In a major policy shift, Apple has emailed developers today announcing that they were lifting the ban on in-app-purchases from free apps. Previously, the only time you were allowed to upsell additional content from within an application was for applications that were pay-to-download. In their email Apple states

"In App Purchase is being rapidly adopted by developers in their paid apps. Now you can use In App Purchase in your free apps to sell content, subscriptions, and digital services.

You can also simplify your development by creating a single version of your app that uses In App Purchase to unlock additional functionality, eliminating the need to create Lite versions of your app. Using In App Purchase in your app can also help combat some of the problems of software piracy by allowing you to verify In App Purchases."

This drastically changes the business models and marketing tactics for a number of developers, and introduces other potential developers into the mix. Developers no longer need to offer a limited "lite" or free version of their application and another version that is paid – the free version can be made to upgrade via in-app-purchase to have all the capabilities of a paid app.

This also will have a dramatic effect on app raking charts. I can see more developers simply not creating a "paid" version of the app – and always starting their apps at the free level. This will potentially make the free app charts much more competitive then they already are – and the paid apps chart much less.

You also have to wonder what this will do to apps that like to go on sale from time to time. If the app is already free.. there is no need to lower the price.

BEWARE INTREPID DEVELOPER – It may be easy to get carried away with in app purchase and start attaching micro payments to every possible add-on your app can offer. Remember – you are playing with a consumers pocket book – and iTunes gives the consumer quite a bit of shout-out power to cry foul if developers start to come across as nickel-and-dimeing their customers to death. Be clear in your app descriptions what content is free, and what content will require an additional payment. There’s nothing that will elicit a bad review from a consumer faster then offering something that looks free…. and then requiring them to pay to actually get it.

In-app-purchase is still subject to the same payment and pricing models as always, and Apple will still be getting their 30%.