Hot Takes: The New App Store Small Business Program

David Barnard
November 18, 2020
42
 MIN
Listen to this episode anywhere!

In This Episode

Apple recently shocked the App Store developer community with news that small developers with revenue of less than $1M per year will pay a commission of 15% instead of 30%. Within hours of the news dropping, David and Jacob recorded this episode with the hottest of takes, exploring what this means for the future of the App Store.


Follow Us:


David Barnard: https://twitter.com/drbarnard

Jacob Eiting: https://twitter.com/jeiting


Here’s the Outline of Our Conversation:


[0:30] Breaking news: Apple announced a new Small Business Program that allows small app developers (making less than $1M/year) to reduce their App Store commission from 30% to 15%.


[1:32] Is this a good thing or a bad thing? (For once, David takes the cynical view!)


[4:39] 97% of developers using RevenueCat qualify for the program.


[6:44] This is a stimulus for the app economy.


[7:13] What this means for ad spend, CAC, and LTV ratios.


[7:32] How the Small Business Program gives indie developers a competitive advantage.


[9:26] Doing the math: How much of a difference can this really make?


[12:50] Changes to App Review would have had a bigger impact on David’s indie developer business.


[13:17] VCs decide whether or not to invest in a mobile app based on App Review, not the 30% Apple cut.


[13:45] Under this program, more apps will be able to grow from small to medium to large businesses.


[14:16] 97% of developers are affected by this change — representing only 5% of all App Store revenue.


[16:03] Why this is a win-win decision for Apple.


[17:40] Implementation details of the program.


[18:56] What happens if you cross the $1M revenue threshold?


[20:10] Progressive tax brackets; big apps like Fortnite and Netflix.


[25:00] Was the announcement intentionally vague?; Apple’s IDFA announcement at WWDC.


[26:00] The $1M “magic number”; the 85/15% split.


[28:35] 95% of App Store revenue is generated by just 5% of developers.


[29:11] Optimistic take: Apple is listening to and investing in small developers.


[34:00] App acquisitions; increased valuation of apps; Launch Center Pro.


[36:35] How Apple could help different types of businesses succeed in the App Store; Kindle.


[39:55] The Small Business Program is a good thing, but there’s a lot more that needs to be done.


[40:40] Apple should self-regulate to avoid governmental regulation.


[41:30] This is a great first step and a win all around — hopefully the first of many.

Quotes:


“Indie developers can hire out more things, like customer support. You can afford to do a lot more as a small developer and spend on tools and services and help and designers — there’s so much you can spend that money on that will improve your product, that will help you build a better business, that will lead to more innovation.” - David


“What this does is it make small developers more competitive in the bids because we can spend more, so on the ad spend side of things, I think it’s a huge boon to smaller developers.” - David


“I still think that the App Store economy generally is more limited on innovation not because of money but because of App Review. VCs are making decisions whether to fund or not fund a mobile company based on App Review, not the 30%. VCs recognize that the marginal costs of digital goods and services is zero. So you can stomach a 30% tax on zero-marginal-cost goods, if you can build a great product.” - David


“From a more strictly innovation standpoint, it’s not the money that’s limiting innovation — it’s Apple’s stranglehold on what can and can’t [succeed in the App Store].” - David


“I do think this is in some way, the perfect non-action for Apple.” - Jacob


“We have to keep asking for the things that developers need, and making more money is always good! That's our mission at RevenueCat; I'm always a fan of that. - Jacob


“This is a step, it’s something, and it's not insubstantial. And it's well targeted and well thought out.” - Jacob


“Apple gave us a raise!” - David


“Ultimately I think all these things that [Apple] could do — like changes to App Review, creating a program to reduce the App Store fee for businesses who can't make it work — all those things ultimately benefit Apple in the long run. As developers are more innovative, as more apps are able to be on the App Store, as the platform grows, they're going to make even more money. So it’s a win all around.” - David


Like this episode?


Subscribe to Sub Club on Spotify or Apple Podcasts to get the latest news on mobile subscription apps.

Episode Transcript

Hey, you're listening to the sub club podcast, a show dedicated to the best practices for building and growing subscription app businesses. We'll share insider secrets from the top subscription apps on the app stores. Let's get into the show. All right. Welcome to this special edition of the sub club podcast, breaking news alert.

So, uh, just moments ago, I guess like three hours ago now, ah, Apple announced that they were reducing the commission. For well, they're creating a small developer, small businesses, any size developer can do it, but the business has to be small. Right. So if your revenue was under, and this is like all these intricacies that are already like having to parse out, if you're okay.

If you've made less than a million dollars in the previous calendar year, you can apply to the small business program to reduce the app store take rate from 30% to 15%. I think I got that right. I'm I'm not a hundred percent sure. I'm, I'm more of a. I'm I'm excited about the idea of this, but it's, it does, it does strike me as like classically Apple in some of the details, but, uh, but we can, we can dive into it.

