{"id":71,"date":"2021-10-25T18:55:18","date_gmt":"2021-10-25T18:55:18","guid":{"rendered":"http:\/\/androidappspace.com\/the-app-store-is-the-games-store-apple-should-recognize-this\/"},"modified":"2021-10-25T18:55:18","modified_gmt":"2021-10-25T18:55:18","slug":"the-app-store-is-the-games-store-apple-should-recognize-this","status":"publish","type":"post","link":"http:\/\/androidappspace.com\/the-app-store-is-the-games-store-apple-should-recognize-this\/","title":{"rendered":"The App Store is the Games Store. Apple should recognize this."},"content":{"rendered":"
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One passage in the 185-page ruling issued last week in the Epic Games v. Apple<\/em> lawsuit forces clarity on the convoluted patchwork of rules governing platform fee applicability by expressly acknowledging the beating heart of the App Store economy:<\/p>\n
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Further, the evidence demonstrates that most App Store revenue is generated by mobile gaming apps, not all apps. Thus, defining the market to focus on gaming apps is appropriate. Generally speaking, on a revenue basis, gaming apps account for approximately 70% of all App Store revenues. This 70% of revenue is generated by less than 10% of all App Store consumers. These gaming-app consumers are primarily making in-app purchases which is the focus of Epic Games\u2019 claims. By contrast, over 80% of all consumer accounts generate virtually no revenue, as 80% of all apps on the App Store are free.<\/p>\n<\/blockquote>\n
The App Store is a mobile games distribution business: the vast majority of App Store revenues are generated by in-app purchases from games because most other app categories are already exempted, effectively or explicitly, from paying a platform fee. These exemptions are applied by category:<\/p>\n
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Apps that deliver fulfillment non-digitally<\/strong> (Uber, Airbnb, Skyscanner, Doordash, etc.). These apps don\u2019t pay a platform fee on revenues generated from within the app because the goods and services they provide to users are fulfilled non-digitally;<\/li>\n
Reader apps<\/strong> (Netflix, Spotify, HBO Max, Youtube TV, etc.). These apps provide access to a previously-purchased or subscription-gated catalogue of content. While these apps can use Apple\u2019s payments tools to charge users for subscriptions \u2014 and they must pay the App Store platform fee when they do so \u2014 the largest of these (eg. Netflix) don\u2019t at all, and most at least offer a web-based payments system. Thus, this category generates some revenue to the App Store, but much of the revenue generated by this category is exempt from the App Store platform fee. Prior to Apple\u2019s settlement with Japan\u2019s FTC, these apps could not link to non-App Store payments processes from within their apps, but now they can, and so the contribution to App Store revenue from this category is likely to shrink further.<\/li>\n<\/ul>\n
The categories that aren\u2019t exempt from App Store fees are games and so-called \u201cutility apps\u201d like Tinder, Calm, etc. that 1) charge users for content and functionality that is fulfilled within the app and 2) feature content that is interactive and not previously purchased.<\/p>\n
But, per the above statistics, Apple has mostly already scoped the applicability of its platform fee primarily to games by having exempted other categories. And within the gaming category, the distribution of spend is heavily skewed toward extreme spending behaviors. From the ruling:<\/p>\n
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Importantly, spending on the consumer side is also primarily concentrated on a narrow subset of consumers: namely, exorbitantly high spending gamers. In the third quarter of 2017, high spenders, accounting for less than half a percent of all Apple accounts, spent a \u201cvast majority of their spend[] in games via IAP\u201d and generated 53.7% of all App Store billings for the quarter, paying in excess of $450 each. In that same quarter, medium spenders ($15- $450\/quarter) and low spenders (<$15\/quarter), constituting 7.4% and 10.8% of all Apple accounts, accounted for 41.5% and 4.9% of all App Store billing, respectively.<\/p>\n<\/blockquote>\n
This is not surprising to anyone who has worked in mobile gaming. In fact, this monetization reality is a design choice. As I write in Freemium Economics<\/em>:<\/p>\n
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The second pattern is that very few users of freemium products ever monetize, or spend money on them. The low proportion of users who monetize in freemium products contributes to the necessity of large potential scale: a low percentage of monetizing users within a very large total user base might represent a respectable absolute number of people. This concept is referred to in this book as the 5% rule, or the understanding that no more than 5 percent of a freemium product\u2019s user base can be expected to monetize\u2026Thus the 5% rule is not, in fact, a rule; it is a design decision through which the developer embraces the practicalities of the freemium business model, which suggest that a small, dedicated minority of users can monetize to greater aggregate effect than can a larger population of users that has monetized universally through paid access. This design decision is an outgrowth of the freemium model scale requirement: the larger the total user base, the more meaningful will be the minority proportion of users who monetize.<\/p>\n<\/blockquote>\n
Why does this matter? Because games is the category least likely to substantially benefit by re-routing revenues through alternative payments processors. Extreme spending behavior often involves large sequences of small, one-off purchases. The #1 Top Grossing iOS game in the US as of this writing is Roblox; the highest-priced IAP offered by Roblox costs $9.99 (note that some of these IAPs below represent recurring subscriptions).<\/p>\n<\/figure>\n
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