Rival App Stores on iPhone Estimated to Have Limited Impact on Apple's Revenue

[MacRumors]

Bloomberg's Mark Gurman this week reported that Apple is preparing to allow alternative app stores on the iPhone and iPad in the European Union, as part of an effort to comply with the Digital Markets Act, which goes into full effect in 2024. The report said Apple is aiming for the changes to be introduced as part of iOS 17.

In a research note this week, a trio of analysts at investment bank Morgan Stanley argued that third-party app stores and sideloading would pose a "limited risk" to both App Store revenue and Apple's overall revenue given that iPhone users have "long prioritized the security, centralization, and convenience that the App Store brings."

Importantly, the proposed changes in the Digital Markets Act (DMA) are regulator-driven, not consumer-driven. From the consumer perspective, we see very little demand for alternatives to the App Store given the unmatched security, ease of use (centralization), and reliability the App Store provides. According to our Fall 2022 Smartphone survey, less than 30% of iPhone owners are extremely likely to purchase a mobile app directly from a developer website vs. the App Store.

In an implausible worst case scenario where Apple somehow lost the entirety of its App Store revenue in Europe as a result of competition from third-party app stores, the analysts estimated this would equate to just a 4% hit to Apple's services revenue and a 1% hit to Apple's total revenue. If third-party app stores are allowed globally, the analysts forecast around a 9% hit to services revenue and around a 2% hit to total revenue.

In reality, the impact on Apple's revenue could be far less, as the analysts believe it's likely Apple would still receive a commission on purchases made through third-party app stores. In the Netherlands, for example, Apple's standard 30% commission is reduced by only 3% for dating apps using third-party payment systems.

While there are still a lot of question marks surrounding third-party app stores and sideloading, Morgan Stanley believes that the reported changes do not present material risk to App Store revenue/growth or the long-term performance of Apple's stock.

Article Link: Rival App Stores on iPhone Estimated to Have Limited Impact on Apple's Revenue

 

[Zakn]

If these changes have no impact on Apple revenue, why is Apple fighting these changes so hard ? If they have to implement them for the EU, why not implement them for the rest of the world ?

 

[BurgDog]

If Apple sells it, I'd prefer to buy it from them. I expect most people feel that way. Still there is stuff I want that Apple won't sell and having the option to get if from somewhere, such as the developer directly, is nice.

 

[Analog Kid]

a 1% hit to Apple's total revenue

So much for the greed argument…

Revenue probably isn’t the right metric here because I suspect that‘s high margin revenue, but it’s still not about to crater the company. The more important question is whether device sales increase or decrease as a result.

 

[Razor_Crest]

If these changes have no impact on Apple revenue, why is Apple fighting these changes so hard ? If they are willing to implement them only on EU, why not implement them for the rest of the world ?

Because the one thing Apple cares more about than profit is control.
Apple without control is nothing.

 

[Scipster]

Totally agree with Morgan Stanley. Even if Apple were to allow alternative app stores and side-loading of apps, I will always stick with the App Store. Just my choice!

 

[Analog Kid]

If these changes have no impact on Apple revenue, why is Apple fighting these changes so hard ? If they have to implement them for the EU, why not implement them for the rest of the world ?

Because it breaks the tight system integration. It’s been obvious the direct revenue wasn’t the driving factor here, its about customer experience.

 

[cthompson94]

Totally agree with Morgan Stanley. Even if Apple were to allow alternative app stores and side-loading of apps, I will always stick with the App Store. Just my choice!

This 100% any in-app purchase or app purchase in general or even subscription I would rather dispute and deal with Apple then whatever company and their customer support. I know there are good companies out there as far as customer support goes, but like with subscriptions I simply just click end subscription on the Apple end and I am good to go, no begging and prompts asking me am I sure and blah blah

 

[Spaceboi Scaphandre]

See? All y'all doomposting about sideloading were worried for nothing. Just like on Android the convenience of the main app store is too much to ignore so y'all are gonna be fine.

 

[Zakn]

Because it breaks the tight system integration. It’s been obvious the direct revenue wasn’t the driving factor here, its about customer experience.

