13 thoughts on payments, the App Store, Google Play, and the future of mobile growth

We are witnessing one of the biggest changes in the history of mobile in real time as we see the unraveling of the App Store payments model on a worldwide basis.

Steve Jobs launched the iOS App Store in 2008. It was, perhaps, a global first as a single, unified place to find, pay for, and install all software on a computing platform that would eventually grow to massive scale. It eventually became a key plank in Apple’s plan to evolve into a services-not-just-devices company, putting about $90 billion into Apple’s coffers while also pouring a staggering $230 billion in the pockets of app publishers over the past 13 years.

Evolution of App Store payments

The App Store is not just about revenue, of course. It’s about control.

Ensuring app experiences are good. Ensuring scammers can’t easily enter the fortress. Ensuring iPhone owners don’t get their credit cards stolen. Blocking malware. Blocking apps with racist or violent content that Apple doesn’t want on its platform, and so on.

All of this makes sense from many perspectives.

But it’s all also unprecedented. In the desktop-centric 1990s if someone told you that in the future the dominant computing platforms of the 2020s would have essentially one front door for software distribution, one payment gateway, one store, and one global overmaster who decides what software gets published and what doesn’t, you’d probably re-create Apple’s 1984 commercial in protest.

It’s not natural that computing platforms be closed. It’s natural that appliances are closed. When you’re post-appliance,  typically you have to open. Or half-open, as Jobs designed the App Store. Apps could come in, but they had to pass muster first.

And use Apple payments, and pay Apple a commission.

(Interestingly, Apple payments were an innovation in themselves: no-one knew how to take 99-cent purchases in volume without losing their shirts over processing fees.)

Just over a year ago, however, Epic Games, makers of the massive Fortnite gaming franchise, the Unreal Engine that powers thousands of games and apps, and a games store, started allowing Fortnite payments by web. Click the link in Fortnite, go to Epic’s site, buy the skin, go back to the app, and BOOM … no 30% cut for Apple. Apple booted the app from the App Store, and Epic sued.

Fast-forward to today, and the EU is investigating Apple, thanks partially to pressure from Spotify and others. Rumors abound that the U.S. Department of Justice is considering antitrust moves against Apple. Heavily Android-using home-of-Samsung South Korea passed a law requiring App Store owners like Apple and Google to allow developers to bypass on-platform payment systems. (Samsung offers the Galaxy Store, which clearly of course could not have influenced South Korean legislators at all in this decision.) Japan’s Fair Trade Commission made moves to do the same.

Add it all up, and Apple decided to make some changes.

Two weeks ago, Apple told developers it would allow them to email app users about different payment options. Last week, it changed again, and now Apple is allowing reader apps (Kindle, Netflix, etc.) to link out to external payment systems. It’s important to contextualize: these are just the latest concessions, as Apple had previously reduced commission rates for smaller developers and made other changes over the past few years in concessions to app companies.

Much of this doesn’t take the heat off from the EU or the DOJ, so most mobile analysts and experts think this will inevitably be extended to other types of apps, and ultimately all apps and games.

If so — and it looks likely, given the trajectory — what does that mean?

