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App Store, Google Play: Soon enough, you might have to pay for everything

In 2016, Apple and Google announced a new system of revenue sharing on mobile apps. Their goal was to encourage the development of subscription based business models.

Jul 19, 2017 · 3 min read

Phil Schiller, Apple’s marketing chief, announced a new system of revenue sharing intended for subscription based mobile apps. When you pay 17.99€ monthly to read Times on iPhone or iPad, the journal used to earn only 70%, after Apple collected 5.40€ from the sum. But today, it is over: Apple decided to decrease its “tax rate” to 15% after the first anniversary of the app. Why one year? Because Apple wants to reward developers that can make an app last more than a year. In other words, if you launch an app that costs 10€ monthly, Apple will take 3€ the first year and 1.50€ the following years. Google who had the exact same policy also announced that it will adopt the 85/15 format, but immediately, without waiting 12 months.

In another update from last year, Apple has opened the subscription model to every category on the App Store, whereas it was previously limited to: media or entertainment like Netflix or Spotify, dating apps, and cloud services. We can now find mobile games or cooking recipes apps with a subscription model that includes new content added every month in this way.

These two little innovations could upset the balance of the current freemium domination over the market. The freemium system consists in a mix of gratuity financed by ads and microtransactions. We download and use the app for free; then we pay for additional content like extra gold in a game, or lessons in a learning app. It is a very efficient model that made a few companies, like Supercell, very successful-which managed to earn more than 2 billion euros of turnover with only 180 employees.

Nevertheless, this model also has shown its limits. It benefits only a few: a ComScore study showed that 80% of smartphones users only used 3 apps on a regular basis. We also know that 95% of the apps downloaded are abandoned after 30 days.

By changing the rules in the app stores, Apple and Google hope the ecosystem adapts. They bet on the fact that publishers will start to offer more and more apps that propose recurring micro-payments and subscriptions. With regular revenue, they will be able to offer more services and develop customer loyalty.

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Spotify trick to get around Apple’s tax

With 2016 being a bad year for Apple, they are seeking new solutions for driving growth. Apple softened its policies on the App store to attract new services. In fact, many apps would get around the 30% commission policy. That’s the case for Spotify which encourage people to sign up on their website rather than on the App store. The Swedish music streaming society would then get 9.99€ monthly instead of the 7€ offered by “App store subscribers”.

However, even if the two giants’ strategy seems astute on paper, there will yet be a need to convince consumers. Will the offer find its demand? From telecommunications to TV offers and streaming services, the number of subscriptions is constantly growing. Will consumers accept subscribing to mobile apps, too? This is the challenge that Google and Apple will face, and it is an audacious one.

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A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store