The app store model is facing a rebellion

Apple launched its App Store on May 10, 2008 to provide content of all kinds for the iOS platform, creating a business model for application developers and revenue stream for Apple: in 2018, estimates put income from App Stores worldwide at $46.6 billion dollars compared to $38.7 billion the previous year, an important column with significant growth for company services. Its competitor, Google Play, was launched on October 22 2008 as Android Market and last year generated $24.8 billion, compared to $19.5 billion the previous year. In short, a $71.3 billion app market.

But the business could soon start to break down: application stores play a very important role as a channel for not very well-known developers to get their products onto users’ smartphones, but they charge major fees. About two years ago, both Apple and Google were forced to reduce their commission structure from the original 70/30 to half from the first year on. However, for companies where a subscription payment is generated to customers who obviously not only know the app, but are loyal users, the reality is that a 15% commission is a factor to be taken into account in the income statement.

Therefore, if instead of being a little-known developer who does not want to risk distributing independently (which means asking users first to find you, then trust you and in addition, know how to install an .apk file in their terminals), you are a worldwide popular application with loyal users, there’s a temptation to try to skip this route and save yourself a very important commission that you could simply incorporate into your profits or use to offer more competitive prices. And that is precisely what more and more companies have begun to do: in August 2018, Epic Games, creators of the popular Fortnite, announced they were pulling out from the Android Play Store and began redirecting players to their website, where they could download an installer for compatible devices.

The next to try their luck was Netflix, which at the end of August 2018 proposed a limited trial in some markets where it began asking users to fill in the payment information in the mobile version of its website instead of in the app. In December 2018, it decided to skip the app store for all new subscriptions worldwide.

Spotify has denounced Apple’s large commissions that hit its income statement and complained to the European Commission in March this year in a bid to level the playing field between its app and Apple Music

A few days ago, Tinder joined the rebellion against app stores, which has also forced its users to enter their payment information on its own page, a move that sent the share price of its parent company, Match Group, rise by 5%.

The rebellion seems to be spreading, inflicting heavy losses and creating a headache for Apple and Google: if those apps with recurring payments that have already won the trust of their users flee the channel and resort to alternative methods, App stores will only be attractive only to developers who have built up trust with customers and would see revenue plummet. On the other hand, the role of building trust and supervision that the app stores supposedly played has been eroded over time, given that, in reality, users are vulnerable to abusive behaviors, even if they install apps from these stores.

After many years running a business with a juicy 30% margin, app stores were forced to lower their commissions. Now, the pressure increases and they are beginning to lose even those commissions on some applications with recurring subscription payments: the most profitable. The question is: do app stores really earn the commissions they generate? For the apps that have already decided to skip them, the answer is obviously no. But how will Apple and Google react, if they react, to this progressive loss of revenue?

(En español, aquí)