Payments, regulation, growth models, and new innovative ideas
January 3, 2022
January 3, 2022
This is a guest post by Thomas Petit, an independent mobile growth consultant who has worked with 30+ subscription apps. Thomas also works with the RevenueCat team on content and community initiatives. Here’s his take on what will affect subscription apps developers in the coming year, for better and worse.
Changes to in-app payment rules
One of the hottest topics of 2021 was the evolution of app store rules, especially the ones for in-app payments. Specifically, we heard a lot about the possibility that developers may be able to start charging users through external payment systems for in-app purchases. Check out this summary by RevenueCat’s Head of Product Jens-Fabian Goetzmann to learn more about what changed in 2021 and what it means for developers.
Looking ahead to 2022, I foresee no significant changes from the current status quo. For one thing, I don’t think developers will be allowed to use third-party payment providers anytime soon.
But that doesn’t mean nothing is changing. Apple has already been pushed to accept communication about alternative payment methods outside of the app (for instance, through emails), and there’s a rising trend of subscription apps building web flows for onboarding and charging users off-store before an app install. This isn’t new, but it’ll become a more standard practice in the developers’ toolbox to complement IAP subscriptions.
But let’s assume I’m wrong, and Apple and Google are soon forced to allow third-party payment providers in-app. Simply being allowed to do it doesn’t mean it will be easy or beneficial for most developers. Accepting external payments is more complex than it seems, and platforms will be able to charge a commission for this — Google is already doing this in Korea. If Apple and Google charge a commission on non-IAP transactions, this could quickly void the expected benefits for app developers. In-app purchases are usually associated with higher conversions, a better user experience, and less financial headache, which can easily outweigh a small fee difference.
In summary, I think in-app purchases are here to stay, despite all the noisy legal battles.
New regulatory burdens for platforms and developers
The debate about payment guidelines too often focuses on the fees (or “platform tax”) without mentioning a number of adjacent topics. For example, the technical constraints that app store rules impose on developers. More flexible guidelines could enable developers to build apps that can’t exist under the current rules, as Jacob Eiting recently wrote.
Yet, this might come at a price that goes beyond economics. Every independent government ruling could quickly lead to a fragmentation of guidelines – which is not good news for developers. By applying their settlement with the Japanese Fair Trade Commission globally instead of just within Japan, Apple is trying its best to maintain the same App Store rules in every country they serve. Google, on the other hand, created a separate system for South Korean developers to pay a commission on third-party in-app payments.
Here’s an example of what an alternative in-app billing system might look like for South Korean users:
The same is likely to happen for dating apps in the Netherlands. In 2022 and beyond, I could see governments forcing Apple and Google to create more and more country-specific rules.
Unfortunately, some of the compliance burdens will be passed on to developers, adding even more complexity to the process of building apps for a global audience. Just like what’s happening with GDPR, some developers may even choose not to serve specific countries instead of having to deal with complicated regulations.
The rise of hybrid revenue models
Most apps monetize exclusively with subscriptions, or not at all (news and some entertainment apps are notable exceptions). Although 2022 might be a bit early for this prediction, I think we’re going to see hybrid revenue models in the long term. New revenue models where subscriptions are still a core monetization driver but are supplemented by additional revenue streams could break the “high floor, low ceiling” nature of subscriptions.
For new or non-premium subscribers, this could mean ads or non-renewable in-app purchases. like daily or weekly passes. For premium subscribers, I think we’ll see a variety of add-ons: branded goods and e-shops (e.g., Sweat); affiliate marketplaces and partnership revenue (e.g., Fishbrain); multiple subscription bundles (e.g., Reflectly), and advanced features like paid live video coaching or IP-based exclusive content that gets unlocked on top of subscriptions, similar to DLC in video games.
Gaming apps will experiment with subscriptions
In 2022 and beyond, I think some games will finally begin experimenting with and embracing the subscription model. Historically, gaming apps have been very successful at monetizing without subscriptions, capitalizing on both sides of the spectrum (ad-driven revenue on the lower end, “whale” IAP offerings on the higher end, and affordable non-renewable IAP in between).
