Marco:
Welcome to Under the Radar, a show about independent iOS app development. I'm Marco Arment.
David:
I'm David Smith. Under the Radar is never longer than thirty minutes, so let's get started.
Marco:
Today we wanted to talk about these interesting changes that were announced about the App Store today. As of the time we recorded, they were announced about an hour ago. Apple has officially recognized the speed of app review times being improved, some updates to the auto-renewing subscription plans, and some expansions of capabilities to subscriptions there. Then number three is they've announced that search ads will be coming to the App Store. What do you say we talk about the subscription changes?
David:
Sure. As best we can tell, and there's a great page, we'll have a link to it in the show notes, of the "What's New In Subscriptions" that Apple's laid out. There's some good color you get from Phil's interview, but the real meat of it is on developer.apple.com. It seems like there's two or three big deals. One is that you can now essentially offer auto-renewing subscriptions in any app type. This used to be somewhat of a vaguely defined rule, but you had to be a magazine or a cloud-services company or a dating site, I think were the three things that you could do.
Marco:
Yeah, this rule has always been very vague. It used to only be periodic content. First, it used to only be Newsstand, like in the very, very first implementation of it back in 2011. Then it kind of expanded to be like, well, it could be Newsstand or it could be a handful of things that had recurring costs, like cloud-services companies. I know Evernote started using it very early on for their premium service. It was the kind of thing where you could apply to do it, and you could submit an app that did it, and it seemed fairly inconsistent as to what got through app review for that and what didn't and what counted as an ongoing service or ongoing content and what didn't count. It was always very risky to attempt to do that if you were just like an app that wanted to produce some revenue for some other reason outside of those narrowly defined boxes.
David:
Yeah. Now that seems like those kind of criteria are going away, and any app category or type is available.
Marco:
I think. Honestly, that's still left a little bit vague. In the language on the page, it's still left a little bit vague. It still kind of sounds like, okay, now any app category can do this, but you still should be offering some kind of ongoing service, backing it, or some kind of ongoing content delivery. It's still a little ... If you just made a really good calculator that didn't have a service behind it, it's not entirely clear that you would be allowed to subscription price it.
David:
Yeah. I think that is probably the most significant thing to note, is that it does seem like the ... On the developer page, they're talking about the types of auto-renewable subscriptions are for content or for services. It doesn't sound like in the sense of if you wanted to just say, "Here's my app and you will pay me whatever, a few dollars a month, a year to use this going forward," that you would be able to. There'd have to be something that you were giving the user on an ongoing basis.
I'm sure there's many ways around that. Like, you can just kind of structure something in your app that will check that box, but it doesn't sound like if you were just trying to do a general purpose, "If you want to use my app, you have to pay," that doesn't sound like that's quite there, but it's expanding it certainly more. I imagine, as this gets rolled out and people start pushing the edges of it, we'll have a better understanding of exactly what that means, but at the very least, more people are going to be able to do subscriptions than could do subscriptions before.
Marco:
Yeah. It seems like the implementation of them is certainly improving, but it seems like it's based on the auto-renewing subscription type that we've had since 2011. It isn't like some kind of separate App Store payment structure, like free versus paid up front. It's not going to be automatic, it seems like. It's going to be a lot more like what we had before, which is here's an in-app purchase type. As the developer, you have to code the support for this in-app purchase type in your app. You probably have to write the backing service to validate them. I'm sure there's going to be like ... I'm sure there's companies that will do that for you for a fee, but you are still kind of manually implementing this in your app.
It's not as easy as if you have a paid app, a paid-upfront app; you literally just set a box and iTunes connects in. This app costs x dollars, and you don't have to deal with anything else ever again in relation to collecting money from people. It's not going to be that easy. It's still an in-app purchase that you have to code for, you have to account for in your app. Ultimately, though, I think this is the better way to do it because this gives you flexibility in the app to do things like what if you want to have some amount of your app's functionality or content be available without subscribing and then have some other section of it be available with the subscription? Then this allows you to set that balance yourself. That, I think, is the right way to do this.
Ultimately, though, this is ... Assuming that they will allow all apps to use this, which again is ... The wording is kind of vague. I think it boils down to this one sentence on the page on their site which says, "Although all categories of apps will be eligible, this business model is not appropriate for every app." I guess it depends on their definition of eligible and appropriate. Does appropriate mean they don't recommend we do it, or does appropriate mean they won't let us do it? That's again still unknown.
