Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) are each revising their revenue-sharing models for mobile apps. And the shift is all about recurring revenues.
Phil Schiller, Apple's senior vice president of worldwide marketing, told The Verge that the company is planning to expand on its long-time model, which sees the company take 30 percent of app revenues, with publishers receiving the remaining 70 percent. Publishers who maintain a subscription with a customer for more than a year will soon keep 85 percent of recurring revenues, with the company retaining only 15 percent.
Apple also plans to make the subscription model available to developers of all apps rather than limiting the model to a few specific genres. And the company will start presenting ads among its search results in the App Store for the first time.
Recode reported that Google is making a similar move, enabling developers of subscription apps to keep 85 percent of revenues immediately rather than having to maintain the subscription for a year. Citing unnamed sources, Recode said Google has been testing the model with some entertainment companies although it's still unclear when the model will be deployed commercially.
The new revenue splits could pay off in a big way for developers, many of whom have long struggled to monetize their apps. Customers overwhelmingly opt for free apps rather than paying a premium – obviously – leaving developers to look to mobile ads and in-app purchases to generate revenue.
Those models can sometimes be lucrative, but they often make for an inferior user experience, which can lead to shortened life cycles for apps. By decreasing the amount of revenue they keep from subscription apps, Apple and Google could motivate developers to continue to update their offerings and enable publishers to charge less for their apps while improving the overall user experience. That could lead to extended app life cycles as well as increased revenues over the long term.
App Annie: Google Play dominates downloads while Apple's App Store hogs the revenue
Half of all mobile game revenue comes from 2 percent of players, study shows
iPhone users spent an average of $35 on apps last year, study shows