Apple launches new subscription-based App Store revenue model for developers and rolls out search ads

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Apple has decided to change the way it shares revenues for apps on the App Store and wants to launch a more incentive-based model for developers.

According to an interview with Phil Schiller, Senior VP, Apple with The Verge, the company is cutting its 70-30 split model, retaining just 15% of the cut if a developers manages to sustain a subscription with a customer for more than 12 months.

The new subscription model brings an important shift to the App Store landscape. Instead of a one-off fee for an app, developers are being encouraged to sell recurring subscriptions to consumers to use their apps. That could potentially be more lucrative for app makers and Apple alike and helps to refresh a somewhat stagnant app economy.

Apple moves to subscription app model

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Source: theverge.com

The new model appears to be an attractive solution for indie developers and those who have complained about the unsustainability of their place in the market. Schiller says:

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“We’ve thought about how to carefully do it in a way that, first and foremost, customers will be happy with. [Something that’s] fair to developers, and fair for indie developers, too.”

The majority of apps generating revenue are still games (75%), according to App Annie, and most of those are free-to-play. With a learned expectation from customers to download apps for free it makes it all the more difficult for developers to earn a living.

Developers have previously asked for App Store features such as free app trials, but it’s not clear yet whether Apple will implement these suggestions.

The new subscription-based model will launch in fall 2016. Schiller adds that the model has been previously trialled with news and some other types of apps. He says:

“The developers who do have access to the subscriptions have been very happy with them. The system works really cleanly and nicely.”

Pricing for subscriptions will be tier-based and might vary depending on market and country.

With user retention a real threat to most app developers, a subscription model may help to keep a level of engagement going. Some app makers such as Itai Tsiddon, Co-Founder, Lightricks which sells Facetune and Enlight among others, says:

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“[It’s] an earthquake in my world, in a good way. It’s hard to emphasize how significantly this can change the viability of companies like mine and their growth trajectory. [I’m] excited to experiment with the business model. With this change they’re incentivizing the right kind of company – companies with actual long-term value propositions to the users.”

However, it remains to be seen if consumers will take to monthly recurring charges where previously they paid a one-time fee for an app. Whilst the model seems to improve the app economy on the developer and distribution end, consumers may not agree.

In addition, the company said it was to include search adverts for apps within the iOS App Store search results. Earlier this year, the company also rolled out changes to how fast app reviews could be submitted and 50% of apps are now reviewed in 24 hours.

Schiller says:

“[Developers] asked us, ‘Can we pay for editorials? Can we somehow invest in charts, in chart placement, can we invest in being in certain collections?’ And in all of those things we’ve said ‘No’.”

Search ads seem to be a compromise that smartphone users will be used to from social media and the mobile web. Apple is running the ads on an auction system from its closed-down advertising arm iAd. Developers will only pay for an ad if a user clicks on it, and users will only be shown ads that are relevant to them. Apple promised not to share collected user data with developers or to show ads to those below the age of 13 years.