Why Apple Wants You to Buy Games

By Markets Fool.com

Apple made a slight adjustment to its iTunes app store earlier this month, unveiling a promotional section dubbed "Pay Once and Play."

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As its name implies, games featured under the section are devoid of pesky in app purchases -- once purchased, gamers need not spend another cent. This contrasts sharply with many of the more popular mobile titles, which are often free to download but coax the user into spending money through optional in-app purchases.

Although it's likely a mistake to read too much into the promotion -- Apple often uses a variety of similar sections to spruce up the app store and encourage engagement -- Apple has made several gestures to push paid titles in recent months. From a strategic perspective, paid titles benefit Apple more so than "freemium" games.

Apple has benefited from free-to-play
When PlayStation games retail for $60, it's difficult to call a $5 mobile title premium. Yet, that modest investment appears to be a sticking point for many consumers -- although paid games are often higher quality than their free-to-play counterparts, those that have adopted the pricing strategy -- most notably Candy Crush, Kim Kardashian: Hollywood, and Clash of Clans -- have seen far more success. Angry Birds, which was an icon of mobile gaming just a few short years ago, has been rendered irrelevant, its parent company Rovio devastated by a failure to adapt to the changing app store landscape.

The rise of freemium titles has certainly benefited Apple, as the ever-increasing amount of revenue generated by these games has flowed directly into its coffers. Last quarter, for example, iTunes generated $2.6 billion in net sales, up from $2.4 billion in the same quarter last year.

Analysts at Asymco estimate that app sales now make up the overwhelming majority of iTunes sales. Apple itself admits that iTunes growth is coming from apps, particularly in-app purchases. Several firms, such as King Digital and Supercell, have built billion-dollar businesses from free-to-play app store games.

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Paid would be preferred
That said, it would preferable for Apple if more iOS games adopted an upfront purchasing model.

Unfortunately, the somewhat insidious nature of free-to-play games has generated a mild degree of controversy. Stories of children racking up four- and even five-digit credit card bills abound -- money spent playing supposedly "free" games. Last year, the FTC sued Apple over the issue, eventually settling for $32.5 million. To Apple, it amounted to a rounding error, but the potential consumer backlash and distrust of the app store could be far more damaging.

Freemium games also suffer from a lack of ecosystem lock-in: Like books, movies, and music purchased through iTunes, games bought on the app store constitute a library of content, one that's not easily transferred to a rival mobile device.Freemium apps, in contrast, use purchases as temporary in-game currency -- for points, energy, or additional lives. Although they may help a player progress through a game, they are ultimately ephemeral -- dollars spent for temporary playing time, similar to the coin-operated arcade games of decades past.

It's not surprising, then, that Apple has consistently made attempts to encourage greater adoption of paid games. Its recent promotion is but a single example.

Last year, Stoic, the creator of The Banner Saga, revealed that Apple is "frustrated" with its customers reluctance to purchase games from the app store. The Banner Saga is not free-to-play -- in fact, it costs $9.99. That price point may have been influenced by Apple's encouragement, as Stoic remarked that Apple had told it to go "higher-end" with its pricing.

Apple has also used its design awards to spotlight full priced games in the past. Four of 2014's iOS app design winners were games -- none of the four were free-to-play. Other moves have been modest, but still notable. In November, it removed the word "Free" on the app download button, replacing it with "Get" (perhaps an attempt tosubconsciouslyundermine the often devious promise of a "free" game).

Freemium appears an unstoppable force
The freemium business model is likely here to stay -- freemium games remain the most commonly downloaded, and the largest grossing in the app store.

Yet, with Apple's encouragement, full priced games may be able to carve out at least a moderately sized niche. Should that occur, Apple shareholders should welcome it.

The article Why Apple Wants You to Buy Games originally appeared on Fool.com.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.