What is the difference between the Lite version and the demo?

The manuals for iOS and Mac App Store indicate that demos are not allowed.

As far as I can tell, the lite version (most of the time) is just a demo with IAP for the full version (to save progress)

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The demo application is traditionally a full-featured application that works only for a limited time or does not allow you to save anything or cripple in some way to make it useless, except for demonstration.

The lite application works fully independently. If the user is never upgraded to the full version, the Lite application should still do something useful, even if it is rather limited. One of the important things that Apple will look at is not the user interface part that should be disabled in the Lite app. If a little functionality does not work in the lite version, it should not be part of the user interface at all.

In a Lite application, you may have a button or other user interface element that allows the user to update. If the user reaches a certain limit imposed by the lite version, you can tell the user that they can upgrade if they want. But never ask a user to update him.

Lite application does not require IAP. You can create a couple of applications (lite / paid) if you want.

If you decide to use the same application with IAP for updating, do not call the Lite application. Do not put "lite" in the icon. Because if you do this, your customers will hate you as soon as they update the application, and still say "lite" anywhere.

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If you do not put any time limits on your application or do not remove functionality from the game, this will take place as a lite version.

The limitation of "removal of functionality" is one of these controversial claims. You would not leave with the “Save” function removed from the text editor, although you would leave without having another car model in a racing game, or having it as an IAP.

All this is pretty subjective.

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