Google’s group manager for the Android platform,  Eric Chu, is on stage with us here at Inside Social Apps. His interviewer is Kim-Mai Cutler, lead writer for Inside Mobile Apps.

The live transcript (paraphrased in parts and edited for brevity)

KM: What is going on in app payments?

EC: Helping app makers monetize is very important to us, so we’ve been building an in-app payment system. We were actually going to release it last quarter, but with developers focused on their Christmas apps, we couldn’t get enough feedback to be comfortable launching. So look for it soon.

KM: What has held it back?

EC: My team, and the engineering team, we’re all involved in the preparation and development of the in-app system. Developers were busy, but now we’re completely focused on getting it out.

KM: What should developers do in the meantime? Should they use other methods or wait for you to roll out in-app payments?

EC: We’re focused on a user having a great experience, so we want to see a consistent purchasing experience from apps on the platform. Android as a platform is open, so developers have complete latitude to release apps, but we ask that you use our payment system on our app platform.

KM: Is it OK to use another SDK?

EC: I think our policy is very clear, so you’re fine as long as you do things within those boundaries?

KM: When in-app payments do roll out, are we looking at carrier billing? Other methods?

EC: I think it’s very important to separate how we build the application and the forms of payment. Carrier billing is an area that we’ve invested a lot in, we rolled out payments with AT&T in December and we’ll be doing that around the world. As we add additional forms of payment, developers don’t have to do anything.

KM: Does Google have in its culture to offer good payments, given that it has always been driven by advertising?

EC: My team is 100 percent focused on the success of the developers — are users downloading apps, are they buying them? You can expect to see more investment into merchandising, payments, discovery, downloading, those are absolutely top areas for us.

KM: Can you offer any specifics on paid apps?

EC: Nothing I can announce right now. Maybe it’s in the area of merchandising and billing.. when we first started with the Android Market, we had a vision of it being like the internet. But we found that some developers took advantage and uploaded apps that violated our terms. So we’ve created a team that looks at apps that violate policy and actively takes them down. That’s a way to improve our catalog and the consumer experience.

KM: When you say improved merchandising, what do you mean by that? How will you improve discovery?

EC: Nothing I can announce right now, but expect something to come really soon.

KM: And what about the ranking algorithm for the top paid apps?

EC: We get a lot of questions about our ranking algorithm. We really don’t want people to be able to game the system. A developer with deep pockets could just buy a lot of ads to get to the top. So we try to use other signals to help us understand, do users actually like the app? We’re trying to fine-tune to make sure that great apps do well.

KM: On iOS, some of these third-party companies say that it’s meritocratic enough that if you’re good you’ll do well.

EC: Yeah, but we’ve also seen cases where people will find themselves prompted to download apps to get extra credits, and then the app never gets used again. We want to use more signals to surface great apps.

KM: How do you feel about these alternative app stores, like Amazon or Verizon?

EC: Android itself is open, and there’s no requirement to distribute only in our marketplace. However, we also believe that it’s very important to have a robust marketplace, to make sure that one, it motivates OEMs and carriers to support all the apps, and two, have apps be available under clear rules without restrictions. We’ll stick with the policy that the platform is open, but we’ll continue to invest in the Market to make sure it’s the best marketplace possible to release apps globally, including the payment systems and billing. Competition is always good.

KM: A number of developers were confused about what happened with Kongregate and what the ToS means.

EC: It’s clear that you shouldn’t distribute a competing marketplace or store. So you have to look at whether it distributes in the same way the Market does. In this case, it fit the criteria.

KM: So does that cover, if you have a store in your app for virtual goods?

EC: For example, the Amazon shopping app, eBay, they’re in the Market. From a virtual good perspective, that’s what billing is about. Those are completely separate things.

KM: What if there are apps that could make social recommendations to friends with another app? That’s OK as well?

EC: Developers will have multiple apps in the market, so to cross-promote to another app is completely fine.

KM: Some developers are wondering, how much access will they have to play with NFC and payments around that?

EC: What we’ve introduced in Gingerbread is NFC, and we’ll keep investing in that — again stay tuned.

KM: What sort of social structure are you looking to offer developers this year?

EC: Android. (Audience laughs.) The reason I say that is, the best social graph is the address book, and we make that available to developers with the proper permissions. It’s not limited to the directory from Google, it’s other services as well, and applications can bring that in. And no resident application is untouchable. What that means is, you could create a social app that has the ability to make a phonecall within the app. If your app is intended to create a complete experience, you can, or if you want to make that app’s surface available — Beluga is a way to get around using messaging, and that’s what I mean when I say that the entire platform is open for developers to do all kinds of things.

KM: How do you feel about other companies using Android to build a competitive social structure?

EC: That’s the definition of openness. All we care about is building great applications. We’ll support companies that build services that may or may not be complementary to Google’s services, that doesn’t matter.

KM: And companies that use Android’s relative openness to build on their own closed nature?