I think subscription pricing is a really, really interesting compromise to what developers have been asking for in the App Store for a long time, which is upgrades, trials, some kind of way to make money from people ongoing because software ... As we've discussed before, software ... People expect ongoing functionality. They expect updates. They expect bug fixes. They expect you to be putting in effort to improve and fix your software over time for them. When they pay for it, they expect not only am I paying for the software to use now; I'm paying for upgrades forever. As much as developers like to fight against that with things like different versions and paid upgrades, the way people perceive it is I pay for this thing, and therefore, I expect updates forever.
To try to strike the balance between what users want, which is paying either zero or one time and then getting things forever, versus what we need, which is ongoing revenue to fund the development of these ongoing things and to fix things over time and to improve things over time, subscriptions, I think, are a really good compromise there because, look, we're never going to get paid upgrades in the App Store. We're never going to get automated free trials.
They're giving us this system now. They gave us in-app purchase at first to kind of first semi-simulate free trials and types of upgrades. Now they're giving us subscriptions to basically replace ongoing upgrade revenue. There's some ups. There's some downs, but I think it's pretty clear this is Apple's message. This is them saying, "We're not giving you those other things. This is what we're giving you. Figure out a way to make this work for you or to make the other stuff that we already offer through app purchase work for you."
The user's side of this, of course, is a big question mark, but the developer side of this, I think, is very, very clear now, is if you want ongoing revenue for people who just use your app, if you want ongoing revenue, you need to either find a way to convince them to pay for a subscription price like this or you have to do something like advertising, where you just kind of automatically get paid with usage of your app over time. I don't know. What do you think?
David:
It's definitely a mixed feeling that I have when I saw this news because, on the one hand, I'm very glad that something is happening. We've talked about, for many episodes, there's a lot of things that feel not great in the App Store, and for years, it's felt like nothing was ever going to change. What we had is just what it was, and that's where it was going to be in eternity.
I'm very excited that things are changing. Whether this is a result of Phil Schiller taking over the App Store more fully or if it was just time for this to happen or whatever the reason, something has caused changes to start happening. Things are starting to bubble up in the App Store and are changing, which, overall, I'm pretty excited about because I think things weren't in a great place. You never know. It could be worse overall in the end, but I'd rather find my way in a store that was evolving and changing because, in a lot of ways, being a small developer, there's a lot of benefits when things are more in flux because I can try things out with much less overhead and kind of dive in. There's less risk than if I was a bigger company. I can be a bit more flexible and agile in that way. Overall, I like that.
I'm not sure if an expansion of auto-renewable subscriptions is fundamentally going to improve the situation in terms of making a viable business in the App Store. I think the types of applications where it will make sense exist, but they are more and more limited. The thing that I worry about, as a user, is if this is where software goes, but if all of my software requires an ongoing subscription to have, there's a very ... I think you'll hit a fatigue point with that, where customers won't want to download software or new software if, in their mind, it's going to come with it a monthly charge of $1 a month or whatever it is on their iTunes account every single month in order to use any of the apps, and if they stop paying, all of a sudden, all their apps stop working. I would imagine a lot of customers would push against that.
In many ways, that could push even stronger pressure towards the software-being-free model, where the expectation is that it'll be free. The reality is, in the App Store right now, and this is my own experience from trying every business model known to man, is that the most success I've ever had is in the just "give it all away for free and put ads in it" model, which I don't love, but I have a hard time believing that the percentage of my customers who would be willing to pay a non-insignificant amount ...
I mean, one thing that I'm very curious about is there's a bunch of stuff in here about 200 different price points, and you can specify different price points in different territories. There's a lot more flexibility there. I'm really intrigued to see if we're going to get something where the payments that we are charging can be lower in a way that charging somebody a couple of dollars a year may be a bit more palatable than charging them a minimum of 99 cents per month, which I believe is ... In the current form of auto-renewing in-app purchases, that's the lowest tier you could do, is $1 a month. Maybe I'm being a little hard on my own software, but I don't think a lot of people would view a lot of what I make as worth more than that, where they're paying $12 a year for it, but maybe they would be willing to pay a few dollars a year for it. If there's those types of things, that's interesting to me.
