Last week, Apple published a report done by Analysis Group, an international economics consulting firm, under the headline 'Report finds third-party apps see global success on the App Store'.
The Apple press release and the report itself are worth discussing separately: the former is full of carefully-polished PR points, but the latter is a legitimately interesting whitepaper with a lot of fascinating industry data.
Setting aside PR spin, it's probably best to take this analysis at face value for exactly what it shows: in certain markets and for certain verticals, users prefer apps not made by Apple. Nothing more, nothing less.
Their Businesses Went Virtual. Then Apple Wanted a Cut.
At the risk of going overboard this week on the topic of App Store commissions, here’s a perfect illustration of the system’s quirks: COVID has forced business models to adapt, and formerly-offline activities like gym classes are now online gym classes.
…which suddenly makes payments for them subject to Apple’s 30%.
Remember a few years ago, when Facebook made algorithm changes and publishers swore to get serious about revenue diversification?
Turns out many of those publishers ‘diversified’ right into the open arms of Amazon’s affiliate program, which announced this week that commission rates would be cut in half. Ouch.
Carbon Health runs into issues with Google's COVID-19 policy
Carbon Health (a company that offers in-real-life medical clinics, including COVID-19 testing) had their app pulled from the Play Store this week (it was later reinstated).
Why? Google has a new policy of only approving apps that reference COVID-19 if the app is “published, commissioned, or authorized by an official government entity or public health organization” (Apple has taken a similar stance).
There is no easy answer here. Yes, it’s concerning that Google has the ability to unilaterally take action like this. At the same time, the ‘curated experience’ of the app stores is by now well-established, and there is a legitimate need to gate-keep against misleading — or even fraudulent — COVID-related apps.
The real problem is that Apple and Google are acting as de facto market regulators for their respective platforms, but have none of the normal accountabilities or methods for recourse that most of us have come to expect from governmental regulatory agencies.
Google will reduce Play Store cut to 15 percent for a developer’s first $1M in annual revenue
Google is responding to Apple's App Store Small Business Program, which reduces the App Store commission to 15% for select developers (with some fairly strict limits and caveats). However, Google is upping the ante in the process: their new Play Store program applies to the first $1 million in earnings for all developers.
This handily avoids the 'revenue cliff' problem some iOS developers face, where they suddenly find themselves out of the Small Business program and subject to a flat 30% fee for slightly exceeding the cutoff.
Both policies are obviously good news, but Google's seems simpler and less likely to lead to unpleasant surprises.
Bloomberg dropped an explosive-sounding report this week: Apple to Allow Outside App Stores in Overhaul Spurred by EU Laws (here's an alternative TechCrunch article, if you aren't a Bloomberg subscriber).
Most of the media is talking about this story like some sort of bombshell scoop, but it really shouldn't be a surprise — the bones of the the Digital Markets Act (the 'EU Laws' referenced here) have been an open secret for a while.
It's good to see progress on this, but I've said it before (more than once) and I'll say it again: this is the worst outcome for pretty much everyone involved. Yes, there are many issues with walled garden app stores, but there are also major benefits (no one really wants a return to the days of Windows 98, when an antivirus scanner was the only thing standing between your computer and total anarchy). The unwillingness shown by Apple and — to a somewhat lesser degree — Google towards engaging in any sort of thoughtful compromise is leading to 'product roadmap by regulation'. And since that is basically how we got into cookie consent banner hell with GDPR, I don't think anyone is going to be thrilled with the outcome this time either.
John Koetsier has a great piece on all the open questions around what this new, multi-store world would look like, but I think the key point is this: the primary driver here is pretty obviously a challenge to the 15-30% commission rate. And we already have a clear playbook — going back years — for how Apple and Google respond in these scenarios: they will give only the bare minimum in concessions necessary to comply with the literal letter of each new law.
These changes will be no different, which means we should expect them to come with UX requirements designed to make things as unappealing as possible…and some other way to collect an equivalent amount in fees. This is scorched earth, trench warfare, and the unfortunate thing is that it's just ultimately harming the broader mobile ecosystem.
PS, barring some unforeseen, apocalyptic event, this will be the final Mobile Growth News of 2022. Thanks for reading, for your thoughtful replies (I respond to all of them!), and for coming along for another year of mobile growth. Happy holidays, and see you all again in 2023!
On Monday, the team behind Basecamp officially launched Hey. This makes them the latest in a long list of companies attempting to ‘reinvent email’. And since it’s 2020, any email platform (especially one that costs $99/year) without native mobile apps is dead on arrival.
Of course, Basecamp would prefer not to pay an ‘App Store tax’ of $33/user to Apple each year, so they allow customers to access an existing subscription on mobile, but not purchase a new one.
This approach has been the status quo for many popular apps (Netflix, Dropbox, even the main Basecamp platform) on iOS for years, and Apple occasionally makes even more substantial exceptions. But something apparently went off the rails this time: after initially approving Hey v1.0, Apple blocked the v1.0.1 bug fix. Then they doubled down by claiming the original approval was a mistake, and threatening to remove the app completely.
Given the amount of press coverage, and in the context of the two EU anti-competition probes that coincidentally launched this week, I’d be quite surprised if something doesn’t ‘magically work out’ in this case. But the underlying conflict is going to keep simmering away for as long as the App Store business model involves taking a commission.
Apple’s services growth is increasingly an advertising story
Apple’s Services business is on track to clear $100B in annual revenue. While we tend to think of Services as App Store fees and iCloud, roughly 40% of this revenue now comes from advertising, including Apple Ads and the enormous Google default search deal, estimated at $20B per year.
Apple’s multi-year privacy push did more than convince the market that iPhones are secure. It also changed how advertisers allocate their budgets. With less ability to track users across apps, more spend has shifted away from third-party networks and toward Apple’s own monetization surfaces. Apple is now one of the largest advertising companies in the world — without calling itself one.
At the same time, mounting legal pressure around App Store commission rules threaten the highest-margin portion of that Services stack. If even 20% of App Store transactions shift to external payments, Apple could lose ~$11.6B annually. That dynamic only increases the strategic importance of Apple Ads and on-device monetization going forward.
Apple's EU App Store changes...won't change a thing
You may have heard of the EU’s Digital Markets Act which require large online platforms to “behave in a fair way.” Well, to no one’s surprise, Apple’s much-anticipated response to the DMA was to materially change EU App Store policy changes-- in a press release "dripping with disdain"-- but, spoiler alert: they aren’t likely to materially impact the economic status quo for app developers.
I've summarized the changes in a post and there are certainly savings to be had versus the standard store commission rates – back of the envelope, I calculate north of $600MM savings using publicly available Spotify financials.
However, most think app developers will stick with the status quo. Beyond the sheer technical complexity; the process will add hurdles in end-user adoption; notable administrative overhead--including, getting a million dollars of credit with Apple; and, most importantly, opting into these changes requires the upfront burden of paying Apple for all app downloads and future updates. Clearly, it’s a financial risk that few businesses can tolerate.
Eric Seufert also has an excellent ongoing editorial on the changes in his three-part series "Heads I win, tails you lose."
The Apple v Epic lawsuit is ongoing (recap: Fortnite tried to enable in-app purchases without going through the App Store framework, and got kicked off the platform by Apple in response), and it's bringing to light some very interesting details.
This thread is FULL of fascinating scoops, but the clear theme is that Epic wants to demonstrate that the App Store's benefits aren't worth Apple's 30% commission.
