Apple 2.0

Covering the business that Steve Jobs built

The iPhone App Store takes a bad turn

July 2, 2009: 8:10 AM ET

Picture 8I'd heard about this new iPhone app, but it wasn't until AT&T's (T) sales pitch landed in my inbox Thursday morning that its significance hit home.

It's called the AT&T Navigator -- a turn-by-turn GPS navigation system for your car that runs on an iPhone 3G or 3GS.  From the press release and early reviews it sounds like it's packed with features, from voice activation and spoken directions to the ability to search for the nearest Wi-Fi hotspot and the cheapest gas.

The problem with the application is how you pay for it. Downloading the Navigator is free. Owning it is expensive: $10 added to your monthly bill -- even if you delete the app -- until you contact AT&T and shut off the service.

Over the life of a two year AT&T contract, this one application could set you back $240, more than you paid for the iPhone itself.

Welcome to the world of subscription pricing, one of the more than 1,000 new application programming interfaces (APIs) added to the iPhone's software development kit (SDK) last March.

"Included in these APIs," promised Apple's (AAPL) press release at the time, "is the ability to leverage the incredible purchase model of the App Store within apps. In-App Purchases will allow developers to offer subscription content and provide the ability to sell new content and features in a simple and secure process."

Senior vice president for iPhone software Scott Forstall, when he talks about subscription purchases, likes to use the example of a book publisher who might want to charge customers $10 or $15 to download a new title. That seems fair. AT&T's Navigator does not.

[See Adam Frucci's prescient Why iPhone In-App Transactions Could Be a Disaster, posted in Gizmodo way back in March.]

CLARIFICATION: Although iPhone 3.0 allows subscription pricing, it does not permit developers to sell add-ons to free apps. As several readers have pointed out, AT&T is not billing Navigator users through the App Store; rather, it is taking advantage of its position as the iPhone's exclusive U.S. carrier to add the fee to customers' monthly bills.

Tom Tom navigatorColor me old-fashioned, but when I buy an iPhone app -- or for that matter, a GPS navigator for my car -- I want to own the thing outright. I don't expect to open my wallet to a Trojan Horse that's going to ding me $10 a month for the rest of my days.

Tom Tom, the company that was invited by Apple to demonstrate its competing navigation system at the World Wide Developers Conference keynote last month, promised to announce details regarding pricing and availability this summer but has not yet done so. If I were in the market for an iPhone navigator, I'd keep my eye on that one.

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Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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