Apple Courts Apps Developers to Expand Its Own Subscription Benefits

Apple boasts a large base of loyal customers, many of whom eagerly line up (or even camp out) at local Apple Stores in anticipation of the latest iPhone and iPad releases. In addition to making products that continually appeal to its legions of repeat shoppers, though, the trend-setting tech company recently took steps to help buttress and expand its stake in online subscriptions. It announced several new apps-centered policies, including a subscription revenue approach that should spur more competition among developers of products sold in the Apple App Store by rewarding them for building loyal followings.

Under Apple’s previous policy, only the designers of specific types of applications — news, cloud services, dating apps, and audio/video streaming apps — could charge recurring fees. Its updated policy opens up auto-renewable subscriptions via in-app purchases to all developers. (Apple notes, though, that subscriptions aren’t “appropriate” for every app, since people won’t want to pay repeatedly for calculators, flashlights, or other simple functions.)

Apple is also revamping the pay structure of its subscription model. While developers will continue to receive 70% of a subscriber’s initial-year, after-tax fees (with Apple taking the remaining 30%), the revenue split for a customer’s second subscription year and beyond will be 85-15 in developers’ favor.

Apple will also give developers greater price flexibility via tiers that can be implemented in any currency — up to 200 price points, in fact, based on:

• Subscription length (e.g., weekly, monthly, and annual);
• Different levels of service and/or features (e.g., basic, extra, and premium); and
• The country or territory of the subscriber audience.

Apple is also instituting a new Search Ads feature, which allows developers to bid on paid placement slots at the top of users’ relevant search results. The App Store currently houses over 1.5 million apps, so this gives developers an opportunity to break through the current clutter and promote their apps. They can also optimize their marketing budgets more easily with this feature, since Apple will only charge them when users tap on their ads.

In addition, Apple will let developers incorporate Siri and Apple’s iMessage into their apps. Developers have been clamoring for access to these functions for a while; voice commands and messaging services offer more ease and convenience to users, so they’re highly valued in the apps world.

Most of these new policies (known collectively among Apple employees as “Subscription 2.0”) go into effect immediately for the developers of current subscription apps, and all of the policies will apply across the board and to all new subscription apps this fall. These various initiatives serve several purposes, not the least of which is to help Apple better compete with Amazon and Google in the ever-growing apps field — and with Facebook and other platforms in the messaging arena.

The primary goal, however, will be to enhance Apple customers’ experiences. Sales of the iPhone, the company’s flagship product, have leveled off in recent years — they dropped last quarter, for the first time ever — and Apple (like every other company) has to find new ways to retain and expand its audience and thereby increase its revenue stream. Motivating developers to create products that generate ongoing subscription fees is an easy, relatively inexpensive way for Apple to achieve those ends.

The subscription model is designed to create a continuous revenue stream, after all, and it’s been proven to work in — indeed, to disrupt — all sorts of established industries. Subscription shopping programs like Amazon Prime and FreeShipping.com, for example, have completely upended the conventional retail model and forced brick-and-mortar titans like Walmart to create programs of their own, which require significant investments of time, money, and other resources. Similarly, Netflix and other streaming-video subscription providers threaten not just cable companies but also cable channels and traditional, powerful television networks.

Beyond that, iPhones, and smartphones in general, serve first and foremost as subscription devices. Consumers buy them knowing full well that they’ll have to pay recurring fees just to use them for their titular purpose, i.e., to make and receive phone calls. These phones are also perfectly suited for other subscription-based functions — cloud storage, music and video streaming, online shopping programs, and more. It therefore makes good business sense for Apple to focus on facilitating additional subscription options for iPhone users.

It also makes sense to expand opportunities for innovation from and foster greater competition among apps developers. Apple’s new policies increase the incentives to create games, services, functions, and other apps that consumers value enough to keep paying for again and again. This will motivate developers to conceive, test, and continually enhance and optimize their products, which will result in giving users additional reasons to continue paying for them — and to try them in the first place. On the flip side, apps that fail to keep pace with user needs, interests, and desires will lose customers.

To spur this continual wave of innovation, Apple is sacrificing its proprietary access to Siri and iMessage, not to mention half of its current revenue cut from multi-year subscribers. It’s a worthwhile trade, though: Apple will still get a 30% cut of first-year subscription fees, and it’s counting on developers to create a growing number of attractive apps, subscription-based or otherwise. The more apps are sold in its store, the more income Apple gets.

In several ways, Apple’s appeal to developers mirrors the approach taken by Amazon Video Direct, Amazon Prime’s recent foray into user-generated content. Rather than develop content or fund such efforts themselves, both initiatives:

• Rely on external parties to create products that their customers will want;
• Allow those parties to offer subscription-based products;
• Offer extra incentives that reward developers based on how much their customers value their products; and
• Use access to their substantial audiences as a major lure to attract developers.

In both cases, the end result is that successful product developers can now create steady revenue streams for themselves, which, as noted earlier, is one of the primary purposes of subscription programs. As people keep going online for an ever-widening number of activities — from shopping and communications to entertainment, information-gathering, and many others — companies need to figure out how to monetize those activities if they want to survive and thrive. That’s why the subscription model is becoming more prevalent, as well as more popular with consumers and more essential to businesses.

Apple has long understood the importance of creating and cultivating devoted customers. Its recent outreach to developers will help subscription products continue to grow, which will in turn help the company benefit from growing numbers of diverse but loyal users. The fact that the largest tech company in the world relies so heavily on these products is further proof of both the ubiquity and the value of online subscription commerce.