Sat, Mar 01, 2014 - Page 14 News List

EU targets app developers who mislead buyers with ‘freemium’ business model


Just two weeks after suggesting the EU is on the cusp of a digitally led economic bonanza, EU officials warned on Thursday that developers of online games may be misleading consumers.

EU Justice Commissioner Viviane Reding called a two-day meeting with European developers of mobile apps and is warning them that to advertise products as “free” only to charge consumers later could undermine consumer confidence in the nascent industry.

In particular, Reding said consumers are being deceived by “in-app” purchases — an arrangement in which users are able to download games for no cost but are later required to pay to continue playing.

“Misleading consumers is clearly the wrong business model and also goes against the spirit of EU rules on consumer protection,” Reding said, adding that she expected “very concrete answers” from the app industry.

While it has not made its research into the problem public, the commission said it has received complaints from “all over Europe” and it is particularly concerned about children being charged to upgrade games.

The meeting, which was set to end today, brings together lawyers and representatives from app startups, government consumer watchdogs from EU member states and industry leaders Google Inc and Apple Inc.

However, while industry observers agree that children should be protected from unintentional purchases, there is concern that European regulators have misunderstood the established “freemium” business model, which involves free downloads followed by small charges for upgrades.

“Nothing is for free and concern with this business model is naive,” said Ann Mettler, executive director of the Lisbon Council, a Brussels-based technology think tank.

“Startups need to generate money and there is nothing wrong with offering users free basic services, then giving them the option to upgrade,” Mettler said.

However, the commission said that the freemium payment model for games and apps targets children through default purchase settings, which can result in mobile app users paying for app-related content without explicit consent.

“It might not always be clear where the freemium model ends and where the payment begins,” James Waterworth of the Computer and Communications Industry Association said.

“It is excellent that the Commission is getting industry players together to agree on standards, rather than approaching it with heavy-handed court cases which would take years to resolve,” Waterworth said.

Other observers point out the regulatory concerns are in contrast with the upbeat assessment of tech startups released earlier this month by EU Commissioner for the Digital Agenda Neelie Kroes, suggesting that the EU’s digital economy could employ nearly 5 million people by 2018.

An EU official suggested that children running up bills on their parents’ tablet computers is “a real issue” but warned against the risk of overreacting.

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