Yeah. Let's dive in. So, um, so we were talking just a minute ago and, and I actually had a conversation with somebody last night who was kind of tipped off to this. So I've, I've kind of had some time to think it through and, and I'm I net net, I think this is a great thing. And like, it's going to add more money to my bank account.

Like, you know, I'm still in India or, you know, I worked for revenue cap, but I still have an app business. So like this, like meaningfully impacts my personal financial situation. So ultimately I think this is a fantastic thing. However, I think that, like there there's good. There's bad. There's positive incentives.

There's negative incentives. You know, why did Apple do this? I think there's a lot to talk through. And, um, as was surprising to you, I think I'm going to take a bit of the cynical take and, and you can talk me into all the ways. This is the most positive thing possible. And I'll tell you all the ways that I, I can cynically like argue against it as just like the total Apple hater complain.

When they give me more money. Uh, well, I think part of me, yeah, I'm definitely, I mean, I feel like I was very excited to see it. I was like for once, I mean, I think there are cracks in it and we can talk about it, but for once I saw something come out from Apple and I was like, wow, like actually impactful, actually meaningful, listen, like good.

Like I don't think there's there's, there's definitely like, yeah, we can argue how big the impact is or whatever, but I, for once felt. Like, they just did a nice thing. Right. And like you can, w w we'll get into the data and stuff on, on why it maybe doesn't actually not much downside for them, but that's fine.

I, I, you know, I think, I think, uh, I think it actually, it, you know, you know, in my day job narrative, You know, spinner. So like, I'm always like thinking about how Apple is, you know, what this is for the narrative, with our relationship with developers. And I have to say, I think that's maybe what has me the most excited about it.

Um, and that relationship, which I do think is, is super important. Um, so, so yeah, I'm, I'm definitely, I'm definitely more of the protein, but yeah. Yeah. What's, what's, I'm trying to think of, uh, some of the. So let me dive into this. So when I woke up and saw it this morning, I, I, you know, this threshold, this million dollar threshold is really interesting.

I think it's a. It's it's a, it's a clear line. It seems something you can say to people like a million dollars, because it's easy to understand million dollar, I mean, there's rules about like in the calendar year. And I think the administration of it is a little weird, but, but this, this basic magic million is actually a lot bigger than I would expect.

Like. Rebecca has a similar concept, but it's like a magic hundred thousand. Yeah. Apple. Cause it's kinda making it hard for us here, but, but threshold that, that you can pretty easily discriminate. Like what is a real full-time business? Like a thing that. That that's taking off or, or is at some level of meaningful scale versus something that's usually a little bit smaller.

It might not be full-time or not. Right. And I think a million dollars as well on the side of, of something, maybe that's $83,000 a month, which is multiple salaries. You're, you're a company at that point. You're a, you're a real business. I can only aspire to be making a million dollars a year with my business.

I never, never come anywhere close. Yeah. And, and, you know, I, I, so first thing I did is I pulled up all the revenue, cat data and was just like how many of our customers are gonna be affected? And it's the vast majority. So 97% of our developers fall under that. Under that threshold. Interestingly, you say Apple's making it harder for us because the raising the bar for the consideration of what, you know, should be in a free, you know, free or a small business tier.

But, uh, but the way I look at it is. Actually, you have a lot of small developers with more disposable income to pay professor business, like revenue, take it back. It's a great move for us. I mean, it does make it easier for me. I mean, like I'm paying for a revenue cat account and every month, and I do that even as revenue, Canada employee, because I want to like feel what it's like to be a customer and bring that perspective inside of revenue cat.

And when that $120 a month hits my account. Um, my, my credit card make tough decisions. I see it, I see it every month. And I'm like, wow. Like, like that's not an insignificant amount of money, but like now I'm getting an extra 15%. And so like it, things like that become less of an issue. And so that those are some of the positive sides, right.

It's like indie developers can. Can hire out more things like, you know, customer support, like, you know, you can afford to do a lot more as a small developer and spend on tools and services and help and designers and like there's so much, you can spend that money on. And that that will improve your product that will help you build a better business that will like lead to more innovation.

Yeah. I mean, it's, it's, it's free money, right? It's it's money. You can put back into the business, which, which is great. I think, I think anytime with tax cuts is essentially what this is. It's, it's, uh, you know, your. You rejoice now, but then it will become your business real quickly, like gobble up that, that, that, that takes time.

You won't feel it forever, but it will make a difference. Like the, the app stores and economy, this is a stimulus, right? This is a stimulus for a long tail. Um, and yeah, it will be good. It will, it will be. Some number of apps that were on that threshold of being independent or not, that just woke up this morning or whenever this program goes out early next year and just wake up and like, be like, congratulations, you got to skip a couple months.

