4 ms·

Tell HN: Why I'm ecstatic at Apple's subscription model.

14 points by nika 16y ago

The AppStore is not an easy-money kind of environment. It rewards hard work and quality, and consequently we've been able to do relatively well there. But as it has evolved it has become clear that low app prices are a permanent fixture. So, for the past several months I've been working on moving our bread and butter app from a "Pay us $4 and use it forever" to a SaaS model. We'll make the app free, and give people 3-4 months of cloud service to go with the app. (This cloud service is a genuine value add for the app, so we're shifting models by adding a fundamental new feature. Anyone who doesn't want it will have the functionality they have now.) Then for the ones that like our App and stick with it-- and we get about %20 retention with some really fanatical users now-- the cloud service is eventually a $1 a month subscription. So, instead of making $3 per customer, we'll be making $8.40 per year for customers we retain. Further, as a free app we'll get at least an order of magnitude more customers, which means if the retention rate drops by half we'll have 5 times as many long term users as we're getting now. Many people don't try our app because we're forced to collect the entire lifetime customer revenue before they even get a chance to use the app. This is a much better model for apps where it makes sense. Why are so many people complaining? Generally, it seems those who are complaining are not making their own product. I can understand how reselling something another person has made means tough margins. (Which makes me wonder how these book publishers are doing on Amazon where they take %70 in many cases, and only go down to %30 if they get to set the price.) I looked at the Amazon Android Store terms the other day. They are similarly bad. The wording is vague but it looks like Amazon will pay you between %20 and %70, and they get to set the price. Which means if Amazon wants to do a $1 sale on your app to promote their store, tough for you. But I also think the publisher model is on the way out- and I say good riddance! These are essentially middle-men and they don't make sense in the age of digital distribution, in most cases. I used to work in the game industry for a studio with a deal with the largest independent games publisher in the country. If I make an iOS game, I don't need to find a publisher, I don't need to appease the publisher producer, or any of that crap. I've been down that road. The game industry is broken because of the power that publishers have. (Or it was broken when I left.) I am very happy that all I have to do is just upload my product to Apple and they take care of the rest. Apple takes %30, but handles distribution, updates, customer service, taking credit cards, does a decent cross sell and will send me good marketing if I happen to get featured. That's worth %30 to me. This is a new model for iOS apps, and it is great news for iOS developers.

anonymous246 16y ago
I'm sorry, it's not clear to me why you're "ecstatic". Are you thinking that your SaaS strategy won't work without the Apple tax? Second, a lot of people have pointed out that taking 30% of ALL subscription revenue just sounds unconscionable. Computers/Internet were supposed to reduce friction in commerce, not add a 30% tax. It seems to me that you're OK leaving a huge amount of your fruit of your labour on the table. I hope there aren't too many people like you. Many won't be "ecstatic" at this offer. And for the record, I think Amazon terms are just as bad, if not worse.
- steven_h 16y ago
  He is ecstatic because his app netted him $3/user with apple taking 30%. Now that his app is free he will make $.70/month/user. Apple was taking 30% of his profits before but has given him a way to make more money per user long term. @nika, the reason you should not be ecstatic is because while apple did help connect your customers to your product they did nothing to ensure that people continue to use and pay for your product. You did all that work and you should feel entitled to your money.
  - nika 16y ago
    People continuing to use my product are now a source of profit, that's why I'm ecstatic. One of the things we've done, for various reasons, is to not spend any money or effort on ongoing marketing or advertising. We run experiments to see if we can find customers cost effectively, but so far none of them have worked. Therefore, literally, everybody using our product came to it because Apple connected us. Apple does do marketing for quality apps on the appstore. I'm not talking about "Featured apps" and he "Design awards" and all, that but cross selling via genius, etc.
- nika 16y ago
  There is no mechanism currently on the AppStore for doing a SaaS strategy for Apps. In app purchase is set up for one time purchases, not for recurring subscriptions. This is a brand new feature, and it dovetails right in with the SaaS business model. Apple doesn't take %30 of "ALL subscription revenue" though people seem to keep saying this because it plays into the "apple is taxing us arbitrarily" meme. IF I wanted to, I could set up a webpage with paypal, and charge people directly, and save %30, minus paypals fees. However, paypal has proven itself to not be a trustworthy company in the past so there's an additional cost there, but that involves a lot of setting up servers, dealing with customers, etc. There really is a lot of effort required to sell things directly to the customer, there are liability issues, and if I were to outsource all that work I'd be buying several services that ultimately would take around the same total cut.... and I'd be more stressed on top of that. All that stress and time is energy that would be better spent on additional features or products. In fact, it would produce much higher returns because it is more highly leveraged. The effort that requires on the current app is just maintaining the status quo (I think there are zero customers who would rather pay by paypal than iTunes). I find it interesting that you say I'm leaving "a huge amount of the fruit of [my] labor on the table", as Apple is freeing up a huge amount of time and energy to improve the app or do new products. Look at the alternatives- I could give the app away free on android and let google advertise on it. How much would I be giving up in "google tax?" %60. And they only revealed that it was %60 after Apple made it public that they give developers %70. Who knows what it has been for the past decade before google had to be public about it. Plus, I know how many copies of my app are sold, I don't know how many clicks google disallows. Sure there are competing models, or I could do paypal with an android app (this would at least have the advantage of selling into all the countries paypal supports but not google checkout.) but again, that is time I have better use for. OR Amazon which will make me give up price control and possibly %80 of my revenue. These terms are not "just as bad" they are far far worse. And finally, before this, I was paying %30 on the initial sale in the Appstore. Nobody seemed to be complaining when Apple originally introduced that model-- and for good reason-- before that Carriers controlled app sales on phones and were much worse than publishers, taking %90 in many cases. Apple has greatly reduced the friction, and has added a new feature that lets me offer a better, more profitable model while simultaneously capturing many more customers. It's a no brainer.

