App micropayments create the next big parental headache

Here's a warning for all those parents who remember that first whopper cellphone bill loaded with ringtones and texting fees from the kids: Get ready for round two.

That's because the multibillion-dollar market of mobile phone app makers is looking for its next billion dollars.

And right now that target is roping children - and you - into making lots of small purchases within apps, games and social-networking services.

Think of a magic flaming sword in your medieval strategy game. If you want it, it will cost 5 cents.

Or say you want a cool pair of sunglasses for your game's avatar - that will be 50 cents.

And some of these "micropayments" aren't so micro. There's the $99 charge for a "wagon" of virtual "Smurfberries" your 5-year-old wanted so badly in the Smurfs' Village app that he happily tapped on the "purchase" button. And all those charges show up either on your credit card or monthly wireless bill.

These micropayments are suddenly a macrosize fountain of new revenue for app and game makers, particularly those who market through Apple's iTunes store, and soon via Android phones.

The apps can also be a surprise headache for parents and a big change from the way app creators first marketed their products.

Previously, the business model for app or game makers was to take a share of the initial sales price - typically 99 cents - through iTunes or another online store, said Patrick Mork, chief marketing officer of GetJar, one of the largest online marketplaces for apps.

Then app creators began offering free, trial versions to tempt people into buying the full version for 99 cents, or $19.99 in some cases.

But now, Mork said, "I've talked to some gaming companies who tell me they're seeing four and five times the revenue from sales of things in the app than the original app."

All from millions of tiny charges.

That revenue stream could only grow as gadget makers such as Apple, Samsung, Motorola and LG are expected to sell millions of new tablet computers, all built to be app playgrounds. And Google's mobile phone operating system will soon let app makers offer in-app purchases.

In turn, parents and politicians have started venting their outrage, especially as children, knowingly or not, rack up big charges on their parents' credit cards for hundreds or thousands of dollars.

The Washington Post, in particular, documented cases in which children bought $99 worth of "Smurfberries" in the Capcom Interactive game Smurfs' Village - either with their parents' passwords, or during a special 15-minute window that doesn't require password re-entry by users.

Since the original app purchase was tied to a parent's credit card, the micropayments simply flowed through to the monthly credit card statement.

In February, the Federal Trade Commission announced plans to review the marketing and delivery of apps that charge fees. One key question - similar to that in the era of surprise ringtone fees - is whether those charges are fairly disclosed up front.

That investigation is ongoing.

Meanwhile, app makers, Apple and some cellphone companies have started adjusting how they handle in-app purchases. Apple has a new operating system upgrade that requires an additional password to purchase in-game trinkets.

But looking forward, app makers, app stores online, and cellphone companies will need to find a balance that makes the most sense for a variety of apps, games or other mobile services, said Todd Murphy, director of the consumer solutions group at Verizon Wireless.

"It's not like the up-front payment will go away," Murphy said.

For example, Verizon has the ability to sell apps on its vCast online store and process in-app purchases so they flow through to the customer's monthly bill.

"But we have to be sensitive to how we allow developers to present that offering to the customer, because it could be so easy to throw it all on the phone bill. We want to make sure to do this in the right way, so customers can trust us in terms of what they put in the hands of their children," Murphy said.

For parents wondering if there's a way to control their children's in-app purchases, there's an app for that, too.

But if you want to disable in-app purchase altogether on the Apple iPhone, iPad or iPod, follow these steps:

•Tap on the settings button

•Tap General, then tap Restrictions

•Select "Enable Restrictions," and enter or create your passcode (Note it down for later)

•Scroll down to "In-App Purchases" and switch it to "Off." Then exit the Settings menu.

There isn't a simple way to make purchases in apps yet for Android and Windows Mobile devices, but that's changing. Google this month started offering software to developers so they can start offering in-app purchases in their games.

As for how parents can restrict or block or those micropayments, that's yet to be determined.

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