With the rapid adoption of mobile devices such as smartphones and tablets, many in Japan run apps on their mobile devices to play games and watch shows. Smartphones have become a part of everyday life, so it’s not uncommon to see promotional campaigns encouraging people to use applications for various purposes.

App billing has become a key method for businesses that handle online content, such as movies and music, to generate income. Billing for digital products typically falls into two groups: in-app and out-of-app. There are several types of revenue models for this.

In this article, we’ll cover the basics of app billing, outline pricing approaches, offerings, and items suited to it, and compare in-app vs. off-app billing benefits and trade-offs.

What’s in this article?

• What is app billing?
  
• App billing revenue models
  
• Products and services that can be sold using app billing
  
• Products and services that cannot be sold using app billing
  
• Advantages and disadvantages of in-app billing
  
• Advantages and disadvantages of out-of-app billing
  
• What to know about out-of-app billing in Japan
  
• Determining the correct payment methods for app billing
  

What is app billing?

App billing lets providers bill customers for goods or services as needed after they download and use an application on a mobile device. In-game items and paid content on streaming platforms are often billed directly within the app.

Payment starts when paid features are used, not at install. For example, listings that display “in-app purchases” on the App Store or Google Play might incur charges after downloading.

Costs applied within an app occur after use, not to be mistaken for paid apps that charge when downloaded.

As discussed, there are two setups that exist: in-app and out-of-app billing. Let’s examine the details of each.

In-app billing

In-app billing is a payment method that allows users to pay in-app. With this approach, customers pay via the store’s built-in checkout, such as App Store or Google Play. In other words, since the platform handles processing, publishers must pay fees to Apple and Google.

Out-of-app billing

Out-of-app billing directs users to an external site to confirm the cost. With this process, customers often have more pay options that are not available for in-app billing. This benefits businesses, as it makes it easier for people to check out. In addition, no store commission applies, easing margin pressure.

App billing revenue models

In this section, we’ll look at the various revenue models for app billing. Businesses can select the one that best suits them when operating an application.

Consumption-based billing

Consumption-based billing is an earnings model in which products are consumed after purchase and repurchased as needed. In a gaming app, for instance, a player can purchase some sort of in-game currency. Spending it requires topping up, resulting in a charge per use.

Nonconsumption-based billing

Nonconsumption-based billing is the opposite. This model allows customers to continue using the item indefinitely after purchase. A typical example is e-books. E-books purchased through in-app billing can generally be read as many times as you like for as long as the distribution service continues. This means that buyers can enjoy the material repeatedly long after the purchase.

Automatically renewing subscriptions

Automatically renewing subscriptions continues to charge users until they cancel the service. Streaming and music platforms often rely on content distribution services, applying a fixed monthly fee at a specified time each cycle. Subscribers can view and listen to media freely and without limits (except for occasional premium content).

Non–automatically renewing subscriptions

Unlike the subscription type discussed above, this charging method does not automatically renew after the contract period expires. This means that this revenue model involves collecting usage fees until the contract ends. Because customers can’t keep access after expiration, they must decide whether to renew or not each time the end date approaches.

Products and services that can be sold using app billing

Below are some products and services commonly sold using app billing.

• Content: Videos, downloadable video game add-ons such as characters and levels, e-books, e-comics, news articles, photos
  
• Additional features and advanced services: Functionality upgrades (premium versions), functions for linking to third-party software, ad removal
  
• Subscription services: Media distribution platforms
  
• Cloud services: Data, cloud software for backup office functions
  

Products and services that cannot be sold using app billing

• Products and services involving physical items: Food and beverages, accessories and clothing, entrance tickets to events held on-site at a physical location
  
• Inappropriate content: Any item or material that violates laws or regulations, infringes on human rights, defames others, infringes on rights such as copyright, or is contrary to public order and morals
  

Advantages and disadvantages of in-app billing

In-app and off-app billing each has trade-offs. Let’s examine the advantages and disadvantages of in-app billing from both the business and customer perspectives.

