Cutting the commission fees, developers pay to sell digital subscriptions through the Google Play app store should make it easier for smaller companies to scale up their businesses more quickly and navigate fluctuations in customer churn. The new policies will impact different categories of apps consumers commonly pay for using their smartphones – everything from video and music streaming services to dating apps, eBooks, news feeds, eLearning platforms, live sports broadcasts, and comics.
Google will reduce the service fees for digital subscriptions from 30% to 15%[i] at the start of next year. The company currently charges 30% for the first twelve months of an app being made available on Google Play before the fee drops to 15%. From January 1st, 2022, developers will pay just 15% from day one as soon as a customer signs up to a recurring service plan.
The decision follows a similar move by Apple last month, which decided to reduce its own App Store fees from 30% to 15% specifically for all apps making less than US$1m a year, though developers still pay 30% for the first twelve months. Both Google and Apple now appear to recognise that it is in their best interests to be more flexible in treating smaller developers to incubate and grow their presence as part of their respective mobile app ecosystems.
Google made the change after acknowledging that churn rates on digital subscriptions could make it difficult for businesses to benefit from getting a discount in the second year.[ii] The new policies also impact dating sites such as Bumble and language learning platforms like Duolingo, which both went on record with praise for Google in allowing them to better invest in their products as a result.[iii]
Google is also changing its fee structure for certain types of media apps in a bid to make Google Play work better for developers and the communities of artists, musicians, and authors they represent, it said. They include e-books (books, audiobooks, and comics); on-demand video (movies, TV shows, live sports and live news); audio (music streaming, internet radio, podcasts etc.); and other services which involve users paying to consume content
Those qualifying under the Play Media Experience Program will now pay commission fees as low as 10%, though they will need over 100k monthly active installs to be eligible. Participants must also enable deeper integration with specific Google platforms and application programming interfaces (APIs) depending on the type of media content. For video, that means some form of assimilation with Android TV, Google TV, and Cast, for example, while for audio and e-books, it additionally extends to WearOS and Android Auto.
App store subscription revenue predicted to decline payments
Statista estimates that Google Play generated US$38.6bn of app revenue in 2020, up almost 32% on 2019 (US$29.3bn according to Statista, though recently released court filings record US$11.2bn including sales of apps, in-app purchases, and app store ads[iv]). Of that total, an estimated 83% came from games; however, a category that doesn’t appear to be covered by the current subscription policy changes. Entertainment, which includes video and audio streaming, contributed just 3%, according to Statista. While comics accounted for just 1% in 2020, that share will grow to 3% in 2021, predicts the analyst, and 4% by 2025.
BusinessofApps suggests that Google Play’s largest markets are India, Southeast Asia and Latin America, which typically generate less revenue than other parts of the world and Apple’s App Store. The app focussed market research and intelligence firm estimate that subscription revenue on Google Play grew around 42% year on year to be worth US$2.7bn in 2020. Subscription app revenue derived from sales via Apple’s App Store was worth significantly more – approximately US$10.3bn in 2020, up 32% from US$7.8bn in 2019.
However, BusinessofApps also predicts that non-gaming revenue generated by both app stores will now start to decline after leading over the top video and audio service providers dropped Android and iOS subscriptions. Netflix stopped allowing customers to pay for its streaming services directly through an in-app subscription via Google Play or the Apple App Store in 2018, for example, pushing new subscribers to sign up through a web browser instead. Spotify has adopted a similar stance, with both companies preferring to bypass the 30% which Google and Apple historically levied on payments subscription payments collected through the two app stores.
It will be interesting to see whether the new subscription policy changes will convince leading streamers to review that strategy. Still, like Apple, Google shows it is willing to be flexible in helping developers and service providers grow their businesses in parallel with its app and content streaming ecosystem.
[i] Google slashes service fees in its app store after similar move by Apple, CNBC, 21st October 2021
[ii] Google to Slash Fee It Takes From App Subscriptions in Half, Bloomberg, 21st October 2021
[iii] Google Will Cut App Store Fees for Subscriptions to 15% From Day One, Variety.com, 21st October 2021
[iv] Google Play app store revenue hit $11.2 bln in 2019, lawsuit says, Reuters, 30th August 2021