Since app stores don’t change the revenue cut, developers are changing app stores

Circumventing app store subscriptions services, creating installers, promoting direct downloading. App developers will not stop until a solution is found for the 30% cut. And the outcome could be far reaching than the revenue share alone.

Imagine that you are a milk producer and there are only two retail stores in the world, both charging a 30% of distribution fee. In the shelves of those retail stores, you have millions of other milk brands, so then you have to pay 20% to 25% more to have some highlighting. However, if every brand pays, the effect is null. On top, if you change something in your milk package that is not aligned with retailer vision, you may be off the market. That is how app developers feel today.

How did we got here?

Software distribution was not invented with the mobile.

When PC was first released in 1981, the need for distributing software existed. As the Internet was not yet disseminated, people used tapes and floppy disks to distribute software.

Popular software was sold in electronic retail stores or distributed through magazines. The sources were multiple.

When the first iPhone was released in June 2007, there was no App store. Users were supposed to use websites only. However, as developers started to find ways to push software to iPhone, Apple introduced the App Store one year later (July 2008). Google followed Apple’s footsteps and in August 2008 introduced an app store called Android Market, just in time for the first commercial release of Android. The App store role was crafted in those early days: a file distribution channel and a billing system.

Until now, the competition has been limited. In Apple, the operating system only allows to install software from the Apple App Store (unless you “jail break” it, which consists in a difficult hack in the OS). In Android, there are several other app stores but Google Play has 90% of the market outside China. Two reasons contributed to Google Play market share: 1) Google Play is pre-loaded in (almost) all Android devices 2) developers appreciate the convenience of a single point of submission.

Developers mood

While the market was growing and the number of apps and game developers was reduced, everybody was happy.

As the competition becomes more and more fierce, developers are now checking their options. On one hand, there is the convenience of an existing system, well known, that they trust. On the other, an expensive cut and long time to pay that can be the difference between profitability or bankruptcy.

Some industry heavyweights decided to pursue alternative distribution and billing strategies. Spotify and Netflix - category kings in music and video streaming - are being distributed through Play and App Store but created a parallel web billing system to their subscriptions.

If you have a strong brand and the users come to you, why pay for distribution? Epic Games took a different path in the Android platform: Fortnite is only available in Epic Games website and in Samsung Store, supposedly avoiding the heavy 30% cut.

The blockchain billing factor

Probably Spotify, Netflix and Fortnite will not be alone. Others will want to follow them, save the 30% cut and strike partnerships that could bring exposure to users. For that to happen, the developers will need to have an alternative to Google / Apple billing, because developing their own system is too expensive and existing billing systems (Amazon Store, Samsung Galaxy apps, Aptoide, OpenIAB,…) are too fragmented.

Blockchain project(s) for in-app purchases and subscriptions will provide:

• Trust: the transactions go through open and independent smart contracts executed in the blockchain
• Consolidation: as a neutral standard, it can unite the different app stores and be used across them
• Incentives alignment: revenue-share distribution and advertising attribution can be coded in the smart contract

Besides those advantages, new payment transactions use cases can be built of the fact that the ownership of the money is in the “edges” of the network:

• Easy peer-to-peer value transfer: parents can transfer money using the digital wallets to their children without the need to put their credit card in their tablets, users without payment methods can ask friends to exchange for them,…

Louise has a $2 allowance. She can buy a bracelet in the store on the corner, but cannot pay for unlocking a secret hidden animal in Rodeo Stampede. She doesn’t have a payment method. With cryptocurrency, her parents just transfer some coins to her wallet to pay in-app purchases inside the game.

• Value transfers through API enabling new user experiences and new business models. APIs to move cryptotokens from a wallet to another, like the ones made available by crypto exchanges, will power micro transfers.

A game developer can incentivize user engagement rewarding for game accomplishments. If the user reaches Level 2, using an API, the developer transfers some crypto coins that can be used later in the game or in any other game.

The future of app stores

The movement that was initiated by the developers will create a more positive balance between the actors in the ecosystem.

This movement will push changes in 3 different areas of the app distribution industry.

In users acquisition frontline, developers will start to partner with OEMs and other app stores. Epic Games deal with Samsung to launch Fortnite exclusively in Samsung devices for a short period of time is a good example of what can be done. OEMs have access to the users and want to be an active part of apps distribution.

In the distribution part (app installs and updates) in Android, we will see an increasingly market share of third-party app stores as they are more than willing to offer lower revenue-share cuts, providing developers more featuring and more users. Strong mobile studios will also have an important distribution channel through their own websites, if the trust and security issue is overcome. In Apple iOS, as the platform is locked and installs are not possible, it’s not expectable that things change too much.

In the billing system, the blockchain and cryptocurrencies will support a significant part of the transactions (subscriptions, in-app purchases,…) outside Google Play / Apple App Store and will be the driver of change. The new use cases, specially in the emergent countries, can bring billions of new users to the app economy.

Will Google and Apple will react to these changes? In the past, the two incumbents showed some flexibility and changed the subscriptions revenue share. However, a revenue share war will not be in their favor. Google and Apple store revenues is important to support other projects developments, shareholders dividends and expensive corporate investments.

Will this change lead us to a fragmentation of the Android app store market as it happens today in China, where no app store alone has more than 15% of market share? Nobody knows but probably not. Google has a strong first mover advantage and possibly will be able to maintain a market share between 40% to 60% for the coming years. However, the rest of the space will be win by players that will provide developers with better margins.

The graph above crosses the potential blockchain billing adoption curve with the S-curve of third-party app stores and direct downloads share. As the adoption of neutral and standard blockchain billing solutions grow, more those players are able to play an important role in apps and games distribution.

This post incorporates ideas discussed in several conversations with colleagues at AppCoins and Aptoide, crypto investors, developers and VCs.