Apple bolsters App Store security in wake of developer fraud

Apple (NASDAQ:AAPL) will institute new App Store security measures after an iPhone application developer breached hundreds of customer accounts. As of Tuesday, Apple will require more frequent entry of users' credit card security codes when making iTunes/App Store purchases or accessing the digital storefront from new computers. The changes follow on the heels of Apple banning developer Thuat Nguyen for violating App Store policies, "including fraudulent purchase patterns," after consumers claimed their accounts were violated. Nguyen created more than 40 comic book-themed iPhone apps that briefly dominated the App Store's bestselling books list.

Consumers have long complained about hackers cracking their iTunes accounts to fund digital spending sprees, decrying the problem on Apple's own support website. In a statement, Apple said about 400 of its 150 million iTunes accounts were affected by the Nguyen incident, adding that its iTunes servers were not compromised. Apple spokeswoman Trudy Muller told The Wall Street Journal that developers don't receive confidential customer data when an application is downloaded--in addition, the computing giant obscures credit-card numbers stored in iTunes. Muller recommended that customers concerned about iTunes account patterns contact their financial institutions, as well as change their account passwords.

Revenues from iTunes reached $1.3 billion in the first quarter of 2010, up 27 percent over a year ago--Apple includes iPod services and accessories in its tally. In June, Apple said iPhone developers have now earned more than $1 billion in App Store revenues; according to data released by Piper Jaffray analyst Gene Munster, Apple's own App Store earnings equate to $428 million since the marketplace opened, explaining that while Apple claims a 30 percent cut of all downloads, it must give 20 cents plus 2 percent to the credit card company and 1 percent per app for processing, working out to $189 million in gross profit on paid apps. Assuming the figure is correct, $189 million represents just 1 percent of Apple's $33.7 billion in gross profit earned since the App Store opened.

For more on the App Store security breach:
- read this Wall Street Journal article

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