The WWDC 2016 is just around the corner, and we can barely sit still with excitement. Since WWDC deals primarily with software, it’s usually the most guarded Apple event of the year, and one that promises to be full of surprises.
Apple likes to play their cards close to their chest. That’s why it was quite surprising when Phill Schiller agreed to a pre-conference interview with The Verge. The Senior VP of worldwide marketing for Apple had an in-depth discussion on what the new revenue model of the App Store was going to be.
Apple will be shifting to a subscription-based model for the Apps.
Apple currently has a 70/30 revenue model – it takes 30% on the revenue that apps generate. It’s the fee they charge developers in exchange for giving them a platform to sell their products. Think of it like the sales tax imposed by the government.
With the new model, Apple wants to bring that fee down from 30% to 15%.
So it’s a good thing, right? If the tax goes down, the prices go down?
Well, not quiet. You see, till now, paid apps charged a one time fee. If you wanted to buy an app, you just paid the listed price and it was yours for life. Just like anything else we buy from the market.
But under the new model, Apple wants you to subscribe to the apps. Meaning, you’ll have to pay for them each year, kinda like your membership to the gym or that annual maintenance contract you get for your car or bike. Basically, Apple is trying to sell apps like a “service” and not a “goods”.
“If the new subscription model becomes widely adopted, it will represent a fundamental shift in the economics of the App Store. Developers will be incentivized to sell their apps for a recurring fee instead of a one-time cost,” says The Verge.
There might be two reasons why Apple is doing this. One of them is obviously profits. The other one is to give a boost to mid-range apps. Developers have been seeing a decline in the number of downloads for the mid-level paid apps. A yearly subscription-based model could help them.
Apple will also start showing paid ads in app search results.
Apple has resisted showing sponsored apps in search results for a very long time, but now they are giving in. Just like they gave in to people’s demands for a large screen phone. Apple may have beaten the US government, but the forces of the free market are much stronger than Apple’s will.
“We’ve thought about how to carefully do it in a way that, first and foremost, customers will be happy with,” Shiller said.
With iPhone sales seeing a decline, it’s only natural that Apple will look for newer revenue opportunities. Ads seem to be the most obvious answer to their current dilemma.
Shiller also emphasised that in order to help the developers, the app review times had been drastically reduced.
If you remember, we’d done an entire article discussing the fall in app review times and what it meant to developers. You can read the article here: Developers Rejoice! Apple has Dramatically Reduced the App Review Time.
This change is a result of the leadership change at Apple.
Just last December, Apple did some Executive shuffling. All the App Stores — iOS, MacOS, watchOS, and tvOS — were removed from the care of Eddy Cue, President of Internet Software and Services, and were given to Phil Schiller.
It was done to take some burden off of the shoulders of Eddy Cue, who was already loaded with iCloud, Siri, Apple Music, Apple Pay, and all the software formerly known as iWorks and iLife.
Since then we have seen major redesigns in software under both people. It’s only fair to say that the work redistribution has worked well for Apple.
The AppStore is worth more than we think.
Revenue generated from app sales (both Google Play Store and the iOS App Store combined) is a huge market in itself. Although growth may have slowed down, the golden run is nowhere near over. If anything, the world is becoming even more app-based.
The app industry is set to hit the hundred billion dollar mark in less than half a decade. It’s only natural that Apple is looking to make that their next cash cow. And while we understand the rationality behind incentivising developers, we don’t sympathise with Apple trying to pinch even more out of us.
We hope the shift to a subscription-based model doesn’t affect the customers too much. As to how deep a hole it’s going to leave in our pockets, we’ll just have to wait and see.
Screenshots and Quotes courtesy of The Verge.