EC: I think one way to think about it is that, Android itself is an open-source operating system, but at the same time, we recognize that it’s important to have a managed ecosystem for developers and users. Developers are looking for a platform that’s predictable, so we have a compatibility regime with carriers where if they want to use the Market, it has to be compatible.

KM: One question that we asked Bret Taylor this morning was around regulation. Are you responsible for making sure users get the right experience — if an app uses information in a way that violates a user’s rights, who is responsible for that?

EC: It’s beyond my scope to talk about government regulations, but we want to make sure that there’s truth in advertising. If an app only declares that it’s using telephony but uses GPS, then it’ll be blocked and can’t run. The second thing is that from a policy perspective, if an app is doing harm or something that it shouldn’t be doing, we’ll take that app down.

KM: With the management changes last week at Google, are there any stylistic differences now in the way you look at Android?

EC: Android is a strategic investment for Google, and Larry and Sergei have been involved since the beginning, so that will remain the same.

Audience question: What do you think of HTML5?

EC: HTML5 is something we’re working on, but the key question is, what provides the best customer experience? If it’s HTML5, that’s fine. If, based on the type of app you have, you feel that you can provide a better user experience using the Android native environment, do that.

Audience question: We made an app that really taxes the devices, and it’s really hard to test because there’s a lot of disparity in the devices. Are there tools on the roadmap to address the differences in the ecosystem?

EC: This is an area we’ve definitely heard a lot of feedback, and there are a lot of discussions. I think many of you may have seen our announcement a couple weeks ago with Motorola on Honeycomb. I can tell you that a lot of apps in the Market run on that device unmodified. The platform needs to make sure that it has the underpinnings so that apps will run across all the devices. We’ve seen cases where the app has undocumented functions, and it breaks. Or the documentation tells you to do one thing, but you pin to the wrong corners, and when you have a bigger device it tears apart. And as OEMs update firmware, bugs appear. When that happens, we work closely with the OEM to fix the issue. Our goal is that for those developers with simpler, form-based apps, it should be simple to create one binary that works across a lot of form factors. For those developers that want to live on the edge, and that includes a lot of game companies, we want to make it easier. OEMs should be able to innovate and offer to a wide audience.. we’d love to see your feedback on where things break.

Audience question: I think a lot of people in this room are hopeful that they’ll see an explosion on Android, but it hasn’t happened yet. I’m interested in your opinion — what is Apple doing that has helped it be successful, and how do you plan to grow this? You’ve been a little vague on the details.

EC: As I mentioned earlier, this is an area we’ve been taking a pretty close look at. We’re definitely not happy with the purchases in the Android Market. So we’re investing — I apologize I can’t give more detail — but we’re investing in merchandising to help users find the apps they want, to create more lists and expose more apps, with the ranking algorithm to tune it, on the payment side with in-app billing. The reason a lot of you are asking is that a lot of developers find it to be a great tool to break out. And I think reducing payment friction. There, we’re doing something that most app stores aren’t doing, which is carrier integration. I can tell you, that’s expensive, but we’re making that investment, and ultimately it’s a great way to reduce purchase friction.

Audience question: Do you have any learnings around the time frame for refunds?

EC: I’ll turn it back to the audience — what do you think? Based on what we saw, most users who did a refund, did it in the first hour. But we also got feedback from the apps, that their app cost less than a cup of coffee. So that’s why we went to the 15 minute window. So does this crowd think that 15 minutes is right? Raise your hands. What about no refund at all? Longer than 15 minutes? (Some audience members raise their hand for each question.) I’m not seeing any consensus.

Audience question: On revenue share, you mentioned that you’re working on carrier-integrated billing. Do you think the current revenue share for developers is sustainable, or is there more of a future in the Visa or Mastercard model? 30 percent for digital goods feels like an inhibitor.

EC: I feel like there’s some misinformation that’s important to clarify. I don’t want to speak for Visa or Mastercard, but there’s a fixed fee component, so when you get down to one or two dollars, it’s a lot more than what you’re suggesting. The way we think is that the carrier is a bit like a console company. They subsidize the cost of the device. The carrier is also investing, in a lot of cases, in marketing. Right now we think that the current revenue share makes sense to get carriers invested in your success. Otherwise, they’re saying, why am I subsidizing the cost almost to zero? It’s important to balance the rewards not just for developers, but for the carrier and the OEM.

Audience: I have a question on refunds in virtual currency — that could be tricky if people buy $100 in virtual currency and spend it..

EC: No refunds for virtual currency.

Audience question: Going back to the carrier idea, long-term that doesn’t make sense. That’s like saying that my PC maker should get 30 percent of the Amazon purchase because they marketed the computer. It seems more like it’s because Apple can get away with it, and Facebook is trying to, and we’d hoped Google wouldn’t.

EC: It’s hard for me to predict right now in three years what it will look like. Some of what you’re saying is true, with users buying $500 smartphones and carriers aren’t subsidizing much. We’re not trying to take a cut, we’re actually investing with every paid transaction. We’re working to find ways to help distribute apps, and we’re waiting to see how it all evolves.