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Home / Technology / The App-Great War between Netflix and Apple is warming

The App-Great War between Netflix and Apple is warming

Fortnite, the battling game that dances the stock prices for video players after they joined 45 million players, did not take off until it became free and one free for everyone. (Andrew Harrer)

A growing number of software companies seem to circumvent the dominant app store gatekeepers at Apple and Google – selling their services directly to consumers and submitting the technical giants who for many years have controlled how most of the iPhone and Android users discover, download and pay for their apps.

The rebellion is led by companies like Netflix, which became the latest firm to cut a lucrative relationship with Apple as it confirmed that new customers will no longer be able to pay their monthly subscription fees through iTunes. Instead, subscribers are redirected to make payments on Netflix's own site.

Netflix's decision follows it from another great online service, Spotify, which closed the support for subscription payments in the app in 2016. And in the midst of the explosive growth of the video game Fortnite, digital publisher Epic Games has said it intends to create its own app store for games to compete with existing online stores. The company already offers its Android app for Fortnite outside the traditional Google Play store.

Netflix's announcement could save hundreds of millions of dollars and is potentially devastating for Apple. Through in-app payments, the iPhone manufacturer currently receives a 30 percent revenue from an app's first year subscription and 15 percent of the revenue generated by long-term subscribers.

Apple made as much as $ 257 million from Netflix this way in 2018, according to estimates from Sensor Tower, a San Francisco-based market research firm. But as Netflix continues to grow internationally, Apple is missing up to half a billion dollars in 2019 from Netflix alone, says Randy Nelson, head of mobile insights at the Sensor Tower.

"You have this app which is incredibly popular app in terms of installations, but over time will generate less and less revenue for Apple," Nelson said. "It puts Apple in an exciting and interesting situation."

Netflix said in a statement that existing subscribers can still use iTunes to pay for their subscriptions if they choose.

"Apple is a valued partner we work closely with. To deliver great entertainment to members around the world on a variety of devices, including the iPhone and Apple TV, Netflix says.

Apple and Google did not respond to an interview request.After Spotify has transferred customer payments from billing in the app, Apple experienced a sharp drop in the amount of revenue it received from the company, according to Nelson – falling from $ 11 million to a month in April 2016 to just under $ 1 , 5 million a month by December 2018. (Sensor tower says it produces its estimates by comparing, among other things, app store rankings and combining those with specific revenue numbers it has in its possession.)

A similar dynamic affects the Google Play store , Nelson, who now does not receive any revenue from Spotify after it completed the billing in the app already in 2014. Netflix followed in May 2018. Only existing At both app stores arrived are not significant costs for the companies.

The shift of Spotify – and then Netflix and Epic – underlines the growing dominance of these companies in themselves. Netflix's position as the world's largest provider of streaming video gives it the power to stumble Apple's platform without sacrificing its visibility to potential customers. But a small-time developer with weaker brand recognition benefits greatly from being on Apple and Google's platforms, which can help customers discover new applications through marketing and marketing, said Doug Creutz, a gaming industry analyst at Cowen & Co..

"[Netflix and Epic] are two of the biggest entertainment products on the planet. They don't need the app store to help them sell their products," Creutz says. "Most software developers don't have that luxury. Most of them need the location app store. "

Epic Games' accidental success with Fortnite has catapulted the publisher to a leading position. The company has reported making $ 3 billion in profit in 2018, due in part to its battles and the cultural phenomenon it has become. The experience, according to CEO Tim Sweeney, taught Epic how to build a better competitor for the Play Store, App Store and Steam, the gaming industry's leading equivalent of iTunes.

The idea of ​​taking a 30 percent cut of a developer's revenue and passing the remaining 70 percent was a breakthrough in the earlier days of the internet, said Sweeney Game Informer last month, but when the digital economy matured and more developers started offering software, he said, the platform companies have continued to unpack the same amounts, even though the cost of run an app store, has fallen.

"Economies of scale have not benefited developers," said Sweeney Game Informer.

Epic Games has said that the app store will be friendlier to software manufacturers, and trim only 12 percent of their revenue. It launched last year for Mac and PC, and is expected to start as an Android app in 2019. But Epic has entered a barrier with Apple: The iPhone manufacturer's fine print for the iOS App Store prohibits apps that serve as marketplaces for other products , including apps.

Logjam means it can be some time before the Epic Games store becomes available for iPhones and iPads. To a broader extent, it highlights how Apple, known for its control of all parts of the ecosystem, from chips to operating system devices, still has significant influence on how the uprising against older app stores can unfold.

Nevertheless, other factors may come into play to shift the balance. Massive content publishers such as Electronic Arts, Activision Blizzard and Ubisoft have all built digital business over the past few years, intending to pull users away from popular platforms like Steam, build direct relationships with players and give publishers greater control over their own intellectual property.

Currently, the publisher-based app stores have focused largely on selling PC games and their games in the game. But Morgan Nowley, an industry analyst at Morgan Stanley, assumes the model is spreading to consoles and mobile devices. It can put pressure on older app stores to reduce their fees – not just from Apple and Google, but potentially also from Microsoft and Sony.

"The big winners here are the video game publishers," said Nowak. "If the 30 percent mobile app store takes the pace down, it really helps companies like Zynga."

The pressure to reject in-app payment systems from major software companies points to further problems ahead for the technology industry among fears of an economic downturn. Shares in Apple plummeted Thursday as CEO Tim Cook warned of slower iPhone sales, especially in China. In a positive way, he said that revenue from business segments such as services – a category that includes the App Store – had grown over this time last year.

However, as recent decisions by Netflix and Spotify might suggest, a wider rebellion against billing in the app can take a growing bit of services.

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