In-app purchases really work for games on Android tablets (the proof is in the video)

Google’s game economy on Android devices has been handicapped for a while, compared to the iPhone’s game business. But Google may catch up quickly, based on its preview of the Android 3.0 software on Tuesday.

In-app purchases, or the ability to buy stuff from within a running mobile application, have been a huge boon to the iPhone economy in the past year. In-app purchases allow mobile game companies to tap the free-to-play business model, where users play for free and then pay real money for virtual goods. That model has propelled companies such as Zynga to huge revenues and multibillion-dollar valuations on Facebook.

The iPhone game business has turned into something real, thanks to the introduction of virtual goods, according to mobile analytics firm Flurry. Now it’s finally coming to the Android mobile ecosystem. Josh Campbell, a producer at Ngmoco, said that in-app purchases are a crucial part of the development of a real game business on the Android platform. That’s why the company has decided to throw its support behind Android 3.0, code-named Honeycomb, which Google showed off on Wednesday at a press event at its headquarters in Mountain View, Calif.

The addition of in-app purchases is part of an effort to clean up the Android Market, which has been so broken that many carriers set up their own marketplaces to replace it. One of the problems — which Google is now eliminating — was that users could return an app as long as 24 hours after purchase. That was horrible for game developers because a lot of games take a lot less than 24 hours to finish. Users could buy a game, play it, and return it to get their money back. Now the return time will be limited to just 15 minutes after purchase.

In the past, Android’s support for game transactions was so weak that Rovio, the maker of the blockbuster Angry Birds game on the iPhone, decided to launch the game as a free ad-supported title on Android and created its own mobile payments system as well. Rovio probably left a lot of money on the table because it couldn’t afford to wait for Google’s Android Market overhaul.

But Ngmoco, a division of Japan’s DeNA, has shown Android in-app purchases working in We Rule, a farming game that has been running on the iPhone for a year now. The process is pretty simple. The good thing for fans who are playing on Apple devices is that they will be able to log in on an Android device and play the same We Rule game and get access to all of the stored game data that they have accumulated on the iPhone. Disney and a number of other game makers are also supporting Android 3.0 because of the in-app purchase ability as well.

Here’s a video demo of how in-app purchases work in We Rule on a Motorola Xoom tablet and on a smartphone as well.