In a well-publicized decision that may ultimately have repercussions for all app developers, the Federal Trade Commission (FTC) and Apple agreed to terms over what the FTC determined were unfair business practices. The FTC was concerned about the ability of young consumers to make purchases through apps, without benefit of parental consent. In particular, the FTC noted that Apple did not disclose that once a password had been entered to allow the purchase, it remained cached for 15 minutes, during which time multiple purchases could be made.
The climate leading up to this decision has been building for a few years. Let’s take a look at how Apple got here:
1. Understanding the Consumer:
Although parents can control who uses their mobile store passwords, this doesn’t mean that businesses do not have to take on some of the responsibility when they offer items for sale. When dealing with products that appeal to children, different rules and considerations apply. Children are vulnerable to marketing messages. With a password in hand, mobile platforms allow them to purchase products at will. It’s a dangerous combination. There are norms that exist around marketing to children on all other platforms, and those concepts can easily be applied to mobile without impacting the bottom line.
2. Smurfberries in Washington:
In early 2011, Senator Ed Markey wrote a letter to the FTC asking that they investigate in-app purchases. The letter was sparked by a consumer who complained that her 8-year-old daughter had made unauthorized purchases of $1400 for Smurfberries from Capcom’s Smurfs’ Village app. In the letter, Markey noted concern over whether or not Apple, Google and app developers were engaging in deceptive marketing practices. When a regulator is displeased, it’s time to take a good, hard look at your business practices. Regulation takes time, but without industry response to early warning signs, legal action tends to follow suit eventually.
3. Class-action Lawsuit:
In the next major development, a class-action lawsuit brought over unauthorized in-app purchases was settled in California. Once again, the complaint focused on the problem of children being able to make purchases within apps without benefit of strong parental controls. In this case, Apple offered 23 million eligible consumers refunds of between $5.00 to over $30. Still, business practices held steady.
4. Global Scrutiny:
The issues have not been limited to the US. In the UK, the Office of Fair Trading noted concerns with the sales pressures surrounding in-app purchases. They found that many games “exploited” children’s “inexperience, vulnerability and credulity” with techniques that included implying that game characters would be disappointed if children did not make a purchase.
5. FTC Action:
Nearly three years after regulators first took notice, Apple is faced with yet another settlement, this time to the tune of $32.5 million in consumer refunds. It’s possible that additional settlements will be coming. After all, purchases across all app stores share characteristics of the Apple purchase process.
As developers, it’s important to take notice of this activity and examine your own practices around in-app purchasing and disclosures. In the next post, we’ll discuss specific areas that developers can focus on to be set up for success in the children’s market.