Mobile app stores have become a battleground in recent years. For users, what is a simple window of curation and discovery has, for those watching the industry, become a center of expensive legal battles over the fees that Apple and Google have historically charged for every app (and every in-app purchase) made through their systems.
However, years of litigation have resulted in a change as of this year: Apple and Google now must allow apps in Europe that offer in-app payments or subscription services to let people pay outside of the store, bypassing the 30% “tax.” Japan will follow suit on December 18. A California judge had previously ordered Apple to allow the same for US apps. This meant a new bill, The Open App Markets Act, that will seek to codify those abilities into US law.
This long-standing commission model is on the brink of a historic shift, fundamentally changing app economics.
Harness the opportunity
First, it’s important to understand what’s at stake — and some stats from Niko Partners testify to the opportunity.
Their recent report on Gaming Growth in Asia reveals that “26% of mobile revenue, or USD $6 billion, was generated outside of Google and Apple’s ecosystems.” And that figure is increasing, with “a median 35% YoY increase for the region since[…]2022”. With over a quarter of revenue being paid out without any sacrifice, it is no wonder growth is skyrocketing.
However, maintaining out-of-store payments is not without challenges. Users might not quickly adapt to a different user flow. For example, a user will need to input his or her payment information to make a first purchase. Whereas, they likely already have given Apple or Google that information and could purchase with one click in the latter experience.
Further, maintaining one’s own store also creates new logistical and operational challenges, from handling taxes and fraud claims to support, the latter of which requires a whole new workflow process.
Finally, it is extremely likely that developers will need to work with and pay fees to an external payment provider — like Stripe and Paddle — albeit at a lower rate than Apple and Google.
Actionable Tips for the New Era
Leverage new first-party data and build first-party relationships
An underrated aspect of app developers being able to sell directly is that they will gain access to significantly more first-party data. They can harness information from those direct payments to build powerful lookalike audiences that will streamline their ad spend and drive more profitable acquisitions.
Double down on performance marketing
The best way to acquire high-lifetime-value users is to utilize performance marketing, targeting key metrics such as return on ad spend (ROAS). That way, an app developer’s newfound marketing budget is spent on users less likely to churn and more likely to support the game by making in-app purchases while playing.
Taking the cost savings from avoiding the 30% can enable a more aggressive and intelligent user acquisition strategy, creating a virtuous cycle where increased profit fuels the acquisition of more high-value users. By adapting their strategies, they can not only reclaim lost revenue but also reinvest it into powerful, targeted advertising to fuel sustainable growth.
Pursue flexible subscription types
Untethered from Apple and Google’s restrictive offers, app developers can reimagine how they deliver offers that their customers want.
Offers like lifetime or multi-year subscriptions, long free trials are all possible. There is also increased pricing flexibility — like flash sales or coupon codes – that the developer no longer needs approval for. Spotify announced it will offer more pricing options as a result, for instance.
Eventually, developers will want to pursue segmentation of purchase options by user type as different user segments will convert differently. For example, more budget conscious consumers may need an especially tempting offer when repeat purchasers may not.
Ultimately, it is a fertile opportunity to try out new packages, pricing models, and segmentation strategies.
The Big Opportunity: From Fee to Fuel
There is a burden associated with this new freedom. App businesses need to ensure they create a seamless and trustworthy in-app payment experience. But if an app does go down this route and does convince a significant portion of their users to buy into this new ecosystem, then the company can expect a significant boost to their in-app revenue.
However, this boost should not go to waste. Utilizing this extra cashflow toward marketing may have a powerful effect that boosts overall performance, creating a virtuous cycle of inflow and growth.
It is tempting to take the revenue saved in direct sales and hoard the cash. But it’s perhaps smarter to view it as rocket fuel for a marketing budget that has plenty more prospects out there to reach.
