Developers will have a hard time getting App Store users to buy directly
Even if developers discounted their prices by the whole 30% Apple would take for the first year of a subcription, a new report says it wouldn't be enough to get most users away from the App Store.
Apple makes $11 billion from the US App Store annually
Apple being forced to comply with mandated anti-steering instructions is definitely an own goal after it had won everything else in its trial against Epic Games. But a new report claims that financially, the potential loss of App Store income for Apple is trivial.
According to an investor note seen by AppleInsider, investment firm Morgan Stanley says its conclusions start with what the US App Store means to Apple's bottom line. Its analysts say it the US version of the store brings in $11 billion, which is 3% of Apple's total revenue, around 7.% of the firm's total Earnings Per Share (EPS).
Then based on surveys it conducted on the issue in 2021, 2022, and 2023 -- though not either 2024 or 2025 -- Morgan Stanley believes few users will buy apps direct from developers. Specifically, only a fifth of iPhone users have claimed they are "extremely likely" to buy outside of the App Store, and others would need to see a price cut of 35%.
While Morgan Stanley does not comment on this, there is an issue over what discount a developer would give users. It may cost the developer 30% less than before if they don't use the App Store, but they then have to perform their own credit card processing, their own tax reporting and so on.
Consequently, it's unlikely that a developer will offer a full 30% discount, or at least not consistently. It's possible that developers might do that as a loss-leader to attract people to moving over, but they'd be gambling that they'd attract enough users to make it worth their while.
According to Morgan Stanley, that's more of an uphill struggle than even a 35% discount. Its analysts report there are specific reasons why users say they prefer to stick with the App Store.
Surveys of how likely US users are to buy apps outside the App Store -- image source: : AlphaWise, Morgan Stanley Research
In order of popularity, those reasons were:
- Not wanting to share financial details with multiple sites
- Preferring not to manage multiple accounts
- Simply don't see a benefit
- App Store is faster because it already has their details
- They trust the security and privacy of the App Store
- They can use Apple Gift Cards, or get cash back on Apple Card
Developers, especially large ones, could and doubtlessly will offer incentives to try to overcome these barriers. But according to Morgan Stanley, Apple has also has options to incentivize users and developers to stay.
While not saying that Apple will necessarily do any of these, Morgan Stanley says that for instance, the company could:
- Offer easy to get App Store credits
- Connect those credits into the Apple One bundle
- Make the App Store entirely subscription-based
Morgan Stanley doesn't explain or elaborate about any of these, but it's point regarding customer and developer retention is that Apple has options that are completely under its control.
But then the investment firm's overall point is that Apple might not need to do anything. While it does see developers managing to attract at least some buyers, Morgan Stanley believes they won't exceed a fifth of users.
That means it estimates the risk to Apple as being a fifth of the reported $11 billion annual income from the App Store, or approximately $2 billion. That's 1.5% of the EPS, which Morgan Stanley describes being effectively a rounding error.
It further estimates that if Apple raised the price of all of its other services by 5%, it would entirely offset the potential App Store loss.
Consequently, Morgan Stanley retains its $235 price target. It does repeat from its May 5 report, though, its best- and worst-case financial predictions for Apple's iPhone 17 range.
Read on AppleInsider
Comments
Dealing with Epic ....ugh. Both my wife and I will attest to the pain of dealing with Epic Game substandard support system. I agree
whole heartedly with Morgan Stanley's approach.
People are simply looking to simplify their lives and what some Government bean counter thinks is we want a model that resembles their clusterfck systems.
Now, no one wins: App Store revenue will decline, and safety will be compromised. It's classic Apple—die on every hill, convinced to the end they are right, and at the end having nothing at all to show for it. Blinded by arrogance, avarice, and greed.
We have zillions of online accounts.
But, we will buy thru the app store as it is easier.
Next you'll be telling me software developers should pay something for the security and convenience offered by the App Store.
It's also probably why people buy stuff at Amazon.com rather than surf over to some third-party storefront, create an account and reenter all that stuff again.
Reason #5 is probably in play for most of those people. And Reason #6 has some applicability as well. There are Steam gift cards and the Amazon credit card. Plus Amazon Prime members get some additional benefits that an individual merchant really can't offer.
1. Because it usually is a pain in the a... 'behind' to cancel a subscription outside of the Apple ecosystem. So I rather avoid that to begin with.
2. So I have to give my private and payment detail to some dubious third party group and probably open yet another account, that then gets hacked within a few short days, because these guys are cheap and stupid. No thank you.
So in the end. Enforcing 'outside' payments is a quick way to lose/never win me as a paying customer for your stuff.
1. Adobe. Since I’m used to their system and haven’t had any financial snags.
The cost-versus-benefit of the App Store model was totally insane - in favor of the developers. Apple skimming a very small percentage (by comparison to traditional software publishers, computer stores, and device provider fees) was far better than trying to do it all yourself. For a small ISV or hobbyist the overhead of getting their first app posted for download where anyone who happened to find it in the vast uncharted wilderness of the interweb and servicing it could easily outweigh the sales revenue from selling the app. Keeping everything updated and supported with patches, revisions, new version releases, and with active feedback was a major time suck. With no common guidelines for peripheral interactions, UI conformity, security requirements, privacy requirements, etc., not to mention verification that all of the requirements were met, a free-for-all playground for app execution would have been disastrous. Even open source platforms need central control, management, and oversight to avoid turning into a dung heap.
Apple turned what was previously a mountain to climb for developers into a short staircase with only a few steps. Getting up those few steps was made much easier with the development resources, toolkits, reference material, cool new languages, test frameworks, and a community of developers encouraged and helped along by Apple's massive investments in infrastructure and developer support.
The real question here is what went wrong? At some point everything that Apple invested to make the system work so well and in a mutually beneficial way became the target of scrutiny, not by the majority of developers who were benefitting from Apple's investments, but by a few well-connected rich pissants who held sway over politicians and regulators who weren't happy to see the winning team being anyone other than their own homeboys. Through some feat of persuasion and self-interest these folks who came out on the losing side of the competition decided to change the rules of the competition. To do it they stripped whatever ownership Apple had over its own creations and property away from Apple and effectively put it into what they now firmly believed to be a public utility that should serve the needs of everyone, even those who lost the fight for superiority. Those who lost are now being rewarded for their ineptitude and failure to perform by obtaining control over Apple's work through political, legal, and economic means. The takeaway from all of this is that success no longer matters when those in charge can change the rules to suit their own needs and desires. Win, but don't win too much or they'll be coming for you next.
This feels a lot like a business that strikes it rich in California, then relocates to avoid state taxes, refusing to pay for the infrastructure and systems that enabled its success. When something supports your rise, it’s only right to support it in return. Is Apple and the App Store really so different?