In June, at the Worldwide Developer Conference, Apple announced that app developers from all categories will be eligible to price their apps as auto-renewable subscriptions. Previously, the subscription-based apps service was restricted to music, entertainment, news, and a few other app categories.
This is huge, considering that Apple hasn’t changed its revenue-sharing model since the birth of the App Store in 2008. It’s been the same for eight years. App developers keep 70% of all revenue generated while Apple takes 30%.
But now with the new subscription-based model, app developers will be able to keep 85% of App Store revenue after subscribers have been paying for a year - plus the revenue they get from those monthly or yearly subscriptions
Hours after WWDC, Google Play announced its own subscription-based app model, also giving app developers 85% but without the twelve month wait.
What’s in it for Apple, you might ask? In addition to potentially offsetting slowing iPhone sales, the subscription-based pricing model provides Apple with a more predictable, stabilized revenue stream than in-app purchases. As for Google, it’s mostly about keeping up with Apple.
Thinking about making the switch? Here are 5 points app developers should consider.
1. Do you have the right app?
First, it’s important to note that the subscription-based model is not right for every type of app. In fact, Apple even warns that if you submit your app on a subscription-based model when it should be using a premium or IAP strategy instead, they’ll reject it from the App Store. This includes basic utility apps like flashlights, currency converters, calculators, etc.
On the other hand, if your app provides users with ongoing value or regularly updated content, then the subscription-based model is perfect for you. In a best case scenario, your app should fall into one of two groups: cloud apps or content apps.
A cloud app is anything that relies on a cloud server, like storage (think Dropbox) or enterprise (Salesforce or Cisco WebEx). Because cloud apps rely on a limited amount of cloud space, subscription-based services help app developers properly monetize that limitation. For example, Dropbox could offer 5GB for $2.99 a month. Or WebEx could offer unlimited five person calls for $9.99 a month.
A content app is anything that provides users with ongoing content, like music, games, or courses.
If your app doesn’t fall into either of these categories but you’re eager to take advantage of the subscription pricing model, consider checking out our Fastest Growing Apps platform. This way, you can choose which subscription-based app you’d like to develop next depending on the categories and types of apps that are growing fastest.
2. Combine pricing models
There’s no rule that says your app can only run on one pricing strategy. You can combine models and offer users different pricing packages. For example, you can offer your app for free at first and then move to a subscription after a certain amount of time, or a certain amount of credits used, etc. Or, the app can be freemium the entire time, offer in-app purchases, but always allow users to have the option to upgrade to a subscription.
Your pricing strategy is as flexible as you want it to be. In this update, Apple is letting app developers offer their users different levels of subscriptions. Do you want to offer subscription bundles based on duration -- weekly, monthly, or annually? Or based on features -- basic, premium, and pro?
Don’t worry about boxing users into a single subscription model. Users can easily upgrade, downgrade, or crossgrade their subscriptions, either immediately or at the next renewal date.
The psychology of choice, which tells us that people prefer having many options, also plays into this point. The more options people have, the higher the chance that they’ll be satisfied. This is why without even realizing, we get excited by the ability to choose. So rather than giving your users one pricing option, it’s best to give them multiple. Subscription levels are a great way of doing this.
3. Show users they're getting a bargain
It’s no secret that users love saving money. If there’s a free version of the same premium app, they'll likely download the free one. Why? Because people like to know they’re getting a bargain.
Use this to your advantage. When you list your subscription levels, show users that they’re saving money by purchasing a specific subscription. The more blunt you are, the better. Take a look at this:
Basic Level - If you’re a casual user, we suggest purchasing the basic level. If you don’t use all the features, there’s no reason to waste money and purchase the premium version. With the basic level, you’re saving money and getting just the right amount of features for you.
Pro Level - If you use our app daily, the pro level is your best option. In the long run, this bundle will save you money and headache by offering you complete access to all our app’s features.
This deters casual users from making no purchase at all and encourages power users to get the biggest bang for their buck.
4. Notify users without losing them
Apple will automatically notify users that your app is moving to a subscription-based pricing model. But it’s important that you use marketing and in-app messaging to explain why -- especially if you’re moving from a freemium pricing model. Going behind your users’ backs doesn’t help anyone, they’ll react poorly and give you negative app reviews.
So be upfront and be smart. Send a push notification letting your users know your motive behind the switch. For example, you can say that the subscription model means more feature packages for users. The point is to show that user experience is your motivation for switching.
5. Research market pricing expectations
Your user base likely stretches across multiple countries. Luckily, Apple recognizes this, and is offering app developers the ability to set territory-specific prices. After all, $3 in the US is very different than $3 in Vietnam. To help, Apple is even providing app developers with an “iTunes Connect” pricing tool to help manage pricing exchange rates.
But before you start setting territory-specific prices, do a bit of research on your market. How much are users ages 18-24 willing to pay in Europe? Will teenagers in South America be okay with spending $9.99 on a new subscription? Also, be sure to check out what your competitors are offering. This could be a good reference point.
If you see that a specific market isn’t responding to your subscriptions, you have the ability to lower price points at anytime.
Needless to say, the subscription-based apps model will mark a significant shift in the mobile app economy. Not only will it change the way consumers purchase and interact with apps, but it will also provide app developers with the opportunity to earn more revenue so they can pursue a healthy growth trajectory. App developers have long been asking Apple for the ability to offer free trials and paid upgrades, hoping such pricing strategies would help their monetization efforts. For now, Apple responded with the subscription-based apps model, considering this strategy to be the most lucrative. But who knows what’s in store for the future.