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Apple has introduced an in-app purchase feature for free iPhone apps that allow you to fulfill transactions within the iPhone applications themselves -- no Apple App Store required. The feature was previously available for paid applications.
By enabling in-application transactions, Apple makes life easier for developers who no longer have to make "lite" or teaser versions of applications along with ones that cost iPhone owners money. If you like the free version of Ragdoll Blaster Lite and want to upgrade to the $1.99 full version, now you may have the option to upgrade within the application itself -- no App Store needed.