Right. Which I don't know how often that's going to be the case, but there are going to be people on that threshold. And then it just means like, you know, and then you go back to things like ads, Ben, if you're like worrying about CAC, um, LTV ratios, boom, you just got an extra 15%. Of headroom on, on actual, I mean, a lot of Indies don't play that game, but, but if you are like, this can be pretty substantial.

The bids will then subsequently go up and gobble up that, that spread. But, so it's really interesting. And one of the things w one of my, one of my more positive takes on this is that the apps that are doing like 20, 30, $40,000 a month that are trying to build a real business, they, it is a real struggle to get above a.

Dollar for dollar return on ad spend, like getting to that net positive return on ad spend is a struggle. And so what this does is two things. One, it gives you 15% more headroom. So now it's like, you know, 85 cents on the dollar, like 85 cents of what previously would have been a dollar of ad spend. And you're, you're, you're you're break even.

Um, so it gives you a lot more headroom to, to get that return on ad spend, but here's, here's the kicker. Is most of the apps spending on ads, app store, search ads, Facebook, Google, whatever. They're probably they're making more than a million. Like I doubt the long tail of apps is meaningfully contributing to ad spend in a way that will raise the bids.

Cause. So if Apple had done this for everybody, I mean, it's, it's probably, it probably matches the same distribution, like 5% of apps do 95% of the, of the ad spend, I would guess. So if Apple had done this for all developers, Then ad spend, Oh, I see your argument now bids won't go up because it's actually the big, the big players, you know, they have other advantages, but yeah, this does is it makes smaller developers more competitive in the grants because we can spend more.

So, so it's, it's really on the ad spend side. I do think it's, it's a huge boon to smaller developers. I, I think, I think you might actually be on the pro side of this.

tell me, throw some cold water on this. Some cold water. I mean, so I did my CA I did the calculations today this morning and over the past 12 years that I've been in indie developer. And until I joined revenue, CA a hundred percent of my family income. Was came directly from the app store. And so a lot of it actually came through ads.

So I have had, uh, um, great success with ad supported businesses. I have sold some apps to where I had, you know, app revenue coming in that was not, um, taxed by Apple. Um, but just on the Apple tax, um, over the past 12 years, um, I w I've paid, um, over about $750,000 to Apple. So in the neighborhood of $375,000, additional would've come in, if they would have done 15% from the beginning.

And so what I'm struggling to think that's over 12 years, over 12 years, so about $30,000 a year. So what, but how different would I have run my business? The past 12 years was an extra $30,000. Tell me Jacob, like what, what could I have done? Like I would have probably, you know, maybe you've been able to spend a little more on design.

I probably would have taken a little more as profit. And it feels like differently, like put away humanitarian to like retirement. Right? Yeah. But it's exactly what you said before though. It's like, you know, we're selling, we're selling. Infinitely reproducible zero marginal costs, digital services. You know, my apps are all productivity apps.

I'm not selling like digital trinkets or anything, but, but still so, so growing my business. Is more about growing that top line like LA last month we did like a one month sprint on some cool new features for launching a pro that like took advantage of some new stuff that got really hot and quadrupled our revenue in a month.

And it's holding on to like, uh, a three, almost four X increase in revenue. Uh, from a month of work. So it's like the, these businesses are so highly leveraged in, in, and maybe we just got lucky and not already can do that. And we do have an established brand and we got some press. And so all of that, but like over the last 12 years, like there's so many levers I could pull that I did pull and would have continued to pull whether I had that $30,000 or not.

So. How big of a difference would it really have made to my business. And so I think this is the thing with stimulus though. Like, it doesn't really matter in a macro sense. Like you might not have a micro idea of what you would have done with it, but I can tell you, you would have done something right.

You would have either had. Your lifestyle would have been improved, which is a benefit, I think, to the world and economy. Cause you wouldn't have gone on and spend that in other ways.

it's like Apple sending everybody Apple box in the mail that developers spend their money on anyways. Right. But I do, I do think there, there is a disconnect there. And when you're thinking about the economic impacts of this, it is hard sometimes to think on the micro scale, but you know, like. More money better.

Right. More. It should be better. Right. You should be able to do something with it, right? Yeah. Um, I guess when we're trying to evaluate like the actual marginal impact, I do think it's difficult to reason about yeah. And I guess here, here's my thing is that. What I think would have made a bigger, meaningful impact on my business.

And I am very skewed and, but what would have made a bigger impact on my business and what I'm still going to continue pushing Apple on from like the antitrust perspective is changes to app review. Would have made a bigger difference to my business over the past 12 years. Like I, and, and I still think that the app store economy generally is more limited on innovation, not because of money, but because of app review, like yeah.

