In-App Billing Can Boost Android Revenues More Than You Think

On Tuesday, Google launched a long-awaited in-app billing feature for developers who can now add extra purchases in Android applications. Digital goods such as content downloads, additional game levels, virtual currency and other items can now be sold within a software title. Following the same model as Apple (s aapl), which implemented such purchases in iOS 3.0 back in June 2009, Google (s goog) will earn a 30-percent cut of in-app purchases.

The new purchase model could be a boon for Android developers, many of whom haven’t yet seen the financial successes others have found in selling software for Apple’s iOS devices. Although Google hasn’t released a dollar amount for revenue paid out to developers, Apple has and it’s a big number: $2 billion as of earlier this month. This highlights a very different mentality and approach in the two competing mobile platforms.

Google’s main thrust to this point has been to get more devices in user’s hands so it can continue expanding an audience for targeted advertising. Android developers can earn money through such ads, as well as software purchases, but it’s clear Google’s focus has long been on the ad model. Even now that Android is nearly 2.5 years old, software can only be purchased in the Android Market in 32 countries, though free downloads are available in many more areas.

Android developers are already limited by the Android Market availability, but there’s another challenge: an “Android is free” mentality that comes with the Google brand. Look at Google’s most used services today, and you’ll see the issue. Search, email, video chat, online document editing and management: All are free, at least in terms of a financial cost to users. It’s a valid argument that consumers are paying Google in the form of personal data and preferences, effectively subsidizing these services with information collected by Google. But from the perspective of customer wallets, Google services cost nothing to most, who then equate that with Android software.

The new in-app billing, available for apps that run on Android 1.6 or better (which is effectively all devices at this point) does bring hope to developers and could change the perception that Android is free. A January report from app analytics firm Distimo noted that in 2010, 49 percent of iPhone app revenue came from in-app purchases. Even better, the data suggests in-app sales for free apps can be greater than those generated in paid apps. Distimo’s research showed free apps generated 34 percent of in-app revenues vs 15 percent of similar purchases in paid apps.

That bodes well for Android developers, who up to now could only sell apps in limited markets to an audience that considers Android to be a free alternative to other platforms. It will take time for programmers to add the new in-app billing support, but once they do, the right digital add-ons could yield more dollars to existing apps and possibly even woo some iOS devs to port successful titles to Google’s mobile platform.

Will Google app revenue payouts rival Apple’s billions? Not likely, at least not in the short term. But the new in-app billing functionality offers Android developers a chance at earning more money, something many have been patiently waiting for.