Apple could lose all App Store revenue in EU and only take 1% hit
Side-loading and alternative app stores won't affect Apple's bottom line by much, and in fact, could improve its stock thanks to regulatory backoff -- at least according to Morgan Stanley.
Apple's App Store move might be just what it needs
Apple is allegedly planning on allowing third-party app stores and side-loading to comply with European Union law by 2024. The changes could only affect users in the EU, but would be a major shift in Apple's policy.
According to a note from Morgan Stanley seen by AppleInsider, the investing firm doesn't believe Apple's changes to the App Store will have a material effect on services revenue. Even in the worst-case scenario, Apple would only lose 2% of its total revenue globally in FY24.
Basically, Morgan Stanley estimates that if Apple lost all of its App Store revenue from the EU, the company would take a 4% hit to services revenue and a 1% hit to total revenue in FY24. If Apple allowed side-loading and alternative app stores globally, it could result in a 9% hit in services revenue and a 2% hit to total revenue in FY24.
These scenarios are based on a worse-case and highly unlikely set of events. This would require around 30% of iPhone owners to abandon the Apple App Store.
This is seen as unlikely, thanks to survey work conducted by Morgan Stanley. Less than 30% of participants in the survey indicated they would be extremely likely to purchase an app directly from a developer's website versus the App Store. Even then, users would want the app to be priced up to 35% less to make the transaction worthwhile.
Survey data from Morgan Stanley
Customers indicated that they do not want their payment information spread to too many places on the internet. Apple's App Store provides a centralized platform to access apps, pay for digital content, and use services with a single payment platform.
Apple seemingly has two choices to make, and it has chosen the lesser of two evils. It could allow side-loading and alternative app stores, or be forced by regulators to lower App Store commissions to reduce cost burden on developers.
Regulators would likely back off Apple and reduce antitrust pressure by giving developers the option to go to alternative app stores. However, customers would be unlikely to follow those developers, so apps would likely remain on the official Apple App Store.
Morgan Stanley has data that suggests only about 1% of Android users take advantage of alternate app stores and side-loading. The cost of doing business outside of the Apple App Store would fall on developers, which are primarily small businesses. These issues would compound into a high-risk, low-reward business model that developers would avoid.
Apple hasn't released any official statement about how it intends to handle third-party app stores or side-loading. The EU law gives businesses roughly until the end of 2023 to comply, so expect more information from Apple no later than WWDC in June.
Read on AppleInsider
Apple's App Store move might be just what it needs
Apple is allegedly planning on allowing third-party app stores and side-loading to comply with European Union law by 2024. The changes could only affect users in the EU, but would be a major shift in Apple's policy.
According to a note from Morgan Stanley seen by AppleInsider, the investing firm doesn't believe Apple's changes to the App Store will have a material effect on services revenue. Even in the worst-case scenario, Apple would only lose 2% of its total revenue globally in FY24.
Basically, Morgan Stanley estimates that if Apple lost all of its App Store revenue from the EU, the company would take a 4% hit to services revenue and a 1% hit to total revenue in FY24. If Apple allowed side-loading and alternative app stores globally, it could result in a 9% hit in services revenue and a 2% hit to total revenue in FY24.
These scenarios are based on a worse-case and highly unlikely set of events. This would require around 30% of iPhone owners to abandon the Apple App Store.
This is seen as unlikely, thanks to survey work conducted by Morgan Stanley. Less than 30% of participants in the survey indicated they would be extremely likely to purchase an app directly from a developer's website versus the App Store. Even then, users would want the app to be priced up to 35% less to make the transaction worthwhile.
Survey data from Morgan Stanley
Customers indicated that they do not want their payment information spread to too many places on the internet. Apple's App Store provides a centralized platform to access apps, pay for digital content, and use services with a single payment platform.
Apple seemingly has two choices to make, and it has chosen the lesser of two evils. It could allow side-loading and alternative app stores, or be forced by regulators to lower App Store commissions to reduce cost burden on developers.
Regulators would likely back off Apple and reduce antitrust pressure by giving developers the option to go to alternative app stores. However, customers would be unlikely to follow those developers, so apps would likely remain on the official Apple App Store.
Morgan Stanley has data that suggests only about 1% of Android users take advantage of alternate app stores and side-loading. The cost of doing business outside of the Apple App Store would fall on developers, which are primarily small businesses. These issues would compound into a high-risk, low-reward business model that developers would avoid.
Apple hasn't released any official statement about how it intends to handle third-party app stores or side-loading. The EU law gives businesses roughly until the end of 2023 to comply, so expect more information from Apple no later than WWDC in June.
Read on AppleInsider
Comments
The ease of ending subscriptions in the AppStore is first rate. This is especially true for anyone who has the experience of trying to cancel AOL, telecom services, television cable service etc etc. I suspect most gamers have yet to be subjected to #adulting & so have no experience of these things.
