September 4, 2018

Ten Years On, What’s The Future For App Stores?

During the past decade, what changes happened to APP Store and what it will be like in the future?

Cassie Cheng

Marketing & Communication Director

It’s been ten years since the Apple App Store launched. But the history of mobile game distribution is much older and will extend well beyond the current era too.

Indeed, from the heated discussion about Epic’s decision to distribute the Android version of Fortnite itself, to the rise of social messaging-based distribution and instant/chat gaming, plus the potential of new decentralized blockchain-based app stores, there’s plenty of disruption for the likes of Apple, Google, Tencent, Qihoo 360 and Xiaomi to grapple with.

From desert to gold mine

Back when you couldn’t download games onto your monochrome brick phone, if you could get onto the internet, you could play mobile games. Then the portals that listed web links to games were the earliest version of an app store, providing a simple way to see what games were available.

Things got more complex with the arrival of game mobile downloads – Java in Europe and BREW in the US – but in places like Japan, thanks to technology such as i-mode, web remained the dominant way to get mobile games.

(HTML5 enthusiasts still talk up the value of not requiring a download at all, especially when your game is playable across any device with access to a browser.)

However you accessed these mobile games, though, this was the era of big, fat middlemen, typically mobile operators. They controlled data costs and in many cases actual access to games. If your operator didn’t list the mobile game you wanted to play, the choices were stark: change operator or don’t play.

And it was this sort of extreme walled garden, complete with eye-wateringly small developer revenue splits that accounted for the great enthusiasm with which the App Store was greeted. Suddenly, any developer could release their own games, which could be downloaded by anyone with the appropriate phone, anywhere in the world. The developers even got the majority of the gross revenue – 70%.

The excitement was palpable. What could be better?

Two stores to rule them all

Ten years on, 250 billion app downloads and $150 billion later, the situation is very different.

In the west, thanks to their mobile OS duopoly, Apple and Google dominate mobile game distribution, with their 70%-30% split of app store revenues long considered the industry de facto standard.

Indeed, most mobile game developers still believe the 30% they give up is a small price to pay for the huge upside opportunities in terms of the global distribution and the increasingly complex services provided by app stores.

Given Google’s more open approach, this is particularly true for its Play Store. It now supports features ranging from pre-launch community building via early access and pre-registration, to immediate content updates and over the air downloads, plus product testing and extensive A/B feature testing, not forgetting the most recent addition –  a new Try Now instant demo button.

The App Store itself is harder to work with, featuring fewer developer tools. Apple’s walled garden is the antithesis of Google’s approach. But Apple devices are more unified, requiring less hardware support, offer true global distribution including China, and Apple users spend more than Android users too, ensuring the App Store remains the most important store for most developers in terms of monetization.

Of course, plenty of other huge companies still run their own app stores, but the reach of Samsung’s Galaxy Apps and the Amazon Appstore is, in comparison, tiny despite those companies’ respective successes in terms of hardware and ecommerce.

So given the fact the App Store and Play Store have never been more popular or successful why is there a question mark over their long term future?

An Epic question mark

Certainly, Epic’s decision to release the Android version of Fortnite via its own website, not the Play Store, has been a catalyst for much debate. It’s particularly been the case thanks to incendiary quotes from CEO Tim Sweeney about the role the “parasitic” 30% revenue share played in the company’s decision-making RE: Fortnite’s Android release.

What’s been equally interesting is the way Epic’s decision has highlighted similar approaches from other companies. For example, there’s been much comment about how Netflix is experimenting and directing users in some countries to pay via web rather than directly through app stores to save that 30%.

More existential to the nature of specialist app stores however, has been the rise of instantly playable games – the rebirth of HTML5 – especially when combined with the now ubiquitous social and messaging networks.

The value of the latter has been long understood in Asia where the likes of Kakao in South Korea, LINE in Japan and Weixin/WeChat in China have evolving existing discovery methods, even if they’re still driving downloads through app stores.

More disruptive, in the west Facebook is now heavily pushing HTML5 games through its Messenger app for a couple of years, and has now enabled developers to monetize these games on Android (although not Apple). Indeed, so keen is Facebook to attract developers that it’s not taking any revenue cut of mobile in-app purchases to ensure developers still get their 70%.

Obviously with instant games there is no download and hence no need for an app store. Discovery still remains an issue though, as does access. For example, without a download, there’s no app icon to tap and hence friction is added into the user experience.

Hence, while future mobile gamers may not need app stores to access and play games, app store-style features will still be vital.

The great unbundling

In this context, another example of how app stores are having to adapt to changing circumstance via the Microsoft Store. Granted, it isn’t a mobile app store, nor does its new 85%-15% revenue split apply to games.

Nevertheless, it’s a significant break from the 70%-30% standard, especially given the revenue split becomes 95%-5% if a purchase comes via a deep link into the store i.e. not from a search query or direct discovery from within the store.

This unbundling is really important. For the first time an app store agrees that a developer’s revenue share is officially dependent on how a purchase is sourced. In this way, Microsoft says its store earns 10% of the revenue if it’s the source for discovery, otherwise it values the nuts-and-bolts aspects of app store distribution at a mere 5%. No doubt that’s something Tim Sweeney would agree with.

Further pressure of this sort is coming as various blockchain-based game distribution channels launch. From the get-go, all of them offer developers a more advantageous revenue split than 70%-30%, with 85%-15% fast becoming standard.

Some go further, even offering 100% of revenue to developers, and all highlight their ability to support the resale of games and game items by which developers can gain an additional revenue stream via a cut of these secondary sales.

In this way, while the domination of Apple, Google, Tencent, Qihoo 360, Xiaomi etc is unlikely to end any time soon when it comes to mobile game distribution, there are plenty of competitors – both large and small – nibbling at the edges of their business.

So, in terms of the services they offer and the financial models they use, change is coming and the possibilities for disruption are very real. Happy tenth birthday App Store, and good luck for the future. You might need it.