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In-App Innovation + Iteration = Self-Regulation


Post Date: July 15, 2014
By: Rachel Thomas

in-app-purchasesThese days, no matter the question, the answer is almost certainly, “there’s an app for that.” The real question is how to monetize that app and, along with native advertising, in-app purchases are increasingly the data-driven marketer’s method of choice. But, this evolution has not come without controversy – in the blogosphere and now increasingly in the regulatory sphere.

In January, Apple settled with the Federal Trade Commission (FTC) after the regulator alleged that the tech giant had violated federal law by failing to tell parents that by entering a password they were approving not just a single in-app purchase but also a 15 minute period in which their children could make additional purchases. (Confused yet? Helpful graphic here).

Just six months later, the FTC is at it again, alleging that Amazon billed parents and other account holders for millions of dollars in unauthorized in-app charges incurred by children. And the word on the street is that the FTC already has its eye on potential next targets.

Apple’s settlement came at the cost of $32.5 million and a 20-year consent decree that requires the company to change its billing practices and provide full refunds to consumers who were billed for accidental or unauthorized in-app charges made by children, among other things. With a price tag like that, it’s perhaps unsurprising that the FTC’s next target refused to simply settle. Instead, Amazon is hunkering down for what could a long and costly battle to prove that they did the right thing from the start – innovating and iterating to give customers the in-app experience they ultimately desired.

To be fair, the FTC is clearly looking to protect consumers here, which is an important and admirable goal. It’s just not necessary in this case. Why? Because no one has stronger incentives to keep consumers protected than data-driven marketers, whose businesses would be nothing without the trust of their customers.

The Information Age has given companies an unprecedented role in the lives of their customers: 85% of U.S. consumers are never more than three feet from their cell phones. The average consumer works, plays, shops, socializes and figures out how to get the mystery stain off her couch using technology. But, this data-driven way of life has also given consumers lots of choices about the companies to whom they give their valuable attention. The crashing failure of some companies and soaring success of others shows the power of consumer choice: in order to survive, data-driven marketers have to use technology to keep customers happy and secure – or they won’t have those customers for long.

In other words (the words of Peter Parker’s dear Uncle Ben, to be specific)… “With great [data] power comes great [data] responsibility.”

This is something that Amazon – which prides itself on being “Earth’s most customer-centric company” – understood intuitively as it entered the world of in-app purchases. From the outset, Amazon created notifications and parental controls. When parents weren’t happy with the first set of options they were given, Amazon tweaked those notifications and controls until parents were happy. When parents asked for their money back, they got it back. And Amazon didn’t stop there: it went far beyond the issue of in-app purchases in creating Kindle Free Time, addressing other issues that might arise when a parent hands a phone to a child.

The story of Amazon’s in-app purchase journey is the story of self-regulation at its most fundamental and vital level – making a customer happy by introducing innovative products and features…and then constantly iterating those offerings to make that customer happier all the time. In short, anything that the FTC could have hoped to fix with a settlement and a consent decree has already been fixed by Amazon. In fact, in an open letter to FTC Chairwoman Edith Ramirez, Amazon expressed puzzlement that a program which has met a competitor’s consent order, and surpasses parts of it with “industry-leading parental controls” is being targeted by the agency.

Self-regulation acknowledges that innovation is a journey, and that any road has its bumps. Even after extensive testing, there can still be flaws in such a nascent marketplace. Self-regulation is a company, or an entire industry, constantly tweaking its products and practices to meet and exceed increasing – and shifting – consumer expectations.

Bottom line: This is a triple win – for consumers, for self-regulation… and for a busy consumer protection agency. The FTC is a vital agency with a host of important to-do items – fighting patent trolls and other fraudsters, to name just a few. With the myriad of real issues facing today’s consumers, the FTC should spend its time targeting real problems – not companies that are innovating responsibly and constantly iterating to do right by their customers.

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