Before Apple enabled in-application purchases, the hot debate was whether or not revenue maximization came from charging for downloads (and limiting distribution) or through in-app advertisements (and hoping for continued engagement).

For game and music applications in particular, there is another option that seems to be finding success: free applications that have in-app micro-payments (either to improve / advance your character, access unique levels / tracks, etc).

While it is clear that this has been successful in larger environments (ie Zynga and Facebook), it is the first time that I have noticed the model breaking into Apple’s “Top Grossing Apps” category… which is usually reserved for applications that cost $0.99 – $9.99.

The two applications are Papaya Pro 3.0 (#21) and Ngmoco’s Eliminate Pro (#28). The purchases are coming from in-game improvements – papayas or power cell packs – which are used for advancing inside the game. Imagine a separate scenario: the popular T-Pain application becomes free (currently $2.99) and most/all tracks are $0.99. As other apps find success like Papaya and Eliminate Pro, I suspect that more game and music applications will test the power of free distribution – after all, popularity and mass adoption is a great motivator to pay to improve your status / ranking / reputation (read more here).

Popularity: 2% [?]