video game when you already have your audience hooked.

So seedy, apparently, that the Federal Trade Commission is currently in the process of investigating the in-app purchase system for being too easy, it seems. Advertisers aren’t necessarily restricted from trying to sell to children, but there are definitely ethical concerns raised there.

When it comes to casual games, though, it’s hard for a line to be drawn. FarmVille and Smurfs’ Village might look like children’s games, but at least in the former’s case, there are millions of players who are certainly not children. And if Apple is issuing refunds to all these people who are making accidental purchases, what’s to say they’re not just asking for their money back out of buyer’s remorse -- and should that be allowed in the App Store, or not?

An interesting parallel case study is the Android Market, which does allow users to ask for refunds. Previously, the window for such refunds was 24 hours -- but Google (GOOG) has shortened it markedly down to just 15 minutes, presumably to combat a huge flood of refund requests. With the nature of mobile gaming being so small-scale in many cases, it’s not unreasonable for a person to download a game, play it for a while or even finish it, and turn around and request a refund: something that’s not necessarily fair to the people making the software.

It’s a sticky situation, to be sure. From a consumer standpoint, the App Store should probably include some kind of dissatisfaction policy -- currently, refunds seem to be mostly issued for “accidental” purchases, both in-app and in the App Store at large. Combating user abuse, however, is probably not something Apple wants to take on, even though it would likely make App Store users more happy. If it ain’t broke, after all.

But with the big push toward freemium as a model for gaming and the FTC’s attention trained on the App Store, something needs to change. The best, and simplest, solution would be for Apple to add an additional password protection to in-app purchases. That could help block inadvertent purchases and children doing things they shouldn’t -- without punishing developers who are legitmately following the rules.