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Apple and Google to overhaul their app stores

Both companies will boost developers’ revenue share to encourage subscriptions and fend off Amazon; Apple to introduce paid search

Apple and Google have dominated the smartphone era because of their huge bases of apps, and as growth and profits in handset hardware slip away, they will need to sweat their software assets more aggressively. This week has seen both Apple and, reportedly, Google making changes to the way they share revenue with developers in their stores.

The top line is that both giants will reduce their cut of a developer’s revenues from sales in the App Store or Google Play. This seems geared to rekindling programmer excitement about the stores and ensuring they remain the primary places to sell applications.

There are other motivations at work in Apple’s changes. It will reduce its cut of revenues from 30% to 15%, but only after a user has subscribed to the offering for a year. This should encourage developers to support and promote subscription models, which are important to consumer loyalty – to the Apple device and platform as well as the individual app – and to predictable revenue.

The growth of the king of subscription deals, Amazon Prime, has pushed Apple increasingly down the same line, notably with its own recently launched music streaming service.

Apple’s marketing chief, Phil Schiller, was given responsibility for revamping the App Store – and other services like iCloud, iTunes and Music – back in December and the new changes are part of his rethink. Revenues from these services rose by 23% year-on-year in the six months up to March 2016 and Apple will need to maintain that pattern to offset pressures on its core product, the iPhone.

Another change in the App Store model is to introduce paid search, showing search adverts for apps – a Google technique which will generate new revenues, but which Apple has previously resisted. Schiller told The Verge: “We’ve thought about how to carefully do it in a way that, first and foremost, customers will be happy with.” He insisted the ad auction system – which will be in beta release from Monday and full release at the upcoming WWDC developer conference – would be “fair to developers, and fair for indie developers, too.”

The search ads will appear at the top of the results surrounded by a blue background and a blue ‘ad button’, reports The Verge. Developers will only pay for the ad if users click on it. Apple says it will not share data with the programmers, and under-13s will not see any ads.

Meanwhile, the Re/code site reports that Google is also planning to give developers a bigger cut of sales in its Play Store. They currently get 70%, but – as with Apple – that could increase to 85%. However, in Google’s case, this would not be dependent on a subscription but would kick in as soon as the changes are implemented (no clear date yet), presumably as a direct counter to Apple’s changes.

But while the App Store remains the chief threat in terms of luring developers from Android, Google also has to keep Amazon in mind – not so much because of its own app store, which is built around its own de-Googled Android implementation, but because of the power of the Prime service in the digital content race.

Sources said Google has been testing the new split with some entertainment companies, particularly video services, where boosting a subscription model will be especially important to revenue growth, and to fending off Amazon. Like Amazon, Google is promoting Play subscriptions in conjunction with its TV streaming products, such as its Chromecast dongle.

Google has already differentiated Play from App Store by allowing developers who hande payments themselves to keep all the revenue, while Apple still insists that all payments go through the iTunes billing system, a bugbear from some content providers.

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