Apple invited a group of app developers to a secret April 2017 meeting in New York’s Tribeca district, asking them to move from selling apps at low prices to renting app access through subscriptions, Business Insider reports. This change is intended to keep users paying for apps “on a regular basis, putting money into developer coffers on a regular schedule,” the report claims.
The App Store has been among the largest business success stories of the past decade, inspiring the rapid growth of a nascent mobile software development industry — including rival stores on competing platforms. Despite offering apps and games at low prices, Apple’s store has for years generated nearly twice the annual revenue of Google’s Play Store, while paying developers a 70 percent share of sales.
According to the report, however, Apple has quietly been pushing developers to convert one-time app purchases into recurring draws on customers’ accounts. Apart from filling its own bank accounts, Apple wants developers to “create sustainable business models, instead of selling high-quality software for a few dollars or monetizing through advertising.”
One challenge is that many of the apps customers purchase are tools that they use only intermittently, so they are unwilling either to pay high prices or maintenance fees that might keep the tools updated. While some development dollars might go toward adding features, others certainly go into tweaking apps to meet frequent Apple OS, API, and device changes.
Another challenge is that paid apps were said as of last year to represent 15 percent of total app-related sales, a number that’s in decline, compared with growing revenues from in-app purchases. That shift has been wrought by a race to the bottom on initial app pricing, followed by the use of post-download content — features and consumables — to encourage spending. Some developers, such as Epic Games with Fortnite, have seen incredible success using this formula, while others have been left behind.
At the meeting, Apple gave developers suggestions to turn their existing “free” users into “high-value customers,” offering multiple subscription options differentiated by price, and suggested that they could increase their prices without losing most customers. Apple reportedly shared research indicating that the rate of subscription customer retention was 41 percent after a price hike, versus 61 percent without a price hike, and warned developers that their businesses would stop growing without subscriptions.
The report cites an example of a successful developer, Lightricks, which created a selfie photo-fixing app called FaceTune. Although FaceTune hit No. 1 on the App Store’s paid charts at a $4 price, its sequel FaceTune 2 costs $6 to unlock with a $32 annual subscription, or a lifetime price of $70.
“Those are the prices we can command with subscriptions,” a Lightricks cofounder said. “We were pitching, ‘we’ll get to $20.’ We’re at $36 now!” The company now has 140 employees and is making $40 million per year, versus its prior $10 million ceiling — “not very much when you have serious R&D.”
Many consumers chafe at the idea of software as a subscription service, and there’s no question that the concept will not fly for the vast majority of titles currently in the App Store. Independent research suggests that video services such as Netflix, Hulu, and HBO are generating a large part of Apple’s subscription revenue, alongside top-earning freemium games. Most people will refuse to pay ongoing fees to “update” something as basic as a blemish-removal tool or daily planner.
Even so, Apple CEO Tim Cook went out of his way last month to spotlight subscription growth as partially responsible for the company’s latest record quarter, saying that nearly 30,000 subscriptions are available in the App Store today. “Paid subscriptions from Apple and third parties have now surpassed $300 million, an increase of more than 60 percent in the past year alone,” Cook added.
But as the report notes, app developers correctly suspect that this amount is much less attributable to basic apps than premium video and gaming content. That mightn’t stop them from trying to find ways to turn their basic apps into money trees, but it will likely cause most consumers to stop using them, and at some point, even consider switching platforms altogether.