You know, VCs are making decisions, whether they're a fund or not fund a mobile company based on opera view, not the 30% like VCs recognize that like, That the marginal costs of, of digital goods and services is zero. So you can stomach a 30% tax on zero marginal cost goods, if you can build a great product.

So like from an innovation standpoint, I, I just, I don't see this, having that. I mean, I, again, so maybe my micro level, no macro level. Yes. In that you will have more apps. Who do $20,000 a month, being able to bridge that gap through more efficient ad spend to get to 50, to a hundred, to 200 and then, uh, you know, grow out of the program.

And so maybe we do have like, you know, more and better apps come through because more able to kind of make that leap from. Smaller business to medium, to large sized business. But like from a, from like a more strictly like innovation standpoint, it's not the money that's limiting innovation. It's, Apple's like stranglehold on what can and can't.

And you and I have been talking about this a lot and we're working on a post, um, about like some other things that Apple could do. And like, and I mean, You know, for as much as people would bitch and moan over the years, you're not, are you not satisfied with your bread and circuses David? No. What I was getting at though, it's like in, in this post that, that you and I've been working on and talking through like all the things that Apple could do to improve the app store economy, that 30% has just been, been a.

It's more of an afterthought. I I've, I've never cared to be honest. Like I always thought just like, it's such a trite argument. It's like, it's also, when people complain about taxes, it's like, yeah, like, okay. And there's also like when tax has changed the can people complain way more than when taxes are fixed.

Right. It's always like in comparison to other things. Um, and so I'm in a a hundred percent agree. I do think this is. In some ways the perfect non-action for Apple, especially when you look at these splits. So 97% of developers are affected amazing upside impact that represents 95% of the app store, right?

Five to 10%. Yeah. Five to 10%. Before I looked at our data set, it's a bit more, but we skew a lot towards like smaller indie apps than, than, than who the really big, big apps are on the app store. Yep. But sensor tower back that up with some data as well. So like that. So it makes sense to Apple it's like very low downside, like huge PR boon and it is good.

And I'll say like, I think we had this post a couple of weeks ago about the 85. 70 split and how my take was that it's kind of BS and actually it doesn't affect that many people. This is the complete opposite. This is like targeted. It actually affects a lot of people it's affecting the right people.

They're actually like thinking about these incentives a little bit longer and you know, and part of my positive take on this whole thing is like, okay, Apple's thinking, right? Like it's not. You know, I don't know. I guess, I guess the actual impact is yet to be seen, but you know, there's other problems that we're talking about.

App review problems, like other like developer, right side loading. Yeah. Some of this other like pseudo anti-trust stuff, those are harder problems to solve. I think politically inside of Apple as well are difficult to navigate. So, but this, this is something that's like, A win-win right. It's like they don't lose very much money.

Maybe it takes a little bit of pressure off their backs. I mean, DHH has this like massive thread nuking, the whole thing, and like, it's not wrong, but you also, like, you also, like nothing's said there, nobody said they're done. Right. And it will then say like, and this now you are happy and we will never have to do anything substantial.

I think we keep pushing. We have to keep pushing. We have to keep asking for the things that developers need and we have to make more money is always good. That's our mission at revenue cat. Like, I'm always a fan of that. So maybe that's why I'm so pro, but, but I did. Yeah. I think it's a false dichotomy to be like, Apple is.

I honestly, I think the stance of like being like Apple is bad is like so nuanced and just not very interesting. So, so, you know, being able to just recognize like, Hey, this is a step and there's this something, and it's not an insubstantial. Um, and it's well targeted and well thought out. So, I mean, we can talk about that because implementation details, that might be kind of tricky.

I mentioned on Twitter. So the. Yeah. First of all, I don't know what the exact language is, but talk about like the most Apple version of something like this right there. It's amazing to me, like Apple tends to be so good at product on the consumer end. Like not always, but like a lot of times they just really nail it.

The onboarding experience for the products is usually really solid. The buying experience is really great. And then you like get into this side, like the business partner side of Apple, and it's like, ah, man, like maybe a little product thinking would have been nice, but, but so the. Yeah. You mentioned at the top of the podcast, but like, you know, there's, there's, uh, there's this it's, you have to less than a million in the previous calendar year.

Okay. Which that should be fine. Everybody check that box. There's some implication about applying, which they didn't. And they didn't even apply to the program. So we don't know what that means yet. And so maybe we'll have egg on our face in a month when we find out that it actually means like something, what I'm worried is they're going to be like, Oh, just, uh, you know, submit your LLC.

And like they'll put in some like dumb stuff that precludes a lot of people for no reason. That would be very scary. That would just be like stupid. But I'll, I'll give him the benefit of the doubt and say like, I hope that doesn't happen. And then, well then there's this thing where. Yeah. During the transition year.