I'm also quite interested in the way that in-app purchase or auto-renewing in-app purchase has a lot of flexibility in it, like the actual fundamental API as it exists today and I imagine going forward, where it has built-in support for things like free trials and bonus periods and things where you can have a bit more flexibility about the way someone is being on-boarded into paying for your software or for your service. That's certainly nice in terms of a lot of people have been asking for years for free trials on the App Store. With in-app purchase, you can sort of get there. Exactly how that goes is going to be an interesting thing to navigate an app review of ... App review typically doesn't allow your app to have a time-limited free trial, but you can sort of get around that if your app is tied to an online service. Will we be able to work something out there?
Overall, it's kind of this weird mixed feeling of I feel like I'm glad that this is changing. I really hope this isn't the only change that we're going to see in the near future, but I think it's a good thing overall that it's happening. The reality is that even if maybe only a very particular genre of application will now be made more viable, maybe that's enough. It doesn't have to benefit me or you necessarily, but if all of a sudden there's a few hundred developers who can now make a viable run at the App Store, that sounds great overall.
Marco:
Yeah. As you said, I don't think this is going to address ... There are basically two challenges that developers face from monetization in the App Store, two big ones. One of those challenges is when people do want to give you money, our options for how to collect that money have been limited. This addresses that head on. This gives a lot more developers a way to collect money in a different way that might be a better way, that might earn them more over time.
The second challenge that developers face in monetization is that there's just so many other apps out there that it's hard to get people to pay anything for your app if there's a million other free ones that do something close enough. This is not going to address that at all. I do kind of argue, though, in general, that that's not really Apple's problem. That's our problem as developers. That's just the market. The market is full of competition and full of alternatives. If somebody else can offer the same thing for us, that we can, for cheaper, then good on them. That's their prerogative.
I think this is Apple doing what they can to help apps that are worth paying for earn more money or collect money more easily and to solve ongoing revenue in a new way, which before we only had ... Basically, we had crappy ways to do it before, and now we have a less crappy way to do it potentially. I have, in the past, written about how much I didn't like the implementation of auto-renewing subscriptions. I'm reserving judgment of this new one until I see it and possibly even use it for my subscriptions. We'll see. They say they're changing it. This is like Subscriptions 2.0, they're saying, so I'm willing to give it a shot. We'll see if it's improved in meaningful ways. It sounds, from the language on the page, that it has, so I will wait and see.
Before we quickly leave this topic, the other thing to talk about on the subscription front is that they're changing the revenue split. Normally, the revenue split is 70-30. We get 70. Apple gets 30. For auto-renewing subscriptions of this new type or all actually ... For auto-renewing subscriptions, they're changing the split from 70-30 to 85-15 after the first year. Any subscriber you've had for more than a year, you will start to earn more from them. You'll start to earn 85% instead of 70%. This is basically incentivizing you to create ... If you have a way to make money from people over time, this is incentivizing you to both use this system for doing that and to make something that is worth people subscribing to for more than a year. That's kind of cool.
It's kind of cool to see ... This is the first exception to the 70-30 rule, at least that's been publicized, in the history of the App Store. I was able to find an article on I think it was Ricoh, that I'll link to in the show notes, from back in April that said that some of the video services on the Apple TV were getting this 85-15 deal right upfront as part of their negotiation with Apple. Other than that, I have never heard of any exceptions to the 70-30 split. I think this is interesting.
It's interesting to consider too where Apple might go with the 85-15 option in the future. They can use this as a way to incentivize development in a certain way or on certain platforms that need help. For instance, if Apple TV isn't getting enough developer attention, they could say, "All right, now everything on Apple TV is 85-15." If they wanted to incentivize people to go to the Mac App Store, they could say, "All right, now all Mac App Store apps are 85-15." Something interesting to consider is using this new lower commission basically, so we make more money, as a way to incentivize different development or apps on different platforms that need incentives to spur development.
David:
Exactly. I think the actual impact of this in this narrow case, it's nice. I mean, I guess if I had a subscription that had more than a year's-long subscriber base, I'd love it. One day, my revenue just goes up a little, but by far, the more fundamental thing that this is really intriguing with is it's the first chink in the, well, it'll always be 70-30 for everything forever. If that's no longer true, and it's demonstrably not true, that in this particular case they're changing the split, what else could they change the split on?
