Tech: Apple dev update legitimizes tipping (AAPL)

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Last week, Apple updated its App Store in-app payment guidelines to legitimize in-app “tipping,” a practice in which users pay content creators a small sum as a digital “thank you.”

The new regulations, unveiled during Apple’s Worldwide Developer Conference, state that tipping is permitted only via in-app virtual currencies through Apple’s digital payment system, and can’t be sent from a designated in-app tipping button. The update comes as Apple continues to shore up against potential threats to App Store revenue and usage.

Defining tipping as an in-app purchase (IAP), and outlining the ins and outs of integrating it in apps, could have an expansive impact on iOS app revenue and usage, by:

• Introducing a new revenue stream. Apple is doubling down on generating revenue from software and services to supplement decelerating smartphone sales — that means squeezing as much out of in-app revenue as possible. Tipping could be a lucrative revenue stream for Apple. Between 2014 and 2015, roughly $7 million was paid to bloggers on Weibo, a Twitter-like blogging platform in China.
• Inciting a virtuous cycle of premium content. Adding a “legal” tipping avenue could encourage apps that didn’t already have the feature to integrate it. To capitalize tipping from users, developers and content creators are likely to take care to ensure their content is to a degree that would most elicit it.
• Tightening the leash over the burgeoning app-within-an-app ecosystem. The gray area of in-app tipping was one way that apps could circumvent sharing revenue with the App Store. However, as apps increasingly become platforms that support third-party content and services — such as what Facebook Messenger has done — Apple is making sure that it’s not missing out on revenue opportunities now or in the future. Squaring away IAP avenues like tipping will help Apple rein in this behavior.

The updated App Store policies will likely have the greatest impact on China’s WeChat. The massively popular chat app is a key driver of P2P payments in China. And its users are engaged tippers, according to Quartz. WeChat users could tip as much as $54 million each month, according to BI Intelligence calculations using data from CAICT. Moreover, this marks just the latest App Store update that seems largely directed at the WeChat platform. Apple’s new Developer Program License Agreement states that iOS apps can’t offer third-party services via a store or store-like interface, such as those one would find in the App Store. This is likely regarding WeChat’s mini programs — mini-app experiences housed and launched from within the WeChat interface.

App developers long considered the "pay once and play" model — in which users pay up front an app and aren't prompted to make in-app purchases — the best way to generate revenue. But as more "free-to-download" apps entered the market, users increasingly opted for these experiences. These apps offer microtransactions for in-app goods and services, and in-app ads.

As the app ecosystem expands further, it will become increasingly challenging for developers to compete in a crowded market. Overall, global gross app revenue will double to reach $102 billion by 2020, according to recent projections by App Annie. As a result, app monetization strategies need to shift at least as quickly as consumer trends and preferences in order for developers to capture a piece of this growing market.

Laurie Beaver, research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on app monetization that explores the top app monetization strategies under user- and advertising-paid approaches, and the growing combination of both. We will also look at emerging trends that could help developers navigate the fiercely competitive app ecosystem, and address the potential barriers that developers will have to overcome to reap the benefits of the multi-billion dollar market.

Here are some of the key takeaways:

• The app ecosystem is expanding quickly, and it's becoming increasingly challenging for app developers to compete in a crowded market.
• To capture a piece of the growing market, app developers must adapt their strategies at least as quickly as consumer trends and preferences change.
• Developers can choose a user-paid or an advertising-paid approach to monetizing their apps. Different monetization strategies work best with different apps.
• There are a number of widespread challenges that developers must contend with both before and after they enter the app market.

In full, the report:

• Provides key factors driving the expected growth of global app revenue
• Evaluates the top app monetization strategies
• Looks at emerging trends to help developers navigate the app ecosystem
• Explains the challenges that developers face to compete in the app market
• And much more

Interested in getting the full report? Here are two ways to access it:

1. Subscribe to an All-Access pass to BI Intelligence and gain immediate access to this report and more than 250 other expertly researched reports. As an added bonus, you'll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. » Learn More Now
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