the onda

The "App economy" is all over the place, even gracing the cover of Businessweek in the latest issue. Loads of attention, and as of late, seemingly lots of dollars, with Apple and Facebook being the two app hosting platforms that get the most airtime.

Of course, the only real innovation in these so-called "apps" (to me they are much more like traditional application features that user can then assemble themselves) is the fact that they bring a business model for content and software that goes beyond advertising to the consumer Internet. Both initial purchase and the subsequent in-app purchase represent the micro-transaction model that everyone has been dying to have for almost two decades now.

When Apple kicked this off with the iTunes Music Store, I was convinced that the trick had been to take the consumption of the paid-for digital goods off of the traditional PC environment and into a proprietary device like the iPod. I felt that across device boundaries, consumer expectations for what is for-pay and for-free can be reset, whether it is for MP3s, news readers, or just about anything else that is presumed to be free on the most prevalent device for accessing this stuff today, the PC. On that device, we've already screwed the pooch, and consumers expect to get it all for free and ad-supported.

Then I read about Zynga, whose CEO spoke at the Web 2.0 conference this week and who seems to be bucking that trend, with millions of users paying real money for the virtual goods and currencies that power their PC-based, Facebook-distributed casual games. They don't have a closed ecosystem or a new device with which to reset consumer expectations about what is for pay. Except of course that on the Internet, people have always expected to pay for the high-end gaming experience (look at the success of WoW), so perhaps Zynga's real magic has been extending that expectation downwards into realm of the free ad-supported casual games that have been prevalent on the Internet over the last 15 years.

I'd still bet on this "device resets payment expectations" theory which explains why the race is on for content providers to bring out as many new form-factor e-readers as possible. Or why, for instance, the exploding smartphone market may be the most interesting playground for consumer Internet startups that we've seen in quite a while.