Apple and third-party developers have grown so far apart, it’s difficult to tell when they’re talking about the same mobile app ecosystem.
For Apple, the iOS ecosystem is chugging along beautifully. The company’s Services revenue – the commissions it makes on in-app transactions and subscriptions – grew to $19.5 billion in Q4 2021, up by a quarter from the prior year (which was already a high water mark, because 2020 over-indexed in ecommerce sales rather than store-goers during the holiday).
“The App Store continues to be an economic miracle for developers around the world and a safe and trusted place for consumers to discover their favorite apps,” Apple CEO Tim Cook told investors during earnings a week ago.
The App Store is certainly a miracle for Apple. The company’s profit margin on Services revenue is a whopping 72.4%, which is up from previous quarters. An additional 165 million paid subscriptions were purchased through the App Store last year, for a total of 785 million paid subscriptions, though Apple doesn’t disclose how many of those are for its own services (Apple TV+, Apple Music, Apple Arcade and Fitness+, to name a few) rather than third-party developers.
In 2021, Apple’s Services business earned $72 billion, making it big enough to be a Fortune 50 company in its own right, said Apple CFO Luca Maestri on the company earnings call.
Developers, however, would dispute Apple’s rose-tinted outlook on App Store economics.
Consider Cook’s reference to the App Store as a place where users “discover their favorite apps.”
Apple’s description of its own user behavior is outdated, according to Eric Seufert, a mobile industry analyst and consultant.
“People go to the grocery store and browse around. They go to Amazon and browse around. Nobody goes to the App Store and browses around,” Seufert said during a RevenueCat virtual panel this month.
10 years ago, if Apple promoted an indie app, there would be a big surge of new users because people came to the App Store just to see what was new or interesting, said David Barnard, developer advocate at RevenueCat who also operates his own weather and time management apps.
Nowadays, the app leader boards cannot be climbed organically because huge incumbents or Apple-owned services dominate the top of every category. A company must invest in a heavy paid App Store search strategy, alongside additional mobile and programmatic investments, Seufert said. Even then, reaching sustainable profitability is rare.
Aside from petrification atop the App Store charts, Apple’s AppTrackingTransparency (ATT) rules severely handicap any app’s potential runway, said Thomas Petit, a mobile growth consultant on the same RevenueCat panel.
Apps that grew to 10 million to 20 million users previously would set even higher bars, like 100 million potential users, when they raised money and set company valuations, Petit said. Those projections no longer seem realistic.
Without mobile growth marketing tools – like creating lookalike groups from your known users and targeting potential users aggressively based on tracking Apple device IDs – independent app developers can no longer “unlock that effect” to grow by an order of magnitude, Petit said.
Seufert said independent developers should be focused on a web-based approach: getting potential app users to sign up and submit info on the web, before shuttling them to the app as an already-signed-up user. That gives the app more data on its user base that can’t be blocked by ATT.
He also pointed out that this growing data hole isn’t an Apple-only issue. Android offers more mobile growth marketing, but is tracking Apple in policies that approach data privacy. In three more years, Android will offer a similar privacy-first environment that matches where Apple was just prior to ATT. And an ATT for Android may come shortly after that.
Apple is still the best and biggest show in town for mobile developers.
“Since its launch, we have paid developers selling digital goods and services more than $260 billion, with 2021 setting a new record for their earnings,” Cook said.
But even that “we have paid” line in Cook’s prepared remarks could stick in third-party developers’ craw. Developers consider the payment between themselves and the user, with the developer forking over Apple’s fee for being a middleman.
From Apple’s perspective, the user pays Apple, which, generously, passes along 70% or more cut to the developer. An “economic miracle” that all depends on your perspective.
