App Store Wars – The Phantom Menace.

Signs of the rebellion are gathering pace.

• The rebellion against the current status quo in-app distribution is growing and it is Apple that may find itself with the trickiest problem to deal with at the end of the day.
• Along with Epic Games (see here), Netflix and Spotify, Tinder is now attempting to cut Google out of its revenue stream which will either increase its revenues by 30% or allow it to cut prices, thereby driving greater volume.
• There is a long history behind the generally accepted revenue split of 70/30 which stretches back to the days when content was distributed in physical form.
• This then became the accepted norm in the digital age when Apple continued to use these terms when it launched its app store in 2008.
• To be completely fair to Apple, it originally settled on this split in order to operate its app store at break-even as it never anticipated the kind of scale it would achieve.
• The aim was to use the app store as a way to generate loyalty to the hardware and the ecosystem but as it reached scale and app economy emerged, this quickly became a source of large profits.
• Google and Valve quickly followed and while they undoubtedly make less money from their stores due to their much smaller scale, no one could say that they are not doing well.
• However, as it has become apparent that large amounts of money are being made to the detriment of the developers, discontent has continued to grow.
• Until, now there has been no real way to break the stranglehold that Apple, Google, and Valve have had on their platforms due to the old chicken and egg problem.
• This problem is that to get users you need developers and to get developers you need users.
• This has kept the 70/30 model intact until now.
• This began with Epic Games and Fortnite (see here) but is now gathering pace with Tinder and I am sure many more will follow.
• Tinder’s approach has been to implement a new in-app payment mechanism that cuts out Google Play completely and removes the option to effect payment on Google Play going forward.
• This will be pretty easy to incentivise by sharing some or all of the 30% back with the user in the form of lower prices.
• Epic Games has gone one stage further and has abandoned the Google Play store together and I suspect that it could have some big-name sign ups if it decided to launch its own store for Android.
• The net result is that the big app stores may be forced to cut their revenue share to what is deemed to be a more acceptable level by developers.
• For the moment Apple will escape this rebellion as its vertical control of hardware and software allows it to prevent any other app store from functioning on iOS as well as unofficial app installs.
• However, I suspect that it will come under withering pressure to fall into line or face further regulatory scrutiny.
• When it comes to anti-competitive behaviour, Google’s defence is much easier than Apple’s as it allows 3^rd party app installs as well as competing app stores.
• Hence, I think that the next 12 months will see a further re-adjustment in terms of how revenues are shared on both platforms.
• The Epic Games store on PCs currently offers an 88/12 split and so I suspect that something around here is likely but probably closer to 85/15 on Android and iOS.
• For Apple, this may take a while as it cannot be seen to have given in too easily.