Like you said, they can incentivize whatever they want, and that's intriguing. You could imagine things where it's a different revenue split for the first revenue you make in a year to try and help smaller developers. You could imagine trying to encourage people with the different platforms to try to incentivize different business models. There's all kinds of things that not having it be strictly 70-30 everywhere can certainly make the imagination run wild with. It's certainly a good thing. I don't think it's immediately ... If your business wasn't viable at 70-30, having to wait a year for it to switch to 85-15 to become viable seems a little bit of a stretch, but I'll take it. It's better than nothing, for sure.
Marco:
Our sponsor this week is Braintree. Now, we talk about ease of payment, right? This is the perfect sponsor for this week. Why make payment integration more difficult than it has to be? Braintree's powerful, full-stack payment platform allows you to accept nearly any type of payment from any device with just one integration. Braintree is flexible to your system's needs and supports most languages. Whether you're using Java, Ruby, Python, whatever else, you will always have a range of service side and client side SDKs available. The Braintree code supports Android, iOS, and JavaScript, as well, and it takes just 10 lines of code to implement. Braintree makes payments and your job a whole lot easier. Learn more at braintreepayments.com/radar. That's once again braintreepayments.com/radar. Thanks to Braintree for sponsoring our show once again.
All right, so let's talk about App Store search ads. This was rumored a few weeks or months ago, and now it apparently is real. They're really doing App Store search ads. What do you think?
David:
I'm not delighted. That's for sure. The things that I think ... So it's probably good to paint a word picture, as they say, for what's happening. In the App Store, when you go to the search tab and you type in what you're looking for, there will now be potentially an ad at the top of that screen. You can get an example of this if you go to the Search Ads page in our show notes. The placement there is going to be based on an auction and a combination of who's willing to pay the most for that spot as well as some vague relevance metric.
Essentially, people are going to be able to pay money to appear in the App Store search tab at the top of the results, which is a pretty big deal. Apple even says on their page that about 65% of downloads come from searching in the App Store, so a substantial majority is going to be coming from there. The things that come to mind first when I see this is this really is unfortunate for apps that are currently the second search result for a particular term.
Marco:
Because they're going to fall off the screen.
David:
Because previously, back in the old days when you would do a search, you would be able to see maybe like five or six results at once. Then they switched to the cards view we have now, where your first two screenshots, or a screenshot and your app preview, are shown on that first screen. They take up a lot more vertical space, and so you can see the top result and a teeny little bit of the second result. Now if there's an ad, you're only ever going to see that top result and the paid ad.
That's a little unfortunate because I've definitely seen in my own apps where if you fall off that first page, if the user has to scroll, it's a substantial reduction in user interest, views on your page, et cetera. That's a pretty big deal if now only two apps are going to be shown in the initial search screen. One of them has paid to get there, and the other one is just the top result. If you're the top results, like hooray, things are looking good for you. If you're the second result or below, it's getting worse.
Then there's just the fundamental thing about it when I look at it that feels ... It feels weird to have to pay to show up in search, rather than search just being really relevant and helpful. I can see the areas where something like this is helpful, where if you're launching a new app and you're never going to be the first search result on your first day, and so you want to try and find your way into that. You can do a big spend on that first day and hope that really helps your launch. That sort of makes sense. It makes a lot of sense, I suppose, for somewhat generic terms, but what I worry about a lot is how they're going to police and manage when someone searches for a specific app.
So someone goes into the App Store and searches for a Pedometer Plus Plus. Right now, if you go into the App Store and search Pedometer Plus Plus, I'm the number-one result, which intuitively makes sense, but if in the future you do that search, the top result is going to be a competitor of mine who wants to be placed on the top there. That feels really weird. Am I going to have to pay for that? Am I going to have to start paying protection money to keep people searching for my app's name relevant to me so that I would be both, I guess, the paid result and the natural result? That starts to feel really weird and awkward and not great. I don't know. If this is the new reality, then I'm just going to deal with that and try as best I can to work it to my favor, but I definitely have a lot more apprehension about this than I do about the subscriptions change.