So like if you cross a million, the first year you cross a million, you'll be kicked out of the program, starting effective immediately from what I'm reading at your million and $1 fine. That's fine. So your million first million's taxed at 15 or 30 15, and then the next, the, the marginal is taxed at whatever.

Um, but then the next year, The entire bulk of it is taxed. He did below. Yeah. And then you can reapply. So think about this case. Let's say I make one, I make $999 million in year one. So I'm in the program then year or sorry, I make, and then, so let's sorry, let's say one year I just, I go over the threshold by $1.

So my last dollar is taxed at 15 to 30%. Then that next year I'm going to take a 15% haircut on my, on my, my net profit cause like. I'm going to, I'm going to have to pay 15 or 30% on the entire bulk, even though it was only $1 over the previous year. So, so there is this like scary like threshold issue.

Um, but, and, and then, and then of course, like if you did back down, you get back into the program for the following year, which is like complicated, but whatever. I wonder if Apple should have just done like this, it just seems more. Straight forward to do a more typical progressive yes. Yeah. 10% on your first hundred thousand, 15% on your next 200,000.

And then, and then just do it to everybody. Like every company gets the first a hundred thousand at 10% because it wouldn't change. Yeah. They could have done here's what if Jacob were running this program? What? I would have 0%. Like they could have just gone like straight. I mean, maybe there's some incentives issues.

Like you don't, maybe you want a little incentive alignment there for Apple, but come on and 5%, right. That's what everybody's been arguing is like, it should be 5% like credit card fees. So start with 5% of your first a hundred thousand. Right. I'm not going to sit here and like complain about a half 50%, 50% reduction in taxes, but like you could have like, yeah.

I mean, it really is insubstantial when you consider. Abstract growth rate. Um, yeah, but, but you could have done that for the first million dollar dollars that you make a year is just untaxed. Um, and then, and then the, the fees start to kick in at a million. Um, and then they would probably, so the only difference from the current program is that these like 5% of who are breaking that million dollar threshold, um, they would also get a discount.

But you could balance it. You could find the percentage to make it all work out in the math. And, and honestly, it's, it's a, it's, it's an exponential, like if you look at the distribution, those top apps, they're not making $2 million. We're talking about apps, making hundreds of millions of dollars a year in fortnights and Netflix is, and things like this.

And so like, it really wouldn't matter if you gave them a break on their one first million. Cause they're going to make many, many that that year. Yeah. So that's one thing I was like, I may, and maybe it's not too late. Maybe they can, maybe they can. Change yet to administer, but it would just be like much more understandable if it were.

Yeah. I th I think what we're going to see though, is some financial engineering and I already saw somebody suggest, um, that revenue can create a defer deferment. Yeah. And I mean, Apple already has the tools in place to doula. So actually we should be thinking about this from like a product standpoint is that if your revenue is getting close to a million, basically like, uh, Everybody gets a trial.

Everybody starts getting longer and longer trials. Right? So like, if you're, if you're, if you're closing in on a million in November, Then you start doing 60 day free trials, and then you, then in December you start doing 30 day free trials, and then you like, walk it back to your one week free trial by like Christmas, right?

Yeah. My revenue. Yeah. My friends did the IRS have thought about this and that's why they use progressive tax bracketing. It's like, it's it just, yeah, it gets too complicated, you know? And that's, and that's what I'm saying is like, if, if they'd have done. More like progressive tax brackets, where everybody gets 15% on the first hundred or 10% of the first a hundred thousand, 15% on the next 200,000, 20% on the next 500,000 and then 25% on the last, whatever it is.

And, and, and actually that kind of like doing something like that would would mean that you don't. When you cross that threshold, it isn't such a giant swing it's it's that, that classic, um, that classic stupid argument where people are like, you know, Oh, if you've taxed the higher marginal dollars, people will make less money on purpose.

And you're like, nobody, nobody does that because that's actually how it works. But in this case, it is actually how it works for this program. We'll be in because like, I mean, the thing that does concern me about such a hard stop, like this is that. Those those apps that are, are able to compete. For ad bids because they have that 15% actually, you're going to be incentivized super now.

You're growing, growing, growing, growing, growing, and then you just hit a wall. And like, by the time you get to a million dollars a year, it already is starting to get harder and harder because you have to diversify away from Facebook and Google and like B, B you know, diversifying your ad spend already.

And so now all of a sudden you cross the wall and you've got this 15%, like across the board. Like, um, and they said they're going to release more details and some, maybe there's some. Uh, you know, something where you're, you're one after you're opted in. Maybe that year one, you still get something or I don't know, like maybe somebody floated on top of me really scared of all the details.

I dunno. You mean scared or optimistic? Yeah, I guess with Apple, starting with a pessimistic view, but get a better mindset to, to find out that the details. Don't make it quite as good as it seems on, on first glance, but yeah, so we'll, we'll see how the details play out. And, and what I was going to say is that somebody floated on Twitter.

