Amazon Appstore’s Window of Opportunity Around In App Payments

Amazon has spent more than 15 years becoming the undisputed leader in online retailing for physical goods like books. While it does sell music and e-books, it has yet to figure out virtual goods sales in games with the same precision.

That’s why the conspicuous absence of in-app payments in Amazon’s developer distribution agreements for its newly-launched Android appstore is intriguing. And we know of several companies that are going to make a move on this in the next few months.

“The Amazon Appstore supports one-time, up-front purchasing for apps,” said Amazon spokesperson Anya Waring. “We recognize that downstream monetization features are important to developers’ business models, however, and don’t restrict their use in our developer agreement.”

This is very different from how Google is approaching its officially sanctioned Android Marketplace. Google has stressed that if Android developers want to sell goods or virtual currency in their apps and be listed in their marketplace, they need to use Google’s preferred payments methods such as Checkout or direct carrier billing. These terms have rankled Android developers who have been waiting months for a full consumer launch of Google’s long-delayed, in-app billing. (In app billing is currently in beta to developers.) At the same time, the complicated user experience on Google Checkout has made it difficult to get paid downloads on Android despite the platform’s explosive trajectory and growing market share.

Ironically, Amazon Appstore’s lack of policy around in-app payments makes it more ‘open’ than Google’s in this regard, since third-party monetization companies will be able to move in, compete and innovate while they are more restricted on Google’s Android Marketplace. Google doesn’t vet apps before they land in the store and there are a myriad of security concerns, so the company’s decision to control payments is understandable. In contrast, Amazon takes the reverse approach: it vets apps but doesn’t control in-app payments.

Amazon’s move comes at a time when more and more developers are finding that making their apps free and selling virtual currency can be far more lucrative than pursuing the paid app route. Leaving out restrictions around in-app payments may incentivize the biggest third-party monetization companies to come and experiment on Amazon’s store instead of on Google’s Android Marketplace.

At the moment, the biggest third-party monetization companies are keeping their cards close to their chest, but Rovio Mobile’s in-app payments service Bad Piggy Bank will likely work on the Amazon Appstore. We wouldn’t be surprised if the two slipped some terms around Bad Piggy Bank into a recent deal that brought Angry Birds Rio exclusively to the Amazon store.

Tapjoy has also kept mum on the issue, although we suspect they’ll be coming out with something in the next three months. Because few developers make more than a lifestyle income from the platform and Google has yet to nail it, experimenting to see if in-app payments can pull those numbers up is worth a try.

However, assuming — and this is a big if — that Amazon’s Appstore can gain critical mass either through carrier and manufacturer agreements or through sales of long-rumored Android-based Kindles, such a free-for-all probably won’t last forever.

Companies with institutional memory on the Facebook platform have grown older and wiser. They know all too well that once Amazon learns what works just as Facebook did with Zynga, Offerpal and Jambool’s SocialGold, they may very well move in with their own virtual currency solution.

Independent mobile developers are also a bit hesitant around Amazon’s terms, which make them give up control of pricing. Amazon can put their apps on sale at will and undercut prices on other Android app stores to gain market share.

All we can say is that there is a lucrative window of opportunity at the moment, but developers ought to tread carefully.