Apple: Want apps? Then subscribe

Company risks inflicting 'subscription fatigue' on customers

Apple announced that by this fall it will let nearly all iOS app makers switch to a subscription-based business model, a move that could make it easier for some small-scale developers to turn a profit but risks backlash from consumers burdened by subscription fatigue.

"Ultimately, this should lead to more apps, better apps, and more innovation," Jan Dawson, chief analyst at Jackdaw Research, said of Apple's plans.

As revealed in a pair of interviews that marketing chief Philipp Schiller did with The Verge and Jon Gruber of Daring Fireball -- an unusual tactic for Apple -- the Cupertino, Calif. company will expand subscription pricing to all app categories, after previously restricting the model to just a handful: periodicals, business apps and media content services.

Apple will also reduce its cut from the current 30% of all subscriptions to 15% once a subscription has been active for a year. For each subscriber who sticks with the deal for 12 months, the developer will thus receive 85% of the subscription price, rather than 70%.

The new App Store rules will go into effect this fall, Schiller said, but developers who already deal in subscriptions will collect 85% starting Monday for all subs one-year-old or older. The most likely time for Apple to debut the new policies will be at the launch of iOS 10 -- and the next iPhone -- which, if the past is a guide, will happen in September.

Apple's App Store changes, said Dawson, come in response to developer complaints that many of their apps were economically unsustainable under the current monetization models: One time fees for perpetual use, in-app payments for additional functionality, and in-app advertising. Apple did not allow the historical model for software, which relied on initial purchases, then regular upgrades at additional -- albeit usually lower -- cost.

While perpetual licenses were certainly buyer-friendly, they made it difficult or impossible for all but the largest developers to turn a profit if they were enhancing their apps by adding new features and functionality. Developers sidestepped the problem even as they introduced others, for to justify the investment of time and money in an upgrade they stopped supporting the old and urged customers to pay again, this time for the new. (Apple encouraged this practice by refusing to list more than one version of an app -- the current one -- in its marketplace.)

"That's not great for the user, it's not very user friendly," observed Dawson of developers dropping support for an old version. But it was unreasonable to expect a developer to upgrade an app and still continue to support the predecessor, for which there would be no additional income. "Then both [versions] would have to get updates after a fork [to a new version]. That's more work for the developer."

Dawson argued that implementing upgrade pricing would be difficult, what with Apple's mandate for just one version of an app in the store. But while subscriptions are not a perfect substitute, they're better than nothing. In short, subscriptions should motivate developers to keep improving their apps, just as customers should be motivated to subscribe to receive those improvements.

The most likely beneficiary of the subscription expansion will be personal productivity apps and utilities, said Dawson, who cited Vesper, a note-taking app whose principals include Gruber, and Overcast, a podcasting app from Marco Arment. Others, including Flexibits' popular calendar app Fantastical 2, and Mint, Intuit's personal finance app, would seem good candidates as well under Dawson's criteria.

"These small utility apps are worth something, but the model to update them has been challenging," said Dawson, who envisioned subscriptions helping one-to-three-person development shops with just one app, or a small stable of apps, stay in business and keep their apps alive. "These are the kinds of apps that appeal to the Apple faithful," he continued.

But adding more subscriptions risks consumer fatigue. The model is already popular with software and services -- Microsoft's push to get consumers to adopt Office 365 rather than pay once for an Office license is a good example of the first, Apple Music of the second -- and Apple's move will only expand the potential list of monthly or annual payments.

"There are risks for Apple as it taps into that," said Dawson. "These would be yet another thing you're paying Apple for on a regular basis. People may get tired of that as [total] amounts go up and up and up. Consumers can't afford to keep adding 'one more thing.'"

Later today, Apple will kick off its Worldwide Developer Conference (WWDC) with a two-hour keynote to tout the next versions of iOS and OS X. While the subscription expansion announced last week was definitely developer-centric, Dawson, like others, believes Apple jumped the WWDC gun because the explanation of the App Store changes would have taken up too much time today.

"This has lots of detail and complexity, and there are still questions [after Apple's explanations]," said Dawson. "Trying to cram that in a keynote, it would have been too much to talk about. It could have taken 20 minutes."

The WWDC keynote will be webcast today starting at 10 a.m. PT (1 p.m. ET).

More information about the App Store subscription expansion can be found on Apple's website and in this FAQ for developers. Apple will also live-stream a WWDC session dedicated to the changes on Tuesday at 4 p.m. PT (7 p.m. ET).

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Gregg Keizer

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