14 points by nika 16y ago

anonymous246 16y ago

I'm sorry, it's not clear to me why you're "ecstatic". Are you thinking that your SaaS strategy won't work without the Apple tax? Second, a lot of people have pointed out that taking 30% of ALL subscription revenue just sounds unconscionable. Computers/Internet were supposed to reduce friction in commerce, not add a 30% tax. It seems to me that you're OK leaving a huge amount of your fruit of your labour on the table. I hope there aren't too many people like you. Many won't be "ecstatic" at this offer. And for the record, I think Amazon terms are just as bad, if not worse.

steven_h 16y ago
He is ecstatic because his app netted him $3/user with apple taking 30%. Now that his app is free he will make $.70/month/user. Apple was taking 30% of his profits before but has given him a way to make more money per user long term. @nika, the reason you should not be ecstatic is because while apple did help connect your customers to your product they did nothing to ensure that people continue to use and pay for your product. You did all that work and you should feel entitled to your money.
- nika 16y ago
  People continuing to use my product are now a source of profit, that's why I'm ecstatic. One of the things we've done, for various reasons, is to not spend any money or effort on ongoing marketing or advertising. We run experiments to see if we can find customers cost effectively, but so far none of them have worked. Therefore, literally, everybody using our product came to it because Apple connected us. Apple does do marketing for quality apps on the appstore. I'm not talking about "Featured apps" and he "Design awards" and all, that but cross selling via genius, etc.
nika 16y ago
There is no mechanism currently on the AppStore for doing a SaaS strategy for Apps. In app purchase is set up for one time purchases, not for recurring subscriptions. This is a brand new feature, and it dovetails right in with the SaaS business model. Apple doesn't take %30 of "ALL subscription revenue" though people seem to keep saying this because it plays into the "apple is taxing us arbitrarily" meme. IF I wanted to, I could set up a webpage with paypal, and charge people directly, and save %30, minus paypals fees. However, paypal has proven itself to not be a trustworthy company in the past so there's an additional cost there, but that involves a lot of setting up servers, dealing with customers, etc. There really is a lot of effort required to sell things directly to the customer, there are liability issues, and if I were to outsource all that work I'd be buying several services that ultimately would take around the same total cut.... and I'd be more stressed on top of that. All that stress and time is energy that would be better spent on additional features or products. In fact, it would produce much higher returns because it is more highly leveraged. The effort that requires on the current app is just maintaining the status quo (I think there are zero customers who would rather pay by paypal than iTunes). I find it interesting that you say I'm leaving "a huge amount of the fruit of [my] labor on the table", as Apple is freeing up a huge amount of time and energy to improve the app or do new products. Look at the alternatives- I could give the app away free on android and let google advertise on it. How much would I be giving up in "google tax?" %60. And they only revealed that it was %60 after Apple made it public that they give developers %70. Who knows what it has been for the past decade before google had to be public about it. Plus, I know how many copies of my app are sold, I don't know how many clicks google disallows. Sure there are competing models, or I could do paypal with an android app (this would at least have the advantage of selling into all the countries paypal supports but not google checkout.) but again, that is time I have better use for. OR Amazon which will make me give up price control and possibly %80 of my revenue. These terms are not "just as bad" they are far far worse. And finally, before this, I was paying %30 on the initial sale in the Appstore. Nobody seemed to be complaining when Apple originally introduced that model-- and for good reason-- before that Carriers controlled app sales on phones and were much worse than publishers, taking %90 in many cases. Apple has greatly reduced the friction, and has added a new feature that lets me offer a better, more profitable model while simultaneously capturing many more customers. It's a no brainer.