It's been the case for mac Os for years and I don't see any less convenient customer experience. I pay for my Netflix for example directly and I don't feel any need to give a 30% cut to Apple for that.

 

[jmh600cbr]

This is obvious, outside of this forum the vast majority of users don't know anything about this stuff.

 

[purplerainpurplerain]

This kinda old news it was already known 2 years ago that the impact is small.

Apple’s argument was for security and to prevent the phone from becoming a bug infested flea market. Really hurts user experience and everyone impacted with bugs will naturally ask Apple for support and then secondary they will be told to ask the app devs for support. Most consumers don’t understand who to ask if an app is hurting their phone. They assume it must be iOS.

The same anti-flea market is why Sony, Nintendo and Microsoft don’t allow third party stores. Your products are your brand identity and intellectual property. It is hard to make the user experience clean and consistent if third parties don’t follow certain UI rules etc

The financial impact of third party stores and side loading isn’t so much loss of sales because most users won’t do that. The financial impact is having your brand identity suffer image quality loss if third parties don’t follow guides and make your UX/UI look and run junky.

 

[boyarka]

Importantly, the proposed changes in the Digital Markets Act (DMA) are regulator-driven, not consumer-driven. From the consumer perspective, we see very little demand for alternatives to the App Store given the unmatched security, ease of use (centralization), and reliability the App Store provides.

Oh, you innocent, sweet summer child.

 

[whyamihere]

"less than 30% of iPhone owners are extremely likely to purchase a mobile app directly from a developer website vs. the App Store."

The problem is, it will only take a few very large and prominent apps that people rely on to stop offering via app store. Once many people are essentially forced to download outside the app store, it will soon become common place for many developers both big and small to require you to download outside the app store, making it pretty much impossible for typical users to avoid doing so.

If I wanted this experience, I would've bought an Android phone.

 

[vipergts2207]

If these changes have no impact on Apple revenue, why is Apple fighting these changes so hard ? If they have to implement them for the EU, why not implement them for the rest of the world ?

Apple has only about a third of the market in the EU. The reason they don't want it spreading to the U.S. for instance is because the financial impact would be larger.

 

[sw1tcher]

In an implausible worst case scenario where Apple somehow lost the entirety of its App Store revenue in Europe as a result of competition from third-party app stores, the analysts estimated this would equate to just a 4% hit to Apple's services revenue

If these changes have no impact on Apple revenue, why is Apple fighting these changes so hard ? If they have to implement them for the EU, why not implement them for the rest of the world ?

A 4% hit to service revenue worldwide....

App store/services revenue was $78 billion for fiscal year 2022.

4% of $78 billion is $3,120,000,000.

App store margins are reported to be 78%.

78% of $3,120,000,000 is $2,433,600,000.

That's a lot of money.

 

[dandy1117]

Totally agree with Morgan Stanley. Even if Apple were to allow alternative app stores and side-loading of apps, I will always stick with the App Store. Just my choice!

Your comment assumes that all apps will remain in the App Store. I suspect what will happen is that large developers like Microsoft, Adobe, Meta, and Epic will create app stores for their titles and services and remove titles from Apple's App Store. If other app marketplaces sold non-proprietary apps, they would try to get developers to give them exclusive rights to distribute popular or new apps.

This would not create user choice. The choice would be for developers to determine where to distribute their apps.

 

[vipergts2207]

See? All y'all doomposting about sideloading were worried for nothing. Just like on Android the convenience of the main app store is too much to ignore so y'all are gonna be fine.

B...b..b...but what if Facebook leaves the App Store??? You know, because I care so much about my data and privacy that I use Facebook......

 

[MacFan23]

It's been the case for mac Os for years and I don't see any less convenient customer experience. I pay for my Netflix for example directly and I don't feel any need to give a 30% cut to Apple for that.

I 100% find it less convenient.

When I want an app to have to find where to get the app and judge the validity of the source, have to enter my card details, have to wait to a license key to be emailed to me, have to enter that license key to unlock the app and then store the key somewhere for future use. In the case of a subscription service, have to work out how to unsubscribe, companies have gotten better but there are still some where the only way is to email the company and cancel. There are also license limits, lack of family sharing, device locks etc etc.

