BLOG STARTUPS, VENTURE AND THE TECH BUSINESS

February 18 2011
by Todd Hixon

Positioning for On-Line Subscription Dollars

Apple’s announcement of its App Store Subscriptions revenue policy this week (link) has got a lot of people buzzing, tweeting, and thinking – usually not all at once ;-) – about the subscription part of the app economy. E.g., see my partner Scott’s thoughtful post about what it means for Android (link).   The policy lays out Apple’s claim to revenues from subscriptions collected within apps sold on the app store.  It’s essence is:  “when Apple brings a new subscriber to the app [i.e., when the subscriber signs up inside the app], Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent [provided that], if the publisher is making a subscription offer outside of the app, the same (or better) offer [is] made inside the app.”

Photo credit:  dailyiphoneblog.com

Apps That Matter

Since I’m a data driven guy, I thought I’d take a quick look at what’s actually moving on the App Store and ask myself, where do subscriptions fit in?  In January, on the occasion of the 10 billionth download, Apple published a list of the top ten paid and unpaid apps, by total downloads (source).

Games dominate paid apps (nine of ten).  If you want to make money selling an app, try a game.

Advertising supported services lead the free apps (six of ten):  three Google services, Facebook, Pandora, Flixster.  Bump and Paper Toss are truly free (for now).  Skype and Shazam are “freemium” with upsell to subscription. This little analysis suggests that subscriptions are not currently the heart of the app economy.

But, tablets are media consumption devices and will drive subscriptions to media services like netflix, hulu, and e-magazines/newspapers.  I was talking today with a senior cable channel exec who is charged with thinking about how to extend cable brands to tablets.  Apple dominates tablets.  Apple is smart to stake out its turf.

Can they defend it?  Publishers with strong brands and subscriber lists will work to avoid Apple’s 30% cut unless it’s earned through incremental revenue from subscribers collected on the Apple platform.  Apple’s approach may cut publishers off from subscriber data, too, and already there is grumbling about Apple’s market power (e.g.). Google announced a competing offer the next day with better terms:  10% revenue share and less control of subscriber information.

On the other hand, small content providers may see the App Store as a god-send, much as small developers love the App Store (or did at first): simple access to millions of buyers with credit cards one click away.

It’s early days and hard to know the answers.  Here’s what’s clear to me: subscriptions to media delivered on-line, especially to tablets, will be a big market and app stores will be a key channel.  This will be competitive: between Google and Apple, but also between G+A and content companies. Content offerings will multiply, helped by the app stores. There will be roles for third parties (like AppTap, our federated app search engine portfolio company) helping users find content and choose where to buy it.

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