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No one can argue against the convenience of our iPads, iPhones, and other smart phones. However, with the convenience comes some needed caution. The “free” smartphone applications you enjoy may end up costing you money – a lot of money!

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People, especially parents of small children, are discovering unexpected charges on their credit cards. Children download what they think is a free app, however, suddenly charges show up on parents’ credit card statements. What happens is that these supposedly “free” games have “in-app” purchases built in. When they want to move to a new level, a banner or icon appears that charges a fee. The “freemiums” as they are called, can cost from $1 to over $100.

Game freemiums even catch adults. Although you are promised a “free” download, and assume the game is free forever, the game is designed to entice you to buy new content, energy, or other add-on content to continue playing. Even if not everyone buys up, the game developers still make more money than if they openingly charged more for the game up-front.

Freemium revenue is derived from various forms of in-app purchases, such as virtual game upgrades or speed-ups, buying additional functionality – levels or content, buying more use time, paying for ad removal, or any combination of purchases. For example, the New York Times app allows the purchaser to access a certain number of articles; the rest are blocked unless you subscribe.

Freemiums did not begin with mobile apps. Facebook offered Farmville, where users were glad to spend more money for game enhancements. However, it really took off once mobile gaming began. If game players do not want to pay $20 or so for a game, they are going to have to deal with developers using freemiums to generate income. According to a new report from mobile analytics company App Annie and IDC, “freemium” revenue for mobile apps was up 211% last year.

As a reaction to what some see as freemium abuse, lawsuits have been filed by parents against Apple and others, claiming that the “free” applications have charged ridiculous fees and exploited their children.

Additionally, Google, Apple and Amazon are being investigated by the Italy Antirust and Competition Authority. Earlier this year, the EU called on companies to reform the use of freemiums. The concern is that consumers are being misled and that consumer confusion may threaten the economic viability of app stores as well as the economy in general. Gameloft, a French game developer, is being investigated due to similar concerns.

Is there a way to prevent freemium charges? Yes. You can go to the settings on your smart phone or iPad and turn off the ability to purchase in-app purchases. Additionally, if you are willing to pay $20 for the full experience of a game, you can do so with no catches, no ads, and no freemiums. However, since they have proved a successful way for game developers to generate income, freemiums are probably here to stay. At least until something more profitable comes along.

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