While I love that I have the option on the Mac, it definitely isn't convenient as just clicking "Buy App" on the App Store.

 

[vipergts2207]

A 4% hit to service revenue worldwide....

App store/services revenue was $78 billion for fiscal year 2022.

4% of $78 billion is $3,120,000,000.

App store margins are reported to be 78%.

78% of $3,120,000,000 is $2,433,600,000.

That's a lot of money.

Funny how a percent here or there seems small until you realize it still accounts for billions of dollars.

 

[Vjosullivan]

If these changes have no impact on Apple revenue, why is Apple fighting these changes so hard ? If they have to implement them for the EU, why not implement them for the rest of the world ?

(Third party app stores on the iPad and iPhone have actually been around for many years but they are currently limited to companies for the purposes of supplying proprietary software to their staff.)

When the iPhone first came out, Apple was against the whole concept of third party apps on their phones. Jailbreaking was key to installing a great deal of stuff.

It wasn't until Apple came around to the idea that the whole wide world was able to come up with a lot more innovations than their in-house offices that they eventually came around to the idea of actually facilitating third party apps rather than actively discouraging them.

Now, they may be finally coming around to the idea that third party stores might actually supply even more apps and other benefits.

 

[DaPizzaMan]

"less than 30% of iPhone owners are extremely likely to purchase a mobile app directly from a developer website vs. the App Store."

The problem is, it will only take a few very large and prominent apps that people rely on to stop offering via app store. Once many people are essentially forced to download outside the app store, it will soon become common place for many developers both big and small to require you to download outside the app store, making it pretty much impossible for typical users to avoid doing so.

If I wanted this experience, I would've bought an Android phone.

Which big app requires an alternate app store on Android? Genuinely curious.

 

[robbietop]

Our IT has already sent out an email shortly after this news story hit, stating with some things removed as they are internal names:

"4 years ago, our Network and Security Administrators made the momentous decision to provide only Apple products for Mobile Device Management, in regards to mobile devices. We still love and maintain our Windows PC deployments, along with providing a Mac to any employee desiring one. This decision came from security risks and other best practices policies regarding threats to our corporate network, corporate and customer data, as well as personal employee device usage.

We never allowed Android Third Party App Stores when supplying employees with Android devices of many makes and models, before discontinuing in favor of an all-Apple mobile deployment.

While we appreciate our employee's interest in Third Party App Stores, all company provided and IT maintained iPhones, iPads, and Macs will be locked to the Apple App Store and all requests to unlock them for Third Party App Stores will be denied. If you wish to do so with your personal Apple devices, you can do so; however, all company maintained devices will not have this option, if Apple were to ever change their current position. This decision was made in regards to Android devices before we made the switch to an all Apple mobile device policy, and this policy remains the same going forward.

Third Party App Stores, while having the user's best interests at heart, may also have business decisions to make in regards to their platform that do not align with our company's security policy. They may use your data for advertising, marketing, etc and we would prefer any knowledge of our internal corporate email and/or network structure to remain within the company.

For this reason, we will be applying the current policy with our Windows PCs and Macintosh machines to all employer supplied devices such as iPhones/iPads/etc. No applications for any device can be installed without an IT ticket being filed by you within our Enterprise Self Service System. If approved, they will then be auto-installed by IT to your device over the cloud or in person at your desk.

We thought it best to state the company's position now regarding this matter, should Apple decide to proceed with such a massive change to their long running single App Store. We will reiterate this again, should Apple decide to do so. This policy is worldwide in all regions the company has personnel or business.

Thank you for your time and enjoy the Holidays!"

 

[BenGoren]

For me, there is zero chance I’ll install an app unless it either comes from the Apple-curated app store unless it’s a small niche app from a developer I’ve personally known for some time. About the only example of the latter that comes to mind is ArgyllCMS (which will never be ported to iOS).

Yank something from the Apple app store, and it’s getting yanked from my phone.

Period.

b&

 

[LeeW]

I don't see it having such a major impact. Don't believe all the claims. App developers don't want to save 15/30% to pass that to us and make the app cheaper. They want to increase their profit. You may see a small decrease but not much.

Having choices is great, but, the vast majority of apple users know that even with choices, Apple for all their faults is still going to be the better choice.