13 thoughts on App Store payments changes

1. Thank you, Epic
   Adding non-compliant payments to your app and suing the most important mobile platforms (Epic also sued Google) that your customers use is a ballsy step. It might not be quite a bet-the-company move, but it’s a huge risk with, at the time, a seemingly small chance of reward. Epic, with others like Spotify, has made a huge impact here in highlighting an issue that others have now amplified.
2. Complexity awaits
   Prison is simple: sit in your box. The army is simple: do what you’re told. Escaping, graduating, or being released is complicated, because now you have choices, decisions, options, and all of them have consequences. As mobile developers and marketers slowly get released into the wild of open payment systems, the world becomes more complicated. Publishers will have to navigate this carefully, because messing up payments is not an option … and how they are currently built is typical Apple “just works.”
3. This won’t work for everyone
   No-one wants 12,000 tiny companies to have their credit card info. Consumers have had enough of that on the web, and it’s easier to input credit card details there. Big companies and big brands are likely to be able to get players, customers, and users on their own payment systems; others will struggle. (The solution, of course, is likely payment services, perhaps like Stripe, that manage the payment without proliferating your payment credentials all over the metaverse.)
4. It’s time to love your customers
   Apps until now, especially post iOS 14.5, connected with customers via the Apple umbilical. Expanded payment options will allow unmediated multi-platform customer connection. With great power … comes great responsibility.
5. If we thought subscriptions were hot before …
   Subscriptions have been incandescent for a while now. (I mean, who doesn’t like automating the process of people shipping them money on a regular basis. Sign me up, Scotty.) Now with the ability to mechanically pluck $1 or $3 or $10 from customers’ digital wallets every month and keep it all … whoa. (Repeat “with great power” statement from #4.)
6. Antitrust, David, and Goliath
   No-one notices David, but Goliath can’t hide. Look: when you’re tiny, no-one cares what you do. When Steve Ballmer laughs at your first phone and says he likes his strategy for mobile, the DOJ winks at you and the EU doesn’t even know you exist. But when you’re literally the most valuable company on the planet … you can’t burp without 50 lawyers taking notes and analyzing the effluent for suspicious compounds.
7. Globalization has consequences
   The US has looked at this. Korea. EU. Japan. India is making noises about opening up an investigation. Pretty soon basically every jurisdiction that matters will have their own interpretation of what a major App Store can do and can’t do. Let’s just be real: countries like their own heroes. Legislators are going to legislate ways for home-town contenders to get a seat at the table. We haven’t seen the last concession from Apple, and there may never again be a global one-rule-for-all. (And of course, we know that there really wasn’t ever one rule for Debby Developer and Netflix or Amazon.)
8. Google, brace for impact
   Very clearly, this isn’t just about Apple. Google’s always been more open: side-loading, anyone? But there’s more impact that we’re going to see on Google as well. As in privacy, Apple first.
9. Easy beats hard
   Just because developers can starting using their own payments processes doesn’t mean that they should. On-platform ease of use will very likely always be best with fully-native built-in Apple-controlled payment processes. So people who are worried about switching costs or friction costs should stay primarily with Apple’s systems. Note: this hits different verticals and different apps in different ways … hyper-casual and mid-core are different than a diet or fitness app, for instance. And how engaged and retained your user base is will say a lot about how successfully you can migrate payments off-platform.
10. Percentages are going to go down
    Apple started at 30%. Now, small developers and second-year subscription businesses are at 15%. When Apple has to compete with developers having the option of taking payments off-platform, further changes will ensue. Look: grocery stores make about 5-7% profit margin. They probably do more work in selling food than Apple and Google do in building and maintaining an app discovery, installation, and payments platform. 30% has a very limited lifespan. 15% is more defensible. And it’s likely to go lower.
11. Apple acquisitions possible in payments?
    The Apple Card works with Goldman Sachs and Mastercard’s involvement. Apple payments on iOS and Mac operate with multiple processors and credit card companies. You have to imagine Apple has considered acquiring a payments processing company and/or even a bank, and you have to wonder, as Apple considers the looming loss of both revenue and business intelligence as payments evaporate away from its control, if that might help Apple offer a price-competitive solution to taking your payments in-house.
12. Look for preferred apps or certified apps in the future
    If Apple is forced to massively open payments up, we could see a certified or preferred apps program for apps that Apple has checked and guarantees safe … and which use Apple payments at some percentage. This would be a sweetener for publishers thinking about taking payments off platform, promising more visibility, and better ease of use in exchange for slightly higher costs of doing business.
13. Wider app store freedom?
    As massive global conglomerates, Apple and Google are convenient targets. They accommodate a big bullseye. But will this trend to opening up app stores and marketplaces go beyond mobile app markets? Could legislators mandate that all app stores built by companies that have created a platform over a certain size (think Salesforce) might need to open up? Possibly.

These changes will impact marketing and user acquisition too

If you can save 15-20% of the costs of revenue right off the top, that enables significantly more expenditure on marketing and user acquisition. Or it makes your apps that much more profitable.

Changing where payments happen and how users/customers/players engage with your brand also changes how you acquire them. If you know you want them to pay on your website, that might make web-to-app mobile growth flows even more attractive.

Ultimately, we’re still in the process of this massive change.

How it really impacts mobile, growth, UA, engagement, retention, and monetization is something that we’ll continue to learn over the next 12 to 18 months.