Apple has notified iPhone developers that the In App Purchase feature, previously restricted to paid apps, is now available for free apps as well. This is a huge change, and an about-face from the "Free apps remain free" response Apple originally gave in response to the question of using In App Purchase within a free app. We'll see the iPhone app world evolve in two significant ways as soon as developers start taking advantage of this change.
First, and most obviously, it will be possible for a developer to distribute an app for free - say a comic book reader - and use In App Purchase to charge for individual titles. In the past, such an app had to cost at least $0.99 to be allowed to use In App Purchase. Such a change is welcome, if not all that interesting - is there that much difference between free and $0.99 for a reader when the primary expense will be ongoing content?
Second, and most significantly, iPhone app developers will at long last be able to distribute a feature-limited version of an app for free, and use In App Purchase to unlock additional features. This should eliminate the commonplace approach of making free and paid versions of the same app.
Everyone wins. The user experience is better, since users who like a free app don't have to go find the paid version and fiddle with replacing the free one. Plus, it should be easier to find apps in the App Store, because there will eventually be fewer free/paid siblings cluttering things up. Developers win, because they don't have to maintain two versions of an app, and I suspect the conversion rate from free to paid will be higher when it's done within the app. And Apple wins, both in terms of money and loyalty, assuming that users end up paying for more apps.
There may be some confusion in figuring out how to handle reviews and ratings, since apps that allow unlocking of features stand to change quite a bit after that happens. Apple may have to differentiate ratings and reviews posted before and after an In App Purchase was made.