At a very coarse level, income is generated by developers creating and marketing applications to users. One of the reasons the app economy has flourished on smartphones in the last few years is the amount of money that a smart developer can make. For Windows Phone, especially Windows Phone 8, to thrive, Microsoft and its partners need to facilitate conditions which will allow developers to make their money on Windows Phone applications.
And looking at current trends, that means Microsoft needs to hurry and get in-app purchasing available to every developer.
Trey Smith owns Secret HQ Games and develops titles for iOS devices. One of his recent blog posts looks at changing attitudes in Apple's App Store around which games are bringing in the money for developers. The first phase of App Store success, with titles such as Angry Birds, saw developers make their fortunes in the 99 cent / 79p game titles, purchased by the user.
Phase 2, according to Smith, is the rise of the 'Free to Play' game. Staying with the Angry Birds example, the highest position in the Top Grossing iPad charts is for the original Angry Birds, at number 55... while it sits at number 2 in the ranking of 'paid for' apps.
Almost all other titles dominating the revenue charts are free to play.
Smith's article is definitely worth reading if you are looking for an indication where the money is being made in mobile applications today. But what does it mean for Windows Phone? At the moment, it means the tools needed to be really profitable are very limited. The key to unlocking earning potential could easily be an accessible in-app purchasing system.
This is on the way, as Todd Brix told the Amsterdam TechEd event earlier in the summer. In my mind this can't come quickly enough. It will be integrated within the Windows Phone Dev Centre (the new name for AppHub) and will be available in every territory which has a Windows Phone 8 Marketplace. It will likely use the card details you previously registered to buy applications, making it quicker to use and stickier for the consumer. And developers won't need to code their own payment systems from the ground up, they can simply plug into the global IAP (In App Purchasing) engine.
While I might not personally like the freemium model of gaming (you download the game for free, and you purchase content from inside the game) it's clear that the model is one that is financially viable for many developers on other platforms.
A handful of Xbox Live titles have been using the freemium model, but without the global IAP solution discussed above, it's not been a viable option for developers.
Windows Phone 8 could change all that.
Mind you, that's a phrase that could be said about any area of Windows Phone. My worry is the delay in getting IAP is going to mean that developers who ride the freemium train are not going to jump on board with Windows Phone. In the near term the simple reason is that there is no IAP at the moment without a disproportionate amount of coding, so the currently successful titles won't make the jump to Windows Phone.
Windows Phone 8 devices need to be announced, launched, put on sale, and then purchased by users in sufficient quantity to give a sufficient number of WP8 devices for freemium games to address. Those conditions are unlikely to be in place before Q1 of 2013, some six months away.
That's a huge amount of time that is going to be lost, and the danger is that the developers who master the freemium model will simply refuse to make the jump to Windows Phone in March next year because they are established and on top of the tree in the iOS and Android marketplaces.
Microsoft need applications for Windows Phone now. Not six months down the line, they need to keep what momentum they have right now and build on it. The freemium model is one that is exploding on other platforms. I think it's time for Microsoft to take a closer look at the IAP tools on offer and make them available (a) as soon as possible and (b) extend the IAP system to include Windows Phone 7 devices as well as Windows Phone 8.
Developers need the tools and the inspiration. If In App Purchasing is available right now for everyone, the monetary return should go a long way to provide the needed inspiration.