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Apple is doing something generous for app developers — but it may cost you

Rob Pegoraro
Apple Chief Executive Officer Tim Cook speaks during a event for students to learn to write computer code at the Apple store in the Manhattan borough of New York December 9, 2015. REUTERS/Carlo Allegri/Files
Apple Chief Executive Officer Tim Cook speaks during a event for students to learn to write computer code at the Apple store in the Manhattan borough of New York December 9, 2015. REUTERS/Carlo Allegri/Files

Apple is about to do something a little crazy with its app stores: leave money on the table for developers of subscription-based apps. That may give us a better selection of apps in categories like news and entertainment that already require a subscription.

But it might also lead us to pay the equivalent of rent on other kinds of apps instead of forking over money just once to buy them. That’s because developers who make their apps subscription-based will be able to keep more of the money they make.

Enough aspects of this change remain sufficiently vague that we can’t say for sure either way. That’s because once again, Apple (AAPL) is leaving users and developers to guess important parts of its intentions.

A ‘tax break’ from Apple

Here’s what we do know: Five years after launching auto-renewing in-app iOS subscriptions, Apple will make longer-term sign-ups more rewarding for developers. Starting June 13, once a customer has had a subscription active for more than a year, the developer will take home 85% of the revenue — not the traditional 70%.

Apple is also opening far more kinds of apps to subscriptions instead of limiting them to apps providing content.

On the surface, that represents a surprisingly generous move by Apple, whose curation of the App Store often crosses into control-freakery. One of the most costly clauses in its iOS app guidelines — in which the phrase “will be rejected” appears 105 times — requires apps that sell subscriptions to do so only using Apple’s in-app purchasing and bans those subscription apps from linking to outside payment sites.

So unless you’re an Amazon or a Netflix and can count on customers making their own way to your site to sign up, you must accept Apple’s 30% cut.

That’s been called an “Apple tax” with good reason. It takes less work for Apple to process in-app purchases than it does to sell the app itself: Apple’s not hosting a download, reviewing new releases or keeping it updated automatically, all of which make its 30% take (matched by Google) understandable. The job is more akin to what Square (SQ) does when processing a credit-card payment, for which that firm gets a 2.75% cut.

If developers can keep subscribers around for more than a year, they’ll see Apple’s take drop by half. But other limits will remain intact.

As Spotify complained to the Verge, developers still can’t offer discounts or deals. And they remain walled off somewhat from their customers; since Apple shields their identity by standing in the middle of the transaction, the developer can’t ask a user who unsubscribes what went wrong.

Google is apparently planning a similar move that’s more generous but less consequential. As Recode’s Mark Bergen reported, it will let app developers keep 85% of app subscription revenues without any one-year waiting period; on the other hand, Android apps can already send users to third-party payment portals.

And the best-known subsidiary of Alphabet, Inc., (GOOG) put an even kinder offer on the table in 2011: a subscription system called One Pass that gave publishers 90% of revenues. But it went nowhere — for one thing, customers had to pay through a separate system — and was shelved in 2012.

How might this move the app market?

It’s hard to say what kind of a difference these moves might make, particularly at Apple.

There, we don’t know just what subscriptions will pass muster. Apple says “apps in all categories” can offer subscription pricing but only endorses two kinds: apps that deliver regularly updated media and those that connect to online services.

Could developers sell access to a constantly-updated app on a subscription basis instead of charging a full price for each new major version? (Remember, the App Store doesn’t allow discounted upgrades.) Apple developers say they’re confused — witness OmniOutliner author Brent Simmons’ “Seeking Clarification” post. Apple PR did not answer requests for comment, and Apple itself may not know yet.

“It's a significant payment terms change and so Apple needs to consider the implications,”  e-mailed Ross Rubin, senior director of industry analysis at the research firm App Annie. We may not get a solid answer unless an App Store reviewer rejects a subscription-priced app. It wouldn’t be the first time an App Store regulation was “documented” by an unexpected refusal.

Google, meanwhile, has so far confined its app scrutiny to policing security risks, privacy violations, fraud and a broader category of pornographic/hateful/insensitive content. It’s not commenting on the subscription news.

News and media apps, Apple’s originally anointed category for subscriptions, seems a theoretically promising category even with that uncertainty. They could serve as an alternative to the web for ad-weary readers and publications leery of ad blockers. But one survivor of a failed news-publishing attempt said Apple’s more favorable terms wouldn’t be enough.

"In the first year of a subscriber, paying a total of 30% for discovery, marketing, and acquisition still seems perfectly fine to me,” e-mailed Glenn Fleishman, a developer and journalist who tried making a go of iOS publishing when he bought an iPad publication called The Magazine.

(I sold one story to The Magazine while it lasted.)

The publication’s real problem was invisibility, and not just because it was stuck in the Newsstand — the news-only iOS folder that Apple began neglecting soon after its debut in iOS 5.

“Being a real app likely wouldn't have helped at all, especially at launch, because of the clutter and noise in the App Store,” Fleishman continued. He doubts Apple’s new ads will provide enough paid visibility to smaller developers.

You the customer, meanwhile, may not care to trade a one-time app purchase for a recurring expense. When a Mac shop Smile Software tried that switch this spring with its TextExpander utility, it went over poorly. That’s another spot of uncertainty developers will have to figure out.

As Joshua Benton mused in a post on the NiemanLab journalism blog: “I wonder if consumers will see a news app as ‘just one more monthly bill’ and think of it as more directly in competition with Candy Crush PRO 3.11 for Workgroups or Two Dots Elite: Two More Dots or what have you.”

Email Rob at rob@robpegoraro.com; follow him on Twitter at @robpegoraro.

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