Author(s): Raghu Gopal
Netflix, one of the top-grossing apps on Apple's App Store, recently announced that new Netflix subscribers with an iPhone or iPad will be required on sign-up to pay by visiting the streaming service's website.
Netflix started to experiment with this idea in 2018 by testing to sidestep the iTunes payment method in more than 30 markets. A couple of weeks ago, it rolled out the change globally for Apple customers. The move comes more than six months after Netflix stopped letting users pay through the Google Play store. It will allow the company to avoid sharing revenue with Apple and Google.
It was over a decade ago that Apple and Google launched their app stores, and these have grown into powerful marketplaces serving billions of smartphone users. Apple and Google rake in up to 30 percent of the revenue from paid apps and associated subscriptions when consumers sign up for services through an app distributed through their stores. In their early days, the companies won praise for helping to build an app economy, ecosystems that are projected to grow to over $150 billion by 2022, according to reports. But in recent times these app stores have faced criticism for taking too big a cut of the spoils, as smartphones and apps have become important for reaching and retaining customers. App store gatekeepers have been accused of stifling innovation by inhibiting the flow of money between creators and consumers.
Netflix's decision to bypass the App Store isn't a first. Many companies now direct their users to the web or other platforms to avoid marketplace fees. For example, Amazon has historically restricted movie and TV rentals and purchases to its own website or other "compatible" apps, instead of allowing them to take place through its Prime Video app. The same goes for Kindle e-books, which aren't offered in the Kindle mobile app. Spotify also killed the option to pay for its premium service using Apple's in-app payment system. And Epic Games dodged Google's Play Store entirely when it launched Fortnite for Android.
Apple and Google have long looked to content and services for expansion and diversification beyond their core businesses. This has become even more important as Apple's iPhone growth has slowed. Meanwhile, Google's problems were further compounded by the European Union's antitrust ruling requiring the company to stop automatically installing its app store on Android phones in Europe.
Spotify, Netflix and Epic Games highlight the growing dominance of these firms in the new app-age economy. Netflix's position as the world's biggest provider of online video content gives it the power to snub the app stores without sacrificing its visibility to potential customers. But for smaller players, skipping these powerful distribution channels may not be an option, as they lack the brand recognition and distribution infrastructure that their bigger counterparts enjoy. It will be interesting to see if more companies ditch the app store in 2019 or if this was just a blip. We believe larger companies are likely to follow the lead of Netflix and Spotify, and we'll be closely monitoring the impact to Apple and Google in lost services revenue.