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What exactly does Apple’s FTC settlement mean for developers?

It was hard to avoid the news last week: The Federal Trade Commission (FTC) reached a settlement with Apple over in-app purchases to the tune of at least US$32.5 million in consumer refunds. The recent ruling has inspired consultant Linnette Attai to weigh in on what this exactly means - especially for developers.
January 23, 2014

By PlayWell founder Linnette Attai

It was hard to avoid the news last week:  The Federal Trade Commission (FTC) reached a settlement with Apple over in-app purchases to the tune of at least US$32.5 million in consumer refunds. So what does this exactly mean – especially for developers?

The scrutiny over in-app purchases in products that appeal to children has actually been ongoing for several years. Mobile platforms allow users to make purchases without cash or credit card in hand. That process, combined with the unique ways in which children respond to sell messaging, is a heady combination. The headlines have told us that on occasion, children have been purchasing virtual goods in amounts totaling hundreds and sometimes thousands of dollars at a time.  Parents have been complaining, and Congress, the FTC and the UK’s Office of Fair Trading have taken notice.

To make a purchase within an app through the Apple store, the user has to enter their password. Unfortunately, that password remains active for a 15-minute window, something the FTC claims that Apple didn’t disclose to consumers.  The end result is the settlement mandating that Apple send refunds to consumers whose children made unauthorized purchases.

Why did this just hit Apple and not other app stores?  When asked, the FTC declined to comment.  However, if the purchase practices between app stores are comparable, don’t be too surprised if other players end up reaching settlements of their own. The FTC will keep the stores on a level playing field.

Before reaching its decision, it’s clear that the FTC looked at both the Apple purchase process and at several apps that offer virtual goods for sale. So, what should developers keep in mind when creating products that both appeal to children and offer in-app purchases?  It all comes down to understanding the regulatory and self-regulatory climates, and taking responsibility for your consumers:

First, be aware of the norms that have evolved over the past several decades around marketing to children.  The sensibilities, language and practices are all important.

Understand the history of regulatory scrutiny around freemium models leading up to the Apple settlement.

Be mindful of the techniques used to encourage children to purchase items within your app. It’s easier to sell to a child than it is to an adult. A light touch is all you need.

Consider including parental controls.  There are a variety of techniques used by responsible marketers on other platforms that would work well in mobile products.  These techniques might help you stay on the right side of regulators and build goodwill with the parents who are ultimately paying the bill.

Review your marketing and app store copy carefully. Be sure all pertinent details about the app are clearly and prominently disclosed.

The most unfortunate part of the Apple settlement is that it could have been avoided.  I encourage all developers to do a deep dive into the history of marketing to children.  The limitations around how children understand advertising messages, the regulations that have developed around advertising on children’s television and online privacy, and the self-regulation that exists around child-directed advertising are based on time-tested concepts that can apply to all media. Use that information to develop good policies and practices that make sense for your brand and that align with industry norms on other platforms to keep your business moving forward on the right path.

I will be elaborating on this at next month’s iKids conference, as well as on more details about Apple’s Kids category guidelines and COPPA.

Linnette Attai is the founder of New York-based PlayWell, LLC, a compliance consulting firm focused on guiding clients through regulatory and self-regulatory issues surrounding advertising, marketing, privacy, safety and content for children and teens. 

 

About The Author
Wendy is Kidscreen’s Associate Editor. When she’s not sourcing material for the brand's daily email newsletter, she’s researching, writing and connecting with others about the newest trends in digital media. Contact Wendy at wgoldman@brunico.com.

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