Apple's big changes to the App Store may be too little, too late

Ahead of next week’s WWDC mega-conference, Apple dropped a huge bomb on iPhone and iPad app producers today with changes to the App Store.

Now, every app developer can offer their customers ongoing subscriptions. If you can keep a customer subscribed to your app for more than a year, Apple will halve the cut it takes of the revenue from 30% to 15%, with developers pocketing the rest.

This is, unequivocally, a good thing: It means that the developers of your favourite apps — particularly, productivity apps and games — will have a path to making more money, which, in turn, means those apps can charge less at the outset and stick around longer with cash flowing in.

Less clearly benevolent was a simultaneous unveiling of search advertising to the App Store, letting publishers pay to have their app appear first in search results. Apple is pitching it as a way to help developers find their audience; some developers, at least, are afraid that paid search results favour app developers with deep pockets, like Facebook.

These are the biggest changes to the App Store in many years, coming just seven months after new boss Phil Schiller took the reins at the store.

Apple’s timing with this announcement is impeccable, given the rising tide of developer anxiety over the state of the App Store and the feasibility of actually turning an app into a sustainable business. Indeed, it looks like the boom times in the App Store are over.

Just today, a research report revealed that the App Store is totally dominated by Facebook and Snapchat, with global app downloads down 3% from the same period in 2015. Worse still, it came out in May that 94% of revenue made from the App Store goes to the top 1% of publishers, as the so-called “middle class” of apps get squeezed out.

In other words, something’s gotta give. The problem is that these changes announced by Apple today aren’t going to make a huge dent — which is a problem as web-first companies like Facebook and Amazon slowly undermine the whole concept of the smartphone app.

The biggest problem still unsolved

These changes are great and all, but it doesn’t solve the so-called “discoverability” problem. Without tackling that, the new subscription model is likely to ensure that the rich will only get richer.

Apple search adAppleAn example of the new search ads coming to the App Store

The Apple App Store has 1.5 million. Getting noticed in that morass is very difficult.

After all, according to a Verge report from March, it can cost between $4 and $16 in marketing expenses just for an app to attract one user. It’s hard to break even when you’re charging $1 per app; it’s hard to find customers when you’re charging $10.

That’s why subscriptions have the potential to shake things up: You don’t have to charge a lot right at the start when you can charge them a little bit over a long period. Those marketing costs will recoup themselves.

What it doesn’t change is the fact that you’re still paying that much just to get noticed in the first place.

Without Apple making deeper investments in making it easier to sort, search, and find apps, that $4-to-$16 remains what is essentially a fixed cost for app developers.

For those lucky few fortunate enough to break through the noise, it’s a fabulous way to turn buzz into sustainable revenue. For the rest, it will be as hard to turn it into a business as ever.

Apple says those search ads will help, by making it easier for developers to connect with audiences. But it’s dollar-sign democracy, privileging those developers who can afford ads, rather than those who actually best suit a user’s needs.

And in an interview with Lauren Goode at The Verge, Schiller says that Apple has talked about features that would help small-time developers close the gap, including free trial periods for apps that could be upgraded to full versions, but has nothing to announce.

The elephant in the room

There’s one more elephant in the room, here, too, which is that developers are increasingly wary of giving Apple any cash at all, with or without this more benevolent 85-15 split in subscription revenue.

The most visible example of this is Amazon, which has long since removed the ability to buy digital content like Kindle books or Amazon Video movies on the iPhone and iPad. Instead, Amazon urges you to use their website to make those purchases, since Apple doesn’t take a cut of those transactions.

That’s why services like Spotify cost more if you subscribe from an iPhone ($13/month) than if you do from a Mac or PC ($9.99/month). They’re just trying to recoup their costs on what’s already a low-margin business, so they pass it to you, the customer.

It translates into great business for Apple, sure. But it’s also a great reminder that, as it nudges app developers into adopting long-term subscription models, Apple stands to make a lot of money, too, even at the lower commission rates.

So while the App Store subscription update definitely adds some exciting new opportunities for developers, in all kinds of markets, to make money, the fundamental dynamics of the App Store remain unchanged, for better or for worse.

As gadgets like the Amazon Echo smart voice assistant and the rise of the Facebook Messenger-style chatbot present alternatives to the current smartphone app store model, Apple may end up in a position where it has to make bigger changes, or risk developers abandoning the iPhone entirely.

These changes are a positive sign that Apple is thinking in the right direction. But there’s still a long way to go before it addresses all of its developers’ wants and needs.

Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.

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