Apple is now half a step closer to allowing the virtual goods economy to flourish on iPhone and iPod Touch applications. Developers can now allow users to buy virtual items within free applications and games, as TechCrunch is reporting. However, virtual currencies are still not allowed.

For game developers that have bet heavily on the iPhone, this is still huge news. One of the major hindrances of the growth of the virtual goods economy on the iPhone/iPod Touch platform to date has been Apple’s Platform policies – until now, Apple has only let developers sell virtual goods in paid apps. Unlike social games on Facebook and MySpace, “freemium” business models have been restricted (though some developers have still been driving users to paid versions of their apps as a way to acquire virtual goods). This is a big step toward changing that.

As SGN chief executive Shervin Pishevar said on Twitter:

SGN has its games installed on 1 in every 3 iPhones and iPod Touches. With games like jet-fighter simulator F.A.S.T., it can now make money from users who use the free version of the game but not the paid version.

Apple’s note to developers reads:

In App Purchase is being rapidly adopted by developers in their paid apps. Now you can use In App Purchase in your free apps to sell content, subscriptions, and digital services.

You can also simplify your development by creating a single version of your app that uses In App Purchase to unlock additional functionality, eliminating the need to create Lite versions of your app. Using In App Purchase in your app can also help combat some of the problems of software piracy by allowing you to verify In App Purchases.

Visit the App Store Resource Center for more details about how you can add In App Purchases to your free apps.

And here are the relevant guidelines Apple is giving to developers. Note that virtual currency purchases are still not permitted.

1.1 You may use the In App Purchase API only to enable end users to purchase content, functionality, or services that You make available for use within Your Application (e.g. digital books, additional game levels, access to a turn-by-turn map service). You may not use the In App Purchase API to offer goods or services to be used outside of Your Application.

2.1 You may not use the In App Purchase API to enable an end user to set up a pre-paid account to be used for subsequent purchases of content, functionality, or services, or otherwise create balances or credits that end users can redeem or use to make purchases at a later time.

2.3 Content and services may be offered through the In App Purchase API on a subscription basis (e.g., subscriptions to a magazine, comic series, or financial reporting service); however, rentals of content, services or functionality through the In App Purchase API are not allowed (e.g., use of a particular game item or digital book for a pre-determined, limited period of time).

To dig deeper into the virtual goods market, check out our new report: Inside Virtual Goods: The US Virtual Goods Market 2009 – 2010.