I would like to distribute my app for free, and then sell extra features that can be added-on later. Is it possible to do this?
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If you’re talking about in-app payment, you should take a look at PayPal, which offers In-App-Payment for Android:
http://www.x.com
https://www.x.com/community/ppx/sdks
If you want to distribute your app via Android Market, you would need to offer each add-on as an invididual app. Probably not a convenient way.