Advantages for businesses

Platforms, including the App Store and Google Play, process checkout directly, giving businesses the advantage of ready-made systems instead of creating their own.

Disadvantages for businesses

Built-in store systems simplify charging but Apple and Google take a 15%–30% commission, which is relatively high. Many view this as a margin constraint.

The business must also comply with the price table established by the app platform and cannot set sales prices at will. There is also a risk that fluctuations in foreign exchange rates could impact earnings.

Advantages for the customer

Customers can complete payments without having to navigate to an external site, eliminating the hassle of extra steps. The process remains simple and convenient because the entire flow—from charges to accessing content—happens in-app.

Disadvantages for the customer

Users can only make charges through the methods built into the store. If a customer can’t use their preferred option, they might feel inconvenienced. Although providers could want more ways to pay, they are unable to do so—the app platform sets them, not the business.

Advantages and disadvantages of out-of-app billing

Now, let’s examine the advantages and disadvantages of out-of-app billing.

Advantages for businesses

A key benefit of out-of-app billing is that no fees go to the store platform. Selling at the same price as in-app can increase profits. Additionally, your business can set prices freely and easily, without being bound by the requirements of the platform.

Disadvantages for businesses

To generate revenue through out-of-app billing, the business must establish a checkout system. This means that offering your own options adds time and effort required to implement the payment system. There is also a risk that opening up an external site can reduce usability and cause customers to leave without completing the purchase.

Advantages for the customer

On one hand, those who prefer in-app billing over off-app can be more likely to leave altogether. But, with out-of-app billing, customers have more checkout options, which is a significant benefit for those who have a strong preference for a specific payment method.

Some providers could also offer reward point campaigns, letting people redeem later and save money.

Disadvantages for the customer

Out-of-app billing requires leaving the application to a checkout page, which some find inconvenient. This might not be the ideal choice for those who prefer a straightforward mechanism similar to in-app billing.

What to know about out-of-app billing in Japan

Out-of-app billing has risen in popularity in Japan, in part because high in-app commissions can cause extra strain on a business’s revenue. This approach does not generate income for the platform. As a result, platforms have mainly imposed strict regulations on out-of-app billing—e.g., it’s impossible to insert links in apps to direct users to external sites.

However, in recent years, out-of-app billing has become possible in certain applications. In Japan, people can now move to third-party pages to complete digital content transactions outside the app (such as videos, music, magazines, books, and newspapers) or for reader apps that are exclusively for viewing media via subscription.

As out-of-app billing becomes more widely available, businesses will have greater freedom, and those relying exclusively on in-app so far can expect to increase profits through this method.

Determining the correct payment methods for app billing

This article explored in-app and out-of-app billing. We’ve covered income models and their respective advantages and disadvantages, with each having their own unique characteristics. In both cases, the ideal approach is a matter of the customer’s preferences and priorities.

This means it’s important for businesses to consider their target audiences and who’s using their applications. They need to use this information to determine the most suitable payment methods for their offerings.

If you want to integrate multiple options for app billing, one way is to work with a payment agent to handle any contract negotiations on your behalf. Some agents provide a thorough support system, including purchasing trend analysis, sales management tools, and the specialized knowledge necessary for running the service, making them a more reliable choice.

Stripe offers a wide range of tools and features to simplify daily checkout operations, including integration with various online payment methods, as well as information processing and revenue management. For example, with Stripe Billing, you can create a payment cycle that matches the organization’s style, without the need to develop your own system. Billing also helps businesses create several different monthly subscription plans while managing regular recurring transactions. Thanks to fully PCI DSS–compliant security measures, customers can use your app or products with peace of mind.

Utilizing Stripe simplifies the payment process, lowers operating costs, and adds numerous other benefits. And, by integrating multiple ways to pay, providers can enhance the overall convenience for digital content distribution services and increase sales.