Recent reports ( Kif Leswing @Business Insider and John Gruber @Daring Fireball) indicate that Apple is lobbying Indie developers to switch from the traditional one-time purchase fee to subscription models based on periodic fees (monthly, annually, etc.).
The discussion is focused on paid apps that provide ongoing services, in which user fees are the main source of revenue for the app developer (e.g. productivity, utility apps, games, etc.), and does not include free apps that provide indirect revenue through their support of the underlying business of the developer and/or are based on advertising (e.g. large social media apps and restaurant ordering apps).
At Blue Rocket we welcome this development, as all parties will ultimately benefit — the User, the Developer, and Apple.
Why is this? Well, let’s start with the User.
It’s true; the user will have to pay more. So why is it within their interest to support a shift to a subscription-based service? What will this increased cost provide for the user that they don’t currently have?
A frequently used or very specialized app, especially purchased, is important to the user. It may be a productivity or utility app that the user has invested time and energy to set it up so it works for them and their specific needs; Or it’s an app that supplies regular and timely information; Or it provides a tool or service in a unique and novel way, consistently over time. Regardless, the user has a strong incentive to ensure the app continues to work.
A subscription to one’s favorite app will help ensure that the app continues to function and improve. And a user’s continued use of the app will become a motivating drive for the developer who in turn will strive to incorporate new features to keep the user engaged with the service. In essence, the subscription is an insurance policy that will ensure that the app continues to delight.
A small investment will have large returns. A subscription for one’s favorite app is not going to cost significant amount of money. More than likely, it will be a few dollars a month or year; a small cost for the continued service of one’s favorite app.
How does the subscription help Developers?
Obviously, it costs money to create and launch a new app, but the cost to support the app over time is often ignored, undervalued or overlooked. These costs include:
· Software maintenance, whereby the developer proactively ensures the app continues to function correctly as new phone models and operating systems are annually updated and retired.
· Infrastructure costs such as Cloud-services (servers and storage) and other 3rd party add-ons such as notifications, map data, etc., that support the app and its users.
These are baseline non-negotiable costs that keep the app in tip-top shape.
Necessary funds for enhancing the app over time, as well as for marketing and so forth, are additional and comparably discretionary.
Considering this, it becomes immediately clear that a developer who charges a one-time fee will need to keep finding enough new customers to cover the cost of ongoing upkeep, while at the same time recovering their initial investment over some time horizon.
Alternatively, the subscription fee model provides economic relief by giving the developer a recurring revenue stream from existing customers and therefore a better chance at recovering their initial costs and the costs of maintaining the app over time. Or, in other words, it means the developer can sell fewer apps to break even or, keeping sales constant, have the additional revenue to apply to future app enhancements and marketing.
Which brings us to Apple. Putting any discussion aside on whether Apple needs help, encouraging a subscription model is smart business for very much the same arguments as they are for the developer. Apple hosts a very large and ever expanding online store of apps that costs a lot of money to run. If the developer is getting paid just once for their app, then so is Apple. If the developer has a subscription-based revenue, then so does Apple.
Note that Apple wants this enough to provide a concession to the developer by cutting their developer sales fee in half after the first year of a subscription, from 30% to 15%.
We believe, that encouraging subscriptions will help all participants in the long-term, will result in the continued improvement upon apps, new innovations in mobile solutions, and ultimately it will help ensure a rich ecosystem of apps remains available for everyone.
There are many historical reasons why app subscription has not happened sooner — at one point in-app purchases did not exist and a one-time payment was the only choice. However, the time for subscriptions to be promoted and adopted has come or, arguably, is well overdue.
Blue Rocket is a digital product development company based in San Francisco. Through strategy, design, and engineering, we help great companies build powerful digital experiences — the right way. Email us at email@example.com.
This article is an independent publication and has not been authorized, sponsored, or otherwise approved by Apple Inc.