Bloomberg News

Amazon Testing In-App Purchases to Challenge Apple

April 09, 2012

An Amazon.com Kindle Fire tablet computer. Amazon could use the transactions to wring more sales from its Kindle Fire tablet and the widening array of applications that can be downloaded to the device. Photographer: Scott Eells/Bloomberg

An Amazon.com Kindle Fire tablet computer. Amazon could use the transactions to wring more sales from its Kindle Fire tablet and the widening array of applications that can be downloaded to the device. Photographer: Scott Eells/Bloomberg

(Corrects number of Amazon apps in ninth paragraph of story that ran April 3.)

Amazon.com Inc. (AMZN:US), the world’s largest online retailer, is testing a service that lets tablet users make purchases through mobile applications, a sign it may enter a market pioneered by Apple Inc. (AAPL:US) and Google Inc. (GOOG:US)

The service being tested allows both subscriptions and purchases of individual items within apps, according to Maria Ly, co-founder of Skimble Inc., a seller of physical fitness programs that has been involved in Amazon’s pilot for about a month. Sally Fouts, a spokeswoman for Seattle-based Amazon, declined to comment.

Selling items from within downloadable software can generate revenue for developers as well as companies, such as Google and Apple, that distribute apps through online stores. Amazon could use the transactions to wring more sales from its Kindle Fire tablet and the widening array of applications that can be downloaded to the device. So-called in-app purchases will generate $5.6 billion in revenue in 2015, up from $970 million last year, according to IHS.

“We really wanted to attack the Kindle Fire market, but also have access to the payment methods that support our business,” Ly said.

Most of Skimble’s sales come from subscriptions and in-app purchases, such as specific workout regimens, she said.

Taking a Commission

Amazon plans to charge a 30 percent commission to clients for its in-app purchase service, the same rate as it charges developers for app sales, Ly said. The shares increased less than 1 percent to $199.66 today in New York.

The move would be an important step toward making Amazon more competitive as developers look to in-app purchases to increase profit, said Brian Blair, an analyst at Wedge Partners Corp. in New York.

“Amazon needs to be positioned to capitalize on this,” Blair said in an e-mail. “It’s a smart model. Some of the best new apps in Apple’s app store are free so users can easily download and see the application, but to get any meaningful use, in-app purchases are required.”

Amazon has to catch up to Google and Apple, which both have more than 450,000 apps available in their stores, compared with about 34,000 on Amazon’s store.

Amazon’s stock has fallen 20 percent from a high (AMZN:US) in October after spending on fulfillment and Kindle devices sent operating expenses up 44 percent last year and shaved 2.3 percentage points off margins.

San Francisco-based Skimble charges $24.99 for a three- month membership of its workout program and an average of $9.99 for individual programs. It would offer both packages with the new Amazon app service, Ly said.

“It’s still kind of in its early stages,” Ly said of the services being tested. “But we’re very optimistic about it.”

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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