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What Apple And Google Have To Learn About Apps And Subscriptions Pricing In 2020

Every successful platform has its glory days.

For the iOS App Store, it was the early years after the launch almost 12 years ago when even a fart app could be successful and pull in more than half a million installs. For Google Play, it was in the years after 2012 when there weren’t millions of apps on the platform yet.

Today, things are different.

And it’s one of the reasons why — along with platform shares of revenue — Apple in particular is facing increasing antitrust scrutiny. And why Apple was recently in the news for all the wrong reasons as the company rejected Basecamp’s Hey email app mostly over financial reasons, almost kicking it off the App Store before an eleventh-hour deal.

Because you’ll pay more as a mobile developer for promotion than for simple distribution.

“Back in the day, people would go in the App Store and think, wow, like, let’s see what’s there. Let’s discover new stuff,” Denys Zhadanov told me recently on the TechFirst podcast. “Now it has transformed into a distribution model, it’s not about discovery anymore.”

Zhadanov is a VP at Readdle, which has seven top-30 apps on the App Store including Spark, an email app, Scanner Pro, and PDF Expert.

That’s inevitable, ultimately.

Even though iOS 11 was intended to revamp the App Store and increase discovery of new apps with new search and new content, when you have over nine million apps on the two major platforms, it really doesn’t matter how good Google Play or the App Store is: there’s just too much for any individual app to stand much chance of getting noticed.

Which doesn’t mean either the App Store or Google Play are horrible now.

Quite the opposite. Frankly, the incredible growth of TikTok shows — despite recent challenges in India — that there’s no platform quite like modern mobile platforms for massive accelerated growth.

“The App Store ecosystem is a tremendous and phenomenal place for developers from all the different locations in the world to [create] something amazing and distribute that to 1.5 billion devices,” Zhadanov says.

One of the challenges, however, is that the Google Play and App Store guidelines have not necessarily kept up with changing business models. The Basecamp email app was a subscription app: if Basecamp had built it using the App Store for payments, Apple would have taken a 30% cut of revenue, dropping to 15% in subsequent years.

Google has a similar fee structure in place.

“There is no chance in bloody hell that we’re going to pay Apple’s ransom,” Basecamp’s CTO David Heinemeier Hansson tweeted. “I will burn this house down myself, before I let gangsters like that spin it for spoils. This is profoundly, perversely abusive and unfair.”

Think distribution versus discovery.

If discovery is the model, a platform or service is helping new users who would never have known about you discover what you do. That brings new money into your pocket, and for that service, a 30% fee isn’t prohibitive. It’s a commission, essentially, that drops to 15% in following years. After all, new customers are new customers … and it costs some money to run an mobile app store, after all.

But if it’s just about distribution — a much more hands-off model that almost passively transfers a product from a producer to a consumer — the 30% seems expensive.

(Especially when there’s essentially a secret Apple program for too-big-to-ignore players like Netflix and Amazon Prime Video that bypasses any fees at all.)

This whole issue has big implications for the antitrust sentiment that Apple’s facing in Europe. One big issue is whether the subscription fees it wants to charge a company like Spotify, which competes with Apple Music, are a competitive disadvantage. After all, does Apple Music have to pay the iOS App Store a 15-30% commission on customer sign-ups?

And if it did, would Apple Music be profitable in and of itself? That’s likely a serious question for Europe’s antitrust lawyers.

As far as Readdle is concerned, however, Apple’s subscription pricing isn’t terribly unfair. At least for them.

“I do believe that’s fine for some businesses for example, where the margins are super high, like for example ourselves,” Zhadanov says. “When it comes to Spotify, right, it just makes or breaks their business.”

Spotify, of course, operates a music business (and a growing podcast business). The music streaming business is notoriously low-margin, and Spotify has had trouble turning a profit for years.

A sliding scale might make more sense for lower-margin businesses, and might be more palatable to businesses like Basecamp, which don’t want to hand a third of revenues over to Apple — or Google for that matter — just for hosting their apps on a store. And it might stop some of the loud and nasty hassles in the app submission process.

Especially if there’s one published and public pricing model for everyone, rather than loopholes for giant corporations.

Get the full text of Zhadanov and my conversation here.

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