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In April 2017, Apple reportedly met with a group of app developers in secret to push for them to move to a subscription-based business model for their products.
That’s according to a new report by Business Insider, which was published this week. The story alleges that Apple is making a behind-the-scenes push to move apps away from a one-time fee business model to one that relies on recurring in-app subscriptions.
At the meeting, which was held in a loft in New York City’s Tribeca district, an Apple representative told the convention of developers that they’d eventually “hit a cap” if they relied purely on one-time purchases.
An Apple representative reportedly said that paid apps only make up about 15 percent of total app sales in the App Store, according to an anonymous source cited by Business Insider. That percentage is also on the decline.
The ultimate goal is apparently to create a “sustainable” business model for developers, rather than having them rely on one-time purchases or monetization through advertising.
Apple, of course, would retain its 30 percent cut of this revenue. Though Business Insider notes that if a customer subscribes for more than a year, that cut would drop to 15 percent. Presumably incentivizing app developers to keep customers long-term.
The Cupertino tech giant also suggested that developers work to turn existing “free” users into “high-value customers” by offering multiple subscription tiers.
Since it launched, the App Store has grown to become one of the world’s most notable technology success stories. It helped foster the birth of the app economy, and by most metrics, it eclipses the annual revenue of its rivals.
Because of that influence, it isn’t hard to see how a shift to subscription-based apps could cause a paradigm shift in the wider software and technology industries.
Business Insider writes that “Apple is quietly building one of the biggest subscription businesses in the world — something that’s core to the company as iPhone sale growth slows.”
That shift toward Services and other non-hardware products is evident in market analysis, too. Back in March, Morgan Stanley analyst Katy Huberty said that Services was set to overtake the iPhone as the company’s most important driver of revenue growth within five years.
Similarly, Apple CEO Tim Cook announced during the firm’s earnings call last month that paid subscribers through the App Store had grown more than 60 percent to surpass 300 million.
That includes first-party services like Apple Music but is mostly made up of third-party platforms and subscriptions. But with the aforementioned 30 (or 15) percent cut, a subscription-based app model isn’t just good for developers. It’s good for Apple, too.
“Apple wants its services, supported by the App Store, to be a Fortune 50 business by 2020, or about $55 billion per year in revenue,” Business Insider wrote.