I forget, I, I wish I could give them credit, but, um, that, that maybe it was intentionally vague to give them a month to kind of like hone in on the details. Cause Apple does kind of do that. They leak thing today. Well things, I mean, even the IDFA thing this year is like, they, they, they announced it at WWDC, total PSYOPs campaign by Apple.

Yeah. And then like everybody freaked out and then it did like a week before we all expected it to happen. They backed down and now they're going to adjust things based on the feedback. So, so yeah. I wonder if, if they'll kind of like be listening this next month and some of the details will kind of align better with.

It's like the reactions to hope. So, I mean, that's how you build good product, right? It's not the Apple way to build product, but this is a good way to. So how many times can we slam Apple in this podcast? It's actually like celebrating there are there, there are a public figure, not a private citizen. I don't feel any, I don't feel any shame for trying to be helpful.

Um, so I w I want to mention that, that, that problem with the threshold, the people who are at this margin and run into these things, I was thinking about it. And just based on the sheer number of people. This is a very fine line. There's 1 million, there are very vanishingly, few developers who are going to be in that zone.

Considering the tail is very much weighted towards the low end of that. There is. And then anybody who's there. They're going to be like, okay, you know, very few people get to a million and are stuck. Like if you get to a million, you're probably going to blow through it. Right. Then it leads in SASA. They consider that kind of like a magic number for, because now you have some money, you have some like momentum and you can build on it.

So I actually think that even if they do this, like kind of awkward bracketing, I might not even have it. And it does have these like mechanics. It might not be that big of a deal just because new people are going to be near that near that threshold there too. In some ways, maybe this, you know, we did our 80 15 posts a couple of weeks ago talking about how the 85, 15 split after a year doesn't really meaningfully impact cash flow because so many subscription apps are so new, but maybe, you know, this is kind of, long-term thinking that by the time of subscription app, And that's kind of obviously the preferred, um, um, way for ops to make money moving forward is that by the time you hit a million dollars, you're probably now starting to get that 30 to 50% of renewals that are going to come in at, at 15 anyway.

And even though that's, so it's like, That eases you into the shift where it's not quite the hard stop because it's not that immediately, all your revenue goes to 30%. It's like maybe 30% of your revenue. 50% of your revenue still is at that 85 15. There's all kinds of precedent for this in business building.

Like, as you get to like the next level, like, you know, HR you've run into new compliance laws, you run into new, new, new taxes that didn't exist when you were a certain size. So this is like, I think somebody who's building and scaling a business. This will just be another. Thing you have to consider. And, and I guess, like going back to that macro in the macro sense, like, yes, it will have an effect, but I honestly think it's, it's probably not as material.

I mean, it just, it just like brings you back to status quo, which isn't bad either necessarily. So, um, you know, I mean, I think my, my, my, my last. Miles' point of excitement about the, I mentioned like narrative about it, right? And like, I think that is important. Um, because like one of the, one of the data points I sell today that was kind of interesting or enlightening was, so it is 95, like 95% of the apps or revenue is made by 5% of the developers basically.

Right. And so if you think of like 95% of the tweets, 95% of the hot 95% of the whining on Twitter, the complaining, I mean, I sound the complaint, but like all the, I think of 95% of your developer friends, everybody, this community of consumers, everybody, 95% of the people on the forum, the Apple like developer forums, like 95% of us.

Don't make a, a substantial impact to Apple's revenue. And, and, and so when you put it in, and this is my, this is my, like, actually boot looking is good, uh, argument. But like, when you think about it in those terms, it's like, wow, like Apple actually does do a lot for what doesn't actually amount to very much.

And it kind of is a bit of a Testament to that. They, they, they, they do care about this, even if they're not making money on this long tail, they see it. And it does, it does have value for their platform, I guess, in other ways, right. It's not all our value is always, it's like they want. A lot of different apps.

They want, they want diversity of, of, of applications available in their, in their, their platform. But, but yeah, when you think about their actual like dollar for dollar upside, it's like, it's not really there. So, so, you know, when I think about the narrative of this, it feels good. They're, they're investing even more in this long tail that doesn't necessarily have obvious upsides to them.

You could think of. A Nokia model, the Apple could be taking like Apple could have taken a totally different approach to how they got software on the app store. And just like only partnered with these big companies and all this stuff, but they recognize the value in, in, in this community and this long tail of developers.

And I don't know when I th in those terms, like, yes. Okay. Like the absolute values of, of, of these particular moves and, you know, maybe it's not as impactful, but I think narrative wise, it does feel. It just feels good. It's a feel good story. I guess it's free PR it feels good for developers. It tells this, you know, thinking back to Apple's original branding from about being, you know, in some ways like inspire the way we think about revenue cat's mission and branding.