Almost all the fraud I have had to deal with online has stemmed from small website purchases, etc etc.
It would take a lot for me to sideload but maybe Europeans are more trustworthy of small business.
The related open messaging regulation is very strange. It is requiring a level of interoperation that seems impossible to implement. I think the only way to do this would be for Apple to open up part of the transport, but require E2EE handoff to happen with an App Clip. The App Clip could securely store the encryption secret in the Keychain and facilitate video and audio calls with that service. In other words, Apple would never give any other service its E2EE secrets, instead the other service would need to give their E2EE secrets to your device without Apple being involved through the App Clip.
- I will move all my apps to an app store that gives me much better marketing. From a developer point of view the marketing of the Apple App Store sucks. I did a survey among my customers and none of them have discovered my apps in the App store. This is the main reason to move away from the Apple App Store. In the first few years of the App Store the marketing was OK, but now there are so many apps on the App Store, that I have to provide my own marketing.
- My ideal app store should not impose business restrictions as the Apple App store does currently: it should allow me to give discounts to my clients who buy multiple apps from me, it should let me distribute vouchers, it should allow special "launch offers", it should allow to have another main currency (e.g. the Euro) so that when the exchange rate changes the cost in Euro does not change, but the cost in $ does.
- My ideal app store should distribute iOS and Android versions of my apps, and should allow me to link the web version of my app. I basically don't care which version of my app is downloaded.
- For payments I would use Ingenico, a well respected payment service provider, that I am currently using for the web version of my apps (I never had any fraud issue with Ingenico). As such I will have 1 single payment service provider for all my apps on all devices.. Operationally this will lower the cost of my accounting and my help desk.
I might assume that Apple after a while might react when more and more app stores becoming available. Especially on point 2 Apple might move a bit to become more developer friendly.>"Basically, Morgan Stanley estimates that if Apple lost all of its App Store revenue from the EU, the company would take a 4% hit to services revenue and a 1% hit to total revenue in FY24"<
Closing down the Apple App Store in the EU has the same effect as losing all of it's App Store revenue from the EU. They are not saying that no apps will be available on iOS in the EU. Just that none of the apps available will be from the Apple App Store. Now 1% of total revenue is not chump change, it's $4B, but it's still only 1% of Apple total revenue. Apple will lose much more revenue than that, from the shortage of iPhones this quarter. And there have been recent quarters where it's been reported that App Store revenue have grown by double digits.
And that's sounds about right when using napkin math, Apple have never revealed their App Store revenue or broken down their Service revenue. For sure, they are only counting their commission as revenue and not the total price of the app, subscription or IAP. So if App Store revenue is about 25 to 30% of Apple total Service revenue (as rumored), and the EU represent about 15% of App Store revenue, (about the same as their iPhone market share, iPhone marketshare in all of Europe is 23%.The UK is the largest iPhone market in Europe and no longer part of the EU.), then closing down the App Store in the EU will result in about a 4% hit to total Service revenue. (15% of 27.5% (averaging 25 + 30%)) And because we know that total Service revenue is about 20% of Apple total revenue, a 4% hit to Service revenue represent a 1% hit to Apple total revenue.
In my opinion I don’t think that having other ways to get apps on to devices that are now supported by the App Store is going to make a difference for anyone other than a very tiny fraction of developers. It really comes down to what those folks who are complaining about Apple’s App Store expect from an alternative “app store” other than direct download from a developer’s own e-commerce functionality. I appreciate @Cropr’s “wish list for the perfect app store“ but who is providing such a store today? Who is going to build such a store tomorrow with lower commissions, fewer restrictions, and greater app discovery capabilities than what Apple currently charges?
I’m not discounting the viability of third party app stores because the same basic model is already widespread for products sold through retail channels. But somebody has to have the financial incentive to build them and the details of how to do that in a highly profitable way are still TBD. Yes, discovery of apps could be greatly improved if app stores were more narrowly defined and specialized, like a game store, online gambling store, photography store, personal health management store, etc. I have no problem with this model and actually see it as a normal evolution for the app market in general. The early days of automobiles saw far greater numbers of manufacturers than what we have today. The ones that survived were the ones that could sustain sales and profitability over time. The ones that couldn’t went away or were consolidated into the ones that survived. The App Store is really no different. Some apps don’t deserve to survive.
We may eventually see such specialization emerge, but in the meantime I think the primary beneficiaries of opening up Apple’s proprietary devices to alternative app loading and payment models will be the same deep pocketed and obnoxious self promoters who have convinced public officials through various means that the company’s personal problems are actually global problems that need to be solved through heavy-handed legal directives. The rest of the vast developer community will have to deal with normal evolution and “survival of the fittest” laws of customer driven natural selection. Having more app stores to sell their wares through isn’t going to make a difference in the end if their apps don’t make the cut with buyers.