Right now, it’s not common for folks in the gaming space to charge a recurring flat fee. I don’t think this will be widely adopted (nor do I think it will replace ads and non-renewable charges), but I do think recurring payments could be a complement to existing revenue streams. For games with long-term narratives and widespread buy-in, a subscription could complement the existing revenue stream by enabling subscribers to unlock new content and features regularly — keeping gamers engaged while monetizing part of valuable live ops updates.
Trends for growth in 2022
This year, I think the dust will start to settle on privacy-driven attribution. In 2021, developers had to adjust to major uncertainty and use advanced modeling to measure the impact of ad spend. Previous methodologies that relied on user-level data were simpler and more efficient, but came with major privacy implications. Apple has already updated their privacy rules, and Google will have to switch to opt-in eventually — although when remains to be seen. It’s possible that it won’t be this year.
So far, advertisers and publishers have been constrained to change their practices, but ad networks have not. Hopefully, ad networks will follow suit and adjust their ad products to provide more privacy-respecting performance.
In the meantime, advertisers have been forced to start diversifying their marketing to get away from the duopoly of Facebook and Google. Influencer marketing is a big disruptor in this space, and I think we’ll see new collaboration models between brands and creators that’ll go beyond just sponsored content (for example, Spark Ads from TikTok).
“Growth” isn’t all about paid acquisition. With some loss in user acquisition and re-marketing efficiency, several apps that primarily relied on paid user acquisition and hard paywall monetization schemes will begin looking at a model that has been widely adopted in the last few years.
I predict that we’ll see developers taking down their hard paywall to retain more users, opening up a world of possibility for the AARRR (acquisition, activation, retention, referral, and revenue) journey. Those who do should see lower churn and higher virality and may consider shifting their marketing resources from standard acquisition channels to more organic efforts. It’ll be a boon for branding, virality, community, and even new monetization streams beyond the paywall.
Ultimately, this will all create a more sustainable mix and longer-term view for acquisition, which I hope will be a benefit for both developers and users.
Breakout app categories to keep an eye on
Historically, photo and video editors and productivity apps have seen very strong growth. I’m constantly seeing new ideas in these spaces that show impressive trajectory (look at PhotoRoom’s traction in 2021!).
In 2022, I’m betting on two categories of apps that blur the lines between the classic B2C and B2B distinction:
Apps designed for independent workers and small businesses (making invoicing and communication easier on mobile).
Health, fitness, and meditation apps have dominated the subscription app market since the early days, which has fed a new wave of personal development and health apps with innovative value propositions. We’re already seeing incredible products that go way beyond basic health tracking, and focus more on improving sleep quality (Rise), holistic health (Vital), CBT (Bloom), twists on what Blinkist pioneered (Lucid, Uptime), as well as professional development (Bunch).
Another field that I predict will have strong tailwinds in 2022 is what I like to call “after Tinder'' apps — pocket coaches designed to improve your relationships (like Paired).
Web3 and NFTs have a lot of buzz heading into 2022, but poor UX has been a sticking point for it to hit mainstream adoption. I think we’ll see surprising innovation coming to this space with a few breakout apps.
Here’s one example (this is an app I’m personally advising): Tacter operates at the frontier of gaming, crypto, subscriptions, and personal coaching. They help gamers get better at popular games such as League of Legends or Axie Infinity.
With Play2Earn games, the subscription-based coach brings tremendous value to vast populations in lower-earning countries that are usually not the primary audience of subscription apps. Of course, there are some major challenges to overcome, as decentralization may not always fit the platform-ruled app environment, and that’s not only for payment-related issues. There's no better way for crypto applications to become truly mainstream than to reach users through the device they hold and check all day long.
The way forward: Up and to the right
In 2022, we’re going to see exciting developments in payments, regulation, and growth models that will bring innovative new ideas and content to the subscription app industry. These changes are a reflection of a fast-growing and vibrant ecosystem, and I can’t wait to see what developments come next.