It's like being this. Being this company that's meant to enable creatives. Right. And, and I think this fits that really well. And I think Apple's gotten pretty far from that. You know, when you think about what an iPhone is today, right. And like its argument that it's like a creative engine tool is like, maybe not as clear, but I think this is an area where that is very much still like.

In the narrative of the company and the DNA. I don't know that that felt good feels to me. So I, I gave my cynical, like, is it really gonna make a difference, yada, yada take, but, uh, let me join you on the bull side for a minute and say that, um, I, I, I really, I do think this is a huge deal, like in, in here's here's one way to look at it as well.

Like when, when Apple released widgets with iOS 14, who is there day one, Indie developers like where the, where the passionate crowd that is there day one we're we're fighting to, to, to build great products, like, like a lot of, you know, once you get to a million dollars in revenue, like you're, you're building against ad spend.

You're not like, like the entrepreneur, it's a totally different game. You're not like. Crafting this, you know, you're not, you're not signing the back of the, of the, you know, finishing the back of the cabinet, right? Steve jobs is famous, quote like, you know, that, uh, that a true artist, you know, cares about those minute details.

Like the people building those apps. By and large are not making over a million dollars. And so what this does do by putting more money in the hands of those people, and your point earlier was well taken. Like, you know, what would I've done meaningfully in the past 12 years? Well, you know, having an extra 15,000 for, to live on would have been sure, nice.

I have four kids now. Like that's okay. I was going to say fricken amount of money. It's a couple of trips to the orthodontist. That's like, yeah. And then reinvesting 15 of that, you know, back into the apps, you know, I probably would have spent more on design. I probably would have spent more on services. I probably would have hired more contractors.

So like, I could have, I would have run my business in a different way. And what would that have done that would have led to better product that would have led to more innovation that would have led to better things? Maybe, maybe not in your case, but in the, in the global case it would, right. Like all developers together, somebody's going to find success in that marginal difference, right?

Yeah. And then, and then like from the good field standpoint, like. I mean, I walked into the, into to my kitchen. I was in the garage, uh, working out this morning when, when the news broke, I think you texted me is what alerted me to, it was up at 6:00 AM this morning. Like they dropped it very, very early and I up at revenue, cat, and I was like, come on David.

I was awake. Um, but anyways, so then I, I ran into the kitchen. I was like, honey, honey, like. Apple, give us a raise and like, like launching a press has been doing pretty well the last couple of months. So it was a significant amount of money. Like it's going like impact our personal budget. And then not only that, like, um, you know, I, at this point I'm actually considering selling launch center pro.

Um, I won't get into all the details of that, but, um, if you want to sell a classified ad on the podcast, David, I think anybody want to acquire launch? Uh, no, I'm already talking to somebody who might be a really good fit, so I'm not like shopping it around right now. And it's just a special circumstance.

Why, why I'm considering it. But, um, but thinking about like that increases the value. Of the app by 15%, because like it's well under a million dollars and like would take years to grow to be that. And so like when I look at, at, at the multiples on revenue and now taking that extra 15%, it's like Apple gifted me tens of thousands of dollars in making this change.

Right. When I'm thinking about selling, like. That's going to have a meaningful impact on, on acquisitions of apps. When you think about, uh, you know, how much more profit we talking about multiples, right? Yeah. Profit multiples is going to go up. Yeah. Typically sell for anywhere from two X to four X. Profit.

And so, you know, I don't spend a lot on ads. I don't spend a lot on infrastructure or anything like that. It's, you know, it's really is more pure profit and just the time I invest in it. And so that's a 15% increase in, in, in the value of the app. So yeah, I mean, I think it's fantastic news and I'm, I am very much looking forward to my.

Uh, four, would that be the March? I think March like third or something is when the January, 2021, uh, fiscal month will be paid. And I'm very much looking forward to that March thing. That's awesome. Fiscal January. Well, I want to say that, uh, I feel very good that I was able to convince you to be a bullish on, on, on the site.

Um, but I also want to say like, uh, I'm very impressed that given you ran into your kitchen, uh, to spread the news to your family, that you were able to take a, uh, a bearish take on. But I think that kind of a, that kind of a reaction actually kind of tells the story. I think you're kind of the. I think that's the, that's the best case scenario, right?

That's the best. You're the, you're the, you know, Pre breaking out like month to month builder of apps that that's going to benefit from this. And that's awesome. That's awesome. And I'm sure there are lots of other people that are having, I mean, there are lots of other app developers that probably have that same reaction.

And so that alone makes me pretty happy about the chain. Absolutely. So we can't end on a good note. That's chicken of a note to end on. Here's one more thing I did want to discuss before we wrap up. Um, as I alluded to earlier, you and I have been working on a post and one of the ideas we've been kicking around is, is similar to this is a, is Apple and stating a program where developers could challenge.

