Business Insider: Apple urges developers to hike prices, push app subscriptions

Brief:

Apple is reportedly pushing app makers to raise prices and build subscription revenues as the iPhone maker seeks to build its services business and foster a vibrant app economy, according to a report by Business Insider. Apple wants developers to make high-quality apps that can sustainably charge monthly fees instead of increasing one-time download prices or selling ads.
Apple's revenue-sharing has changed in the past couple of years to urge developers to seek more subscription sales from its App Store, per the report. The tech giant typically collects 30% of an app's initial download price, but in 2016 the company changed the fee structure to keep the initial charge and cut it to 15% for app subscriptions after the first year.
Apple's paid subscription revenue grew more than 60% in the past year to about $300 million as more than 30,000 of the 2 million apps in the App Store started charging recurring fees, CEO Tim Cook last month said in a conference call with investors. Critics say most of that subscription revenue is concentrated among major streaming media providers like Netflix, Pandora, Spotify and HBO, per Business Insider.

Insight:

Apple and other makers of smartphones are fighting to differentiate themselves with robust services and software that come from a vibrant community of app developers and content creators who can build sustainable revenue from their efforts. Software and services become especially important as the pace of hardware innovation slows, as seen in the minor improvements to battery life, screen resolution and camera functions of the latest smartphone models. Mobile devices become more valuable to users who can rely on them for a wider range of features than the basics of voice calls, texting, email and web browsing. What's good for the app ecosystem is typically good for device makers like Apple, Samsung, LG and Google, in addition to Chinese manufacturers like Huawei.

Apple said that app developers can raise prices without a major adverse effect on subscriptions, sharing research that said the rate of customer retention was 41% after a price hike, compared with 61% without a price hike, per Business Insider. An example in the report highlighted the success of developer Lightricks, which created a selfie-fixing app called FaceTune. The app was No. 1 on the App Store's paid charts with a price of $4, while its sequel FaceTune 2 costs $6 to unlock with a $32 annual subscription or a lifetime price of $70.

Apple's push to boost app subscription revenue comes as the company takes a variety of measures to improve app quality and discovery in the App Store. The company last year redesigned the App Store to put a greater emphasis on editorial content like daily app and game picks, lists of recommended apps, how-to's and interviews with developers. Those changes helped the percentage of app downloads from browsing grow to more than 15% of all downloads from 10% before the redesign, according to a study by researcher Sensor Tower. Apple also purged its App Store of older apps that weren't updated or didn't meet its stricter review criteria, leading to the first decline in available apps.

Increasing app subscriptions could help Apple realize its goal of doubling its services revenue, which includes the App Store, Apple Music, iCloud storage and Apple Pay, to $50 billion a year by 2020. Services revenue jumped 31% to $9.6 billion in its latest quarter from a year earlier, including $236 million in connection with the settlement of various lawsuits. The company needs to diversify that subscription revenue beyond top media streaming apps like Netflix and Spotify. Netflix has 125 million paid subscribers, Spotify has 83 million and HBO Now has 5 million, but those totals include platforms other than Apple devices.