Marco:
Honestly, I'm excited about search ads because if you look through their page, it seems like it's more complicated, both more simple and more complicated than what I would have guessed. It is auction-based, which I think is good. If you look, they have a little screenshot of the interface to buy one of these ads. They say also like ... It says, "Ads will only be shown if it's relevant to the search query. If an ad is not relevant to what the user is looking for, it will not be shown regardless of how much you're willing to pay." It sounds like they're going to try to make it impossible for you to keyword spam in a way that would be kind of odd or uncomfortable or inappropriate. I'm curious to see how that works out in practice. That sounds really great if it works.
Also, it looks like you can let them place you automatically if you want to, or you can add in certain keywords that you want to bid on also. It seems like it's a fairly high-level buying process, rather than a low-level, all right, whenever the user searches for this exact string, I will pay up to $5 to be in that first spot. It isn't quite that rigid or that specific, it looks like. I am really curious to see how they do this.
As a developer, right now, it's like, "Okay, well, right now Overcast is growing at a rate that's okay, but I'd like it to grow faster. I'm willing to pay a little bit for that. How do I do that?" I mean, the App Store is the perfect ... App Store search is the perfect place for me to do that, as far as I know before I've ever done it. It seems like it'd be the perfect place to do that. I'm willing to pay money, if somebody searches for podcasts, to be in that top slot. I'm willing to try that. To have this new option to grow my app, if it's done tastefully, which it looks like it might be, this honestly looks very promising, the way on this page they've set up here.
I would love to have that option. It looks like it's probably not going to make it impossible for other apps to get discovered because it's so limited to what people can buy and what portion of the screen is devoted to this ad. I think it looks like it's going to be good, but we'll see. I think it's going to take a lot of experimentation of actually trying the system out, spending maybe a few hundred dollars buying some ads first and see what works, what doesn't. There's a lot of ways to advertise for apps, and most of them don't work very well. This one might work, so I'm excited. I think this could be really good.
David:
There's definitely ... Like we've said with all of this, I love that they're trying something, that they're not ...
Marco:
Yeah.
David:
That part of it is good. Unequivocally, I would rather things like this exist and make me a little nervous than things not exist at all and make me be even more nervous that this platform that I make my living on is just stagnant. I'm definitely excited that it exists. It's interesting too to think about how ... having to think about all my customers from the perspective of what are they worth to me. Maybe this is just like me and my numbers brain where I think about these things, but essentially what it comes down to is I now have to, in a very concrete way, say, "What is a customer worth to me?" because I can now, in many ways, pay that amount of money to acquire that customer or at least have a promising venue with which to acquire them.
If I can say, "A new user is worth 50 cents to me," and I can come into the search-ads page and pay 49 cents for that user, I'm coming out ahead. As soon as I can understand and wrap my arms around that these are all the terms, like the average value of each customer and those kinds of things, once I can do that, I can sit down and say, "Okay, I'm just going to pay ... As long as I break even or slightly come out ahead, I can keep putting ..." It's this weird cycle where I can just keep taking money out of the app and putting it in, to a point.
Maybe the value of my customers will go down at a certain point as you do that. Like, maybe there's a dilution effect, but overall it certainly is a very intriguing way. Maybe it's a good thing for us, as app developers, to be forced to think of our apps in a more tangible business sense in that way, that it isn't this kind of vague, crafty thing that I'm sort of like, "I don't really know the value of. It's kind of like I make this stuff, and I put it out in the world." It's like, no, I can sit down and say, "I get this much revenue from this many users. That means each user is worth this much to me, so I can pay up to this amount to acquire new ones." That's maybe a good thing for us to have to think about.
Marco:
I think it can help newcomers. Everyone's a little bit worried. Like, what's this going to do to the little guys? I think this will actually help newcomers, give them an option that if they wouldn't otherwise be visible for a search query, give them a way to get in there. I think this actually could be really good if done right, and it looks pretty promising so far, so we'll have to see.
All right, and finally we wanted to very briefly talk about the App Review Times being formally acknowledged. We said that this would be great if this sticks around, and one of the ways to make sure it'll stick around is if Apple formally acknowledges it in public, and they did. So Fast App Review is probably sticking around, and that's great. Thank you for listening, everybody. Thanks to Braintree for sponsoring, and we'll talk to you all next week. Bye.