The pressure on Apple to improve the App Store seems to have grown to its highest levels in years. Developers have been complaining about everything from app discoverability to pricing flexibility as of late. It appeared as if Apple could do no right. Except on Wednesday Apple did a lot right.
Apple bypassed the traditional release cycle for major announcements, many of which will take place at next week’s WWDC, and unveiled details to the app community today. Among the announced changes include the ability for apps in all categories to offer subscriptions, custom international pricing, a 15% reduction in their fees for all subscribed users retained for at least a year and paid search listings in the store.
I was quite surprised when I received word about the changes to subscriptions this afternoon. A reduction in the 30% cut that Apple takes has been on my wish list, and a topic of discussion, for many years. It’s not that I’m not thankful for the platform Apple has built. That percentage just eats heavily into the lifetime value of a user, something I have to account for in my acquisition costs. (Google, your move.)
Apple knows subscriptions have the potential to be more profitable than one-time purchases. This is Apple saying paid downloads transitioned to in-app purchases and now subscriptions are the next way of monetization. It’s why they opened up the ability to offer subscriptions to all app categories. It’s why they’re also saying, we’ll keep our 30% like we’ve always done, but if you build a great product that retains users for more than a year, your reward is only a 15% fee.
What is most surprising is Apple isn’t waiting until the fall to make this change. All existing apps that offer subscriptions will start to see the fee reduction starting on Monday. That means all subscriptions that have been active since at least June 13, 2015 will now be accounted for in this change. Any user who cancels and resubscribes within 60 days also don’t lose their standing thanks to this grace period.
The other major change Apple made was the ability to customize pricing for the international markets. In the past, if I set a price of $1.99 for an in-app product, Apple would take it and do a currency conversion in each market. That would be fine, except consumers in different countries are working off different income levels and pricing perceptions. The $1.99 might be good in the domestic market, but $0.99 might make more sense in India.
This change, along with paid search ads in the App Store, is already available for developers in Google Play. The paid search feature is going to be especially well received if Apple manages to only surface relevant apps for relevant keywords.
I wrote about App Store paid search a couple weeks ago. Many of my predictions came through, including the design of the ads. What I still don’t know though is if I’m the top ranked app for the keyword “wine,” and I also win the keyword bid for “wine,” if my app will show up twice — further improving the odds of a download.
One aspect of App Store paid search ads I didn’t cover was targeting. Apple says developers will not be able to run an ad for a keyword their app isn’t relevant for no matter how much the developer is willing to pay — governance of this is still a question mark. Outside of that, developers will be able to target existing users, new users and users of their other apps. Additionally, targeting based on gender, age, device type, location, day and time are also available.
The fact that Apple released these details today means they didn’t want this news to be overshadowed by any announcements next week. That means something big is coming. If this was the appetizer, the main entree should be pretty great.
June 10 Update: I’ve been asked a few times why Apple made this change to the subscription fee. Here is my assumption: When the App Store first launched, Apple relied on paid-for-download as their revenue model. Apple then released the ability to sell in-app purchases, which is where a majority of their revenue comes today. Wednesday’s announcement is Apple saying one-time in-app purchases are great, but consumable is not the wave of the future, subscriptions are.
Remember, only a couple categories could do subscriptions in the App Store, including News. Now, by opening up subscriptions to all categories, and to bring adoption for improved long-term revenue, Apple is incentivizing developers with the 15% fee carrot after one year. Essentially, they aren’t doing this because News publishers are asking them to. They are doing this because of the greater revenue potential of expanding subscriptions to productivity, games and other categories, and legacy categories are just getting the benefits.
Also, why one year? That’s the maximum subscription length Apple offers. If they weren’t going to reduce the fee on every subscription, which Google is apparently countering by doing, they had to choose the longest possible subscription as the starting point. For example, if they made six months the turning point, and a developer sold an annual subscription, their system would have to recognize the first six months at 30% and the last six at 15%, and they simply don’t have the A/R capabilities to manage that.
Google made the right move by lowering their percentage to 15% on all subscriptions. While it’s not getting the press that Apple has been for this move, it certainly does overshadow some of the Cupertino company’s announcement. The benefit in all of this is passed on to the developers, who now have more money to build better products, which keeps iOS and Android users happy and tethered to their devices.
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