Apple throws out a lifeline to its aging app platform
Tech giant revamps its sales structure in effort to boost market
The state of the app economy is not great.
Those overnight success stories of young adults in their dorm rooms and apartments creating future billion-dollar businesses based on apps like Snapchat, Instagram and Uber seem so long ago . T he Apple iTunes App Store charts are dominated by the same players that have been at the top for years — Facebook and Google apps, Snapchat, Uber and Spotify. On App Annie’s chart of the top 20 app downloads from May 2015 to April 2016, not one app from this year makes the cut.
“The top rankings haven’t changed in three to four years,” says Ted Nash, CEO of Tapdaq, an app discovery service for developers. “The App Store is a complete failure.”
Monday, Apple kicks off its Worldwide Developer Conference in San Francisco, where it is expected to offer a lifeline to the folks who create apps for smartphones, tablets, TVs and the Apple Watch to help improve their cash flow.
There are some 1.5 million apps available to consumers at the iTunes App Store — with about the same number on Google Play — and for developers hoping to find success, they depend upon getting promotion from Apple, great reviews and word of mouth.
They either offer the apps for free, and hope to make money with “in-app” purchases, or sell the apps outright. The overwhelming majority of app purchases tend to be games.
Apple, which has long taken a 30% commission on every sale in the App Store, is revamping its sale structure, according to a report, and at WWDC it plans to tout a new way for app develop-
ers to make money.
For apps that can sell subscriptions, such as Netflix or HBO Now, it will reduce its commission to 15% from 30% after one year, Apple senior vice president Phil Schiller told The Verge. Additionally, it is introducing paid search advertising within the store as a new tool for publishers to have their work found. Apple had no comment on the report.
Adding subscriptions is “huge,” says Itai Tsiddon, CEO of Lighttricks, which makes the $3.99 Facetune photo retouching app.
“If you want to build a serious business on top of any computational platform, you need monetization,” he said.
The $64,000 question: Will the consumer who has paid $3.99 for his app be willing to fork over $44 yearly for it on a subscription? Tsiddon says with the extra revenue, he can afford to add in better functionality for the app.
Tsiddon is one of the lucky ones. He launched Facetune in 2015 and, unlike most, consumers found his app mostly due to word of mouth and good reviews — after all, the app removes wrinkles and softens skin on photos, and that’s a worthy purchase for many folks.
Now, he’s pulling in $10 million in revenue for the app, and a sequel, Enlight. But he’s a rare exception. “Discovery in the App Store is completely broken,” says Michael Schneider, a Los Angeles app developer whose latest, Service, offers free customer assistance. “If you’re a new app and don’t get featured by Apple or Google, it’s a huge uphill battle.”
Service has picked up 50,000 users, a small but respectable number for a new app. Musical.ly, a lip synch app from 2015, is enormously popular with teens. Periscope, bought by Twitter last year, helped popularize the idea of using the smartphone in 2015 to broadcast live mobile video.
So there’s still money to be made from apps, and for developers, Apple’s App Store is a better deal. Fabien Nicolas, a vice president with the App Annie market research firm, says app developers took in $41 billion in revenue last year, which he sees growing to $100 billion by 2020. That Snapchat just raised $1.8 billion in additional funding and Uber raised $3.5 billion is a testament to the health of apps, he says.
Developers who create apps make twice as much money on the IOS App Store as on Google Play, he says, a trend that has remained constant for several years. Customers spent $20 billion with Apple in 2015, he says, meaning developers saw $14 billion, after Apple’s commission.
At the same time, a new category of tech software threatens to make the pain worse for app developers: bots.
Over the past months, both Facebook and Microsoft have suggested that the days of apps were behind us and that computerized bots, software programmed to resemble human interaction, were the future.
At the F8 Facebook developer conference in April, Facebook brought Bots to Messenger, Facebook’s 900-million-user strong app for communication, for buying clothes or flowers at fewer clicks, or getting news updates from CNN.
However, after the hoopla, Facebook’s bots debuted to tepid reviews. The Verge called them “the slowest way to use the Internet,” while Gizmodo called them “frustrating and worthless.” But many analysts agreed that bots are likely to make the same leaps in usability that the first glitchy bots did.
Jordan Metzner, CEO of Washio, an app for on-demand laundry, sees bots just making apps better.
“There is some value to it,” he says. The idea of using a bot to automate a command for an Uber car, for instance, makes sense, “but that the Uber app would go away is pretty crazy. Using AI will only enhance the experience of the apps.”