The 30% take rate. And here's what I think like, and again, it's like, if, if you, if you like rank order, like what I think is going to make a bigger difference to innovation over the long haul, I put app review above the 30%. And then I put, um, business model challenges above the 30%. And so what you and I have been talking about is creating a program where developers could petition Apple for a lower take rate at any, at any size.

So like Amazon could go to Apple and say, look, our unit economics on eBooks are such that can't sell. They did, they did. Right. But I'm saying like Apple, I, what I would love to see is Apple do this across the board. Where you can go to Apple and say, look, here's, here's our, here's our business. We're selling eBooks.

There's real incremental cost for every ebook we sell because we have to pay, uh, the content creators. And so, you know, and negotiate a reduced rate and Apple and stating a program like that. One, we would create much better, uh, user experience around things. Like it's still ridiculous to me that I can't go to the Kindle app on iOS and just buy a book.

And like, those are the kind of like hangups that this doesn't address because it doesn't address the businesses that can't operate at scale at 30%. And so even if you can get a foothold at 15%. If your business model is going to hit a wall at 30%, you can't, you can't get funding. You can't go. You can't think about building a real business.

So, so what I would love them, what I, again, what I would have put above this, just drop it across the board for everybody under a million. Is Apple creating a program where developers can challenge the take rate and allow businesses who truly can't operate at that 30% rate to negotiate down to 15, 10, 5% across the board, no matter how much you make.

And that to me is going to unlock as much or more innovation of the next 10 years. Then just dropping it to 15% for everyone under a million dollars. Because because that doesn't address the business models, that just don't make sense. And th those are the, those are the apps that we don't even know could exist.

They just don't because the, the, the economics don't work. So, like, that's what I want to see over the next 10 years. This change doesn't address that because, you know, you'll, you'll eventually work yourself to where it breaks again. Right. If the 15, what is the difference maker? I, and I agree, and I think, you know, uh, Creating systems is what Apple needs to do for these exceptions.

Right. If they're going to have exceptions because, you know, from an antitrust perspective, it's very tricky for them. Right. Um, so yeah, I'm, I'm excited to, I don't want to drop the name, but I don't know. I'm excited this post that we're, we're gonna end the year on. So teaser. Yeah. We'll have to, I guess we'll just flesh it out more in the post, but, um, but yeah, I mean, you know, this is a very exciting announcement and I think it's, it's it's I mean, so that's where I'll say, I don't think there's.

Any real downsides to Apple doing this. Like it's all benefit, but there's just a lot more to go. And this isn't a panacea. So maybe that's the best way to put it is that I'm not, it's not that I'm so cynical that I don't think this is a good thing. And that's probably the way I should have like phrased.

It was that I think this is a good thing. Absolutely. 100%, but I think there's a lot more to go that I want to see happen on the app store that, that I think, um, Can make an even bigger difference than this as good as this is, which I think is fantastic. For sure. Lots to go. It's a journey. It's a journey, but yeah, to your point, it's exciting to see them do this because it, I think it, it it's trends or more openness that they're, that they're wanting to make substantial changes to the app store.

So some of these other things that were. That I care even more about, I think have a greater likelihood to actually start happening as we see Apple make these more friendly moves. And ultimately, I mean, what I've been saying on Twitter for a couple of years now is. I want to see assholes self-regulate to avoid governmental regulation, like as an app developer, I don't want like some government employees sitting next to a app review person helping to decide what it like app review is already enough of a, of a gauntlet.

I don't want another layer of bureaucracy in deciding like what gets approved, what doesn't, you know, how Apple shapes their policy and everything like that. So this is a great. First step in Apple saying, okay, we're going to self-regulate in a way that benefits developers, that benefits consumers. And let's keep stepping down this road of doing the right thing by developers, the right thing by for consumers.

And ultimately I think. All these things that they could do, like changes to app review, um, creating a program to reduce the, the app store fee for businesses who don't can't make it work. All those things ultimately benefit Apple in the long run. Like as developers are more innovative, as more apps are able to be on the app store, as the platform grows, they're going to make even more money.

So it's, it's a, it's a. It's a win all around. And I mean, in some ways it is frustrating. It's taken so long to start seeing such big changes, but, um, get what you can take. You felt like, I feel like the app store just started yesterday, so it feels like we're moving quick. Yeah. Uh, well, and when those changes come, you'll hear it here first, but actually you'll probably hear it on Twitter first.

We'll talk about it. So yeah, this has been a lot of fun way longer than we should have. We rambled on a lot, but it was a, it's fun to kind of. Think out loud through all this. Yeah, well, yeah, it was nice to see you on a Wednesday, David bye,

to make sure you never miss an episode, subscribe to the show in your favorite podcast player. Thanks so much for listening until next time.