Will iOS 4.3 Change the App Store Ecosystem?

All indications point to the imminent release of iOS 4.3, if not this week, then certainly by next week. As always with new releases, a host of new features will be included, not just for users, but also for developers.

The rumour is that 4.3 will introduce subscription pricing options to the app store. This is in response to newspaper and magazine publishers looking for better pricing options for daily, weekly and/or monthly editions. But, who says subscriptions need to be limited to publications. Apple's Terms of Services don't. More on that in a bit.

One of the challenges of iOS development is earning enough revenue to make a living. It's been said that there are two app stores, App Store A, where you sell apps with mass market appeal, hoping to generate a lot of revenue in a very short time, and App Store B where you sell apps that target a narrower audience, aiming to generate a steady revenue stream for years.

App Store A is often compared to buying a lottery ticket, and has just recently made an appearance in Dilbert.

App Store B is considered to be the more attainable, long term success strategy. Since you're aiming at a narrower target market, it helps to be able to generate recurring revenue from your users.

I've long wanted to try charging a monthly or yearly fee to use an app, something that will support the development process after the initial sale. Every other software platform allows you to charge for upgrades in order to generate some recurring revenue from your installed user base. A few apps on the App Store have phased out the original version and released a new version, with a new charge. There a few problems with this approach, a) users who buy the app just before the switch, kind of get screwed, b) there's no easy way for a user to transfer their data from version 1 to version 2 (it can be done, but you have to build in a solution, unlike normal app upgrades), c) not all users of version 1 will even know version 2 is available.

Another option is to add new features and charge for them though in-app purchases, then a user can decide if the new features are worth the extra money to them, if not, no harm, they keep using the app as they bought it.

Back to the new subscription option. With subscription pricing there will be a new opportunity to generate recurring revenue from your user base. And to the user, it will be a well defined, easily understood method. $x per time period. Just like paying your monthly phone bill, or a yearly magazine subscription. You can cancel at any time, or keep paying and take advantage of all new features as they're released. For developers, you now have recurring revenue. Earnings to enable you to continue to maintain and support the app, while still feeding your kids.

There's no indication yet what the options will be from Apple, but it's a good guess that the same pricing tiers we're using now will apply, and that you'll be able to select from a variety of time periods, likely: weekly, bi-weekly, monthly, quarterly, yearly. As an example, you'll be able to charge $0.99 a quarter, instead of a one time fee of $2.99. If the user doesn't like your app, they save money. If they like the app, and continue to use it, you'll break even after 3 quarters, and earn more for the entire length of time the user uses your app.

The largest obstacle I foresee moving to this model will be the blow back from customers. The current app ecosystem has bred a sense of entitlement where users (not all, but a lot), feel they deserve an app, all future updates, full support etc, all for the low cost of $0.99. For most developers, and most apps, this isn't sustainable. Using a subscription will help solve this. As more of us developers begin to use this model, customers will begin to accept it and most likely actually prefer it, since they'll know exactly what they're getting and for how much, and their apps will constantly improve at no additional cost. And, all things considered, they'll still be getting their apps at a ridiculously low price.

Update: Apple officially released the information on subscriptions today. Subscription term lengths are: weekly, monthly, bi-monthly, quarterly, bi-yearly or yearly. Thanks Apple for giving developers more opportunity to become profitable!

iOS 4.3 is currently available as a beta and thus is under an NDA. Nothing I discuss here is covered under the NDA to my knowledge as there's been no official word about subscriptions other than the now public iTunes Terms and Conditions. If you feel I have disclosed something in the NDA, please let me know and I'll edit the post accordingly.